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A Toronto Uber UBER-N driver had his bank accounts frozen after the bank became concerned that he inappropriately received more than $4.5-million in COVID-19 aid, according to a recent Ontario court case that sheds light on how unprecedented emergency-relief programs designed to offer businesses a lifeline during the height of the pandemic were abused by some recipients.

Justice Michael Penny of the Ontario Superior Court of Justice ruled that Bank of Nova Scotia BNS-T was right to freeze Rabih George Barake’s accounts, saying that Mr. Barake accessed the government loans by means of fraudulent misrepresentation.

The case of fraud is one of the few to reach Canadian courts about federal COVID programs for business. These include the Highly Affected Sectors Credit Availability Program (HASCAP) and the Canada Emergency Business Account (CEBA). Money from improperly accessed loans has been left largely unrecovered, even as federal auditors have aggressively pursued repayment from pandemic-related aid given to individuals through programs such as the Canada Emergency Response Benefit (CERB).

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In a December report, Auditor-General Karen Hogan said billions of dollars in ineligible COVID benefits are at risk of going uncollected because the federal government is doing a poor job of identifying who should pay back money in aid programs. But her report did not look at COVID loan programs for businesses.

Mr. Barake, who was primarily employed as an Uber driver, received a total of $4.58-million in HASCAP and CEBA loans, according to the Ontario court ruling. He had previously dissolved most of the 16 businesses for which he requested COVID loans. But he resurrected them, including domain names and websites, shortly before applying for and receiving the loans between March and November, 2021.

On Jan. 24 and Jan. 25, 2022, Scotiabank froze 13 of Mr. Barake’s accounts, according to the court ruling. In March, 2022, Scotia Capital, the investment arm of the bank, froze Mr. Barake’s investment accounts, valued at $1.3-million at the time.

In June, 2022, Mr. Barake sued the bank for damages of $80-million for the losses he suffered from his frozen accounts.

On June 6, Judge Penny ruled in favour of Scotiabank’s counterclaim, saying that Mr. Barake’s applications for both the HASCAP and CEBA loans were fraudulent.

Judge Penny ordered Mr. Barake to pay back the more than $4.5-million he received from the bank (plus interests and costs), along with punitive damages of $1.5-million.

The Globe was not able to reach Mr. Barake or lawyers who represented him. When contacted by The Globe, one law firm that had been connected with Mr. Barake declined to comment.

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During the time the loan programs were open to applications, more than 17,000 businesses got funds from HASCAP totalling $3.7-billion, and nearly 900,000 got funds from CEBA, totalling $49-billion.

Ottawa announced HASCAP in January, 2021. Through it, businesses that could show a year-over-year revenue decline of 50 per cent or more for any three of the past eight months could access loans that ranged from $25,000 to $1-million with low interest (4 per cent) for up to 10 years.

Businesses applied for the loans through their primary lender, but the loans were fully backed by the Business Development Bank of Canada (BDC).

The federal government opened applications for CEBA loans in April, 2020, and initially began the program by offering up to $40,000 in interest-free loans to small- and medium-sized businesses and non-profits. It later extended the program to allow businesses to receive up to $60,000.

It is unclear how much the federal government gave out in loans to businesses that did not meet the application criteria for programs like CEBA and HASCAP. However, the BDC increased its provision for “impaired” loans to $261.5-million in fiscal 2023, up from $61.5-million in 2022.

According to its 2023 Annual Report, the rise is mainly owing to “an increase in HASCAP loans that migrated from performing to impaired.”

The Auditor-General’s report in December looked only at aid programs, like CERB, in which repayment has been pursued more vigorously than federal lending programs like HASCAP or CEBA.

The Ministry of Finance did not comment directly on the $3.86-million in HASCAP and $720,000 in CEBA loans Mr. Barake accessed from Scotiabank.

But Caroline Feggans, a spokesperson for Finance Canada, said that “the federal government has zero tolerance for fraud.”

“Businesses that ultimately did not meet the eligibility criteria for a CEBA loan have been contacted and are required to repay their loans in full by December, 2023,” she added.

In July, the Ontario Provincial Police’s Serious Fraud Office charged five people in a case involving similar loans designed for small businesses by the provincial government: the Ontario small business support grant; the property tax program; and the energy cost rebate program.

The OPP said that the province’s Ministry of Finance deemed the applications from the five individuals suspicious and referred them to the Serious Fraud Office for investigation.

The provincial police charged each with counts of fraud over $5,000, among other charges including possession of property obtained by crime over $5,000.

Of the $3.8-million of HASCAP loans Mr. Barake was able to access through Scotiabank, $3.5-million was able to be traced to various investment accounts, including Mr. Barake’s personal Scotia Capital investment account, and $155,000 to accounts he held with Questrade. It is unclear how much of the money has been recovered.

Mr. Barake is seeking an appeal of the ruling, arguing in part that he wasn’t given enough time to prepare his case.

Scotiabank said in a statement that it is not able to disclose details regarding continuing legal matters.

Editor’s note: This article has been updated to note that Rabih George Barake is appealing the court's ruling, as well as to clarify The Globe's efforts to contact Mr. Barake and lawyers who represented him.

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