Thousands of pounds are believed to have been diverted from the UK government’s Covid rebound loan scheme to fund terrorist activities, according to a court case which began in London on Tuesday.

A former pub owner, Tarek Namouz, 42, faces eight counts of entering into a terrorist financing deal between November 2020 and May 2021. He is also charged with two counts of possession of terrorist information relating to videos.

Prosecutor Jonathan Polnay told the court that the defendant is alleged to have sent “the proceeds of coronavirus rebound funding loans to Isis” in his summary of the case, referring to the Islamist group.

The rebound loan scheme was put in place by the government during the first pandemic lockdown to provide quick financial relief to small businesses.

Namouz appeared at the Old Bailey via video link from Wandsworth Prison.

Judge Sweeney described it as a “serious matter”, which would be heard by Judge Peter Lodder, the Richmond Recorder sitting at Kingston Crown Court.

A plea and case management hearing has been set for July 22, with a two-week interim trial starting on November 21. The accused, who spoke only to confirm his identity, was remanded in custody, according to the Press Association.

The court case may highlight the potential misuse of billions of pounds of government-backed funds that were supposed to be earmarked to rescue UK businesses during the pandemic.

Dozens of cases of suspected fraudsters took money from the bounce-back loan scheme to buy vehicles, drugs or mobile phones after light checks were carried out on borrowers of bank loans backed by the scheme.

The Department for Business, Energy and Industrial Strategy has estimated that up to £4.9bn of the £47bn scheme could be lost to fraud.

The program has been designed to be as easy to use as possible given the need for businesses to secure funding after being forced to shut down. Businesses could claim loans of up to £50,000 from their banks with only minimal checks, with the money fully guaranteed by the government.

The House of Commons Public Accounts Committee last month accused the Business Department of being “complacent in preventing fraud” on the state-backed scheme.

MPs said the focus on delivering the loans ‘at breakneck speed’ meant the company’s survival had come at a ‘crushing’ cost to the taxpayer. The Treasury has promised to spend £25million on a fraud task force to recover the stolen money.

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