Subsidy fraud KfW loan: be careful! - Danger of subsidy fraud when using KfW loans

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Subsidy fraud KfW loan : Caution advised! - Danger of subsidy fraud when using KfW loan

At first glance, the use of KfW loans may seem to be a temporary economic support for many companies to recover - even if only partially - from the fatal sales losses resulting from the Corona crisis. However, surprisingly, a number of things can already go wrong/go wrong during the application process, which can have criminal consequences, such as the risk of committing subsidy fraud under Section 264 of the German Criminal Code (StGB) and consequently incurring a fine or imprisonment - in the worst case, there is even the possibility of imprisonment for up to 10 years!

Therefore, particular caution is required when concluding such loan agreements. Downright affected are many freelancers, solo self-employed and small entrepreneurs who, due to economic threats to their existence, are forced to take advantage of government assistance programs, which, however, ultimately put them in an even more precarious position than before.

What are the conditions of the KfW loan and what is the risk of subsidy fraud?

Subsidy fraud KfW loan

KfW fast loan

The KfW quick loan supports any entrepreneurial activity, which includes acquisitions and investments, as well as running costs and working capital. The maximum amount of the loan is 800,000 euros. Moreover, the loan bears interest at a debit interest rate of 3% p.a. for a term of 10 years, with KfW assuming the banking risk at 100%.

The application is usually submitted via the house bank or via a financing partner. This partner checks the applicant's details, which are relevant for the granting of the loan. This includes information on the number of employees, annual sales and profit generation. Anyone who provides false or incomplete information at this stage is generally suspected of committing subsidy fraud under Section 264 of the German Criminal Code (StGB), which could lead to the initiation of preliminary proceedings.

KfW Entrepreneur Loan

The KfW Entrepreneur Loan supports companies and freelancers that have been active in the market for at least five years. Incidentally, the framework conditions of the KfW Entrepreneur Loan correspond to those of the KfW Quick Loan. However, there is the not so insignificant difference that here the KfW Bank only assumes a maximum of 90% of the liability risk. Due to the residual risk that remains with the financing partner, a more extensive examination of creditworthiness and documentation takes place, which, in connection with this, significantly increases the risk of criminal liability for subsidy fraud.

While the KfW special program was originally scheduled to run only until December 31, 2020, an extension has now been ordered until June 30, 2021. To date, over EUR 5 billion has been committed to the program. This shows that KfW loans have proved their worth, particularly during the Corona crisis. In addition, the KfW fast loan is to be extended so that it will continue to be available to solo self-employed persons and companies with up to ten employees.

Exactly what behavior is threatened with punishment in subsidy fraud?

Pursuant to Section 264 of the Criminal Code, a person is liable to prosecution who, with respect to facts relevant to the subsidy incorrect or incomplete facts performs.

This includes, in particular, false information about the company or the self-employed or freelance activity, the number of employees and the ongoing operating material and financing expenses - such as commercial rents, leases, leasing expenses.

Also, inaccurate declarations about other small grants already applied for are incorrect data. It also becomes problematic with regard to notifications on the need for support. In this respect, the applicant must state the reasons for the economic situation threatening his existence due to the Corona crisis. The applicant must be able to assert that the Corona pandemic has caused it to experience economic difficulties that threaten its existence because the ongoing income from its business operations is not expected to be sufficient to pay its liabilities. While the applicant has some latitude of judgment at this point, this is of course fully reviewable by the criminal justice system.

Incomplete data are for example, in cases where it is concealed that company losses are compensated by another company division or false statements are made about sales declines that already occurred before the Corona crisis.

Subsidy fraud can be punished with a fine or imprisonment of up to five years. The fact that even grossly negligent misrepresentation is subject to criminal sanctions under Section 264 V of the German Criminal Code (StGB) indicates the applicant's real as well as substantial risk of criminal liability.

Whether an incorrect or incomplete fact has been alleged depends on the specific information provided in the application forms and the enclosed fact sheets. A comprehensive case-by-case examination must therefore be carried out here and no blanket answer is possible.

Combination of KfW loans and Corona aid at the same time

In addition, however, many companies have recently disregarded the applicable aid ceilings when taking advantage of those KfW loans. According to the de minimis regulation issued by the European Commission (No. 1407/2013), aid may generally be granted to a company up to an amount of 200,000 euros over a period of three fiscal years. In addition, as a result of the Corona pandemic, the federal government has decided to allow a further 800,000 euros per company as aid. This means that a total amount of 1 million euros is available to companies for subsidies under these principles. This amount may not be exceeded. So if the applicant is now granted an amount without justification, the subsidy is illegal and must be refunded. Here, too, the applicant also exposes himself to the risk of committing subsidy fraud.

What is also particularly problematic is that this maximum limit is regularly quickly exceeded. Whereas up to now, in the case of KfW loans with a term of up to six years, the mere interest savings have counted as aid, in the case of KfW entrepreneurial loans, surprisingly, the entire nominal value now counts as a subsidy. This is an important factor in complying with the aid ceiling, because together with other aid such as the Corona bridging aid, the ceiling may well be exceeded quickly. Particular caution is thus required in the case of especially large loan amounts, as is the case with KfW loans. In the case of the KfW fast loan, too, even if the term is shorter, the loan counts as a subsidy with its full amount.

Recent increase in the aid limit to EUR 4 million due to fixed cost aid

However, the European Commission reacted accordingly and approved a German framework on Nov. 20, 2020, under which part of the uncovered fixed costs of companies affected by the Corona pandemic are to be covered. This raises the aid limit up to EUR 4 million per company, subject to the submission of a corresponding application and fulfillment of the conditions. Even though this framework allows additional subsidies to be granted, there is still an increased risk of becoming liable to prosecution for subsidy fraud under Section 264 of the German Criminal Code (StGB) if false information is provided in the application. Moreover, the extended maximum limit does not change the existing initial suspicion in the case of already pending investigations, since the legal reason for the previously received subsidies cannot lie in the fixed-cost subsidy that has only recently come into effect.

However, the German government is currently negotiating with the European Commission on the approval under state aid law of further aid in excess of EUR 4 million per company.

Our recommendation

The large number of applications submitted gives rise to fears that the law enforcement authorities will continue to be faced with considerable additional work. It is therefore advisable to provide accurate and detailed information even in times of crisis. If there are doubts about the eligibility to file an application or if criminal proceedings have already been initiated, it is urgently advisable to consult a lawyer immediately in order to avert the threat of criminal consequences.

What costs should I expect if I am represented by a lawyer?

Of course, legal representation by a Lawyer moneyThis is clear, but you will incur much higher costs if you are not represented. In the worst case costs You that not only Moneybut also your Freedom!

A defense in pre-trial proceedings, which ends with a dismissal of the case, costs defendants approx. 650,- EUR. However, if it is not possible to bring about a discontinuation in the course of the proceedings, but the public prosecutor's office brings charges against you, the defendants must refer to
approx. 1200,- EUR Set total cost.

If a Acquittal effects in such a case, the Costs for this even from the Treasury worn. However, only in the event of a Acquittal!

We are, of course, happy to assist affected parties nationwide with a defense. Simply contact us at 
info@kanzlei-baumfalk.de or by telephone
at +49 (0)2273 - 40 68 504.

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