Unprecedented stimulus fuels explosion of fraud, governments begin to admit
“If you find out later that there was Mafia involvement, how do you undo what you’ve already done?” “
Through Nick corbishley, for LOUP STREET:
The UK government admitted on Tuesday it could end up paying up to £ 3.5bn of public funds in fraudulent or mistaken claims for its job retention program, which covers up to 80% the salary of an employee while on leave. It is the equivalent of 10% of all money paid out of the leave program by mid-August.
“For the purposes of our planning, we have assumed that the error and fraud rate in this pattern could be between 5% and 10%,” said Jim Harra, a senior official at HM Revenue & Customs (HMRC), Told parliamentarians from the Public Accounts Committee, add that a university study had estimated that the level of fraud and error could still be over 10%.
The job retention program is not the only UK stimulus package that has proven to be susceptible to fraud. The Bounce Back loan program, which was started to help small businesses survive foreclosure and its lingering consequences, has been exploited by a minority of applicants to buy luxury cars, real estate or even premium bonds.
One of the reasons why this happens is that the loans are self-certified, so they can be granted within 24 hours. They are also fully government guaranteed, which means banks are not responsible for unpaid debts and therefore are very happy to release funds with little background checks. Much of the debt – 40-50% according to the Financial Times – will never be reimbursed, as many businesses will collapse.
The program has so far disbursed £ 31 billion to 1 million small businesses – about a fifth of the around 5 million registered companies. The vast majority of these companies had perfectly legitimate rights to the loans. With the economy virtually at a standstill with the government-imposed lockdown, they needed the money as quickly as possible. But in all the rush to get credit, juicy opportunities have been created for fraudsters to line their pockets along the way for fraudsters to line their pockets as well.
In July, the Policy Exchange think tank warned that fraud and error could set the government down between £ 1.3 billion and £ 7.9 billion. The think tank said the government’s financial bailout program was prone to abuse and scams due to the scale of the lending program as well as the speed at which measures were accelerated.
Governments around the world are beginning to admit that a considerable part of their unprecedented stimulus packages are based on fraudulent or incorrect claims.
In the United States, a report by House Democrats last week warned that $ 3 billion of funds deployed in the taxpayer-funded Paycheck Protection Program (PPP) went to companies that had been flagged as potentially problematic by the government. Some applicants received multiple loans, in violation of the rules of the program.
Three billion dollars may seem like a drop in the ocean compared to the $ 525 billion disbursed so far by the program, but that might just be the tip of the iceberg. At the moment, little means to know, since the Small Business Administration (SBA) and the Treasury Department manually audit only PPP loans over $ 2 million, which is less than 1% of all loans. loans approved.
Court records of fraud schemes uncovered so far describe how some opportunistic people have transferred money apparently intended to fund their payroll into their personal accounts or those of friends and family. Others have spent on jewelry, cars, and luxury goods, while some have amassed wads of cash or wasted thousands of P3 funds on strip clubs or game clubs.
Questions are now being asked about the apparent inability of private banks to administer loans. PPP loans are 100% guaranteed by the state. As such, the banks themselves have no liability and therefore have little incentive to ensure that the loan recipient is creditworthy or even if their request appears legitimate.
No one has played a bigger role in making PPP loans than America’s largest bank, JPMorgan Chase, which has issued around 280,000 loans totaling over $ 29 billion. In a note to staff, senior management mentionned they had discovered “cases of clients misusing PPP loans, unemployment benefits and other government programs” and that some “employees have also failed”. The company said the incidents “may even be illegal.”
Another country where concerns have been expressed about stimulus-related fraud is Switzerland, where more than 400 criminal proceedings have been taken so far. launched against business leaders, often for overestimating the turnover of their business in order to benefit from a larger loan. Around one in 300 loans issued is currently suspected of fraud, although this number could increase in the coming months.
In Italy, the fears are on the rise that the Mafia find innovative new ways to exploit government stimulus funds. Given that around 40% of companies were considered threatened with bankruptcy due to the coronavirus crisis, according to the National Institute of Statistics, money needed to be pumped into the economy as quickly as possible. This meant that the normal anti-Mafia controls were abandoned.
It is now a question of stepping up control efforts after the funds are released. But recovering funds after they have been disbursed is much more difficult than checking for fraud before releasing them, said Anna Sergi, professor at the University of Essex specializing in organized crime: “If you find out later that there was mafia involvement, how do you undo what you have already done?
Back in the UK, opacity is a big deal. The government is refusing to disclose the recipients of £ 52bn in state-funded coronavirus business loans, including the 516 large companies that received £ 3.5bn between them. Without full disclosure, said the editor of The Guardian, the public does not know if the money, which is essentially theirs, went to “politically connected insiders”, “companies with slim business backgrounds or directors previously convicted of fraud”, or if it ended in a tax haven.
The Bank of England has been a little more open about the identities of the 63 companies to which it has loaned more than £ 17 billion as part of its Coronavirus Corporate Finance Mechanism (CCFF). Almost 30% of the sums disbursed went to companies that belong to a tax haven company or a tax exile, or are themselves incorporated in a tax haven, according to the Taxwatch UK investigative think tank.
Also among the recipients are US oil giant Schlumberger, who was fined $ 237 million in 2015 for knowingly violating sanctions against Iran and Sudan, and Chemring, a British arms company that under criminal investigation by the Serious Fraud Office for bribes, corruption and money laundering. As confirmed by the OFS website, this is still an ongoing investigation. But Chemring was able to secure a £ 50million loan from the BoE.
In this pandemic “new normal” economy, fraud is exploding at all levels. With central banks and governments creating new money in unprecedented volumes, then releasing it into the economy as fast as they can, with few checks and balances and, in some cases, virtually no transparency, this is hardly surprising. Through Nick corbishley, for LOUP STREET.
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