High cost of Covid schemes fraud

According to figures released recently by the Insolvency Service, the number of company directors disqualified for abusing Covid loans has more than doubled in the past year.

In the current financial year to date, 312 individuals have been struck off for that reason, compared with 141 during the previous year, which equates to almost half of all director disqualifications since March 2022.

The level of fraud is extreme, with a report in October from the then Department for Business, Energy and Industrial Strategy (BEIS) claiming that £1.1 billion of the £46.6 billion handed out in Covid support was “suspected fraud”.

The report went on to say that the Insolvency Service has opened 273 investigations into Bounce Bank Loan Scheme (BBLS) frauds with a total value of £160 million since September 2020, resulting in the arrests of 49 people.

The Government introduced a series of schemes during the first half of 2020 to enable businesses to survive the severe economic effects of a lockdown aimed at preventing the spread of coronavirus.

As well as the BBLS, these included the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS).

However, it seems unlikely that all the sums lost through abuse of these schemes will be recovered, as Dame Meg Hillier, chair of the House of Commons’ Public Accounts Committee, described the policing of the COVID schemes as amounting to an “open goal for fraudsters”.

Roger Isaacs, Forensic Partner at Milsted Langdon, said “There is little doubt that the disqualification proceedings are merely the tip of the iceberg. The Insolvency Service does not have the resources to fund any but the most blatant abuses.

“One also has to ask to what extent a disqualification from acting as a director is a deterrent a punishment or even a mechanism to limit further wrongdoing. All too often those who are disqualified fall into one of two categories. The first are those who naively fell afoul of the regulations without understanding that their actions were unlawful.

“These people are typically so scarred by their experiences that they would never want to be company directors ever again even if they had not been disqualified from doing so. The second category are the hardcore serial fraudsters who all too often either ignore disqualification orders or simply find “nominees” whom they appoint as directors of their new companies in name only, while they continue to call the shots from behind the scenes as so-called “shadow-directors”. The fact that such conduct would be a breach of the disqualification order, seems seldom to be a deterrent. ”

Source: BEIS, Insolvency Service

Posted in The Forensic Blog.