Unprecedented Stimulus Is Fueling an Explosion of Fraud, Governments Begin to Admit

“If you discover at a later stage that there was Mafia involvement, how do you undo what you’ve already done?”

By Nick Corbishley, for WOLF STREET:

The British government acknowledged on Tuesday that it may end up paying out as much as £3.5 billion of taxpayer funds in fraudulent or wrong claims for its job retention scheme, which covers up to 80% of an employee’s salary while they are on furlough. That’s the equivalent of 10% of all the money disbursed by the furlough program by mid-August.

“We have made an assumption for the purposes of our planning that the error and fraud rate in this scheme could be between 5% and 10%,” Jim Harra, the top civil servant at HM Revenue & Customs (HMRC), told members of parliaments on the Public Accounts Committee, adding that an academic study had estimated that the level of fraud and error could be even higher than 10%.

The jobs retention program is not the only British stimulus program that’s proven to be susceptible to fraud. The Bounce Back Loan program, which was launched to help small businesses survive the lockdown and its lingering aftermath, has been exploited by a minority of applicants to buy luxury cars, property or even premium bonds.

One of the reasons this is happening is that the loans are self-certified, so that they can be granted within 24 hours. They are also fully guaranteed by the State, meaning that banks are not liable for any unpaid debts and are therefore quite happy to release the funds with little in the way of background checks. Much of the debt — 40%-50% according to the Financial Times — will never be repaid, since many of the businesses will collapse.

The program has so far disbursed £31 billion to 1 million small businesses — roughly a fifth of the estimated 5 million registered businesses. The vast majority of these businesses had perfectly legitimate claims to the loans. With the economy brought to a virtual standstill by the government-imposed lockdown, they needed money as quickly as possible. But in all the haste to get credit flowing, juicy opportunities were created for fraudsters to fill the pockets along the way for fraudsters to also fill their pockets.

In July, the Policy Exchange think tank warned that fraud and error could set the government back between £1.3 billion and £7.9 billion. The think tank said the government’s financial rescue scheme was prone to abuse and scams due to the sheer scale of the loan program as well as the speed at which measures were rushed through.

Governments all over the world are beginning to admit that a considerable part of their unprecedented stimulus programs has been dished out on fraudulent or incorrect claims.

In the U.S., a report authored by House Democrats last week warned that $3 billion of the funds rolled out in the taxpayer-funded Paycheck Protection Program (PPP) program went to businesses that had been flagged as potentially problematic by the government. Some applicants received multiple loans — in violation of the program’s rules.

Three billion dollars may seem like a drop in the ocean compared to the $525 billion thus far disbursed by the program, but it could be just the tip of the iceberg. For the moment, there’s little way of knowing, since the Small Business Administration (SBA) and the Treasury Department only manually audit PPP loans of more than $2 million, which account for less than 1% of all the loans approved.

Court records for the fraud schemes uncovered thus far outline how some opportunistic individuals wired money ostensibly intended to fund their payrolls to their personal accounts or those of friends and family. Others splashed out on luxury jewelry, cars and property, while some hoarded bundles of cash or frittered away thousands in PPP funds on strip clubs or in gambling joints.

Questions are now being asked about private banks’ apparent failure to administer the loans. The PPP loans are 100% guaranteed by the State. As such, the banks themselves have zero liability and as such little incentive in ensuring that the loan recipient is credit worthy or even whether their claim appears to be legitimate.

No one has played a bigger role in dishing out PPP loans than America’s biggest bank, JPMorgan Chase, which has issued around 280,000 loans totaling more than $29 billion. In a memo to staff, senior management said they had uncovered “instances of customers misusing PPP Loans, unemployment benefits and other government programs” and that some “employees have fallen short, too.” The firm said the incidents “may even be illegal.”

Another country where concerns have been voiced about stimulus-related fraud is Switzerland, where over 400 criminal proceedings have so far been launched against company executives, often for overstating their company’s turnover in order to receive a bigger loan. Roughly one out of every 300 loans issued is currently suspected of fraud, though that number could rise in the coming months.

In Italy fears are rising that the mafia is finding new innovative ways of tapping the government’s stimulus funds. Given that an estimated 40% of businesses were considered to be at risk of bankruptcy due to the coronavirus crisis, according to the National Institute of Statistics, money had to be injected into the economy as quickly as possible. That meant that the normal anti-mafia checks were jettisoned.

The onus is now on stepping up control efforts after the funds are released. But recovering funds after they’ve been disbursed is a lot harder than checking for fraud before releasing them, says Anna Sergi, a professor at the University of Essex who specializes in organized crime: “If you discover at a later stage that there was Mafia involvement, how do you undo what you’ve already done?”

Back in the UK, a big problem is opacity. The government refuses to disclose the recipients of £52 billion of state-funded coronavirus business loans, including the 516 large companies that received £3.5 billion between them. Without full disclosure, says the editor of The Guardian, the public has no idea whether the money, which is essentially theirs, went to “politically connected insiders”, “firms with thin trading histories or directors previously convicted of fraud”, or whether it ended up in a tax haven.

The Bank of England has been a little more forthcoming about the identity of the 63 companies it has lent more than £17 billion to as part of its Coronavirus Corporate Financing Facility (CCFF). Close to 30% of the money disbursed went to firms that are owned by a tax haven company or a tax exile, or are themselves incorporated in a tax haven, according to the investigative thinktank Taxwatch UK.

The recipients also include American oil giant Schlumberger, which was fined $237 million in 2015 for knowingly violating sanctions against Iran and Sudan, and Chemring, a UK arms company that is under criminal investigation by the Serious Fraud Office for bribery, corruption and money laundering. As confirmed by the SFO website, this is still an ongoing investigation. But Chemring was able to pick up a £50-million loan from the BoE.

In this “new normal” pandemic economy, fraud is exploding at all levels. With central banks and governments creating new money in unprecedented volumes and then releasing it into the economy as fast as they can, with little in the way of checks and balances and, in some cases, virtually no transparency, it’s hardly any surprise. By Nick Corbishley, for WOLF STREET.

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  71 comments for “Unprecedented Stimulus Is Fueling an Explosion of Fraud, Governments Begin to Admit

  1. lenert says:

    In answer to the question: Outlaw derivatives?

  2. Lisa_Hooker says:

    Schaden-“fraud”

    • Rosebud says:

      There are millions and billions in this story, but here at Wolfstreet discussion, we analyze the value of an art piece in the trillions.

  3. Lisa_Hooker says:

    I spent a lot of money on booze and women, the rest I squandered.

    • Minutes says:

      Fast cars and women is the correct term. But yes.

      • JC says:

        Birds…chicks man

      • Sam says:

        “Alcohol, speed (not the chemical version), and women” – Henry “Smokey” Yunick
        Addendum – “If your gonna play with rattlesnakes, you better know what rattlesnakes do.”

        • Barry Williams says:

          And you’ve gotta bite the snake before the snake bites you.

        • Tankster says:

          We had two bags of grass, seventy-five pellets of mescaline, five sheets of high powered blotter acid, a salt shaker half full of cocaine, and a whole galaxy of multi-colored uppers, downers, screamers, laughers… and also a quart of tequila, a quart of rum, a case of Budweiser, a pint of raw ether and two dozen amyls.
          Not that we needed all that for the trip, but once you get locked into a serious drug collection, the tendency is to push it as far as you can. HST, RIP

      • George says:

        Many of the Democratic politicians themselves are benefiting financially as well as politically from the Coronavirus and stimulus programs.

        • michael says:

          You’ll get my thumbs up if you include Republican politicians and donors to both parties.

      • Ook says:

        Or booze and broads…

    • 2banana says:

      “I spent my 10m lottery win on fast cars and loose women, now I want my dustman job back”

      UK Express, May 22, 2010

    • Colinsky says:

      Fast women and slow horses.

    • Lisa_Hooker says:

      Faster horses, older whiskey, younger women, and more money.

      • Sit23 says:

        ” …..Booze, birds and fast cars. The rest I squandered.” ” I have stopped drinking. But only when asleep.” George Best.

  4. YuShan says:

    Yes, massive fraud was very predictable.

    But even without the fraud, it is beyond be why companies that don’t pay tax should be supported by the taxpayer.

    Also, why should listed companies get any support at all? The whole point of having a stockmarket is that companies can raise their own capital.

    • p says:

      “The whole point of having a stockmarket is that companies can raise their own capital.”

      EXCELLENT POINT. We’ve forgotten the original purpose of stocks. Now they’re just a loss-free casino for the super-rich.

    • Wisdom Seeker says:

      Taking it a notch deeper, why should stimulus be given to companies at all?

      Why not just send ALL the stimulus checks directly to people, let them choose how to spend it, and let the businesses compete for that money?

      If you want to minimize fraud and abuse, the system has to be rock-bottom simple. Congress apparently doesn’t want to minimize fraud & abuse.

  5. 2banana says:

    The answers are easy.

    1. Put folks in jail

    2. Audits out the wazoo

    3. Stringent lending standards

    However, all this has been politicized. And if one group, even by happenstance, is perceived as more affected – charges of favoritism.

    So, the easy answer, easier to ignore the fraud.

  6. Seneca’s Cliff says:

    From a subjective standpoint of actual harm or good to society how is the mafia (and their misuse of stimulus) any worse than the likes of private equity, we-work or Goldman Sachs.

    • Paulo says:

      Good point. It’s just another skim. It reminds me of the old Soprano episodes where they negotiate how many ‘no shows’ will be on the contracted payrolls. The ‘no shows’ = the skim that goes right into the crook’s pockets.

      And in any Govt the same is done with friends and cronies in PR advertising rackets, or with a ‘friendly’ Govt wanting an arms sale if you recognise our new__________, or F-35s if you award an oil development contract to our favourite well drilling company from _________.

      Everyone looks out for number 1, it seems. Too bad #1 isn’t the greater good or the right thing to do in so many cases. There are just too many sociopaths. Reminds me of a bear that eats their own cubs. I think rats do the same thing.

    • MarMar says:

      WeWork hasn’t settled any of its conflicts using murder?

    • Stephen C. says:

      The mafia kills their enemies without a lot of fuss, which can make their victims feel underappreciated. The Fed, on the other hand, does a lot of jawboning to explain how our demise is all for the greater good and thanks us for our service.

  7. John Beech says:

    It’s too much to ask the government be prepared, eh? It’s too hard to think what if in advance, right? We’ve got the government we deserve – and this is not a team blue vs. team red viewpoint because both suck!

  8. Blockhead says:

    None more fraudulent than the Central Bankers, who have have been running their printers white hot, producing the torrents of fake money.

  9. historicus says:

    More proof the governments are not proper curators of the peoples wealth

  10. Harrold says:

    The Catholic Church received $1.4 billion in PPP funds.

    The Church of Scientology received $350,000.

    Now is the time to start the Church of Wolfstreet!

    • Why not? People worship Trump.

    • Frederick says:

      Why did a church receive anything? That’s what I’d like to know They aren’t taxpayers more businesses Oh wait, maybe they are just that

      • Apple says:

        Churches do not pay taxes because they provide services the government is unable or unwilling to provide.

        • doug says:

          Yep. Jim Baker got money and he was providing a silver cure for covid!
          A real service. yes sir…

          OF jim and tammy faye in case you dont recall.

        • td says:

          Even though I am not exactly a person of faith, I donate to a couple of local church food banks and the Salvation Army. Those folks actually interact with the downtrodden and show some signs of harboring actual Christians (Please don’t tell the Imperial authorities). There is often a gulf between big organizations and the poor souls at the bottom trying to carry out the mission.

        • MarMar says:

          No, they don’t pay taxes because that is (currently) considered an aspect of state non-interference in religion.

        • nodecentrepublicansleft says:

          It’s a great racket if you can get into it. I’m sure you read about how Scientology basically bullied the IRS into giving it ‘status’ as a Church.

          That move was right out of the Roy Cohn playbook: Lie, bully, steal and be unapologetic about it. You could even go so far as to pardon your co-conspirators!

          I believe it was Leona Helmsley who said: “We don’t pay taxes; only the little people pay taxes….”

          I’ve been leasing land for cell phone towers for 20 yrs and hence dealt w/many churches. If I had a nickle for every Pastor, etc. driving a brand new Benz, I’d have a LOT of nickles.

    • 2banana says:

      My guess, as you have presented no data, is the taxpayer money went to Catholic charities such as hospitals and drug treatment centers who take anyone regardless of religion and also have employees affected by COVID.

    • Stephen C. says:

      When I was a lot younger I attempted to start a religion. Yeah, it was a blatant attempt to avoid government regulation of a certain business I was running. (It wasn’t about taxes.) This was in Tucson, Arizona. I actually filed some sort of legal paperwork.The local government responded by telling me I had to be sponsored by an established church. Talk about government encouraging monopolies!

      So for Wolf to get started on opening his church (which by the way I would join) he needs to get religion and bend a knee. Later he can work out the details of his dogma (set of beliefs) with his superiors. I wonder if they’ll approve of the beer mugs.

    • X-Pat DE says:

      Go for it. Dead easy and legal. John Oliver shows you how …

  11. No stimulus, no economy. The fact that some will cheat is not an excuse for doing nothing.

    • Paulo says:

      Exactly. There are cheats, everywhere. Look at all the phone scammers that prey on the elderly. Or the ‘churches’ soliciting funds that end up funding Falwell Juniors yacht vacations. People are pretty inventive and all of us will know someone who expends more energy to avoid an honest days work than what is needed in the first place.

      It’s everywhere and nothing new. Look no farther than the private hospital charges that bankrupt folks. Or $10 aspirins. 40K tuition. This is just a newer version. When I was a kid in the ’70s I knew young people proudly proclaim they were on the UI ski team. I wanted to beat the shit out them, actually.

      • 91B20 1stCav (AUS) says:

        Paulo, assuming Idaho, not Indiana or Iowa. If either of the latter. double-down on the slaps…

        May we all find a better day.

        • 91B20 1stCav (AUS) says:

          Paulo- after ‘young people’ i didn’t consider ‘UI’ as an ‘unemployment insurance’ reference. (Double-slaps in all instances, including me).

          A better day to all.

        • Ed says:

          I made the same mistake.

          So hard to keep track of the fraud when the money is so cheap and it starts at the top and is to be found everywhere.

          I wish the admin. would just try.

  12. Brant Lee says:

    “The banks are not liable for any unpaid debts and are therefore quite happy to release the funds with little in the way of background checks.”
    What could go wrong with that?

    And we thought it couldn’t get better for the banks with the gov already providing 0% cash to them. Silly us.

  13. Tony22 says:

    If you get any state money deposited in your tax-cream skimming involuntary “bank account,” withdraw it ALL in cash ASAP. If they can put too much in by accident, they can also take it, or the correct sum, back, plus you are not allowing BofA to add on fees or other charges over time.

    A friend continually worried about how much she should leave in her account, that she might have recieved too much unemployment as she was called back to occasionally work and would have to pay interest later, might be fined etc.

    “If they overpaid you their state of the art computers made a mistake. If they want some of it back, let them send you a demand letter, then mail them a check. You probably will get lost in the chaos.That’s far more likely to happen than them easily punching in a line of code that can suck the money out of millions of accounts at once. Too bad you didn’t start a hedge fund that could have feasted on bailouts instead of nursing.”

    The government could have mailed checks, they could have direct deposited it in people’s real accounts, instead they allowed the banking parasites to skimscam part of our crumbs.

  14. tim mccarthy says:

    In addition, the funds were specifically made free of freedom of inquiry requests, because of the number of embarrassing revelations about the last bailout,

  15. Concerned American says:

    Fraud? What a surprise.

  16. MonkeyBusiness says:

    What’s new? Ponzi scheme economies. Ponzi scheme companies.

    Don’t worry though, Rapture is near. I mean just look at San Francisco ;)

    #Repent.

  17. Twinkytwonk says:

    Could you imagine being involved in a project where 10% of your product/earnings etc were stolen due to incompetence of the project managers ? You’d expect them to be instantly sacked wouldn’t you? Will not if you work for the government where bullshitters reign supreme.

    The whole thing beggars belief and will be totally ignored by the MSM. It might make a little joke story at the end of the news and that’s it.

    • 2banana says:

      Because private businesses can and will go bankrupt, liquidate and let go of all employees.

      No matter how much fraud, waste and abuse, governments don’t have to worry about that.

    • Fat Chewer. says:

      You know what got a tiny box on page 10 of our local Murdoch rag? California’s fires. You know what got the rest of the page? Prince Harry paying back his renovation cost.

  18. historicus says:

    If governments had to actually pay to borrow the money they dispense perhaps they would be more concerned about where it went. But, alas….

    • 2banana says:

      State, county and local governments cannot print money and thus have to pay to borrow.

      With some exceptions, they do seem to more careful with their own money.

      Unless, of course, they get federal funding or bailouts.

  19. mharris240 says:

    … and that some “employees have fallen short, too.” The firm said the incidents “may even be illegal.” – JP Morgan Chase

    Well, that barf bag of a company should know all about illegal.

  20. Marc 60 says:

    Not only is that just the tip of the iceberg but here in the good old UK it is emerging that numerous Covid related no contest contracts have and are still be given by the Government to friends etc. I mean what could possibly be wrong or go wrong with that?

    The world has turned into one great cesspool full of greed and corruption and they don’t even bother to try and hide it any longer. So glad I am nearer the end then beginning of my life as IMHO this is all going to end very badly and sooner rather than later.

    • 91B20 1stCav (AUS) says:

      Marc-often referred to as ‘the wheel of history’, only ‘hope’ escaping Pandora’s jar…

      May we all find a better day.

  21. GG says:

    Another reason just to have a basic income (UBI) instead of all these complicated government schemas.

  22. sierra7 says:

    “may, could, etc, etc,”
    Fraud?
    Really?
    That’s part of our system.
    It’s ok when the banks do it.
    It’s not ok when some poor soul applies for economic relief form the banksters’ frauds.
    Wake me up when it’s all over!
    Meh!

  23. HVS Tax says:

    Speaking of fraud, I had a client, a small car dealership, call me up and say he almost got done by one of these scammrs

    When all the bounce back loan stuff kicked off he was approached by someone to buy one of the nice mercs in the lot that cost £48k. He came in, looked around the car and decided to buy it there and then. He said ‘send me an invoice so I can put it through my company accounts’ and so my client sent him an invoice for the car.

    2 days later, the £48k arrived in his bank account. Slightly confused at such a quick sale (without even a test drive or a haggling attempt), he checked with his bank to ensure the money had cleared the account and there was no way that money could leave his account. The bank confirmed the money had cleared. A few hours later, his bank contacted him and said ‘you do realise this is your bounce back loan, right?’

    The scammer had taken all his details from the invoice – bank account details, VAT registration number, company registration number, and applied for a bounce back loan for my client.

    Pretty inventive, and it would’ve worked had my client been a bit less street wise. I wonder how many people have been conned in this fashion, and don’t even know it

  24. historicus says:

    The tip of the iceberg

  25. Michael Gorback says:

    Fraud and corruption is older than dirt. Just look back 2 centuries in the USA:

    Watergate, Credit Mobilier, the Whiskey Ring, Teapot Dome, Iran-Contra, Chappaquidick (is my age showing?), Grover Cleveland’s love child, the Keating Five, Wilbur Mills, John Edwards, Jack Abramoff, Frank Raines, Angelo Mozilo, John Corzine.

    My favorite is Rick Scott, CEO of HCA when they committed $2 billion in Medicare fraud. His punishment was having to resign with a gigantic golden parachute and then get elected Governor by the idiot sheeple of Florida.

    The methods may vary or evolve but the one constant in all of this is psychopaths with no conscience. You want to stop this? Find a way to identify psychopaths and neutralize them.

    I’ll go get my popcorn now while I wait.

  26. Herve M. Dubois says:

    Babylon has fallen,fallen. It has been the hiding place of every evil known to man,and Justice will be painful for many. How few are they, that through these man-engineered tribulations, have held on to their integrity. There are no disasters that the rulers of the darkness of this world won’t benefit from.

  27. disc_writes says:

    Thank to Nick Corbishley for pointing out the obvious, while apparently no one else has.
    I have been wondering whether WolfStreet might be willing to cover one of the Italian recovery programs, the “110% Superbonus”.
    The program is outrageous not only because the government pays you 11 EUR for every 10 EUR you spend on renovating your house, but because the resulting tax credits can be traded on a dedicated electronic exchange.
    As in, why would a government set up a dedicated exchange for tax credits, when it has a functioning tax office?
    The “110% Superbonus” scheme works very much like the “minibot” alternative currency that was discussed a couple of years ago and that was supposed to be a first step towards a Italexit.

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