Greensill Capital Potentially Breached COVID Emergency Loan Program Rules, Says NAO | Economic news


Greensill Capital potentially broke the rules of the government’s emergency coronavirus loan programs, loaning hundreds of millions of pounds to Sanjeev Gupta’s business empire and leaving the taxpayer exposed.

According to a National Audit Office (NAO) investigation, the now defunct finance company has made seven £ 50million loans to companies with links to the Gupta Family Group Alliance (GFG), which owns Liberty Steel.

Six of them were made on the same day.

This despite the fact that the rules of the program did not allow loans of more than £ 50million to a company or group without prior authorization.

The loans could cost the taxpayer £ 335million and they raised such a red flag to officials that government-backed loans by Greensill were suspended soon after.

The loans in question were made under the Coronavirus Large Business Interruption Loan Scheme (CLBILS), one of the emergency loan programs put in place by the government to help struggling businesses at the onset of the pandemic.

The government has committed to guaranteeing 80% of loans under this program.

Greensill Capital was one of 27 CLBILS accredited lenders, but one of three that were not established banks.

There has been controversy over David Cameron’s lobbying of government ministers on behalf of the struggling financial services firm

It has been approved to lend up to £ 400million under this scheme. The NAO report says it was made clear to Greensill that there was a maximum loan limit of £ 50million per group of borrowers.

Despite this, seven of the eight CLBILS loans granted by Greensill were for businesses in Mr Gupta’s business empire, totaling £ 350million.

Six of the £ 50million loans were made on the same day, September 30.

Liberty Steel's Sanjeev Gupta (file photo)
Sanjeev Gupta is Managing Director of GFG Alliance, owner of Liberty Steel

The activity was so worrying that the British Business Bank, the group responsible for accrediting lenders, decided to ban Greensill from continuing to lend on October 13.

The report also sheds light on how unusual the lending model was.

Although lenders were allowed to lend up to £ 50million, most did not, and the average loan under CLBILS was only £ 3million.

In fact, only 17 of the 698 CLBILS loans were for the maximum amount – eight of which were loaned by Greensill, making it the fifth lender in the program by value.

GFG is an unusual collection in that the companies are related in their ownership by Mr. Gupta and his family, but they are not formally part of a group.

Greensill maintained that he considered the loans to be compliant.

Greensill Capital became a household name in March when it collapsed, casting doubt on the future of its key client Liberty Steel.

There has also been controversy over former Prime Minister David Cameron’s role in lobbying ministers in the current government on behalf of the ailing financial services company.

The NAO investigation did not explore the the company’s links with the government but he reported on the “unusual” interest shown by the Department of Business, Energy and Industrial Strategy (BEIS) in the accreditation of Greensill as a lender.

The report details how updates on the accreditation process were repeatedly requested, with eight email inquiries sent in 19 weeks.

The Liberty Steel flag flies over the steelworks in Dalzell, Scotland (file photo)
The collapse of Greensill Capital has cast doubt on the future of its main client Liberty Steel

The department told the NAO it had done so because it knew Greensill could potentially provide support to Liberty Steel, and if Greensill was not accredited, it would have to consider alternatives.

The National Audit Office said the British Business Bank was in a hurry to get money to businesses as quickly as possible and that meant it didn’t necessarily have time to question Greensill further before accrediting him as that lender.

He explained that the bank relied more on audit checks after certifying lenders rather than due diligence beforehand, in order to speed up the process.

However, he was credited with acting swiftly and decisively when alleged violations had occurred.

British Business Bank Managing Director Catherine Lewis La Torre said: “The British Business Bank recognizes, as the report does, that in Greensill’s case, the application of a less streamlined process could have led to the bank to question Greensill’s candidacy.

“A less streamlined accreditation process, however, would have taken longer, meaning that fewer lenders could have been accredited and fewer businesses would have received the essential funding they needed.”

Meg Hillier MP, Chairman of the Public Accounts Committee, said: “Unfortunately, it’s clear that part of this mess could have been avoided with more due diligence on Greensill up front.

“As with many decisions made during the pandemic, there are important lessons for the government about the trade-off between speed and precision in its emergency response.”

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