Skeptics of generous emergency loans backed by the Swiss government are seeing their fears of rampant abuse born out. As the foot soldiers of the funding facilities, banks are frequently lodging reports to authorities.
Misappropriation of funds in the more than $40 billion program to shore up the Swiss economy with small business loans is the exception, according to the Swiss government. A Bern-based finance commission last month identified 400 indications (in German) of potential wrong-doing after reviewing 94,000 coronavirus loans – on the order of 88 million Swiss francs ($93 million).
This represents less than one percent of the credit facility launched late in March, according to spot checks of roughly three-quarters of loans granted by mid-May. Forensic experts argue the relatively small number belies a larger problem: «In terms of abuse of corona loans, we see our expectations, unfortunately, coming true,» Veit Buetterlin of consulting firm Alix Partners in Zurich told finews.com.
Cases Are Tip of Iceberg
The white-collar crime expert had warned five weeks ago that abuse of the loan scheme could reach ten percent of funds granted in a lending blitz which promised loans in as little as 30 minutes. Buetterlin helps Swiss banks, enlisted as foot soldiers in the government's $40 billion loan flood, to professionalize and adapt their compliance systems.
The consultant said prosecutors in several cantons have already launched investigations of suspected abuse. «Beyond that, we assume a material number of unreported cases of fraud,» Buetterlin said.
Authorities Flooded
Cantonal authorities queried by finews.com back Buetterlin's views: Geneva's prosecutor said it is looking into roughly ten such cases, while Basel is surveying about a dozen, it said, in what it estimates to be about 2.5 million francs in scammed money. St. Gallen has 11 cases pending, on cases ranging from 30,000 franc loans to 145,000 francs; most of the cases involved debtors inflating revenue to get more funds.
In Zurich, authorities report an accumulation of suspected scams related to corona loans: cantonal police said it is investigating roughly 30 cases in close cooperation with local prosecutors. Last week, authorities arrested five people in Aargau, Zug, and Zurich on suspicion of scamming (in German) the loan scheme. Officials in business centers like Zurich are bracing to deal with the fallout, but smaller and more remote cantons aren't inoculated against scams, experts warn.
Offshore Banking's Lure
Inflating revenue seems to be endemic; the Swiss finance commission investigating abuse spotted discrepancies between loan application figures compared to those submitted separately for value-added tax on every tenth loan, it said. Buetterlin also identified puffing up income as the most common sleight, though he noted that Switzerland is also seeing cases of organized crime involving the credit nozzle.
Emergency loans landing in the hands of 'Ndrangheta or other organized syndicates is the horror scenario for Swiss banks backing the loan scheme. Swiss banks face an additional layer of complexity on funds flooding in from foreign corona aid programs – many of which are finding their way to the world's largest offshore haven.
Low-Grade Suspicions
Banks were uneasily co-opted into taking the risk – which is the main reason they have raised alarm so frequently. Their willingness to flood authorities with suspicious cases represents a massive test for Switzerland's system of combating fraud and money laundering. «Larger institutes, in particular, are frequently making use of the notification system – they are registering even low-level suspicions,» Buetterlin said.
The pressure is in turn passed on to the MROS, a government agency tasked with fighting money laundering that is attached to the Swiss federal police, Fedpol. MROS has seen a spike in reports in recent years, Buetterlin said; Fedpol didn't respond to a request for comment.
Officials are beginning to look at the end of the loan facility, which shuts on July 31. The next frontier of scams is likely to be the procurement of corona-related material during the frenzied weeks of March and April when local and federal officials globally bid and vied for protective gear like masks, medicine, and ventilators, one expert said.
