AUSTRAC has referred brokers suspected to be involved in a mortgage fraud scheme to authorities and regulators and has put mortgage networks and lenders on notice.
The financial crimes agency AUSTRAC has referred mortgage brokers, accountants, lawyers, and other entities to authorities as it expands its investigation into suspected mortgage fraud and weaknesses across Australia’s lending sector.
The financial intelligence agency’s Fintel Alliance said its Operation Claw project, which was initiated in February, had uncovered co-ordinated suspected mortgage fraud after analysing data from 10 major Australian banks, identifying potentially hundreds of millions of dollars in suspect lending – largely linked to Sydney properties.
The findings mark a significant escalation in the mortgage fraud saga first exposed earlier this year, when the Commonwealth Bank of Australia (CBA) alerted regulators and police to concerns within its home-loan portfolio.
Ongoing investigations by police, lenders, regulators, and representatives from across the entire financial services, legal, and property industries have revealed growing concerns relating to criminals using artificial intelligence (AI) to fraudulently obtain mortgages.
What initially emerged as an estimated $1 billion issue has since reportedly grown to at least $4 billion in lending across the country’s five largest banks.
Operation Claw has identified suspected fraud involving overstated incomes, misrepresented employment, and business activity that was either fabricated or could not be verified, according to the Fintel Alliance.
AUSTRAC told The Adviser that "recurring involvement of some brokers, accountants and other intermediaries was also identified".
It also uncovered instances in which offshore or third-party money was used to settle property purchases or service mortgages.
The alliance said those funding arrangements showed how false income streams and complicated financing structures could be used to gain access to the Australian property market.
The Australian Financial Review has also reported that some borrowers who were not eligible for loans had sought to move money into Australia from China through illegitimate channels. It has alleged that shell companies, fabricated invoices, and false payslips were allegedly used to conceal the genuine source of funds.
Referrals broaden investigation
AUSTRAC confirmed that it had referred around 200 mortgage brokers, lawyers, accountants, and companies to police, tax agencies, and the corporate regulator - where it suspected those entities were involved in the suspected fraud or questionable conduct in the process of obtaining a home loan.
The Fintel Alliance also said that it had also provided the names of people and entities potentially linked to false documents in loan applications to bodies including ASIC, the Australian Taxation Office, and the Tax Practitioners Board for intelligence purposes.
The financial crimes agency further told The Adviser that it had received about 1,800 suspicious matter reports after it sent an initial threat alert to more than 100 lenders and industry associations.
AUSTRAC has now confirmed that it is writing to entities operating across Australia’s $2.5 trillion mortgage market urging them to improve lending controls and help prevent fraudulent activity entering the system.
It said the suspected activity was not limited to a single lender or a particular borrower cohort.
“Recurring warning signs across participating banks included falsified or misleading documents and the repeated use of mortgage brokers, accountants and law firms across multiple loan applications,” the alliance said.
The intelligence-sharing exercise involved AUSTRAC, participating banks, the ATO, NSW Police Force, NSW Crime Commission, Australian Criminal Intelligence Commission, APRA, and ASIC.
‘Wake-up call’ for lenders, says AUSTRAC
Speaking of the action, AUSTRAC CEO Brendan Thomas said the investigation had exposed sector-wide vulnerabilities that could not be addressed by banks acting alone.
“The scale of this activity should be a wake-up call for every lender. The same warning signs were found across banks that together cover the vast majority of Australia’s mortgage market,” Thomas said.
Thomas said the project had not identified widespread money laundering, but warned that weaknesses in mortgage processes could leave the broader financial system open to criminal abuse.
"Participating banks identified widespread mortgage fraud indicators but did not identify systemic indicators of money laundering across the reviewed population," Thomas told The Adviser.
“While this project did not identify evidence of widespread money laundering, the weaknesses it exposed could be exploited by criminals seeking to abuse Australia’s financial system."
AUSTRAC said that it had provided an updated threat alert and written to around 130 mortgage lenders and peak associations to encourage stronger controls around loan origination, third-party referral channels, customer verification, source-of-funds checks and suspicious matter reporting.
"The updated threat alert provides practical indicators to help businesses detect and prevent mortgage fraud," the agency said.
It also urged lenders throughout Australia to search their own mortgage books for similar activity, lodge suspicious matter reports where appropriate, and strengthen controls designed to prevent fraudulent applications from proceeding.
“The most effective way to stop mortgage fraud is before a loan is approved. Once a loan is established and the funds have moved, recovering the money becomes significantly harder,” Thomas said.
“Lenders need to actively look for these warning signs, strengthen their controls and report suspicious activity to AUSTRAC. This is not something any institution can afford to ignore.”
Banks begin acting on intelligence
Participating banks have used the intelligence generated through Operation Claw to identify potentially fraudulent loans, investigate suspicious conduct, reinforce controls, and make additional referrals to authorities.
The Fintel Alliance said some banking relationships had already been ended, with further action anticipated as lenders complete their reviews.
AUSTRAC has also worked with participating banks to develop practical controls to prevent, detect, and disrupt mortgage fraud.
Thomas said collaboration was essential as individual lenders may only observe fragments of a broader suspected scheme.
“Each bank may see only one fragment. When those fragments are brought together, the broader pattern becomes clear,” Thomas said.
“Mortgage fraud succeeds when those fragments remain disconnected. Public-private information sharing allows government, banks and law enforcement to identify threats earlier and take co-ordinated action.”
[Related: NAB calls for National Economic Crime Strategy amid growing mortgage fraud]
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