State-backed loans of €1.2m subject to alleged fraud

A total of 11 loans with a combined value of €1.21 million backed by the State-owned Strategic Banking Corporation of Ireland (SBCI) have been subject to an alleged fraud.

The 2022 SBCI annual report shows that three Government departments face a combined potential loss of €860,000 from the alleged fraud perpetrated in 2021.

A note attached to the financial accounts discloses that SBCI has been notified “that a small number of SBCI-backed loans may have been approved by an on-lender on the basis of fraudulent financial information presented by certain borrowers”.

The alleged fraud has been referred to the Garda.

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The note states that following investigations, the SBCI established that two risk-sharing schemes had been affected.

The two schemes for small and medium-sized businesses (SMEs) are listed as the Covid-19 credit guarantee scheme (CCGS) and the Brexit loan scheme and Covid-19 working capital loan scheme (BLS/CWCS).

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A total of 11 loans had been obtained by certain borrowers utilising fraudulent identification documents and/or fraudulent financial information with a total value of €1.21 million, the note states.

The annual report states that eight of the alleged fraudulent loans were obtained under the CCGS to a total value of €950,000.

The on-lender is liable for €190,000 of the losses and the remaining losses of €760,000 potentially fall to be borne by the Department of Enterprise, Trade and Employment on whose behalf the SBCI operates this scheme, according to the annual report.

A further three of the alleged fraudulent loans were obtained under the BLS/ CWCS to a total value of €250,000, it says. In these three cases, according to the note, the on-lender is liable for €50,000 of the losses, the European Investment Fund (EIF) guarantee covers €100,000 and the balance of €100,000 falls to be borne by the Department of Enterprise, Trade and Employment and the Department of Agriculture, Food and the Marine pro-rata according to their respective contributions to the BLS/CWCS.

The report notes that “upon notification of the suspected fraud, the SBCI engaged with the on-lender to investigate the matter” and the affected loans “were immediately reported to the relevant authorities and investigations are ongoing”.

The report states: “An independent review was undertaken by the on-lender’s internal audit team and the SBCI legal team reviewed the loan documentation.”

The on-lender has “provided an attestation to the SBCI confirming that the on-lender had applied its standard policies and procedures in the underwriting of the fraudulent loans”, it says.

Following its review, the SBCI was satisfied that the on-lender had applied its standard processes to the “fraudulent loans” and that the on-lender has amended its procedures to ensure, in so far as possible, such fraud does not reoccur, the report says.

The SBCI was established in 2014 to avail of both national and international funding for the purpose of making low-cost credit available to Irish SMEs and credit is provided through on-lending partners who in turn lend directly to the SMEs.

A spokesman for the SCBI said “the lender in question has referred the matter to An Garda Síochána”.

Commenting on the alleged fraud, Social Democrats TD Catherine Murphy said: “This is quite obviously a very serious matter as a loss for the State arises ... What we have here is an obvious gap in due diligence. Recognising these alleged frauds only came to light when the loans failed to perform at the on-lender’s side.”