The Bounce Back Loan (BBL) scheme was announced on 27 April 2020 and launched a week later by the Department for Business Energy and Industrial Strategy (BEIS). It was one of three business support loans introduced to help weather the pandemic’s economic storm. BBLs were capped at £50K or 25% of annual turnover with a fixed 2.5% interest rate for the duration of up to ten years. No payments were due in the first year with the government paying the interest. Loans were applied for through the British Business Bank, working with mainstream banks/lenders who would then provide funds to qualifying businesses. The loans and interest were underwritten by the government. This effectively put the British taxpayer on the hook for loans unrecoverable through bad debt, insolvency or fraud. Lenders normally conduct affordability and credit checks on the applicant which can take weeks or months. Both the urgency of distributing funds to businesses on the precipice of insolvency and the sheer volume of applications expected resulted in the due diligence being watered down. Instead, BBLs were initially subject to a self-certification declaration enabling receipt within 48 hours. In a report to the Public Accounts Committee, self-certification was later sighted by the National Audit Office (NAO) as an inherent vulnerability and a key factor in fraudulent applications. On launch, the BEIS expected to see no more than £26 billion of loans issued.
Show Me the Money!
Eleven months after being launched, the BBL scheme closed for new applications. Since then, 1.5 million businesses have benefited from a total of £47 billion in loans. Of that, an estimated 11% (£5 billion) were drawn down under fraudulent circumstances, with another 26% (or £12.2 billion) uncollectable due to payment default and/or insolvency. The December 2021 NAO Report deemed counter-fraud measures were brought it too late by BEIS when the focus was already on identifying and recovering dishonest declarations. It found there was little incentive for lenders to conduct anything other than the bare minimum fraud checks because loans were underwritten in full by the government. In a damning conclusion, the NAO found the department prioritised speed of payments at the expense of providing value for money. Although a raft of fraud prevention and investigative measures were brought in throughout the eleven months, these were introduced too slowly with insufficient resources. Some may call it a legal loophole, but it was so easy to obtain money under false pretences, you could call it an open invitation to both novice and proficient fraudsters.
Lord Agnew (former Minister of State for Efficiency and Transformation) made observations mirroring the findings submitted by the NAO. Whilst not responsible for the BEIS shortcomings, no politician would choose to be tainted by association – especially when their concerns had not been tended to. In that light, Lord Agnew resigned from his ministerial position shortly after the NAO report was published.
Private Sector Debt Recovery
Some businesses are facing repayments on their BBL when they are yet to bounce back. There is a clear distinction between those who are trying but unable to meet the repayments and those who outright intend to defraud the system. In written evidence submitted to the Public Accounts Committee, Equifax explained that to claim the government guarantee and obtain full reimbursement of a BBL the lender only needs to follow their standard in house debt collection process. Those processes vary from lender to lender. There is little motivation to give BBL debt recovery the same resource as those the lender has underwritten themselves. Once the guarantee is paid the British Business Bank, BEIS and Treasury take no further debt recovery action. Debt collection by private sector firms is heavily resourced in favour of a higher success rate. It is a regulated industry bound by predefined protocols and procedures. Equifax rightly outlines the case for continuing action through debt collection agencies for BBLs that would otherwise have been written off at the taxpayers’ expense.
Bouncing Back for Justice
From its conception the BBL scheme was at high risk of fraud, something the British Business Bank admitted in the same month applications went live. We’re not just talking about the director who overstates turnover, we’re also talking about organised crime. You don’t need to be Captain Hindsight to see the opportunity for large scale fraud. Stealing identities and setting up fake companies were already happening in mainstream organised crime. Those existing ‘skills’ (for want of a better word) were easily transferable to BBLs. We now look at those who, rather than bounce off into the sunset with a taxpayer filled wallet, bounced into the loving arms that is our criminal justice system!
In 2019 Surrey Police started investigating a person of interest suspected (and later convicted) of running a brothel. This led to officers uncovering a network of trafficking, identity theft and money laundering. Using a series of shell companies a total of £90K was falsely claimed in BBLs. This culminated in a December 2021 trial and convictions for two Polish nationals at Gilford Crown Court. Both were found guilty of criminal proceeds offences (including the BBL fraud) and modern-day slavery.
A business owner in Newport filed for bankruptcy in 2021 which triggered an investigation by the Insolvency Service. Prior to that, he had successfully applied for a £50K BBL on behalf of his vehicle recovery business. Less than half of the BBL was used to purchase a new truck, with the remaining money spent on Class A drugs. Astonishingly the business owner was serving a driving ban at the time of purchasing the truck which was later sold to fund more Class A drugs. The defendant is now awaiting trial. The director of a Wigan-based used car firm specialising in German marques falsely claimed £50K of BBL. For the claim to be legitimate the company should have had a turnover in excess of £200K, but it was still trading well below the £85K VAT registration threshold. The director already had a rap sheet of 48 offences and is currently serving 15 years for exporting stolen vehicles. His fellow director falsely claimed a £50K BBL for another company and a further £45K BBL for being a sole trader. The BBL of logistics company fell within the scope of a West Midlands public enquiry set up to review its operating license in December 2020. Infringements were already on file for maintenance and tachograph records. It found the company had overstated turnover to obtain a £50K BBL. The application contained a supporting company bank statement which, if subject to more stringent checks would have identified a large proportion of funds being used for personal expenses such as food and shoes. The BBL was used to fund three vehicles the business couldn’t have otherwise supported.
The director of a West Yorkshire based tuition company has been banned from running a company for 11 years. This was following an investigation by the Insolvency Service which found the company had stated a turnover of £200K to obtain a £50K BBL. The actual turnover was less than £8K. His fellow directly falsely claimed another £50K in similar circumstances for another company. Overinflating turnover is not uncommon amongst the pool of BBL fraud. The director of a West Sussex based property development company also overstated turnover to obtain £50K and received an 11-year ban for his transgressions. The director of a Bromsgrove beverage business also received an 11-year ban, this time for claiming £40K of BBL for a dormant company.
In Whitchurch, a company supposedly supplying PPE obtained a £50K BBL and secured a further £90K of business grants between 10 local authorities. As part of the deception, false lease documents and utility bills were submitted for addresses the company had never inhabited. A Redhill based distributor also obtained a £50K BBL and business grants under false pretences. They claimed to be supplying PPE, trading out of multiple addresses and had overstated turnover on the BBL application. The directors of both the Whitchurch and Redhill companies will likely receive disqualifications or bans.
Greed is the Word
Although BBL gets the headline because of the amounts involved, there have been other loans and grants available to businesses in recent years. The presence and scale of fraud in these offerings are still relatively unknown and may yet hit national headlines. Ultimately the British taxpayer is the victim of BBL fraud. The office of government has a duty of care to impose checks and balances capable of limiting (or eliminating) the fraudulent claiming of taxpayer-backed loans. The motives for committing fraud are many and wide-ranging – anything from addiction to mental stimulation. One common theme is Greed i.e. the self-serving desire to obtain more than you need or are entitled to. Prof. G Hudson summed up the societal implications of fraud stating ‘okay, before we are all consumed by mutually assured destruction in the fires of greed, we need to finish there’.