The Cabinet Office has enlisted the help of a fintech company to help the UK government detect fraud in Covid-19 loan schemes and help tackle financial crime more broadly.
Quantexa, a fintech headquartered in London that specialises in using data analytics and artificial intelligence to help its clients combat fraud, said in an announcement that the Cabinet Office is using its ‘Contextual Decision Intelligence’ (CDI), ‘entity resolution’ and ‘network analytics’ technology.
Government officials are working with Quantexa to ‘pinpoint’ both businesses and individuals suspected of fraud – something the fintech company says would be ‘impossible or impractical’ for manual processes to achieve.
‘With CDI, data becomes more accessible and datasets from many sources join together to reveal real-world illicit behaviours bolstering the ability to detect and deter future fraud,’ Quantexa states. ‘The software can reveal hidden connections and relationships between people and organisations, surfacing suspicious activities for future investigations’.
Fraud accounts for 40 per cent of all crime across the UK, and the Cabinet Office estimates that fraud and error cost the public purse up to £51.8 billion every year. The Cabinet Office estimates that undetected fraud and error could cost the taxpayer up to £25 billion a year – before any losses to Covid-19 schemes are taken into account.
Committee’s warning on Covid-19 loans
In a report published in June, the UK Parliament’s Public Accounts Committee warned that government ‘significantly increased’ taxpayer exposure to fraud and error by decisions to drop basic fraud and error checks in paying out Covid-19 loans, and to support people and businesses that it had no prior relationship with.
The Department for Business, Energy & Industrial Strategy (BEIS) estimates the UK’s Bounce Back Loan Scheme (BBLS) could cost the taxpayer £27 billion (about $37bn) in fraud or credit losses, with the 100 per cent taxpayer guarantee leaving the department ‘reliant on banks that it admits lack incentives given it is not their money on the line’. The Committee said it was essential the government recovered monies paid out in fraud or error but warned on the inconsistency in departments’ approaches to dealing with the consequences of fraud and error that can make enforcement appear unfair to the public.
Quantexa’s CDI technology has to date been predominantly used for anti-fraud purposes by major international banks including HSBC and Standard Chartered. The company’s chief executive is Vishal Marria, who worked for professional services company EY before setting up Quantexa in 2016. Lord Jonathan Evans, who was head of British security service MI5 from 2007 to 2013, is on its advisory board.
“The Covid loan schemes were designed to help the nation at a time of deep economic need, and we are honoured our Contextual Decision Intelligence technology is supporting the UK government’s tenacious efforts to fight fraud,” said Marria in Quantexa’s announcement of its appointment. “CDI is invaluable when organisations need to dig deeper for better intelligence and insights, spot hidden risks and opportunities, and make better decisions.”
Quantexa’s one-year contract with the Cabinet Office is worth £362,280 (about $496,000) and has been running from July.
Governments’ fintech use growing
The UK government’s Counter Fraud Function comprises about 16,000 professionals, of whom about 90 per cent work for HM Revenue & Customs (HMRC) or the Department for Work & Pensions (DWP). Launched almost three years ago, its primary role is to set standards, provide expert advice, build capability and deliver managed services, such as the Quantexa contract. Other tech-based solutions to tackle fraud used by the UK government include Spotlight, an online automated due-diligence tool that ‘highlights areas of risk to inform grant-making decisions’.
In a blog post published in July, Quantexa describes government tax agencies’ growing interest in analytics technology beyond the UK. It highlights Belgium as an example, stating that tax losses from VAT ‘carousel fraud’ had been reduced by an estimated 98 per cent through the use of CDI technology. ‘In this type of tax fraud, fraudsters rely on creating a network of shell companies and executing rapid financial transactions that result in their collecting VAT tax credits or refunds that were never actually paid,’ Quantexa states. ‘Tax investigators have been able to quickly identify links and early warning signals to dramatically improve enforcement and block the fraudsters.’
The appointment is the latest example of the UK government procuring the services of fintech companies and solutions.
For example, Global Government Fintech has revealed a series of developments over the past 14 months about how HMRC is engaging with financial technology, including the appointment of London-based fintech company Ecospend, to incorporate open banking into its own operations. Separately, the Crown Commercial Service (CCS) has created a new ‘category’ for ‘Debt, Fraud and Error’ solutions, with a focus on the use of analytics and data. In March, the cross-government procurement agency told Global Government Fintech that it was looking to ‘bring fintech to the fore’ as part of a newly created framework of ‘debt resolution’ providers.
Quantexa announced in June that it had partnered a UK rail firm, Govia Thameslink Railway (GTR), ‘to help stem the rising tide of rail fraud’.
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‘How can fintech solutions help governments tackle fraud, error and debt?’
Global Government Fintech is hosting a webinar on 16 November 2021 in partnership with Mastercard.
Our confirmed speakers are: Martin Karro of the State Shared Service Centre – Ministry of Finance, Estonia; Ivana Gordon of the UK Cabinet Office; Juha Kuusala of Finland’s Tax Administration; & Olga LaBelle, vice-president – government engagement at Mastercard USA. The webinar will be chaired by former UK senior civil servant Siobhan Benita.
Public servants can register here for free to attend.