• Mon. Jul 4th, 2022

Fraud Pair took £10 million in “bounce back” loans off UK banks

Byscarcity news

Dec 24, 2021
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Two men who headed up an international criminal network responsible for laundering £70 million, £10m of which came from fraudulent Bounce Back Loans, have been jailed for a total of 33 years. Artem Terzyan, 38, from Russia and Deivis Grochiatskij, 44, from Lithuania, were the focus of a four-year investigation by the Organised Crime Partnership –  a joint National Crime Agency and Metropolitan Police Service unit

Their sentences are believed to be some of the largest ever handed down for money laundering in the UK. The OCP’s investigation began in October 2017 when surveillance officers watched Auriel Zylyfi place a large bag of cash in an Audi at a money counting house in North West London. A month later another man, Artur Terziu, was seen handing over £40,000 to Zylyfi in the underground carpark of his flat in Hazlemere Court, Hendon. Both men were arrested and each sentenced to a year in prison.

OCP officers searched Zylyfi’s flat and seized a ledger detailing money laundering transactions in excess of £7m over a four-month period. Over the next seven months the same Audi travelled extensively around the UK, stopping briefly at lorry parks and service stations to collect cash before returning to London. It was regularly driven to Munning House in Docklands, East London, where Terzyan and Grochiatskij both lived in flats next door to each other. On multiple occasions, OCP officers watched as large bags of cash were carried from the car and into Munning House.

Both men were also seen, along with other members of their criminal network, opening bank accounts in banks across London in the names of the various fake companies they had set up, then depositing tens of thousands of pounds into those accounts at a time. The money would be sent from one shell company to another in a complex web of transfers, before it was sent out to international accounts held in countries including Germany, Czech Republic, U.A.E, Hong Kong, and Singapore.

On 26 June 2018, OCP officers arrested Terzyan and Grochiatskij at Munning House and searched both of their flats. They seized multiple hand-written ledgers with Terzyan’s finger prints on, which detailed the vast sums of cash being laundered. Also recovered from his flat was an encrypted phone, bank cards and account details of the fake companies they had set up.

Grochiatskij’s computer was seized from his flat. On it, officers found details of the bank accounts the pair used for laundering and various incriminating photos of their associates handling cash in Grochiatskij’s living room. Another photo showed a safe containing a huge pile of cash. In the same photo was a notepad which had the address of a business unit at close by Waterfront Studios on Dock Road. Investigators recovered CCTV footage which showed the two men delivering the safe to the unit on 23 February 2018. However, when it was searched 8 months later, the money had already been removed. 

Measurement of the safe’s dimensions showed that the amount of cash seen in the photo could have been up to £3m. A financial investigator analysed hundreds of bank accounts controlled by Terzyan and Grochiatskij and was able to evidence that the men had laundered a total of £36m in 2017-2018, with £16m of that coming from cash deposits. While on bail, the pair began to exploit the Government’s Covid-19 support scheme by claiming fraudulent Bounce Back Loans (BBL) for the various shell companies they had set up. They claimed up to £50,000 a time, generating over £10m in total. £3.2m of that was claimed from one UK bank alone.

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On top of this, they continued to launder criminal cash using the same method as before. Between June 2018 and November 2020, when the pair were arrested again, they laundered a further £34m including the £10m they generated from the BBLs. Terzyan and Grochiatskij were each charged with two counts of money laundering, for which they were found guilty following a seven-week trial in September 2021. Earlier this month at Kingston Crown Court, Terzyan was sentenced  to 17 years in prison and Grochiatskij to 16 years. Details can only now be released following the lifting of report restrictions that were previously in place.

On sentencing the two men, HHJ Shetty noted that their exploitation of the BBL scheme played a part in “undermining the Government and financial institutions” and that the “the British taxpayer will be staggered and upset that part of their hard-earned tax contributions was going into the pockets of criminals.” Andy Tickner, from the Organised Crime Partnership, said: “This was a painstaking and complex investigation in which the team analysed reams of financial data and transactions. “Ultimately the case proved that these two had built a sophisticated, large-scale money laundering system which saw them transfer £70m worth of criminal cash out of the UK.

“They did so by setting up hundreds of bogus companies and utilising an international network of criminals under their control. “To top it off, they stole over £10m from British taxpayers in what is believed to be one of the largest Bounce Back Loan frauds since the scheme was introduced in 2020. “These men and their network played a vital role in enabling other criminals to conceal and access their illicit earnings. The removal of this service will have been a massive blow to organised criminals in the UK and globally.” The financial investigation into the two men remains ongoing. So far, the OCP has obtained freezing orders on four bank accounts which contained around £180,000 in total. Of this, £17,000.00 has been forfeited, as it was assessed to be recoverable property.

The government failed to guard properly against fraud in its £47bn Covid emergency lending programme for small businesses, opening itself up to billions of pounds of losses, a watchdog has said. The bounce-back loan scheme launched in May 2020 and did not include credit checks or fully verify the identity of small businesses applying for loans, the National Audit Office, which scrutinises public-sector spending, said.

“Government prioritised getting bounce-back loans to small businesses quickly but failed to put adequate fraud prevention measures in place,” said Gareth Davies, the NAO’s comptroller and auditor general. “One impact of these decisions is apparent in the high levels of estimated fraud.” The government launched the scheme at the start of the pandemic to stop the collapse of small businesses.

Firms could borrow up to £50,000 or or a maximum of 25% of annual turnover from accredited banks. About a quarter of UK businesses applied to the schemeand 1.5m bounce-back loans – which were 100% guaranteed by the government – worth £47bn were made. In March, Britain’s business ministry, which ran the programme via the British Business Bank, a state lender, estimated that 37% of the loans would not be repaid and that 11% came from fraudulent applications.

A subsequent investigation by the accountancy firm PwC in October revised the fraud rate down to 7.5%, although the NAO said it had not had time to check this estimate itself. Other countries are also investigating the misuse of emergency loans issued during the pandemic. Meg Hillier, the Labour chair of the cross-party public accounts committee, said the government had done too little to reduce “colossal risks of fraud and error”.

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How is fraud being committed?

There have been a number of articles written recently about Bounce Back Loans being used to fund luxuries such as ‘supercars’. Car Dealer Magazine have spoken to several top end car dealers, reported in its article of 21 June, who all confirmed this definite trend.

One said “he’d sold cars to clients who had used Bounce Back Loan cash to fund part of the deals and said he believed businessmen had even used dormant companies to raise cash at low rates to splash out”. Another explained, “three customers in a row told me they were using the Bounce Back Loans to put down deposits on the cars they’ve been wanting for years”

The lines between what is and what isn’t company money can easily be blurred. Liquidators regularly deal with directors of insolvent limited companies, who routinely use the company bank account as an extension of their personal bank account. Sometimes the first time a director becomes truly aware of the implications of that is when a liquidator asks for the many thousands of pounds of those transactions to be repaid.

The Daily Record have quoted a shop owner in Glasgow as saying, “so many businesses will die and the debt will die with them. Then there will be others that just don’t pay it back and will test the Government’s resolve in chasing them for it. If you’ve got that mindset it’s like free money.”. This is most definitely not true and a very dangerous way to view the situation.

Money laundering

Do not forget your lender has a legal duty, as part of its Money Laundering obligations, to report to The National Crime Agency if they have a suspicion that you have obtained or you are using a Bounce Back Loan fraudulently. The matter would be investigated and you could face criminal prosecution. Your accountant or Bookkeeper has a similar obligation to report any suspicion of fraud.  Those supervised by the ATT can find more information on their anti-money laundering obligations here. Another relevant point is that a motor trader who is regulated as a ‘High Value Dealer’ (a business that receives the equivalent of 10,000 euros or more in cash for the sale of goods) has a similar duty.

Is your company solvent?

The Bounce Back Loan was introduced to quickly and efficiently provide funding to a business in difficulty due to COVID-19. We would not recommend seeing this as an opportunity to pay back loans from yourself to your business or to borrow money from the company.

Why?

If your business has trading difficulties, becomes insolvent and is not able to recover from that position then it could be placed in a formal insolvency process. The appointed insolvency practitioner will need to identify the point in time when the company was last solvent. They must then review the activities of the business and establish the reasons for the failure of the business. Is there a risk you have applied for a BBL when your company was ‘technically’ insolvent but you didn’t know? Has your company become insolvent from your subsequent actions after taking the loan eg you taking a loan from the business?

How to find out if your company is insolvent

Balance sheet insolvency – a company is insolvent if it does not have sufficient assets to discharge its debts and liabilities. In simple terms – is the total of what you owe more than you own? The easiest way of identifying this is if a company has positive reserves on its balance sheet Cash-flow insolvency – when a company cannot make a payment when it is due. This will often be highlighted by a demand for payment by a supplier or lender the business is unable to meet.

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