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The COVID-19 pandemic was a global crisis on a level most of us had never experienced before. While there are plenty of stories about how it brought out the best in many of us, it also exposed the worst in others. An investigation by Transparency International UK, and an article in the Journal of Finance, Forthcoming, shows how OpenCorporates data was used to identify the people and companies that took advantage of a global emergency for personal gain. This is the story of how fraud and corruption thrived in the chaos of COVID-19, and how the use of open legal-entity data can prevent this from happening in the future.

The UK COVID-19 contract scandal

As the pandemic began, the UK government moved quickly to secure personal protective equipment (PPE) and other critical supplies, spending billions in a matter of months. However, an investigation led by Transparency International UK exposed deep-rooted corruption and questionable decision-making in the procurement of these contracts.

How public money was misused

Using the OpenCorporates’ Reconciliation API to clean company records, Transparency International was able to reveal several red flags in contracts worth £15.3 billion:

1. Political connections:
   • At least 28 contracts showed that a staggering £4.1 billion were given to companies with known political connections to the UK government. This included firms directly linked to members of the (then governing) Conservative Party or individuals with ties to key decision-makers.
   • For example, one contract was awarded to a company that had no prior experience in supplying PPE, but whose directors were known donors to the Conservative Party. This company received over £250 million for PPE that failed to meet safety standards, highlighting a severe breach in the public procurement process.
2. The ‘VIP Lane’:
   • A so-called ‘VIP lane’ was established to fast-track contracts for PPE. A total of 51 contracts, worth over £4 billion, went through this channel. Many of these contracts were awarded to companies with direct political affiliations.
   • The ‘VIP lane’ not only sidelined companies with proven track records but also led to massive financial waste. In one instance, a firm with zero experience in PPE production was awarded a £120 million contract, only to deliver defective masks that had to be discarded.
3. New and inexperienced suppliers:
   • Alarmingly, nearly £500 million in contracts were given to companies that had been in existence for less than 100 days. These companies, often hastily set up to capitalise on the sudden demand, lacked the experience or capacity to deliver on their commitments.
   • An illustrative case is that of a company registered just 44 days before receiving a contract worth £50 million. The company’s only employee at the time was its founder, who had no background in medical supplies or logistics.
4. Absence of competitive bidding:
   • Over £30.7 billion worth of contracts were awarded without any competitive process, accounting for nearly two-thirds of the total COVID-19 procurement. This disregard for standard procedures opened the door wide for inflated pricing, substandard goods, and a lack of accountability.
   • The investigation found that many of these contracts were marked by poor performance, with significant delays and substandard goods that ultimately endangered the lives of healthcare workers.

PPP Fraud in the United States

Across the Atlantic, a different but equally troubling story was unfolding. In the United States, the Paycheck Protection Program (PPP) was launched to provide financial relief to small businesses struggling to survive the pandemic. But instead of just helping those in need, the program became a hotspot for fraudulent activities, particularly involving FinTech lenders. 

Known for their ability to quickly process loans using digital platforms, these lenders became a significant player in the PPP scheme. At first, their involvement seemed like a win-win, as they provided fast and accessible loans to the businesses that need it most. However, A paper published in the Journal of Finance, Forthcoming, using OpenCorporates data to confirm details on state business registrations, revealed the ugly truth.

Suspicious loans: Loans facilitated by FinTech companies were found to be over three times more likely to exhibit signs of fraud compared to those managed by traditional banks. These red flags included mismatched business names, incorrect addresses, and unusually large loan amounts for newly established entities. A report from the House Select Subcommittee on the Coronavirus Crisis highlighted that 1.41 million loans, valued at $64.2 billion, had indicators of fraud. This was a massive proportion of the total loans disbursed under the PPP scheme, raising serious concerns about the integrity of the program.

Lack of oversight: FinTech companies often lack the rigorous regulatory frameworks that govern traditional banks. This lack of oversight became a significant issue during the PPP rollout. In their eagerness to approve as many loans as possible, some FinTech lenders failed to perform even the most basic checks. Investigations revealed that several FinTech companies had delegated loan approvals to automated algorithms that prioritised speed over accuracy. In one instance, a FinTech lender was found to have approved hundreds of loans to non-existent businesses, resulting in millions of dollars in fraudulent claims.

The role of open data in fighting fraud

The corruption and fraud exposed during the pandemic are not isolated incidents; they are symptoms of a broader problem, a lack of transparency in how public funds are managed. Open data is a powerful tool for:

1. Empowering Investigations:
   • Transparent, accessible company data is crucial for journalists, researchers, and watchdog organisations. It allows them to track financial flows, identify suspicious patterns, and hold individuals and companies accountable for their actions.
2. Enabling better governance:
   • Governments can use open data to enhance their procurement processes, ensuring that contracts are awarded fairly and competitively. By having access to clear company ownership structures and histories, officials can avoid awarding contracts to politically connected firms or those with no track record.
   • Open data also aids in policy-making, providing lawmakers with the information they need to close regulatory loopholes and implement stronger safeguards against fraud.
3. Restoring public trust:
   • The misuse of public funds, especially during a crisis, undermines public trust in government institutions. Transparency is key to rebuilding this trust. When people know how their money is being spent, they are more likely to support government initiatives and comply with public health measures.
   • Open data fosters accountability, ensuring that those who seek to profit from panic are identified and brought to justice.

Turning lessons into action: Demand for accountability and the urgent need for regulation

The scale of this misuse of public funds to purchase PPE has prompted serious calls for action. Transparency International UK is urging a full investigation by the National Audit Office and other government bodies. The findings from this investigation are expected to play a critical role in the ongoing COVID-19 inquiry.

The PPP fraud also highlights a critical issue in the world of financial innovation: while technology can increase accessibility, it also creates new opportunities for fraud if not properly regulated. The findings have led to calls for tighter controls and greater scrutiny of FinTech firms, especially for those involved in government-backed financial programs.

The pandemic has shown us the critical importance of transparency, accountability, and vigilance in protecting public funds. As we navigate future crises, these lessons must guide our actions to ensure that funds meant to serve the public good are not syphoned off by fraudsters and corrupt entities. By leveraging open data, we can create a more transparent world where public money is safeguarded, and those who attempt to exploit crises for personal gain are held accountable. Now more than ever, it is clear that transparency is not just a tool, it is a necessity.

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