The third scheme is the CBBLS, introduced in May 2020 to support smaller enterprises.
It enables authorised lenders to provide loans of up to 25 per cent of turnover or £50,000, with an annual interest rate of 2.5 per cent. The government covers the interest for the first year and guarantees the loan in full.
Borrowers are subject to standard fraud checks and cannot be in bankruptcy or liquidation at the time of the application.
In granting these loans, the Financial Conduct Authority places the ex-ante controls on the lenders urging them to balance the risks of fraud and money laundering “against the need for fast and efficient release of funds.”
This means that existing customers are typically not subjected to new due diligence procedures, unless obvious information or red flags exist suggesting a customer poses a higher risk, for example, of fraud, money laundering, or terrorist financing.
As banks engage in this low-to-no-risk business using state-backed lending, with seemingly strong political will from the government to deploy funds quickly, the government should swiftly announce its approach to audit and curb illicit borrowing.
How do the UK’s efforts compare to other countries’?
The system in the US
In the US, the $2.2 trillion (£1.6tr) Coronavirus Aid, Relief, and Economic Security Act announced over $100bn for public health services and over $1.8 trillion in relief funding for individuals, businesses and state/local governments.
Funding programmes for businesses include the Paycheck Protection Program (PPP) loans, various bridge loans and loan purchases from the banks, as well as specific debt relief.
The government has also pledged funding to underpin the governance of the various aid schemes.
This includes over $80m for a Pandemic Response Accountability Committee and $25m for establishing the Office of the Special Inspector General for Pandemic Recovery within the Department of Treasury to audit and investigate loans, loan guarantees, and other investments made under the CARES Act.
Additionally, the Congressional Oversight Commission is tasked with oversight of and reporting on CARES Act implementation.
Furthermore, each US Attorney’s office has appointed a Coronavirus Fraud Coordinator, and most regional offices have assembled task forces in conjunction with the FBI and local law enforcement.
The US Department of Justice (DOJ) has already charged numerous cases and announced an increasing number of related fraud investigations.
However, as in the UK, these cases have been exposed mainly through whistleblowing and media scrutiny rather than audits and controls.
The PPP faced backlash after several public companies disclosed they had taken the loans originally intended to help small businesses.
Also the FBI received numerous complaints from businesses unable to apply for a PPP loan because their Employer Identification Numbers had already been used for fraudulent loan applications.
