COVID-19 Fraud

How is HMRC Investigating COVID-Related Fraud?

The pandemic put many in a difficult position. Life was put on hold and aside from the impact on people’s health, COVID’s effect on business was devastating. As a result, the government put several support schemes in place to help businesses through the crisis.

Now with the pandemic subsiding, Government authorities have begun investigations into COVID-19 loan and grant fraud.

What Is Covid-Related Fraud?

COVID related fraud is the term used to describe any fraudulent activity using any COVID related support schemes.

The UK government introduced several schemes that were designed to be implemented and accessible with minimal checking so that financial support could be delivered quickly.

The schemes were developed for businesses and included the Coronavirus Job Retention Scheme (CJRS), the Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS).

All these schemes were designed to get money to businesses quickly to support the economy and keep people employed. However, as they were launched at speed the normal due diligence undertaken by a lender was not followed and loans were issued to businesses based solely on the information supplied by the borrower. As a result of minimal checking being undertaken by the lender, loans and grants were issued to some businesses where the representations were either fraudulent or, where the business had used the funds for private purposes such as holidays or, where the business had no intention to repay the loan.

Why Would Someone Be Accused of COVID Fraud?

To be accused of COVID fraud, a person may have broken one of the following laws:

• Fraud by false representation (section 2 of the Fraud Act 2006)
• False accounting (section 17 of the Theft Act 1968)
• Conspiracy to defraud (common law offence)
• Money laundering offences (sections 327, 328 & 329 of the Proceeds of Crime Act 2002)

Any claims of the Covid support schemes that may flag up as fraudulent will be investigated by HMRC to see if these laws have been broken, or if the claimant did not actually meet the requirements to make use of these schemes. HMRC may look at a criminal or civil remedy depending on the circumstances.

How HMRC are Investigating COVID-Related Fraud?

When the government launched these support schemes, minimal checks were made on those claiming support with the lenders relying on representations made by the business so that vital financial support was not delayed. Unfortunately, with these minimal checks, a percentage of loans and grants were based on fraud. HMRC is therefore taking drastic measures to track down those they believe have committed COVID loan or grant fraud.

HMRC, the National Crime Agency (NCA) and the National Investigation Service (NIS) are working together to track and locate those they believe have fraudulently claimed from the COVID support schemes. This includes any referrals from Banks that provided the Covid loans and are seeking repayment from the Government when it is clear that businesses are not making any repayments. It is, therefore, to be expected that any business may be investigated if a loan is outstanding, or a grant has been paid and subsequently the business has been closed down. HMRC are now gathering evidence that the individual or business deliberately abused the schemes to their own financial benefit and deliberately closed the business to avoid repayment.

They will also be looking into if businesses were actually entitled to the money or if false declarations were made. They are also looking into any bogus businesses that were opened to claim money from the BBLS.

There may be many cases where totally innocent businesses are caught up in an investigation. A business can fail for a number of valid reasons, but HMRC may still investigate if large loans have not been repaid.

The UK government broke down the reasons behind these actions, explaining the extent of COVID fraud and how much it is costing the country: “Across the full two-year lifecycle of the 3 schemes (covering 2020 to 2021 and 2021 to 2022), the total value of error and fraud is now estimated to be between £3.2 billion and £6.4 billion, with a most likely estimate of £4.5 billion. To the end of March 2022, HMRC had recovered over £762 million.”

Types of Covid Fraud

The type of covid fraud is usually determined by the law it breaks, including:

False Representation – This type of COVID fraud is characterised by actions that purposely misrepresent the circumstances in which a person or business is claiming support. For example, creating false employees within a business to claim more furlough support than the business is entitled to.

False Accounting – This type of COVID fraud is often seen in businesses that have falsified their income statements or payroll details to portray higher losses in order to claim more money from the support schemes.

Money Laundering – Similar to false accounting, money laundering within COVID fraud cases is often seen in businesses that are attempting to disguise certain financial details in order to secure a larger sum of money from the support schemes.

What are the Penalties for COVID-19 Fraud?

Whilst investigations are beginning to get underway, there have already been some instances of convictions of COVID-related fraud.

A man from Middlesbrough has received a 15-month prison sentence suspended for 18 months following a conviction under the Companies Act. Ben Hamilton, 34, from Middlesbrough, abused the BBLS in 2020 after applying for a £25,000 BBL from his bank on behalf of his business, only to dissolve the company the next day.

He received the sentence due to the severity of this fraudulent activity, however, if a person is found guilty of COVID fraud they can be charged and issued one or more of the following penalties:

• Fines
• Disqualification as a director
• Imprisonment
• An order to pay compensation
• Serious Crime Prevent Orders (SCPOs).
• Civil recovery orders
• Civil settlements
• Civil penalties

In general, when someone is found guilty of a financial crime a confiscation order is normally made to recover the money taken. This may force the selling of assets owned by the convicted individual. Non-payment of the order within the court-declared timescale normally results in an additional prison sentence.

How Can DPP Law’s Fraud Solicitors Help?

If you or your business is currently being investigated for COVID fraud, or you’re worried that you have made a mistake in your previous use of the support schemes, DPP Law is here to help.

Our professional fraud specialists have all the information you need, along with a working and up-to-date understanding of how the COVID fraud landscape is changing and what that means for you.

The first step is to get in touch with us and have our expert advice guide you through the process. Get in touch with us today to find out more about how we can support you and your business throughout any Serious Fraud concerns.