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July 6, 2022

Regulators crack down on Covid-related fraud

By Katherine Dumbell

 Company directors who have abused UK Covid-related support schemes have been banned and may face criminal prosecution. 

The Insolvency Service has so far banned 179 UK company directors from running companies due to Covid-related fraud according to multinational law firm Pinsent Masons. This fraud relates to Government support schemes like furlough and Coronavirus Business Interruption Loan Scheme (CBILS). 

By 31 March 2022, 140 directors were banned in the year. In April and May 2022, another 37 were banned. As more Covid-related fraud cases are discovered, the Insolvency Service is picking up the pace in investigating and banning directors, according to Pinsent Masons.  

However, being banned is one of the lighter punishments company directors could face, Pinsent Masons adds. Directors convicted of fraud can face life-changing custodial sentences and face criminal prosecution if they don’t co-operate with authorities. Directors can also be held personally liable for debts of the company, especially where they have used business loans for personal spending.  

Pinsent Masons partner Andrew Sackey said: “As the authorities sift through huge volumes of data, regulators are cracking down heavily on indicators of Covid-related fraud.” 

“Directors who abused Covid support schemes need to carefully consider their options. Often, self-reporting is the best way to mitigate the risk of custodial outcomes.” 

Covid-related fraud included some directors setting up new companies to claim Covid bounce back loans, companies inflating their revenue to increase the size of loans received and abuse of the furlough scheme. This includes employers pretending to furlough workers, making claims for non-existent employees and misrepresenting hours worked.  

Fraudulent claims on the Government’s coronavirus support schemes is estimated by HMRC to have cost the taxpayer at least £5bn ($5.98bn).  

Between 1 March 2020 and 31 December 2021, the Government gave out £79.3bn in assistance to businesses. The necessary speed with which support was given, with lighter than normal diligence checks, was vital to helping companies survive during the pandemic according to Pinsent Masons.  

However, now that we are moving beyond the pandemic, Pinsent Masons emphasises that authorities are increasing enforcement action against company directors who misused these schemes.  

Sackey added: “Authorities like HMRC and the Insolvency Service are now hunting down those who made fraudulent claims. There will be a wave of civil and criminal penalties, including prison sentences.” 

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