Lenders, brokers and conveyancers must learn the lessons from the government’s failure to prevent the loss of billions of pounds in Covid-related fraud since the satrty of the coronavirus pandemic, according to SmartSearch.
The anti-money laundering (AML) solution provider says that a lack of due diligence and robust ID verification left the door wide open to criminals to exploit the opportunity.
John Dobson, CEO at SmartSearch says these frauds were made possible due to a lack of joined up systems, despite all the information being available to raise flags when bogus applications were being made. And without moving to more secure methods of verification, regulated firms in the property sector face the same threat.
The government’s own estimates suggest that almost two-thirds of loans may never be repaid, due to mistakes in the process and fraudulent claims.
Dobson commented: “The Bounce Back Loan scheme is one of a number of funds made available since the start of the coronavirus pandemic which have been targeted by fraudsters, and they have probably found it surprisingly easy to work the system.
“This should serve as a stark reminder to all regulated businesses that when it comes to fraud we should be working at a heightened state of alert because as long as you’re using manual methods of ID verification, you’re going to be vulnerable.”
Dobson says one of the key lessons to be learnt from this unfortunate situation is that increasing use of technology is the most effective way to protect your business from falling victim to fraud which does not come as a surprise given that SmartSearch is a provider of anti-money-laundering software.
He added: “The whole essence of an electronic verification solution is that all the information is there in one place, and easily accessible so that anybody in the business can use it, it’s not technically complicated in that sense.
“If the government departments responsible for handing out the Bounce Back loans had been using an electronic verification system to vet applicants, they could have found out almost instantly whether they were genuine.
“There are a number of ways to check whether a business is bonafide; verify the company exists at Companies House, identify trading accounts, look at payment histories, identify the auditor, identify the ultimate beneficial owners, persons of significant control. Verifying the bank account where loan funds are due to be paid to see if it matches with the address given on the application, and in some instances the owner’s address, is also key. All this information and more is available in a smartsearch so there is no excuse for ‘skimping’ on due diligence.
“Within two minutes you can confirm a business and its directors/shareholders are genuine and it exists. It’s simply not possible to replicate that level of search and due diligence by relying on people emailing scans of passports and driving licences, which are so easily forged and have no relevance in proving a business exists
“With the property market remaining such a high priority target for criminals, it’s vital not to repeat the mistakes made by the Government in allowing billions to be lost.”
I can’t see the relevance of this factually incorrect article past the oversize advert for SmartSearch for AML checking.
Firstly, Conveyancers weren’t involved in Bounce Back Loan scheme. They’ve enough on their plates without being warned about work that doesn’t involve them!
Secondly, no government department lent any money. “If the government departments responsible for handing out the Bounce Back loans had been using an electronic verification system to vet applicants, they could have found out almost instantly whether they were genuine”
The overwhelming majority of BBL’s however were lent by the UK 5 major banks. No loans were granted by the Government owned British Business Bank. They are a private company with no banking instruments. They referred the applications to their approved list of lenders, but all loans were 100% guaranteed by the Government. It was the lender that determined whether to grant the loan at what rate and terms of the borrowing.
Brokers merely introduced the application; the onus of verification is upon the lender. Many brokers will have checked out the company, but most applicants applied directly to the lender.
Surprisingly, one of the few conditions of the Bounce Back Loan was AML verification being undertaken.
The real issue has been the absence of a credit or affordability check.
With regards to the default rate through bad lending and fraud, the latest National Audit estimate around £26bn out of £45bn advanced so far will be written off. Even at launch, however, the banks predicted a worse- case default scenario of 50%. The HM Treasury worst case estimated was 80% write -off.
Perhaps the extended term, the possible payment holiday and the pay as you grow scheme may help with the default rate.
That said, all pretty much has gone to plan!
There is now an argument also to write off £45bn of loan so the government save £1bn in interest payments to the banks. Taken the average term of a loan is 60 months (now increased to 120 months), it would be cost-effective solution for the government; an idea supported by George Osborne the former chancellor.
If only the Government has insisted on Smart Search…..
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