UK: Scammers bouncing banks into sham loans
05 Oct 2020

When the BBC called last month to warn that he was the victim of a £50,000 fraud, Mark Telling thought it was a prank. “I was at work and, to be honest, I thought it was a bit of a wind-up,” said Telling, 47. The truth was less amusing. Criminals had used his personal details to set up a fake company — Tellings Home Made Furniture Service — to borrow £50,000 from Lloyds Banking Group under the government’s bounce back loan scheme (BBLS).

It was not the first time that fraudsters had applied to a bank using his details. Three weeks before the BBC contacted him, Telling had received a letter from Bank of Scotland, part of Lloyds, informing him that his application for a BBLS loan had been declined, but he ignored it.

“I was thinking, what the hell is going on here?” said Telling, who works in the building trade. “I was terrified … I’ve heard horror stories about people who have to pay it back. I’m in the process of buying a house, so it could have affected my credit rating and all sorts.”

Lloyds sent Telling an apology after the BBC investigation, and £500 compensation. It is understood the bank has written off the loan. What shocked Telling was the limited checks conducted by the lender: “Lloyds were saying they didn’t need to do a lot of checks because they knew I already had a bank account with Halifax … which I find unbelievable.

“I said to Lloyds, ‘How can you give a £50,000 loan out without seeing the borrower face-to-face?’ ”

Lloyds said: “We are deeply sorry for the distress Mr Telling has experienced as a result of our error. This was an isolated case, and we take full responsibility for covering the cost of the business loan that was obtained fraudulently as a result.”

Telling is unlikely to be the only victim, however. Fraud experts at Acuris Risk Intelligence, a data analytics firm, estimate that thousands of criminals are exploiting BBLS. Banks reckon a fifth of applications have shown signs of fraud.

On Wednesday, the National Audit Office will publish a report on BBLS, laying bare the potential scale of the problem. The report will add to concerns that other emergency schemes to prop up businesses have been exploited by crooks. Up to £3.5bn — 10% of the total — may have been claimed fraudulently or paid out wrongly under the coronavirus job retention scheme, according to HM Revenue & Customs.

“Our intelligence suggests that the bounce back loan scheme is being exploited, including by organised criminals,” said the National Crime Agency. Including normal defaults, the government estimated last week that 60% of the lending could result in losses, leaving taxpayers on the hook for more than £22bn.

Loans under BBLS, launched on May 4, were designed to be handed out quickly to small businesses struggling due to Covid-19. The swift application process and limited customer checks have made the scheme a sitting duck for fraudsters.

Businesses had complained that it took weeks to borrow from the government’s coronavirus business interruption loan scheme (CBILS), the precursor to BBLS — dogged by lengthy credit checks and a flood of applications.

“Before BBLS, everyone was criticising the banks because they weren’t getting loans out of the door fast enough,” said a former banker. “They worked incredibly hard to execute BBLS in 10 days.”

To ensure BBLS loans were handed out quickly, the government told banks it would guarantee 100% of the money in case the borrower defaulted — allowing lenders to skip their usual credit checks. This meant that businesses could apply for up to £50,000, interest-free for the first year. More than 69,000 loans worth a total of £2bn were approved in the first 24 hours of the scheme. Since its launch, £38bn has been dished out.

Almost any business is eligible: they must have been established before March and have to fill out five short sections on a form, and sign it. Funds are often delivered the next working day.

Bankers raised concerns before the scheme was launched: on May 1, chief executives of the six biggest lenders held a call with the chancellor Rishi Sunak and made clear there was a high risk of fraud because of the scheme’s “simplicity”.

The British Business Bank (BBB), which accredits the lenders, also alerted ministers in May. Keith Morgan, who stood down as chief executive in August, wrote to business secretary Alok Sharma saying that the scheme was open to abuse by “individuals and organised crime”. A report by PwC, commissioned by the BBB, classified the fraud risk as “very high”.

So how do criminals exploit the BBLS?

They steal personal data such as dates of birth and addresses through phishing emails, hacking websites or trading data on the “dark web”, a hidden part of the internet. Co-conspirators then use these details to create fake applications for BBLS loans. “The average person has eight data breaches on the dark web,” said Justin Basini, chief executive of ClearScore, a credit-reference firm.

Once criminals get hold of personal data, they set up fake companies under the stolen identities. Companies House, where businesses are registered, has come under fire for insufficient checks. The government said last month it would reform Companies House in an effort to stamp out fraud and money laundering.

“Criminals are able to set up fraudulent companies very easily,” said Nick Parfitt, a fraud investigator at Acuris. “They’ll do that in a victim’s name. They’re then able to open a business account and, within a couple of days, can apply for the loan.”

Technically, only companies established before March were eligible for BBLS, but fake firms set up since then have been used to take out loans. There was a sharp rise in new company formations after BBLS was announced. According to the BBC, company registrations jumped from 7,571 a week at the start of lockdown to 21,616 by end of April.

The need for speed on the part of the banks and chancellor has been a big factor. BBLS is “self-certifying”, meaning applicants verify their own income and monies lost from Covid when applying.

“The pressure to get these processed at knee-jerk speed meant you weren’t always as rigorous as usual,” said the chief executive of a large retail bank. “We were told not to be as rigorous; it was really important to get these loans out.”

By Emma Dunkley, The Times, 4 October 2020

Read more at The Times

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