Having the correct systems in place can prevent financial institutions and insurers supporting the illegal activities within the trade.
Financial institutions lend hundreds of millions of pounds every year to the UK passenger transport industry, playing an important role in the growth of the industry. The biggest single asset most individuals or operators have is their vehicle or fleet. Without the vital services provided by UK lenders the industry wouldn’t be able to survive, but with this role lenders have a responsibility to ensure they only support the legal side of the trade.
Following an in-depth investigation by LicensedTransportUncovered.com (LTU), we found that respectable lenders, financial institutions and insurers were not only providing their services to illegal operators, but also the assets on which they lent against or secured funding through guarantees were either worthless or were being used fraudulently.
For example, an invoice financing company provides their services against the value of a company’s invoices. In some cases the monthly invoices may only be a few thousand pounds, in others hundreds of thousands of pounds. The company providing the invoice financing thinks they have the security that if the worst was to happen they had control over the book value of any outstanding invoices through a formal charge.
But imagine if the individual or company an invoice financing company is financially supporting isn’t legal or is conducting fraudulent activities behind the scenes. In the case the company or individual isn’t licensed as required by law the invoices they produce are worthless and in the event they are prosecuted or collapse the damage to brand reputation could be significant and the financial loss significant.
Another example could involve a sole trader with a £80,000 S Class Mercedes or an operator with a fleet of vehicles valued at £1 million. Lenders who either lease or finance these vehicles would find in the event of an accident that the insurance status of the asset is void, leading to a significant financial loss.
LTU has also conducted an investigation into car clocking within the trade and found it has reached epidemic proportions. These assets could have to be destroyed in the event of a successful prosecution or at best be worth a fraction of the value of any outstanding finance, again leading to a potential significant loss.
Therefore, it is crucial that lenders and insurers only support legitimate taxi, minicab and chauffeur drivers and operators, but research is conclusive that the illegal side of the industry is obtaining significant financial support from reputable companies. LTU has found that in the vast majority of cases fraud could have been prevented if the correct safeguards were in place and due diligence had included background checks into the legal status of any potential borrower.
The misconception that if a service is being provided means it must legal has to change and this is where LTU’s experience and knowledge plays a vital role for lenders and insurers. Already fraud departments are aware of the risks associated to the trade, including organised crime and money laundering but more needs to be done. During our investigation we found that an illegal operators or sole trader could successfully open a bank account, obtain an overdraft, finance/lease vehicles and insure them without a single check being carried out into the legal status of the service.
The taxi, minicab, private hire and chauffeur industry is one of the worst regulated industries in the UK, partly down to the fact that councils are responsible for enforcing the law. As the law doesn’t enable councils to add enforcement costs onto licence fees, any investigation or prosecution costs have to be found from the wider councils’ budget. With cuts to council budgets across the UK, these financial constraints put pressure on councils to conduct investigations.
LTU can work closely with lenders to establish safety protocols in the underwriting process as well as regular training and advise where flaws in the system can be taken advantage of by unscrupulous operators or individuals. Our aim is to work with the industry to make it impossible for the illegal side of the trade to operate in the UK. This will need a joined up approach, not just by lenders but the wider industry.
Lenders have a responsibility to be proactive and tackle fraud and we can help them lead the way.