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The Chancellor, Rishi Sunak has announced that the Furlough Scheme, which pays a percentage of an employee’s wages if they are unable to work because of a Covid-19 lockdown, will be extended until April 2021.

According to The Guardian – “Against a backdrop of rising coronavirus cases and the return of tougher government restrictions that are expected to remain in place well into the New Year, the Treasury said it would continue to contribute 80% towards workers’ wages to give businesses and employees certainty.”

However, despite the Furlough Scheme (officially called the Coronavirus Job Retention Scheme) being extended, a parallel project is underway to claw back money that employers should not have claimed during the first lockdown (March till May 2020).  Around £3.6 billion in furlough payments have been claimed in error throughout the year and it is estimated that £2 billion of this has been stolen by criminal gangs.  In August, a 90-day amnesty period for those who had collected excess payments was announced; however, this period has now expired.

Several arrests have already been made in connection with furlough fraud.  The first, in July 2020 involved the fraudulent obtaining of almost £500,000.  A suspected multi-million-pound tax fraud and alleged money laundering offences were being investigated alongside the furlough fraud.  And in September 2020, an accountant and a company director were arrested following an HMRC investigation which unveiled fraud totalling £70,000.

HMRC are following a process when investigating suspected furlough fraud.  Below is how you can protect yourself if your business comes under scrutiny.

Steps HMRC are taking in identifying furlough fraud

If you have received payments under the Furlough Scheme, HMRC may request information from you such as:

To minimise stress, make sure you have this information readily to hand.

If there are discrepancies or an employee informs the HMRC that furlough payments were made in error or they were asked to continue working whilst furloughed, the department may ask for further information.  Evidence may be required to show that furlough payments were necessary for the survival of the business and that your organisation complied with furlough rules.

If HMRC makes contact you must seek legal advice immediately.  As mentioned above, much of the furlough fraud identified was orchestrated by criminal gangs.  You may discover that your business has inadvertently been caught up in a sophisticated fraud operation.  Without expert advice from a fraud lawyer, you could find yourself subject to a stressful investigation and even prosecuted for furlough fraud.

How businesses have been inadvertently caught up in furlough fraud

The speed in which the Furlough Scheme had to be implemented and the lack of checks around claimants made it inevitable that criminal gangs would take advantage of the system.  Furlough agents accounted for around half of claims under the Jobs Retention Scheme.  Details of these agents were likely to have been stolen, allowing fraudsters to claim large amounts under the guise of legitimate organisations.  For the first few months of the scheme, many businesses may have had their details hijacked and used to make fraudulent claims.

A damaging fallout from this type of furlough fraud is that legitimate businesses who have unknowingly had large sums entering and exiting their company accounts may find themselves facing criminal charges.

How to protect yourself against furlough or bounce back loan fraud

To protect yourself from getting caught up in fraud committed against the government’s Coronavirus business support schemes you must invest time in conducting due diligence whenever you take on a new customer, supplier, investor, agent, distributor, or joint venture partner.  The level of due diligence required will depend on the risk posed by the party – a client you have had dealings with in the past is likely to require little more than the checking and recording of their identity.  However, an overseas prospect or investor who deals in large cash deposits will require far more scrutiny, preferably by a professional such as a lawyer or accountant.

It is also essential to keep a watchful eye on your business bank accounts and investments.  Any suspicious activity should be reported via a Suspicious Activity Report (SARs).  Before doing so, it is wise to seek legal advice to ensure your best interests are protected throughout the reporting process.

Tanveer Qureshi specialises in white-collar crime and regulatory investigations and prosecutions.  If you require legal representation, please contact Tanveer directly at tqureshi@4-5.co.uk or via his chambers, 4-5 Gray’s Inn Square. for more about Tanveer or to subscribe to his newsletters, please go to www.tqlegal.co.uk 

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