Coronavirus Support Investigations

HMRC are actively investigating suspicious claims. DBT & Partners are dealing with a range of investigations involving account freezing orders and interviews under caution.

These are the major financial support schemes introduced as a result of the Finance Act 2020 that will attract the attention of HMRC and the other enforcement authorities, largely because of the number of complaints that they have received concerning allegations of abuse of these schemes:

1. Coronavirus Job Retention scheme – the furlough scheme ( CJRS )
2. Bounce back loan ( BBLS )
3. Coronavirus Business Interruption Loan ( CBILS )
4. Self-Employment Income Support Scheme ( SEISS)

What is Furlough Scheme Fraud?

HMRC has warned that serious failures to comply with the furlough scheme’s conditions could result in criminal prosecution.

Examples of potential frauds in relation to the furlough scheme include:

1. Employer-benefit fraud – where an employer purports to place an employee (or employees) on furlough in order to access the scheme, thus reducing their payroll costs, but in fact has instructed those employees to work, provide services or generate revenue for them or any linked or associated organisation.
2. Employee-benefit fraud – where an employer seeks to allow an individual (or individuals) not ordinarily employed by them to be regarded as employees for the purposes of the scheme so that the scheme will provide funds for the individual(s) that they are not entitled to.

These types of fraud give rise to the risk of prosecution, significant repetitional damage, and financial loss.

Payments under the furlough scheme may be withheld or need to be repaid in full to HMRC if a claim is found to be based on dishonest or inaccurate information or found to be fraudulent.

HMRC has put in place an online portal for employees and the public to report suspected furlough fraud.

If you or your business is under investigation or have recently been charged with HMRC fraud in relation to the relief offered by the Government (such as the furlough scheme) during the COVID 19 pandemic, it is vital that you secure expert legal representation as early as possible.

If HM Revenue and Customs (HMRC) suspect that you or your business has defrauded the Government’s Job Retention and Furlough Scheme, an in-depth investigation will take place, which may result in a prosecution and custodial (prison) sentence.

To speak with one of our specialist fraud defence lawyers, and to understand how we can assist, contact us directly on 07506732394 or complete our contact form.

What is Bounce Back Fraud?

The BBLS was established to enable small and medium UK businesses adversely affected by the impact of COVID-19 to have easier access to finance in order to help them survive the pandemic. Under the scheme, UK businesses set up before 1 March 2020 had until 31 January 2021 to apply to borrow between £2,000 and up to 25% of their turnover (to a maximum of £50,000).

The pressure that the government faced to hand out these loans meant that many banks did not carry out standard checks before granting the applications.

The Cabinet Office has identified two types of fraud but has not specified which will be prosecuted.

1. ‘Soft’ fraud – which is described by the Public Accounts Committee (PAC) as borrowers who ‘exaggerate otherwise legitimate claims, such as overstating turnover in order to receive a larger loan’.
2. ‘Hard’ fraud – which is the deliberate deceit of the scheme by criminal organisations or others, on a much larger scale. This might include:

• the impersonation of legitimate businesses or individuals;
• fraudulently adopting a company established before the 1 March 2020 scheme cut-off;
• use of ‘money mules’ to take out loans, who then immediately file for bankruptcy;
• making multiple applications across a number of different lenders.

Who is investigating Bounce Back Loan Fraud?

The National Crime Agency (NCA) is prioritising the investigation of Bounce Back Loan fraud, where there is a serious and organised crime element, and are working closely with government agencies and the banks. In October 2020, the NCA commented that it was aware that the Bounce Back Loan Scheme was being exploited by organised criminals and that they had provided ‘red-flag indicators to the banking sector. The NCA made the first in a series of arrests for Bounce Back Loan fraud in late October 2020.

What criminal offences may be investigated for Bounce Back Loan Fraud?

The Fraud Act 2006 contains a number of offences that may be relevant in relation to fraudulent applications for Bounce Back Loans:

Knowingly providing false information to secure a loan under the scheme and making off with the loaned money may give rise to a number of possible fraud offences including:

• False Accounting. If it can be demonstrated that during the BBL application you have intentionally submitted false, altered, inaccurate or deceptive accounting records or documentation to support the loan, then an offence may be committed under this section.
• Fraud by false representation. Section 2 creates an offence of making false representations. A person is guilty of this offence if they have dishonestly made a false representation to make a gain for themselves or another, or a loss to another. If an application is made for a loan by dishonestly misrepresenting information, then an offence may be committed under this section.
• Fraud by failing to disclose information.
• Fraud by abuse of position. Section 3 creates an offence of fraud by abuse of position. It is committed where a person occupies a position in which he is expected to safeguard, or not to act against, the financial interests of another person or business. If that person dishonestly abuses that position and intends, by means of the abuse of that position, to make a gain for themselves or another, or to cause loss to another, then an offence is committed. It is possible that if a fraudulent application is made for a loan by a person in a position of trust within an organisation that this offence may be considered by investigators.
• Conspiracy to defraud
• Money laundering

In addition to the above offences, the Fraud Act creates an offence of carrying on a fraudulent business. It must be shown that a business has been carried on with intent to defraud creditors or for a fraudulent purpose. A single large transaction may constitute the carrying on of a business for the purpose of the offence and may be used to cover the scenario where a fake business has been set up which is used to apply for a loan.

What are the potential penalties for Coronavirus Support Scheme offences:

• In each of the above cases, the offences are punishable by imprisonment, the authorities can seek the seizures and return of funds under the Proceeds of Crime Act 2002. Director’s disqualification and Serious Crime Prevent Orders (SCPO) can also follow.
• Our experience is that police are likely to use existing powers available such as applying for account freezing orders in order to prevent funds from being dissipated whilst investigations are on-going (see our recent article on the increasing use of account freezing orders).

What can happen during an investigation?

The police, HMRC or NCA may seek a warrant to search premises for material relevant to their investigation. If a person is arrested, investigators have the power to search a person or premises and seize evidence relating to the alleged offence. There is scope to challenge the warrant with the effect that evidence seized under the warrant is inadmissible in criminal proceedings.

seek to interview anyone suspected of involvement in the above offences either by invitation or on the arrest. You may instruct a lawyer of their choice who can attend their interview and advise on how to approach the interview.

What to do if accused of any suspected abuses of the Coronavirus Support Schemes?

Seek legal advice at the earliest opportunity.

Non Criminal investigation Consequences

As these types of fraud investigations are very lengthy, often taking years, and are extremely expensive for the authorities, authorities often look to quicker, cheaper recovery options using the Civil justice system.

HMRC have an armoury of options in these cases, including Civil Asset Recovery, Account Freezing Orders and have recently written letters to individuals whom they suspect of having been involved in such frauds demanding information and an explanation.

The banks have also recently taken steps to recover fraudulently obtained funds, they can quite simply claw back the monies (£50,000)from the accounts into which they were paid, there is a standard clause in the Covid 19 business loan agreements, which allows the banks to do this.

An Account Freezing order, which are civil proceedings, are usually dealt with “ex parte”, ie heard without your knowledge in the Magistrates Courts. It would then be up to the Applicant recipient of the monies to prove that the monies are legitimate or risk the forfeiture of these monies.

How DBT & Partners can help

DBT & Partners have a wealth of experience in HMRC and business investigations, we have a specialist HMRC defence team of leading, and recognised lawyers who have decades of successful experience when dealing with HMRC investigations, both civil (Code of Practice 9) and criminal investigations /prosecutions. We have acted for both individuals, company directors and companies ( of all sizes ) across most sectors.

We can guide you through negotiations with HMRC, working with top specialist Queens Counsel barristers and independent forensic and specialist HMRC investigation accountants to assist you with a prompt resolution to any of the above issues.

We offer a results-orientated solution and have been successful in many of the most high profile and complex HMRC investigations. We offer a first-class professional and highly regarded service.

We are perhaps one of the few leading law firms that have specialist teams of senior lawyers who successfully defend those facing fraud investigations, account freezing orders, and civil asset recovery proceedings.

If you would like to speak to someone urgently contact one of our furlough fraud solicitors directly on 07506732394.