The UK government has withdrawn guarantees on £400m of loans Greensill Capital has made to companies linked to Sanjeev Gupta, the metals magnate whose business empire is under criminal investigation for alleged fraud and money laundering.
In a letter published on Monday, the British Business Bank – the public lender which administered many of the UK’s coronavirus emergency loan schemes – said the collateral backing Greensill’s loans to big business had been ” terminated” following an investigation into its lending practices. .
The British Business Bank first announced last year that it had temporarily suspended guarantees on these loans, pending an investigation into the once-high profile loan start-up’s compliance with the terms of the program. The letter to the influential House of Commons Public Accounts Committee confirms that Kwasi Kwarteng, the business secretary, accepted its recommendation to permanently end the guarantees in April.
Greensill’s collapse sparked a political scandal last year, which largely centered on its abuse of loan schemes set up to help businesses weather the pandemic. Former British Prime Minister David Cameron, who earned millions of pounds as an adviser to Greensill, found himself embroiled in the case after his intensive lobbying on behalf of the firm came under fire careful examination.
In 2020, Greensill lent £400m under the Coronavirus Large Business Interruption Loan Scheme (CLBILS), which was backed by an 80% government guarantee. All of these loans were made to companies owned or linked to Gupta. The Public Accounts Committee later said the practice appeared to “flagrantly contravene” a £50million cap on loans Greensill could make to a single company.
The British Business Bank told the FT that the bonded nature of the borrowers was “not the only” reason for the withdrawal of collateral.
“There were a number of violations that prompted our decision,” the bank added.
Greensill administrators declined to comment.
The FT first revealed in October 2020 that several Gupta-linked entities were receiving government-backed loans through Greensill. Last year, the FT reported that the metals mogul had carved up his business empire to further maximize the amount of UK taxpayer-backed loans he could get, in a plan his company has dubbed a “CLBIL restructuring”.
The withdrawal of collateral is likely to shift the losses onto smaller towns in Germany, which held deposits in a Bremen-based Greensill bank subsidiary that provided the loans. The administrator of Greensill Bank could therefore seek to challenge the end of the UK government’s backstop in order to increase recoveries for depositors.
“Whether other parties are unhappy with the result and wish to challenge it is obviously up to them, but we believe we have acted appropriately and lawfully and have carefully considered the evidence and reached a conclusion,” the British Business Bank said.
Germany’s financial watchdog has filed a criminal complaint against Greensill Bank’s management for suspected balance sheet manipulation, citing its loans to Gupta’s GFG Alliance as a matter of concern. CLBILS loans are also scrutinized by the UK’s Serious Fraud Office, which last year announced it was investigating GFG and its “funding arrangements with Greensill Capital”.
The British Business Bank declined to say whether it had shared its findings with other investigating authorities.
In 2020, Sanjeev Gupta wrote to Nadhim Zahawi – then a government minister in the Department for Business and now Chancellor of the Exchequer – thanking him for his “personally instrumental” role in facilitating taxpayer-backed loans. A spokesperson for Zahawi previously called it “flattery” in a “crushed letter”.
As well as the £400m loans under the CLBILS scheme, the British Business Bank is also investigating £15m of loans made by Greensill under a scheme for small businesses. The state-backed lender has yet to make a decision on whether to suspend guarantees on those facilities, which include a loan to a neighbor of company founder Lex Greensill.