Introduction

On the 8^th of July 2020 the first reported arrest took place in the West Midlands of a 57-year-old man suspected of ‘furlough fraud’. The arrest and search of his property has been reported widely in the national media. It was reported that following arrest the man had his computers, digital devices and documents seized in relation to an alleged £495,000 fraud. His bank accounts have been frozen.

Speaking of the arrest to the media Richard Las, acting director of the Fraud Investigation Service at Her Majesty’s Revenue and Customs (‘HMRC’), commented: 

 “The vast majority of employers will have used the [job retention scheme] responsibly, but we will not hesitate to act on reports of abuse of the scheme”. “This is taxpayer’s money and any claim that proves to be fraudulent limits our ability to support people and deprives public services of essential funding”.

Since the arrest, the Policy Exchange Think Tank have produced a Report estimating that fraud and error in relation to the Furlough Scheme could have cost the taxpayer between ‘£1.3bn and £7.9bn’. 

Given the eye-watering amounts of money involved and the suspected loss to the public purse, it is little wonder that a government spokesman has been quoted as saying ‘we are using every tool and piece of intelligence to prevent, detect and disrupt fraud. Where it still gets through, we are finding and pursuing those who commit it’.  

As the Furlough Scheme was brought in so quickly combined with the ease in which it could be accessed, it was always open to abuse. The fact that the Furlough Scheme may have been abused by some, will mean many others will have to go through the scrutiny of an HMRC investigation and potential prosecution. It is with that in mind that we see furlough fraud, or suspected furlough fraud, as the coming storm to hit the criminal justice system.

What is the Furlough Scheme?

The Coronavirus Job Retention Scheme (‘CJRS’), commonly referred to as the ‘Furlough Scheme’, was announced by Government on the 20^th of March 2020 as part of a package of measures designed to support businesses in retaining employees during the COVID-19 pandemic.

The Furlough Scheme allows businesses to claim (for the period from the 1^st of March 2020) financial support for up to 80% of an employee’s salary to a maximum of £2,500 per month. A ‘furloughed’ worker would then receive 80% of their wages funded by the government, with the employer having the option to pay the 20% difference.  

Figures as of the 30^th of June 2020 show that some 9.4 million employees had been placed on furlough during the COVID-19 crisis. Some 1.14 million employers made at least one furlough claim during the period. The total claimed equated to £26.5 billion. 

Types of Furlough Fraud

Given the widespread belief that the Furlough Scheme has been abused by some, what types of claims are likely to face scrutiny? 

The nature of some claims will render them criminal. Obvious examples being: 

1. Claims being made for employees who continued to work for the business during the period; 
2. Claims being made in respect of employees who were no longer working for the business having left during the pandemic; 
3. Claims being made where staff were recruited and immediately furloughed purely to make claims for payments under the scheme;
4. Claims being made where employees have returned from authorised leave, e.g. sick leave, in order to benefit from the furlough scheme; and
5. Claims being made and part of the money being retained by the business and not being passed on as ‘furlough’ payment to the employee. 

However, not all erroneous claims will be as ‘clear cut’. Potential issues may arise in a variety of circumstances that could face scrutiny, such as: 

1. Claims being made for employees who are asked by the business to attend weekly/fortnightly or monthly meetings for the purpose of maintaining working relationships;
2. Claims being made for employees who continued to access and respond sporadically to workplace emails/ letters when not under instruction to do so; 
3. Claims being made for employees who continued to work, despite being directed by the business not to do so. 

The above examples are, perhaps, the tip of the iceberg for the types of claims which will face scrutiny and potential prosecution, but the breadth of such examples shows how businesses could quite easily fall foul of the rules whether intentionally or mistakenly. 

Criminal Offences

The range of offences that could cover such conduct is equally wide-ranging, whether aimed at businesses, directors, or individuals. Cases could be prosecuted under:

1. The Fraud Act 2006, with the most obvious being Fraud by False Representation under section 2; 
2. Money Laundering, under sections 327-329 the Proceeds of Crime Act 2002;
3. Failing to Prevent Facilitation of UK Tax Evasion offending, under section 45 of the Criminal Finances Act 2017; and 
4. Cheating the Public Revenue, under the Common Law. 

Each offence involves very careful scrutiny of the alleged wrongdoing combined with the state of mind of the alleged wrongdoer. 

Conclusion

The pursuit of the businesses, directors and individuals who have abused the furlough scheme means others, sadly, will get caught up in the scrutiny. It is fundamental that all continue to keep and maintain full and complete records of all their claims under the scheme, the reasons for the claims, and identify any discrepancies.  The coming storm of ‘furlough fraud’ scrutiny, investigation, and potential charge is on its way.

Daniel Walker

Nigel Edwards Q.C