What can we learn from COVID-19 loan transparency in the United States?

Author: Susan Hawley and Tom Robinson

Publishing the names of COVID-19 loan recipients could be a crucial way of recouping billions of pounds lost to fraud and wrongful claims.

Last week, the National Audit Office (NAO) published a report into the Bounce Back Loan Scheme (BBLS) that revealed the taxpayer could lose up to £26 billion as a result of fraud or credit default. 

Additionally, the Department for Business, Energy and Industrial Strategy (BEIS) annual report shows that the two other government loan programs – The Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS) – could see losses of up to £2.9 billion. 

The BBLS, unlike other COVID-19 loan schemes, is particularly vulnerable to fraud as it relies on borrower self-certification. The NAO report released on 7 October identified that this “less strict eligibility criteria” increases “credit and fraud related risks.”

Keith Morgan, the CEO of the British Business Bank (BBB) first flagged the risk of relying on borrower self-certification in May, when he wrote a letter setting out the BBB’s concerns to the Secretary of State for BEIS. In the letter, Mr.Morgan also highlighted a PWC survey that had been commissioned by the BBB which warned of a “very high” fraud risk inherent to the BBLS. 

Key lessons from from the US

In July, the names of companies that received loans over $150,000 under the Paycheck Protection Program (PPP) was published by the US government. The program, which is broadly equivalent to the UK’s BBLS scheme, has provided government-backed loans worth $525 billion to small businesses to help them survive the economic turmoil caused by COVID-19. 

That transparency has been instrumental in uncovering potential wrongdoing and unethical conduct while giving the US public a window into where billions of their tax dollars are being spent. Most significantly it has helped the US government recover billions of dollars that were wrongly claimed.

After news broke that the loan data would be published, big businesses hurriedly repaid a total of $30 billion they had taken from the program, intended for struggling small businesses. 

Publishing loan recipient data also revealed that companies owned by wealthy individuals (including Donald Trump’s lawyer), powerful lobbying firms and small financial firms that manage money for the country’s richest families all received the loans.

It was also found that private equity firms had been cashing in on the loans, by loading the companies they own with more borrowing and then using the coronavirus loans to pay themselves big dividends. In total, 1,322 private equity backed companies took up to $3.4bn in loans. Some private equity firms even broke regulations by taking the loans for themselves.

In addition, analysis of the published data revealed banks were set to earn at least $13 billion in fees, thereby shaming the banks into donating profits they earned from delivering the PPP loans.

UK resists transparency

In June, Spotlight on Corruption sent a letter along with the Fraud Advisory Panel and Transparency International (UK) to the UK government calling for COVID-19 loan recipients’ names to be published. We subsequently published a blog post on why transparency is needed. 

A Freedom of Information request we submitted to the British Business Bank on the 15th July was rejected, as was our request for internal review. 

In the internal review the BBB admitted publishing loan recipient information “may help identify some possible cases of fraud” on a national level and on a local level “members of the public are likely to look for specific businesses and with local knowledge report suspected cases of fraud.”

Nevertheless, the BBB invoked Section 43(2) (commercial interests), Section 40 (personal data) and Section 31 (prejudice to law enforcement) in rejecting our request. We will be taking our request to the Information Commissioner’s Office as we believe there is a clear public interest in releasing this data.

On 9 October, the UK government announced that it would publish COVID-19 recipient data where it is required to under EU aid transparency rules. The rules set out that the information must be published six months from when adi was issued, but only on aid awards above €500,000 (£453,000) which would rule out any transparency in the Bounce Back Loan scheme, with the maximum loan amount set at £50,000. 

The lack of transparency on who has received the loans in the UK could have a hugely damaging impact on public confidence in any economic recovery from the pandemic. The lessons from the US, meanwhile, show that publishing loan recipients could lead to a much greater chance of taxpayers funds being recovered where they have been wrongly claimed or fraudulently obtained. 

We are calling on the government to publish this information as soon as possible.