Almost half of the aid in the form of loans mobilized by the UK Government went to shell companies or start-ups. According to data compiled by Bloomberg, more than 130 million pounds of the 26,400 million that were used to alleviate the liquidity problems due to the cessation of activity were granted in breach of the requirements.
An emergency loan of 4.7 million pounds was granted to a company founded just two days before receiving the funds., as shown by commercial records. And a £ 1 million loan was made to a company that was dormant before the pandemic started and then went into voluntary liquidation in less than a year.
Several particular cases detected by Bloomberg News raises troubling questions about how, during the pandemic, emergency loans were managed. In the United Kingdom, the debate goes back a long way, taking into account that the Government rejects requests for information. The British Business Bank (BBB), an institution similar to the ICO in Spain, has denied access to the data requested by Bloomberg. The information available is that which is shared by the EU before the UK abandoned its European partners. In total, it has had access to the records of more than 49,000 companies, about 45% of the total borrowers of the CBILS (the UK emergency loan program).
“There is a public interest here,” explains Michael Levi, professor of criminology at Cardiff University and author of a study on fraud and pandemics. “The ability to verify the loans and who is behind them makes it easier to design the next funds,” he adds.
As in many countries, loans were processed through financial institutions. Ultimately, CBILS responds with an 80% guarantee. Commercial banks had the discretion to grant loans of up to £ 5 million.
The lack of compliance with the requirements to access the aid corresponded to the banks and there is no possibility of claiming guarantees
On paper, the failure to comply with the requirements to access the aid was up to the banks and there is no possibility of claiming guarantees if the criteria have not been met, according to the BBB. The Department of Business, Energy and Industrial Strategy, which oversees the BBB when consulted states that it “continues to crack down on Covid-19 fraud and will not tolerate those seeking to defraud the British taxpayer,” a spokesperson said. “We are working closely with lenders and law enforcement authorities to detect and investigate fraud,” they add.
Bloomberg found about 60 dormant companies, companies that had not reported activity for accounting purposes when they borrowed the funds, including a company controlled by John Beckwith, a well-known 74-year-old British millionaire. Tempus Court Developments Ltd., which Beckwith controls through the shares of two other companies, received a £ 3.7 million loan in November 2020.
“These companies, which have no turnover or assets, and that suddenly jump into action to demand commercial support should have raised red flags for the banks“explains Ben Cowdock, who leads Transparency International’s research in the UK. Behind Beckwith’s company is a significant international network. The businessman is a recognized donor to Boris Johnson’s Conservative Party.
The criteria that companies had to meet to receive emergency loans left little room for interpretation. Companies negatively affected by the pandemic were eligible, with annual revenues of up to 45 million pounds. They also needed to show that they had generated more than half of their income from the sale of goods or services before the coronavirus lockdowns halted activity. In addition, they had to present a “debt proposal that the lender would consider viable, if not for the current pandemic,” according to BBB.
More than 85 companies had only been around for weeks, or at most a few months
However, more than 85 companies had only existed for weeks, or at most a few months, before receiving loans from the state. One of them is Blue Ocean Topco Holding founded by a former investment banker, Gregory Pezzella, beginning its activity on August 12, Companies House records show, long after the pandemic broke out. He was awarded 4.7 million pounds.
“In perspective, the banks could have been more vigilant. It was an emergency program and people have looked for the opportunity to abuse the measures,” says Frances Murray, senior associate and expert in financial crimes at the Rosenblatt law firm in London. On the other plane, there was the emergency of saving as many companies as possible, providing liquidity.
The United Kingdom designed three emergency loan programs with an endowment of just over £ 79 billion. The measures covered small businesses to large corporations.
Among the most famous companies that benefited from the aid is the financial firm Greensill, which went bankrupt a few months ago, and from which it is not expected to repay the aid. the House of Commons Public Accounts Committee said that by prioritizing speed, the BBB “created additional risks for the taxpayer” as banks approved loans quickly.
Among the companies with deficiencies in granting loans, there are several linked to the City. Calibrate Legal Services, illustrates potential recovery difficulties. John White, former managing director of hedge fund GLG Partners and former Morgan Stanley head of stock trading, founded Calibrate in 2018. In June 2020, the company filed accounts with the commercial register showing it was inactive until the end of 2019. No However, in August 2020, the company received a million dollars in the form of an emergency loan.
Less than a year passed before Calibrate went into voluntary liquidation. Only £ 151,237 remains for creditors, including HSBC Holdings, according to the liquidation report. HSBC is the only lender listed among the creditors. The investigation indicates that the largest British bank facilitated loans to companies already bankrupt and of which it is part as the sole creditor. It is also given in My Companiie that he received a credit of two million pounds. HSBC channeled £ 3.5bn of emergency loans, 13% of the total, making it the second largest lender among the UK’s major banks after NatWest.
“None of these companies seem to meet the criteria for granting credit,” says the Cardiff University professor. “If a company is inactive or did not exist beforehand, the pandemic would not have disrupted the business.”
Big UK banks say they are seeing good loan recovery rates so far. Alison Rose, CEO of NatWest, explained on Bloomberg Television that defaults so far have been better than expected, with 92% of borrowers paying on time.
Lloyds Banking Group CFO William Chalmers also showed an upbeat note last month. “A very small proportion of CBILS has entered an initial stage of default. Lloyds awarded around 2.5 billion pounds.
But it is too early for the final default rate, as borrowers have up to six years to repay them. The Government and Parliament are intensifying their efforts to recover funds that are due earlier. Parliament is promoting a bill to go after directors of dissolved companies that borrowed from Covid. Meanwhile, the government has hired a British startup, Quantexa, which uses artificial intelligence to detect Covid credit fraud, but in some cases it may already be too late. The Minister of Finance has recognized that the prosecution of fraud in emergency loans will not be effective. “It is not going to be possible to force businessmen who are already abroad to comply with the law.”