INDUSTRY CANADA LOSES $2.2 MILLION IN ALLEGED FRAUD: SMALL BUSINESS LOANS

(Canada) - An Industry Canada program was bilked out of millions of dollars by a tight-knit network that took turns applying for large loans to start bogus businesses, the RCMP said yesterday.

A group of 14 people, many of them related by blood and marriage, received 10 loans totalling more than $ 2.2-million to start businesses - some of them supposedly operating at the same time from the same address, police allege.

The loans were covered by the Small Business Loans Administration, an Industry Canada program intended to encourage small business start-ups and expansions.

The program does not give the money directly to the supported businesses, but rather pays invoices from their suppliers for equipment and building improvements.

The 10 men and four women charged by the RCMP are accused of receiving an average of $ 220,000 per loan from 1995 to 1999 to start 10 dry cleaning businesses and food import companies.

Each business would then receive a series of highly inflated invoices from co-conspirators, typically one for a large equipment purchase and another for an expensive building improvement, police allege.

The invoices would be paid from the loan money and the business would close down within months - if it ever really opened - and then default on the loan, police allege.

"They got away with it for a while," said Sergeant Learie Keith Gairy, an RCMP Commercial Crime investigator probing the case.
"The killer was when all of these loans ended up at Industry Canada's desk at the same time. If they weren't so greedy, doing so many, they might have gotten away with it because they wouldn't have set off any bells."

Police allege the fraud conspiracy included:

• Turning a derelict forklift valued at less than $7,000 into $70,000 cash by twice selling it for $35,000 to two different food importing companies started through the loan program;

- Turning a cheap toilet and sink installed in a closet, with negligible value, into $100,000 cash by twice billing $50,000 for the same installation to two different dry cleaning companies operating from the same address;

- Purchasing dry cleaning equipment for about $90,000 from a legitimate firm and then reselling it to one of the bogus companies for about $200,000.

Although there appears to be no links to traditional organized crime groups in the case, the National Post has learned many of those charged had assistance preparing a respectable business plan, needed for loan approval, by the same individual, someone who has not been charged.

Sgt. Gairy would only say that the investigation is ongoing.

The alleged swindle took police two years to chase because of the cold trail left for police to follow.

Each of the businesses had shut up shop long before the loan had defaulted and the paperwork arrived at Industry Canada, raising suspicions.

The loans were obtained from different banks or branches in the Toronto area.

Francesca Piredda, media relations officer for Industry Canada, said administrators of the program called police as soon as suspicions arose. "The SBLA cooperates fully in any investigation and, of course, we take this issue very seriously," she said.

Ms. Piredda would not comment on how the alleged fraud could go undetected for four years nor whether there are any specific steps the department is taking to prevent fraudulent loans from being approved.

Source: National Post