Two fraudsters operating out of a south London office block are swindling the taxpayer by arranging fake bounce back loans worth tens of thousands of pounds a time, the Daily Mail reveals today.
Our undercover investigation shows the business consultants brazenly helping clients claim the sham loans worth up to £50,000 each.
With a Covid-19 crimewave is sweeping Britain, taxpayers are facing a bill for billions as scammers seek to take advantage of the Government’s loan scheme to encourage banks to help those businesses struggling to survive since the onset of the coronavirus pandemic.
Chancellor Rishi Sunak is ploughing at least £48million into the plan, and announced this week it is now being extended to the end of January.
The Government also guarantees to underwrite loans, to encourage banks to make funds quickly available to business owners.
But spending watchdogs warn up to 60 per cent of the loans may never be repaid or be handed to fraudsters. This would leave taxpayers facing an eye-watering bill of up to £26billion.
Fraudsters Zohaib Butt (left) and Imran Khan (right), operating out of a south London office block, have been swindling the taxpayer by arranging fake bounce back loans worth tens of thousands of pounds a time
Sarah Munby, permanent secretary at the Department for Business, told the public accounts committee on Thursday, that ministers were aware of the scope for fraud. She said: ‘That was a risk that people were prepared to take.’
The Mail can reveal the shocking ease with which backstreet firms can exploit a system of lax checks fraudulently to claim the taxpayer guaranteed cash – with almost no questions asked.
How it works in five easy steps
1 Fake a tax return to show turnover of over £200,000 in client’s name – meaning they can claim the maximum £50,000.
2 Link this either to the name of the client’s ailing business – or to an off-the-shelf shell company registered before March 1, 2020.
3 For those clients without one, set up a business bank account in their name.
4 Submit the bounce back loan application – and collect a £6,000 fee from the client in cash as soon as the money is paid.
5 After the £50,000 loan is banked, tell Treasury the tax return was a mistake – to avoid any tax liability on the fake turnover.
Reporters, posing as businessmen facing financial difficulties, were offered fake tax returns so that they could show they had a turnover of £200,000 – meaning they could apply for the maximum £50,000 Government-backed bounce back loan available.
Two consultants demanded £6,000 in cash to submit these false accounts to HMRC so the loan could be processed.
The scammers then promised to ‘eliminate’ the paperwork as soon as the £50,000 loan was handed over – to avoid the client becoming liable for tax on the figures stated on the bogus return.
They also offered a separate service – using shell companies and specially-opened business bank accounts to apply for fraudulent bounce back loans for clients who have no businesses.
The Bounce Back Loan Scheme was rushed out by the Chancellor in May after businesses complained banks were refusing to lend under the original emergency loan scheme.
More than 1.2million firms have applied for loans of up to £50,000, which are offered via banks but are 100 per cent guaranteed by taxpayers.
The risk of fraud is deemed ‘very high’ as checks are limited. Treasury officials told MPs on Thursday that anti-fraud checks had been stripped back for bounce back loans.
They confirm only that a business had a tax return from the previous financial year and that it already had a business current account. The Mail’s investigation illustrates how this is exactly what the fraudsters play on.
Our inquiries began after an approach from a whistleblower, who said that some staff in a redbrick office block overlooking the main street in Morden, south London, were providing services for bogus applications.
An undercover reporter approached the firm, saying that he had applied for a bounce back loan for his business but had been told by his bank he required a tax return for the previous year, which he did not have.
A man calling himself Imran Khan said he could arrange a tax return and explained that under the scheme the loan amount would be for a quarter of the client’s stated turnover.
Without taking any details about the proposed client’s genuine turnover or identity – other than looking at two bank cards, one a business account – he said: ‘We will prepare accounts for £200,000, and on that basis you would get a £50,000 loan.’
At a second meeting, held just outside the office for secrecy, Khan assured the undercover reporter he had done it before and there would be ‘no problem’.
He added: ‘You do not mention our name or who helped you to sort this out, who filled this tax return and who got it cancelled.
Chancellor Rishi Sunak (pictured) announced that the furlough scheme would be extended until the end of January
Peel House (pictured) in Maldon is where Imran Khan and Zohaib Butt have their office business
‘Do not even mention this to anybody.’ He reassured the reporter that his fee included reversing any tax liability. It is believed he does this by withdrawing the tax return from HMRC after the loan is processed, saying the return had been filed by mistake.
He said: ‘[That’s] why we are charging £6,000…..our fee is for this job [so] that you do not get a letter. It’s all professional.’
Sunak’s scheme a ‘risk worth taking’
Ministers knew six in ten bounce-back loans might never be repaid but ruled it was a ‘risk worth taking’, MPs heard yesterday.
Taxpayers are facing losses of up to £26billion from fast-track coronavirus loans given to small businesses that are stolen by fraudsters or lost to failed firms.
The figure emerged in a National Audit Office report last month, which warned the risk of fraud was ‘very high’ because borrowers only needed limited checks to ensure the money could be processed quickly.
Sarah Munby, permanent secretary at the Department for Business, Energy and Industrial Strategy, said yesterday the Government was ‘absolutely concerned about fraud’ when the scheme launched in May.
She told the public accounts committee that ministers took the view that ‘to act was better than not to act’.
She added: ‘Those estimates we used at the time around the potential loss rising up to 60 per cent…that was a risk that people were prepared to take.’ More than 1.2million firms have applied for loans of up to £50,000, which are offered via banks but are 100 per cent guaranteed by taxpayers.
They are interest-free for the first year and capped at 2.5 per cent for the remaining term. Sir Tom Scholar, permanent secretary at the Treasury, said Chancellor Rishi Sunak approved the riskier loan scheme because he was worried that without it hundreds of thousands of businesses might ‘go bust’. More than £38billion has been allocated so far in bounce-back loans, with this expected to rise to up to £48billion by the time the scheme ends in late January.
Once the loan form was submitted, he said, the cash should be in his account in between seven and ten days. Asked about payment, he replied that once the loan had been processed, ‘I will come to you. We will go to the bank and withdraw the money.’
To maintain secrecy, he said, all future communication should be by phone. Khan called a few days later saying the fake returns were ready and asking for our reporter’s taxpayer reference so he could submit them to HM Revenue & Customs.
Businesses can apply for a bounce back loan only if they are based in the UK and were a registered company before March 1 this year. But the fraudsters offered another way to get a bounce back loan – by selling pre-registered shell companies for clients with no business account.
They also arranged business bank accounts for clients and used these to make loan applications. When a second undercover reporter asked about doing this for his wife, another consultant – who was using the name Zohaib Butt – confirmed it could be done. Khan later explained he could sell the reporters a company for £5,000 to £7,000.
Later that evening, Khan called one of the reporters, confirming that he could set up a company and business account for the reporter’s wife and apply for a bounce back loan in her name at a cost of £6,000.
Last night, fraud experts and MPs said our investigation exposed the gaping flaws in the bounce back scheme and called for transparency to help track other scam claims.
David Clarke, chairman of the Fraud Advisory Panel charity and the former head of the police’s National Fraud Intelligence Bureau, said: ‘We forecast that crooks would use middle men to help them commit fraud to get their hands on taxpayer-backed loans. ‘
Being transparent and publishing who received these loans as we called for is crucial.’
He added: ‘My plea to whistleblowers is report anything that looks dodgy.’
Liberal Democrat Treasury spokesman Christine Jardine said: ‘People will be horrified to learn that the system many have relied on may have been abused by fraudsters.
‘The Government must ensure that people are not able to profit from abuse of the system.
‘We need to ensure checks and balances are proportionate and manageable for businesses, without being an open door for criminals. This is yet another reason why we need an urgent inquiry into the Government’s handing off every aspect of this crisis. Otherwise we risk seeing mistakes repeated time and again.’
When the Mail confronted Imran Khan, he said he had not made the fake accounts himself and did not know how to so. He just provided the information to others who would do the work, he said, insisting he had done nothing wrong himself.
Zohaib Butt did not respond to requests for comment.
A Treasury spokesman said: ‘We targeted this support to help those who need it most as quickly as possible and we won’t apologise for this.
‘We’ve looked to minimise fraud – with lenders implementing a range of protections including anti-money-laundering and customer checks, as well as transaction monitoring controls.
‘Any fraudulent applications can be criminally prosecuted, for which penalties include imprisonment or a fine or both.’