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Nine arrested over suspected fraud involving National Lottery grants

The National Lottery was at the centre of a major fraud scare last night after nine men were arrested over an alleged scam to defraud it and various charities of more than £1m.

Eight were released on bail to return to police, two in January and six in February, police said. One was being questioned by the immigration service.

A Scotland Yard spokesman said the men, arrested on Saturday, were held in connection with an investigation into allegations of defrauding lottery grants.

Charity sources said that many of the allegedly fraudulent applications seemed to originate from the west African community in the UK.

The Big Lottery Fund, which distributes half the money for good causes raised by the game - between £600m and £700m a year - said it had alerted police to the possible misuse of funds awarded through grants by the Community Fund. The Community Fund and the New Opportunities Fund merged in June to form the Big Lottery Fund.

The loss to National Lottery good causes may top £1m, sources said. It was feared that well-known charities such as Children in Need, Comic Relief and Barnardo's may also have been hit. A BBC spokeswoman said: "We are investigating whether such applications had been made to Children in Need."

The Charity Commission, the regulatory body, also launched an investigation. A spokeswoman said it had frozen some 30 bank accounts, all thought to be in England and Wales, "in order to protect charitable funds". Commission staff were expected to move against more accounts as investigations proceeded.

The Charity Commission spokeswoman said: "We have opened an inquiry and are liaising with the police." She added: "The majority are from urban areas and they are small community groups."

The alleged con is believed to have involved false grant applications. Staff at the Big Lottery Fund became suspicious in September about certain applications and started detailed checks.

A spokeswoman for the fund said: "We confirm that we have alerted police to the possible misuse of funds awarded through grants by the Community Fund, and that we have also alerted a number of other organisations who may have been victims. We have alerted other charities and funders of charities."