Fraudsters could make off with over £400m ($533m) of UK taxpayer money stolen through COVID-19 support loans.
UK bank bosses told MPs on Monday they were seeing fraud rates on Bounce Bank loans around five times higher than normal.
The rough figure suggests fraudsters could make as much as £420m through the loans, which are 100% backed by the government. A senior executive at HSBC (HSBA.L) said criminals were specifically targeting the scheme, including by posing as PPE suppliers.
“We’ve seen criminals this year repurpose their infrastructure and amend how they interact with us,” Amanda Murphy, head of commercial banking UK at HSBC, told the Treasury Select Committee.
Murphy said gangs “exploit the fears that have come around pandemics, particularly around the supply of PPE.”
David Oldfield, chief executive of Lloyds (LLOY.L) commercial banking, said the net fraud rate on Lloyds’ Bounce Back loans was around 1%, which “is probably about five times higher than we see in normal” lending. He described it as “a large number” in the scheme of things.
Lloyds has lent billions of pound through Bounce Bank loans, meaning fraud losses could be in the tens of millions.
Susan Allen, chief executive of retail and business banking at Santander UK (SAN.MC), said her bank was seeing similar levels of fraud to Lloyds.
Small businesses can borrow up to £50,000 under the Bounce Back loan scheme, which was set up in May to help companies struggling due to the COVID-19 pandemic. Bounce Back loans carry a 100% state guarnatee, meaning taxpayers are on the hook for losses.
Over £40bn has been lent by banks across the industry. While banks put up the money themselves, the government has agreed to reimburse them for any losses on loans that aren’t paid back. If fraud rates at Santander and Lloyds are the same at other major banks, Bounce Back fraud could ultimately cost the taxpayer over £420m.
“If the fraudster gets through and they self-certify something and they lie, then that will be a claim against the taxpayer,” said Anne Boden, chief executive of Starling Bank. “That is the consequence of this scheme.”
Oldfield said there was a “trade off” between the fraud risk and speed. Banks carry out minimal checks on Bounce Back loans to reduce the time it takes to get cash to applicants. The scheme was purposely designed this way to save the maximum number of businesses possible.
The British Business Bank, which administers the programme, wrote to business minister Alok Sharma at the start of May to warn him the Bounce Back loan scheme carried a “very significant fraud” risk and was “vulnerable to abuse by individuals and by participants in organised crime.”
“We all did it with our eyes open,” Boden said. “That is the challenge that the British Business Bank, the banks made to HMT and the chancellor and it was decided to go ahead. And it was the right decision. It was the right decision to get in quickly.”
While fraud rates so far are higher than normal, they are expected to be a small proportion of overall losses through the scheme. The National Audit Office warned in October that losses — which include both fraud risk and credit risk — could be as high as £26bn.
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