HomeAMLCatching the Coronavirus Fraudsters what are the penalties

Catching the Coronavirus Fraudsters what are the penalties

Richard Simms runs the rule over the ‘whistleblower’ scheme designed to root out furlough fraud.

The coronavirus pandemic has created the need for the government to introduce emergency measures; new laws, schemes and regulations to protect citizens and businesses from the far reaching consequences of Covid-19. However, loopholes and opportunities for fraud have quickly been identified by the unscrupulous – especially in connection to the Coronavirus Job Retention Scheme (CJRS).

The CJRS was introduced to assist employers, whose operations have been affected by Covid-19, to keep relevant employees on the payroll even though they aren’t working. Employees can be placed on a leave of absence ‘furlough’ and the employer can claim 80% of their monthly wages (up to a cap of £2,500) from the government. The rules of the scheme lay out that any employee placed on furlough cannot do any work for that employer. The initial furlough scheme was to be available until 30 May 2020 but this has twice been extended: first to the 30 June and then recently it was until 31 October.

On 8 April, at a hearing of the Commons Treasury committee, HMRC chief executive Jim Harra announced HMRC was expecting the CJRS to be targeted by fraudsters and was creating an online digital reporting ‘whistleblower’ service. This is for employees to report employers who try to profit from and abuse the Coronavirus Job Retention Scheme. On 13 May, HMRC confirmed that approximately 800 reports of potential fraud had been made by workers declaring their employers were fraudulently claiming money from the scheme.

Reports have been made that a large number of employers have placed staff on furlough but are expecting them to continue working their normal hours on a ‘voluntary’ basis. This fraud sometimes extends to all employees being furloughed but all continue to work full time and without change. Another type of CJRS fraud is employers claiming the grant but not attempting to pay any of it, or only part of it, to the staff affected. Others have been backdating the scheme and claiming as far back as they can but covering a period before staff were actually placed on furlough and were still working as normal. Employers have also created ‘fictitious’ employees and claimed they were in full employment prior to the qualifying period.

Some reports have been made that employers are insisting ‘claw back’ clauses be added to furlough agreements purely to protect the employer if their furlough claim is unsuccessful or the grant has to be paid back in the future.

In such worrying and tough times of unprecedented change for everyone it is extremely difficult for a member of staff to stand up and say “this is not right”. Many reports have been made of employees being threatened with losing their jobs if they say anything about inappropriate and fraudulent furlough claims. Some of those that have expressed their opinions have found themselves facing redundancy very quickly. 

HMRC have declared that all reports will be assessed in line with the usual fraud procedures. An HMRC spokesperson said it “is committed to ensuring the tax systems we operate are used fairly and efficiently and where necessary will take action to ensure compliance with the relevant rules, regulations and legislation that govern the UK taxation systems. We value all the information provided to us by members of the public aimed at helping us achieve that goal.” HMRC is retaining the right to audit all aspects of any claim under the CJRS, which could mean fraud is later uncovered upon an inspection.

All businesses must exercise caution – any claim they submit for either government grants under schemes such as the CJRS or loans such as the Coronavirus Business Interruption Loan scheme during these uncertain times could be subject to intense scrutiny later on. Check and double check that any claim is valid and all details are 100% correct.

Without a specific offence of furlough fraud any misdemeanour will be deemed to be fraud on the Inland Revenue. The likely offences that could be charged and penalties that could be imposed are as follows:

  • Cheat the public revenue – three to 17 years imprisonment.
  • Conspiracy to defraud – community order to eight years imprisonment.
  • Fraud Act 2006 (section 1) – community order to eight years imprisonment.

The potential offences and consequences are equally as grave for the self-employed despite the fraud opportunities being different.

This pandemic has created a higher level of common purpose between government bodies and hence investigators than has previously been seen. The government has launched ‘Fraud control in emergency management’ guidance aimed at fraud experts in local authorities and government bodies. It details common principles for ‘effective fraud control’. They realise it will be a widespread problem as a result of the emergency measures introduced to help and support those businesses and individuals genuinely affected.

• Richard Simms is Managing Director of the AMLCC, FA Simms and BusinessSupport.co.uk

Sign up to receive the latest news

    Related News