According to the UK Parliament’s public accounts committee report on Greensill released in November, checks from the British Business Bank to approve the company as a lender under the government’s COVID-19 support program were “woefully inadequate” .
This lack of scrutiny, curiosity and skepticism could end up costing taxpayers Â£ 335million (US $ 445million), according to MPs.
When the pandemic caused a lockdown in March 2020, the UK government introduced business support to help businesses stay afloat. These programs offered lenders an 80% government-backed guarantee in the event of one of their borrowers defaulting through the British Business Bank, established in 2012 to provide financial support to small and medium-sized businesses.
To get money to businesses quickly, the bank streamlined its lender accreditation process by performing limited due diligence and relying more on audits after loans are granted.
MPs found the bank also relies on a narrow evidence base and takes information from Greensill and other âface valueâ lenders. He relied too much on the work of others to accredit Greensill, including auditor Saffery Champness, whose work is currently under investigation by the UK Financial Reporting Council.
The bank had previously acknowledged that “applying a less streamlined process could have caused it to further question Greensill’s claim.”
The decision to accredit Greensill enabled it to grant Â£ 418.5million (US $ 556million) in business loans, of which Â£ 350million went to the Gupta Family Group (GFG) Alliance, a group companies owned by steel and mining magnate Sanjeev Gupta. . The GFG Alliance is under investigation by the UK Serious Fraud Office for suspected fraud, fraudulent trade, money laundering and its financial dealings with Greensill.
In the report, MPs found the bank “insufficiently curious” about media reports questioning Greensill’s lending model, ethical standards and overexposure to borrowers until the money was gone. transferred.
For example, the bank did not verify which companies Greensill was offering to lend to, nor did it explore the concerns of other government departments and regulators about Greensill, including those who were evaluating it for access to other programs.
The bank also failed to check with the company’s credit insurer – a critical misstep given that the company’s collapse was due in large part to its insurers’ refusal to renew coverage. loans that the company gave.
MPs were particularly scathing about the bank’s admission that they were ‘very surprised’ when they noticed Greensill had made seven loans totaling Â£ 350million to borrowers within the Alliance GFG – six of which were issued the same day – which appeared to “flagrantly violate” the Â£ 50million (US $ 66million) loan limit to the groups.
The bank is unable to confirm how this money was used or in which country it was spent.
On October 12, the British Business Bank launched an investigation into Greensill’s compliance with the program rules. The investigation is ongoing.