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In Focus Risk


‘Due diligence does not need to stand in the way’


In the current circumstances, businesses need loan cash quickly in order to survive, but modern technology and techniques mean that this should be achievable


John Dobson Chief executive, SmartSearch


There have been a series of reports recently about fraudsters targeting the government’s ‘bounce back loan scheme’ (BBLS). This should not come as a surprise: loan guarantee schemes of this sort are certain to attract fraudulent borrowers. It is in many ways similar to a corporate version of the benefits system, where the problem of fraudulent claims is well documented. Criminals will be looking for any sign


that the guard has been lowered as a result of the government’s eagerness to keep the economy moving, and lenders’ desire to do business. Reports to date indicate that this is indeed the case, with some lenders failing to conduct due diligence on applicants. Lenders would be wise to consider whether


this means they will be fully protected if a borrower is subsequently discovered to be engaged in money-laundering. Will the Treasury still stand behind any losses in those circumstances? There will be strong political pressure


against such a move, not to mention that it could in effect mean that public funds were, albeit inadvertently, funding all manner of criminal activities.


The challenge lenders face is not so much


to establish creditworthiness but to validate that the applicant is a legitimate business and is eligible for the loan. Unlike the allied ‘coronavirus business interruption loan scheme‘ (CBILS), where borrowers are required to submit detailed information, BBLS is available on a self-certification basis. The advantage of this is obviously that the


loans can be delivered much more quickly. Speed may well be of the essence in some cases, but this should not be at the expense of performing proper due diligence. More to the point, there is simply no need for it to be. Full Know Your Customer and anti-money laundering (AML) checks can be carried out without holding up the process at all, and it can all be performed remotely, with no need for any hard-copy documents to change hands at all. An incorporated business has verifiable


history at Companies House along with registered directors, one of whom is likely to be the loan applicant. The directors will themselves have verifiable history at their current home address via credit reference data. Bringing these sources of information


together provides pretty good evidence of a bona fide business run by real people. The final check should be that the bank account into which funds are being transferred belongs to that company. All these checks can be performed


automatically in a matter of seconds on a standard SmartSearch business AML check. Screening against global Sanctions and Politically Exposed Persons (PEP) lists


40 www.CCRMagazine.com


Unlike the allied ‘coronavirus business interruption loan scheme‘ (CBILS), where borrowers are required to submit detailed information, BBLS is available on a self-certification basis


are thrown in for good measure, along with ongoing daily monitoring. Unincorporated businesses are even easier


to deal with, which is just as well as there are several million of these. All that is needed is to verify that the individuals have lengthy history at their recorded addresses, and this can be done using credit reference data. For added security, the system can run


biometric facial recognition checks, and ‘triangulate’ that information with other fraud checks, using information such as the email addresses and mobile phone numbers associated with that individual. The secret here is to ‘Keep It Simple’. If


lenders automate their due diligence, they can focus their resources on dealing with the small minority of cases which require further action. A reliable digital process like the one outlined above will quickly approve 95% of applicants while satisfying all the necessary AML requirements. This means that their compliance effort can be targeted at the remaining 5%, where fraudulent activity is going to be concentrated. CCR


September 2020


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