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Bounce Back Loan Scheme corrupted by fraud

Fraud risks were highlighted about the Bounce Back Loan Scheme (BBLS) from the offset. Maddy Christopher reviews the evidence that these fears are coming true.

13th Oct 2020
Staff Writer AccountingWEB
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Bounce Back Loan fraud could run to more than £20bn
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Amost as soon as the Chancellor extended all the coronavirus business loan schemes last month, accountants were raising concerns about the potential risks. 

“The scale of fraud is enormous,” one member told AccountingWEB privately. “Criminal gangs have exploited the loophole [as it’s] easy to get money without much effort. Banks are not bothered about giving money away as it’s not their money as the government is covering the loan”

Official estimates of expected fraud losses of up to £23bn suggest the accountant may have a point. 

On 30 September the Department of Business, Energy & Industrial Strategy (BEIS) 2019-20 annual report and accounts explained it had to ask for a ministerial direction to put in train the £50,000 BBLS loan programme, which dispensed with the need for any personal guarantees.

“The direction was required because of uncertainty around the value for money case and risk to regularity and propriety of the scheme from fraud and error. Whilst steps were planned to tackle fraud, the eventual level could not be reliably estimated in advance,” the department noted.

As has been common in Whitehall in recent months, the BBLS went ahead after business secretary Alok Sharma issued a direction to proceed on 1 May 2020.

BBB reservation notice

The British Business Bank also had concerns about the scheme, which former chief executive and accounting officer Keith Morgan raised in a formal reservation notice sent to the secretary of state in early May.

Morgan highlighted previous comments “advising on the risks associated with the rapid launch of BBLS [that] set out in more detail the very significant fraud and credit risks associated with it”.

“The scheme is vulnerable to abuse by individuals and by participants in organized crime. Alongside the fraud risk, there will be considerable credit risk in the current economic environment, which will be exacerbated by removing significant elements of the credit checks that would otherwise have been undertaken,” the BBB chief wrote.

“You will need to ensure that there are robust controls and governance around these financial commitments that, as far as reasonably practicable, ensure public funds are being used appropriately in the context of the agreed parameters of the scheme”.

The BEIS response was that “given the circumstances in which [the BBB is] being asked to deliver the scheme, it was not feasible to meet this requirement by taking ‘reasonably practicable’ steps”.

Industrial scale fraud

With all these warnings, it was inevitable that criminals would spot the potential opportunities too. AccountingWEB readers have already debated the ethics of clients obtaining multiple BBLS with no intention of repayment, while a BBC investigation uncovered criminals setting up “fake businesses on an industrial scale and successfully applying for government-backed Covid emergency loans”.

The BBC spoke to Mark Telling, a victim of BBLS fraud whose personal details were stolen to set up a fake company and “borrow £50,000 in his name under the scheme.

Other sources pointed to Gumtree ads for limited companies that could be pathways for fraudulent BBLS use.

The National Audit Office also investigated BBLS. “The decision to provide funds quickly leaves public money exposed to the risk of fraud,” the official auditors noted. The fraud risk was heightened by the scheme’s reliance on businesses self-certifying application details with limited verification and no credit checks by lenders on existing customers. 

The NAO was unable to quantify the full extent of BBLS fraud, but the Cabinet Office’s government fraud function anticipated fraud losses “are likely to be significantly above the 0.5% to 5%”.

BEIS and the BBB estimated that 35% to 60% of borrowers could default on loans. Assuming £43bn is lent under BBLS, the potential cost to the government would be £15bn-£26bn. The full extent of losses, both credit and fraud, will not emerge until the loans start being repaid from 4 May 2021, said the NAO.

“Government will need to ensure that robust debt collection and fraud investigation arrangements are in place to minimise the impact of these potential losses to the public purse,” commented NAO head Gareth Davies.

“It should also take this opportunity to consider now the controls it would put in place to protect against the abuse of any future such schemes.”

Bankers respond

The BBB welcomed elements of the NAO report, which highlighted that the distribution of cash was broadly in line with the wider business population and that around 90% of the loans went to microbusinesses.

However, the bankers added that “Much hard work remains over the coming months and years to ensure that the risks to value for money are minimised.”

Back on the frontline of accountancy, our accountant confidant was resigned to further losses: “I wouldn't be surprised if the businesses with Bounce Back oans liquidate and I doubt the insolvency practitioners or government will have much recourse to recover taxpayers money while the delinquent directors would have used the funds for personal gain. 

“Billions will need to be written off and taxes raised, and the ones that will gain from the pandemic will be business owners.”

Replies (50)

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By Justin Bryant
14th Oct 2020 08:57

Quite incredible isn't it when we continually see how difficult it is for law abiding clients to set up a new bank account and yet fraudsters are seemingly handed multiple £50ks hand over fist by these same banks.

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Replying to Justin Bryant:
Lamb
By Rehan1
14th Oct 2020 09:41

Justin Bryant wrote:

Quite incredible isn't it when we continually see how difficult it is for law abiding clients to set up a new bank account and yet fraudsters are seemingly handed multiple £50ks hand over fist by these same banks.

I agree with you. I had reservations since it was introduced and knew fraudsters will be the most beneficiaries of this BBLS.

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By daymar
14th Oct 2020 09:07

Surely one of the most basic checks should have been for the bank to look at the Comanies House website to check that the comany had been inexistence for the period in which the application said was the financial period of the alleged turnover. Would have taken 2 minutes to do and would have stopped loans going to all those newly-formed companies.

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Replying to daymar:
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By Justin Bryant
14th Oct 2020 09:26

Yes; possibly something to do with the fact that the banks effectively had no skin in this particular game (and whose smart idea was that I wonder?) and so there was no downside and only upside for them in doling out £billions of taxpayer money without any proper checks.

Just think about all that when you pay your next tax bill and what it's funding!

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By BryanS1958
14th Oct 2020 09:43

I thought we didn't need to pay tax bills any more? Apparently you can just 'print' money without having to worry about how to pay for it:-)

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Replying to daymar:
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By flightdeck
14th Oct 2020 10:20

I don't know how the system is supposed to work but would it be easy to copy and paste a Ltd companies details - just look them up - and complete a form purporting to be that company but with your own criminal bank account? That's how I read it anyway. Please tell me it's not that easy .....

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Replying to flightdeck:
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By Justin Bryant
14th Oct 2020 11:02

I doubt it was that difficult in most cases (see my bonus example).

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Replying to daymar:
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By Peter Bromiley
14th Oct 2020 12:20

It does beggar belief. I hope the banks are held liable - and not the taxpayer - for such negligence and crass stupidity.

Can't they be prosecuted for aiding and abetting fraud? Surely they are guilty of breaching the Proceeds of Crime Act.

And what basic ID checks can they have done before dishing out tens of thousands to the wrong people? It is staggering.

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Replying to daymar:
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By Jelly
15th Oct 2020 19:05

Hi Daymar

I believe the safety net will be existing limited company with existing bank account in a matching name, so Joe Bloggs Limited applies, must have an existing bank account in the name of Joe Bloggs Limited, to receive the funds. In order to open the bank account for Joe Bloggs Limited, the bank will need all their security checks to be passed to ensure they are who they say they are, so one would hope not. I guess time will tell if it works out okay.

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blue sheep
By NH
15th Oct 2020 20:14

Oh if only life were that simple....

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By djn
14th Oct 2020 09:41

I have heard of multiples of small Ltd companies planning on dissolving their ltd companies shortly. This is after receiving and spending the BBL's.

They all believe that they will get away with it.

Now, as the directors have taken a dividend in effect, I'm guessing we have a money laundering report to make on any of our clients who do this and refuse to include it on their tax return. I hope HMRC look at the directors of all the ltd companies that get dissolved and have taken as BBL.. At least then they will probably get 32.5% of it back.

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Replying to djn:
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By Justin Bryant
14th Oct 2020 09:57

That is exactly what I predicted here when BBLs were originally announced (without PGs etc.) and indeed you would have arguably been negligent not to advise a client to do exactly that (as it was basically free money).

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Replying to Justin Bryant:
By pridgway
14th Oct 2020 09:59

Are you saying it would have been negligent not to advise your client to commit a criminal offence?

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Replying to pridgway:
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By Justin Bryant
14th Oct 2020 10:19

A bonus is not criminal last time I checked (some are criminally high, but that's different).

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Replying to djn:
By pridgway
14th Oct 2020 09:56

Surely, it's an illegal dividend and knowingly so. Cash £50,000 BBL (£50,000) distributable reserves nil.

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Replying to djn:
By pridgway
14th Oct 2020 10:00

.

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Replying to djn:
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By sanjay100
14th Oct 2020 09:56

They will get away with it. These are the ones that probably don't pay taxes either Just too many companies doing it and HMRC don't have the resources or capabilities dealing with such cases.

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Replying to pridgway:
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By Justin Bryant
14th Oct 2020 09:58

No. It could have been extracted as a bonus.

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Replying to Justin Bryant:
By pridgway
14th Oct 2020 10:06

For what? Obtaining the loan?

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Replying to pridgway:
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By Justin Bryant
14th Oct 2020 10:14

For whatever. It would be an uphill struggle for a liquidator to show a bonus was actually a distribution (and £50k would not make it worth their while). See: https://www.patrickcannon.net/wp-content/uploads/2019/11/0386_001.pdf

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By johnjenkins
14th Oct 2020 09:43

Marvellous isn't it. In this day and age with all the technology the world has to offer, yet these frauds using banks, continue to a very high degree. A cheque can still take days to clear yet the fraudsters can get your money "just like that". Justin is spot on.

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By wilcoskip
14th Oct 2020 09:46

Yes, we all saw this coming. But the BBL system became necessary because the banks weren't carrying out any lending under the CBILS lending. Apart from a few trusted clients who strategically moved their borrowings over to CBILS, and who were the people least likely to need the lending.
For the businesses truly under the cosh, the banks were tying them up in paperwork. I mean, seriously, where's the sense in a cash-flow projection where you have absolutely no idea when you're going to be allowed/able to trade again. I even had a client's bank manager come back to us and say that yes, the projection was pointless and not worth the paper it was printed on, but he had to tick a box.
We were always going to get kicked in the teeth with BBL fraud, but in some senses the government was driven to it.

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Replying to wilcoskip:
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By Justin Bryant
14th Oct 2020 09:53

But there should have been at least some proper checks (and at least some incentive to do such checks) is the obvious point here. I can think of dozens of ways this (predictably humongous) fraud could have been easily prevented with simple basic checks (and simple incentives to make such checks), so why did no-one do that?

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Replying to Justin Bryant:
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By flightdeck
14th Oct 2020 10:22

Because I don't think the government/civil service do anything of real value anymore. Just shuffle the the same old papers around their desks and couldn't care less about outcomes. I am hugely, hugely depressed about the UK right now.

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Replying to flightdeck:
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By BryanS1958
14th Oct 2020 10:48

Don't look at the news or EastEnders and you'll feel much better:-)

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Replying to flightdeck:
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By Justin Bryant
14th Oct 2020 10:57

At least Maggie Thatcher knew at least that (and how incentives operate generally in the real world) and she would not have allowed this to happen, unlike the incumbent bunch of muppets.

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By AndrewV12
14th Oct 2020 09:52

Let me guess the Government was surprised at this outcome.

No-one should have been able to open a new Limited Compony and apply for Bounce Back loans.

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Replying to AndrewV12:
By pridgway
14th Oct 2020 10:14

The business had to be established before 1 March 2020. So anything incorporated after that should have been easily excluded.

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Replying to pridgway:
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By Justin Bryant
14th Oct 2020 10:17

But what of all those nice, pre-existing shelf companies that anyone can get?

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Replying to Justin Bryant:
By pridgway
14th Oct 2020 10:30

I was going to mention those. I am not sure how many the average company formation agent has on their books at any one time but I doubt they would hold that many, I may be wrong.

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Replying to Justin Bryant:
By pridgway
14th Oct 2020 10:30

I was going to mention those. I am not sure how many the average company formation agent has on their books at any one time but I doubt they would hold that many, I may be wrong.

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Replying to Justin Bryant:
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By BryanS1958
14th Oct 2020 10:48

You couldn't get off the shelf companies, for some reason they all sold out!

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Replying to BryanS1958:
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By Justin Bryant
14th Oct 2020 10:53

Strange that.

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By sanjay100
14th Oct 2020 09:58

It is scandalous that the government introduced a scheme without any controls yes agreed at least check companies house but that should have been some proof of turnover like the company accounts or tax return. They should have checked that the people applying for the loans are actually resident in the UK too.

A lot of businesses who got the loans actually don't actually need it. A loan maybe required if an business has stopped trading and has employees but trying to understand how a one person business would need the loan for apart from funding his or her lifestyle ? I know the government was in a difficult position and under pressure after the fiasco with the CBIL but this is just so naïve not to have some controls and deterrents in place with BBL

I have come across the following:

1) Multiple Loan Applications as businesses have several bank accounts especially in the construction industry
2) Businesses applying for more than they are entitled to (this is common)
3) Non Residents applying for loans

Its s easy criminal gangs to exploit the bounceback and I would imagine many of them are based overseas. Probably the same bunch that were involved in the VAT fraud.

Its so widespread and I really don't know how the government will deal with the fraud of epic proportions apart from huge write offs.

Just isn't fair that millions of employees will lose jobs but business owners will be literally laughing all the way to the bank.

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Replying to sanjay100:
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By Justin Bryant
14th Oct 2020 09:55

Yes. It seems that every time I go down the pub (which admittedly is not often these days ) I hear of multiple cases of multiple BBL fraud.

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blue sheep
By NH
14th Oct 2020 09:56

I dont think anyone is too motivated at present to bring politicians to account, however I am sure when all the dust settles this period in history will go down as one of the biggest cockups ever.
The fact is that a few months of total panic brought about an unprecedented release of hair brained schemes in a "whatever it takes" attitude to providing all kinds of people with money whether they needed it or not. Whether that was through grants or loans.
One way or another it will have to be paid for.

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Replying to NH:
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By sanjay100
14th Oct 2020 10:05

Yes if you add the BBL, JRS and Eat Out Scheme Fraud (Papa John) etc - its unthinkable how much money has ended in the wrong hands. No one is checking which gets me.

The current housing boom is not solely due to stamp duty cut but BBL loans that are being used as deposits on properties.

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Replying to sanjay100:
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By Justin Bryant
14th Oct 2020 10:15

Yes; that's right re properties as any mortgage broker or bloke down the pub will tell you.

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Replying to NH:
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By wilcoskip
14th Oct 2020 10:09

I'm still amazed at the grants given out to property owners/renters. £10k or £25k, as long as you qualified, regardless of whether or not you actually need it. Truly bizarre.

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By unclejoe
14th Oct 2020 11:11

"...easy to get money without much effort." This is utter rubbish. My son's legitimate micro-business is on the brink of insolvency, and he cannot even apply for a BBLS loan. His bank will not accept applications, and all other banks approached say that they are only accepting applications from existing banking customers. The business has had nothing, zero, zilch help from the government! Oh, I tell a lie, they deferred a VAT bill, which looks very unlikely to be paid when it comes due in March. I know a number of other businesses in very similar situation. So much for this governments "we will do what it takes rhetoric".

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Replying to unclejoe:
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By Justin Bryant
14th Oct 2020 13:19

Perhaps someone has finally woken up & bolted the stable door, and that's now causing problems for innocent cases - which just compounds the effect of this Government's utter incompetence on all this.

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Replying to Justin Bryant:
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By Lawrence82
14th Oct 2020 13:11

That's exactly what has happened.

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Nefertiti
By Nefertiti
14th Oct 2020 11:20

This is nothing new, when the government itself is wasting or "losing" money by the billions since the pandemic, it is only natural that others chip in for their share too:

https://www.mirror.co.uk/news/politics/tories-face-legal-challenge-over-...

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By Ian McTernan CTA
14th Oct 2020 12:17

Moan moan moan. Would you rather they had provided no support at all? What would you have done differently within the timescale? I'm sick of all the negativity in this country where everyone complains but no one offers a suitable alternative at the time, then all [***] about things months afterwards.

And of course criminals making a complete mockery of the AML provisions which costs us all so much to administer and yet seem to prevent practically nothing...

And of course there will be a large amount of defaults- many of these companies have been decimated by lockdowns etc and if Captain Hindsight gets the lockdown he now seemingly supports, jumping in before we might have one (complete U-turn from opposing more measures the day before and supporting his northern mayors..) then a lot of these firms will throw in the towel.

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Replying to Ian McTernan CTA:
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By Justin Bryant
16th Oct 2020 14:55

"What would you have done differently within the timescale?"

As I said above, I can think of over a dozen basic, simple checks (and incentives to do those checks) that could have prevented the vast majority of this fraud (and I don't even specialize in fraud prevention) and that could have been done quickly in the short timescales. It's not exactly rocket science is it?

Also, these MPs disagree with your rather forgiving view of the Government's incompentence: https://www.independent.co.uk/news/business/coronavirus-taxpayers-fraud-...

But then perhaps it's all just a very expensive job creation scheme for fraud investigators? See: https://www.accountancydaily.co/covid-fraud-hotline-opens

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Replying to Ian McTernan CTA:
blue sheep
By NH
14th Oct 2020 13:27

[quote=Ian McTernan CTA]

Moan moan moan. Would you rather they had provided no support at all? What would you have done differently within the timescale? I'm sick of all the negativity

There are many simple things that could have been done differently if someone had just stopped to think of the consequences and had remained calm and objective instead of panicking. Maybe you don't care that your children and grandchildren will be picking up the tab

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Replying to Ian McTernan CTA:
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By sanjay100
14th Oct 2020 23:18

Are you okay for Mr Joe Bloggs who have just setup as a business alone as a carpenter to be given 50K bounceback loan. What will the 50K be used for - maybe a nice house or nice car. Certainly his business is not entitled to the loan or needs it for his business. We are saying give the loan but make sure you have some controls and checks in place to prevent cases like Mr Joe Bloggs. Not just give money away to the errant Mr Bloggs who obviously cannot prove that his business has been adversely affected by Covid-19 and maybe unable to prove that the loan would be used to provide economic benefit in his business

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By mrshamilton
15th Oct 2020 13:21

I saw a report from a car dealership where someone wanted to purchase one of their cars and asked for an invoice for payment details. they then paid the whole balance of the car and wanted to pick it up the next day. It smelled a bit fishy so the dealership rang the bank and the fraudster had applied and received a bounceback loan in the name of the company and was using that to pay for the car. I can't remember what they said their name was but it was something like C B bils or similar so when it got paid in it would have been allocated to the fraudsters invoice!

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By kevin503
15th Oct 2020 16:03

"fraud losses of up to £23bn ". Government negligence hands up to £23bn to organised crime. You could buy an entire political party and an election with than kind of money.

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Replying to kevin503:
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By johnjenkins
15th Oct 2020 16:15

Looks like another come back for Nigel then.

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