Clampdown on Coronavirus Business Support Fraud

Whether you are an individual or business, Coronavirus will have impacted you like the rest of the world and the UK Government quickly rushed in various financial schemes to protect both individuals and businesses during the pandemic.

The current figures for Government backed lending schemes, such as the Coronavirus Business Interruption Loan Scheme and the Bounce Back Loan Scheme, as well as the Coronavirus Job Retention Scheme are in excess of £100 billion.

The schemes are essential for businesses that have financially struggled due to the pandemic and all the Government schemes have been extremely successful in terms of uptake.

With so much money being allocated to these schemes, and the relative ease in which applications can be made, it is not surprising that many individuals and businesses have misused them and are now attracting Organised Crime Groups.

It has been reported that many applications under the Government backed lending schemes have been made by dormant companies or where accounts have been falsified, and the monies used by individuals to fund their luxury lifestyle. Furthermore, it is not unusual to hear that claims for Furlough are being made, with staff still continuing to work, claims being made for staff that no longer work for the employer and claims being made for Furlough and not being passed on by the employer.

Since the very first reported arrest of a man from the West Midlands in July 2020, there has been a flurry of investigations, culminating in both individuals being arrested and/or asset recovery proceedings being commenced against them and/or the businesses.

There are a number of options that can be deployed by the authorities when investigating, prosecuting or attempting to recover the payments made.

Investigations

During any investigation, criminal or civil, either by HMRC or the Police, and where assets, especially monies from the fraud are in an identifiable bank account, an application for a Restraint Order and/or Account Freezing Order may be made. The aim of these Orders is to preserve and stop the dissipation of the assets.

Once these orders are granted, anyone that disobeys them will be carrying out further offences.

Criminal Offences

Fraud by False Representation is the most obvious offence that will be committed. This would include making false representations, knowing that it is or might be untrue or misleading in order to make a gain for themselves or another or to cause a loss to another.

False Accounting, is another obvious offence that will be committed in order to carry out fraud the Government Coronavirus schemes, especially applications under the Coronavirus Business Interruption Loan Scheme. This would include falsifying any account, record or document made or required for any accounting purpose with a view to gain for themselves or another, or to cause a loss to another.

Money Laundering, investigations and/or prosecutions, under sections 327 through to 329 of the Proceeds of Crime Act 2002, alongside the predicate offending.

Civil Recovery

It must be noted, that although it will be very likely that anyone defrauding the Government Coronavirus schemes will face criminal investigations and/or prosecutions, Under Part 5 of the Proceeds of Crime Act 2002, there are other avenues available for HMRC and/or the Police to recover assets of any person that they think holds property which is, or represents, property obtained through unlawful conduct.

For agencies such as HMRC and the Police, Civil Recovery of assets is a very attractive alternative to seeking a conviction at great expense to the much depleted public purse. Furthermore, proceedings under Part 5 allow property that is not in the possession of the individual carrying out the unlawful act, to be recovered. This would include family, friends, associates who can all be involved in the proceedings.

It is vital to obtain clear, concise and proactive advice at the onset of any investigation, and often it is the most important part of any case. Decisions made or not made at this stage can have consequences throughout your case. Often, and especially with proceedings under Civil Recovery, strict time limits apply.

We at DBT & Partners have the right team for you and with our vast experience in representing, individuals, businesses/corporates and third parties within these types of matters, we are the specialists for you.

Business Interruption Claims Due to COVID-19

The COVID-19 pandemic has led to many businesses suffering huge losses as a result of the first Government lockdown in the UK. The inevitable question has arisen as to whether businesses that have been affected can make claims against their insurance policies under the business interruption (“BI”) clauses. The interpretation of particular wording of BI clauses in relation to COVID-19 claims has resulted in disputes between insurers and policyholders. As a result, the Financial Conduct Authority (“FCA”) took the unprecedented step of bringing a test case in the High Court in London to clarify the position in relation BI claims for both insurers and policyholders.

Before bringing the case the FCA stated that the variation in the types of cover provided and the wording used could make it difficult to determine whether customers had cover and could make a valid claim. This has led to uncertainty and disputes with many customers who believe they had valid claims and had these rejected by their insurers. The FCA wanted a resolution as quickly as possible.

The High Court was asked to consider 21 sample wordings from policies issued by 8 different insurers as part of the proceedings. The FCA said that the outcome would affect hundreds of thousands of policyholders under 700 policies issued by 60 different insurers. Lord Justice Flaux and Mr Justice Butcher oversaw the proceedings.

As expected, the FCA was looking for the widest interpretation of the policy terms and the judgement includes a number of interesting conclusions.

The legal issues that the test case was seeking to resolve were as follows: –

The test case focused on the two common extensions to a business interruption cover:

“infectious disease“ cover where a notifiable disease has occurred in the vicinity of the insured’s premises;

“prevention/denial of access“ cover where access to the business premises was prevented by restrictions imposed by a public authority

“Hybrid“, some hybrid of these extensions

This involved eight days of legal argument

The High Court handed down its judgment on 15 September 2020 in favour of the FCA.

Christopher Woolard, the interim chief executive of the FCA, commented: “Our aim throughout has been to get clarity for as wide a range of parties as possible, as quickly as possible and today’s judgment removes a large number of those roadblocks to successful claims, as well as clarifying those that may not be successful…We are pleased that the court has substantially found in favour of the arguments we presented.”

The High Court in its judgement considered each of the sample policy wordings. This was in order to establish the meaning of the important provisions within the context of each policy and the implications of the cover specifically for the COVID-19 pandemic. Although the judgement is complicated and lengthy, it is possible to set out the main points. These are set out below.

It was found that most of the sample “disease clauses“ provided cover, as long as at least one case of COVID-19 had occurred within the relevant geographical area set out in the policy. This was for losses that flowed from the incidence of the disease both within and outside that policy area. The insurers had tried to argue that it should be for losses directly flowing from the incidences of the disease within the policy area which would preclude cover for losses caused by the national lockdown. The judges were influenced by the idea that the parties had contemplated cover for widespread disease outbreaks.

The “hybrid“ clauses provided more limited prospects for recovery. Examples were where policies provided cover where it was impossible to use business premises for any of the business normally carried on rather than being hindered. Other policies were found only to provide cover flowing from a local incident and not for a broader issue such as a national pandemic.

In relation to causation the judges approach was that the peril insured was a “composite peril“ which comprised the national outbreak of the pandemic and the resulting response from the UK government.

As a result of the judgement insurers will need to consider how they approach handling any claims. The FCA have written to insurance companies stating, inter alia, that it is ready to use “the full range of regulatory tools and powers” to ensure that insurers meet their expectations to pay under the policies and to take a practical approach in dealing with individual claims and not to create additional barriers or delays in paying valid claims. The letter also asked that they reassess any claims in light of the judgement.

On 2 October, the High Court gave its permission for the appeals process for the test case to “leapfrog” straight to the Supreme Court. However certain insurers have decided not to appeal the ruling as they are not affected by the test case judgement.

The other insurers in the test case have filed for an appeal although the FCA is attempting to reach a settlement with the insurers involved in the test case.

It is likely that the Supreme Court will consider the appeal by the end of this year. This will mean a further delay to payments being made to businesses that are already suffering and will continue to suffer especially in light of the second proposed lockdown commencing at midnight on Thursday 5 November.

It is extremely important for policyholders to carefully review their policy wording with legal advisors to determine their prospects of recovery and how those are affected as a result of the judgement and to be prepared to commence their claims as soon as the Supreme Court hands down judgment.

Find out more about COVID-19 financial support schemes here.

If you require any advice in relation to this article please contact:

Shahid Miah – shahidmiah@dpp-businesstax.com.

Tajinder Barring – tajinderbarring@dpp-businesstax.com.

0207 416 6745

Covid-19 Financial Support Schemes – Reporting Misconduct

Since the onset of the COVID-19 pandemic, the UK government has provided enormous and unprecedented financial support to companies and individuals via a number of financial support schemes. However, the Insolvency Service has already received reports of abuse in corporate insolvencies.

These support schemes include the following:-

Bounce Back Loans
Coronavirus Job Retention Scheme (support for employees on furlough)
Small Business Grant Fund
Retail, Hospitality and Leisure Grant Fund
Local Authority Discretionary Grants Fund.

There are other support schemes available.

Some of the abuse that has already been reported in relation to COVID-19 support schemes include the following: –

1. Where Bounce Back Loans have been obtained and the proceeds of these loans have been removed by the directors for their personal benefit in close proximity to the company entering into insolvency proceedings.

2. The use of the Coronavirus Job Retention scheme for purposes other than paying employees who are on furlough, or claiming support for employees who continue to work contrary to the terms and conditions of the scheme.

3. Providing false information in connection with any applications for COVID-19 support schemes.

The Director Conduct Reporting Service does not have any specific questions relating to COVID-19 or the abuse of the aforementioned schemes and apparently IT constraints have prevented these from being added.

The Insolvency Service has asked office holders, if they identify any possible abuse of the COVID-19 support schemes, to report the abuse by answering yes to the question in section 12 of the conduct report entitled, “Have you identified any potential criminal matters; statutory or regulatory breaches that are not currently being investigated by other regulators or the police?”.

Following this, office holders will be contacted for further information.

Office holders have been informed that if they are dealing with any cases where the conduct report has already been submitted and they become aware of any abuse of the COVID-19 support schemes which have not previously been identified on the Directors Conduct Report, the insolvency practitioners should report this as new information via the “Contact Us” link.

Insolvency practitioners have also been informed that they should report any suspected fraud in relation to HMRC- administered Coronavirus relief schemes (such as the Job Retention Scheme) directly to HMRC. Once this is done HMRC will then consider criminality or personal liability.

Furthermore, to comply with anti-money laundering requirements, where office holders are aware or have any suspicions of any criminal activity resulting in the entity being in possession of the proceeds of crime, they should also submit a Suspicious Activity Report (SAR). In the event that officeholders intend to deal with the assets of, or make any payments from, an entity which they know or suspect includes proceeds of crime, they should also consider whether a Defence Against Money Laundering SAR should be submitted to the National Crime Agency, to obtain consent or proceed with the transaction.

The Government have had to make billions of pounds available to businesses and individuals at breakneck speed to prevent damage to the economy, this has unfortunately led to the possibility of abuse by unscrupulous individuals. Hopefully, the measures set out above will assist in redressing some of the abuse and misuse of much-needed funds by many genuine businesses throughout the country.

If you would like any further information in relation to this article please contact DBT & Partners as follows:

Shahid Miah – shahidmiah@dpp-businesstax.com.

Tajinder Barring – tajinderbarring@dpp-businesstax.com.

0207 416 6745