Insolvency Service disqualifies over 450 Covid fraudstersby
More than 450 directors were disqualified in the past 12 months for abusing the Covid support schemes like the Bounce Back Loans. But critics have questioned whether this action is too little, too late.
According to figures published by the Insolvency Service, Covid fraud accounted for 459 of the 932 director disqualifications in 2022/23.
The average length of director disqualifications has increased to seven years and four months, up from five years the year before, which the Insolvency Service put down to the higher number of disqualifications linked to Covid-19 support fraud.
Around £10bn has been lost to fraudsters taking advantage of the Covid support schemes.
Dave Magrath, director of investigation and enforcement at the Insolvency Service, said: “These fraudsters are just the latest to find out that we will not hesitate to take firm action where we uncover such abuse, and this can ultimately result in a jail sentence.”
He said the purpose of the Bounce Back Loan scheme was to support businesses during the pandemic, but “it is clear a minority of company directors chose to maliciously abuse the scheme and defraud the taxpayer. Our team of experts continues to work round the clock to bring these criminals to justice.”
Bounce Back Loan fraud
Criminal activity circled around the lax Bounce Back Loan scheme, where speed to deliver the support to businesses took precedence over adequate fraud-prevention measures. This allowed thousands of companies that were not even trading to receive the loans while others overstated their turnover to fraudulently claim the support.
Recent examples of directors struck off as directors include Bahar Dag, who claimed the full £50,000 Bounce Back Loan by claiming the company’s turnover was £200,000 when it was actually closer to £40,000. When the Insolvency Service got involved they repaid the amount in full. In addition to the disqualification, they were sentenced to two years and six months in prison.
In another case, Jubelur Rohman was disqualified for 11 years after an investigation into their £50,000 Bounce Back Loan obtained in October 2020 discovered that the company ceased trading in October 2019. The sole director had given the business address of a restaurant owned by a different company. Under the rules of the Bounce Back Loan scheme, a company had to be trading on 1 March in order to claim any funding.
Aside from the 459 Covid fraud-related disqualifications, the insolvency service said the second-most-common reason for being struck off was the 185 allegations relating to “Unfair Treatment of the Crown”.
The number of director disqualifications has bounced back from the low numbers seen during the pandemic which the Insolvency Service said coincided with the low numbers of insolvencies.
Last year the Insolvency Service was given powers to investigate directors without a formal insolvency process.
The number of disqualifications are inching closer to pre-pandemic figures of between 1,200 and 1,300 during 2013/14 and 2019/20.
Too little, too late?
However, critics have commented that the Insolvency Service’s clampdown on pandemic fraudsters is like “shutting the door after the horse has bolted”.
“This might take some of the bad guys out of operation for a few years, but it won’t stop them from returning and it certainly won’t get the billions back that were lost as a result of the government’s failure to put in proper controls at the outset,” said Andrew Durant, senior managing director in the forensic and litigation consulting practice of FTI Consulting.
A high-profile critic of the Covid support rollout is Lord Agnew, who famously resigned at the despatch box last year due to the woeful “schoolboy errors” from the Treasury in the rollout, which led to fraudsters exploiting the scheme.
In December 2021, the National Audit Office also put the blame on the government’s slow action to prevent fraud, concluding that “the impact of prioritising speed is apparent in the high levels of estimated fraud”.
Durrant echoed this: “We predicted in the early months of the introduction of the various Covid-relief schemes that this could be a fraudster’s dream come true. We set out various actions that the government could take but no one paid any attention – they had to be seen to be doing something and controls would only slow down the process, so they were ignored.”