AUSTRAC flags broker fraud among banking risks

The financial crimes watchdog gave a high ML/TF risk rating for the big four and other domestic banks, while foreign players secured a medium risk rating.

Most of the suspected ML/TF activity involved retail banking products and services, especially those that facilitate cash transactions or rapid transfer of funds domestically or internationally.

Looking at the major banks, which hold around three-quarters of the banking sector’s total assets and process the majority of Australia’s international transactions, AUSTRAC reported they are vastly exposed due to their large customer base, extensive product offerings and high exposure to cash.

Further, the big four facilitated $3.5 trillion in international funds transfers during the 2018-19 reporting period – more than all other AUSTRAC reporting entities combined.

Fraud was explored in the report, with loan application fraud ranking as the second-most commonly reported from the banks, usually using fraudulent identity documents and forged or altered payslips.

Overall, 55 per cent of all fraud-related intelligence reports analysed by AUSTRAC had involved a major bank.

The regulator also listed a number of case studies where fraud had been enabled by mortgage brokers.

One instance pointed to a syndicate of lending managers and mortgage brokers, who had been suspected of altering information provided by home loan applicants – resulting in hundreds of fraudulent loans, mostly with the major banks.

AUSTRAC’s partner agencies also identified a large-scale loan application fraud operation that had been enabled by a number of mortgage brokers, with the scheme involving “high-level document forgery” and believed to be orchestrated by an organised crime group.

During consultations, an agency alerted AUSTRAC that it had identified a number of brokers helping known criminals obtain home loans, knowingly allowing the loans to be repaid with illicit funds.

According to the report, in some instances, “brokers even deposited illicit cash for these customers”.

However, money laundering was deemed the primary threat facing the major banks, followed by tax evasion, drug trafficking, fraud and scams.

The big four are reportedly exploited at “all stages of the money laundering process” and across all transactions, whether international, domestic, incoming or outgoing.

The purchase of high-value assets was one common methodology for money laundering, with the big four’s dominance of the home loan space leaving them more exposed to laundering through real estate than any other financial subsector.

AUSTRAC’s assessment was partly based on a sample of 8,000 suspicious matter reports (SMRs) filed by the big four banks from April 2018 to March 2019, out of a total of 174,507 reports.

The SMRs related mostly to transaction accounts (85 per cent), but around 5 per cent were linked to loan accounts, while 8 per cent related to chequebooks, 6 per cent to bank cheques and 2 per cent to credit cards.

Around half of the SMR sample related to money laundering, while two-thirds of money laundering-related intelligence reports from agencies involved the exploitation of at least one major bank.

AUSTRAC’s partner agencies had reported cases where illicit funds had been used to repay a loan or to purchase an asset outright, as well as cases where real estate agents, mortgage brokers and luxury car dealers helped entities to launder criminal proceeds.

AUSTRAC also ranked the risk exposures of each banking product, assigning home loans a high vulnerability perception rating, while, businesses and personal loan were deemed medium.

The assessment stated there was a high known or suspected criminal misuse of home loans.

AUSTRAC chief executive Nicole Rose commented that it is vital the banking sector uses the risk assessments to help them to protect their businesses, customers and the Australian community from criminal threats.

“We are navigating a rapidly changing financial system and advances in technologies and platforms. That is why government, law enforcement and the finance sector must continue to work together to protect Australia’s financial system and Australians from serious and organised crime,” Ms Rose said.

The financial services sector has had the second-highest number of data breaches of any Australian industry between January to July and is increasingly experiencing malicious attacks, according to the Office of the Australian Information Commissioner (OAIC).

Around 58 per cent of data breaches in the financial sector were considered malicious or criminal related.

Further, loan application and identity fraud were deemed the greatest ML/TF risk to non-bank lenders earlier this year, with AUSTRAC noting the sector’s reliance on third-party players.

[Related: Brokers urged to prepare for new laws]