Perspectives / Fraud During COVID
Billions have been lent, and continue to be lent, to help support small businesses and individuals. Unfortunately, initial signs are that a large number of the applications were fraudulent.
Since the onset of COVID and related introduction of Government loan schemes for business, billions have been lent globally and continues to be lent, to help support small businesses and individuals in these challenging times. This has led to an unprecedented rise in loan applications and approvals, with banking portfolios increasing substantially. Unfortunately, the initial signs are that this has also resulted in a large number of fraud-related applications, estimated to already stand more than £4bn in the UK alone.
We have been working with Quantexa to identify the many different types of fraudulent behaviours that we expect our banking clients to now be facing. As lending volumes continue to rise, the workload in trying to quickly identify and prevent fraudulent loan applications only looks set to increase.
We have decided to share our findings with the LinkedIn community, to help mitigate against these behaviours and to offer a solution that can quickly identify fraud in large loan books, with the use of technology and small expert teams.
Mis-use Of Government Stimulus
The borrower applies for government COVID related loan funds to either repay existing corporate loans, repay personal debts or buy an asset (e.g. a car).
The End Result
The funds are misappropriated by the borrower and not used to support the company staff, or the basic subsistence required to support the organisation. Funds are instead used to repay personal debt. Banks begin to report that their outstanding loan books and credit card lending has declined, but that the Government-backed COVID lending has increased.
Short Firm Fraud
Criminals set up an apparently legitimate business but with the intention of defrauding both its suppliers and customers. The fraudulent business has no regular day-to-day trading activity, operating as a dormant shell.
The End Result
Once the company is established the fraudsters take out COVID specific loans. They then use these funds to purchase goods posing as buyers, which are delivered to third-party addresses. The goods are then sold on for cash on the black market and the fraudsters then disappear, with the COVID funds remaining unpaid and the leaving the Government to suffer the loss.
Multiple Loans To One Entity
One entity makes multiple applications for government-backed loan(s) with multiple banks using the same underlying business and staff members.
The End Result
The company receives support multiple times contrary to scheme rules. The banks involved may not be able to claim on the government guarantee in the case of default as multiple banks will be looking to claim repayment against the same borrower.