Who is the real victim in mortgage fraud?

I am going to assume that most brokers would say no without hesitation, but the reality is, you don’t get asked that question directly.

You get asked to do something that looks completely different on the surface, and the connection to anything more serious is far enough removed that it doesn’t feel real. And that’s where I think brokers and bankers get caught out.

I’ve seen this play out in my previous careers, with a couple of very similar examples. For years, illicit tobacco sat in that category of crime that most people didn’t take seriously. Cheap cigarettes, a bit of tax avoidance, not something anyone felt particularly strongly about, who cares about the ATO missing out? Meanwhile, OCGs moved straight into it because it was profitable and largely ignored because it was a “victimless crime”.

Fast forward to now, and it’s a multibillion-dollar market linked to terrorism and organised crime funding, violence, extortion, firebombings, and murder. It didn’t start that way. It became that way because people were indifferent to it for years.

I saw the same pattern in a completely different area many years before as well. What started out being dismissed as illegal migrant labour, something many people saw as low-level or just a regulatory issue, gradually shifted. Over time, that same space became linked to exploitation, human trafficking, modern-day slavery, and facilitating terrorism. Different thematic areas, same progression.

In my experience, when something is shrugged off by society as “not that serious”, it creates a void. And that void gets readily filled by organised crime and terrorist groups looking for any way to make and clean a dollar.

This is why I feel the current topical mortgage-fraud story matters way more than most are thinking.

The numbers now being talked about are in the billions across the major banks, and I’d be shocked if we’re seeing anywhere near the full picture just yet. From what I have seen, when something like this gets to this scale, across multiple channels, it’s not just random isolated groups. When it works once, then twice, it would be refined, tested, and repeated on an industrial scale.

One thing my previous life taught me is that these bad actors are far from lazy – they will always look to maximise the level of exploitation until loopholes are closed.

And of course, it doesn’t just rely on brokers who are knowingly doing the wrong thing. If something looks convincing enough, it will get through even those of us who are acting in good faith.

And I think this is an area where we have yet to see the full extent of this issue. Potentially thousands of brokers and lenders could be affected.

I spent a large part of my career working around organised crime and financial crime in the UK and Australia. One thing that was consistent throughout was the role of money. Not just making it, but making it spendable or usable.

Because until money is placed, layered, and effectively brought back into the system in a legitimate form, it’s actually very hard to use at scale. We have all done our AML/CTF training, so we know that is where property and lending come in.

On the surface, a property transaction can look completely normal. Contracts, valuations, loans, settlements. Everything checks out. But those same transactions can be used to move and legitimise money on a scale most other methods of laundering struggle to achieve.

I have seen many examples where property was used to do exactly that. Buy, improve, sell. Buy, build, sell. On paper, it looks like a normal investment. It can be a way of turning cash into something that looks clean. You don’t see that by looking at one deal in isolation. And most people involved in the process don’t see the full picture.

The part that often gets missed is what happens next. The money doesn’t stop at the transaction. It goes back to whoever generated it in the first place. In my experience, the same groups were often involved in multiple types of illicit activity. Drugs, exploitation, violence. Different fronts, same money moving through them.

There has also historically been significant overlap in how OCGs and terror groups fund themselves, using similar methods and exploiting the same weaknesses. That doesn’t mean every questionable deal is directly funding something extreme, but it does mean it’s naive to think fraud is harmless or victimless.

For brokers and bankers, this is where it becomes relevant. Not because you’re expected to investigate organised crime, but because you sit in a part of the system that these groups rely on and that comes with a level of responsibility, whether you want it or not.

It would be short-sighted for banks to ignore the environment in which brokers are increasingly required to operate and how it can impact their sense of responsibility. I don’t say this to justify poor conduct; however, when you combine the pressure, the delayed income, the unreasonable clawbacks, and the relentless channel conflict, it hardly creates an environment hostile to unscrupulous approaches.

It is very easy to see how brokers become frustrated with lenders, particularly the majors, and feel like they’re constantly being admonished and competed against rather than being worked with. That constant tension cannot help but foster an environment conducive to fraudsters, one we, as an industry, should be aspiring to stamp out.

These conditions create an environment in which short-term thinking becomes more likely, particularly for newer brokers trying to establish themselves in the industry. This isn’t an excuse for poor decision making – it is part of the bigger picture and an area the banks need to reflect on if they are serious about tackling this holistically.

If brokers are a critical part of the distribution channel, as lenders claim, then treating them as partners rather than competitors would go a long way to dissuading this conduct.

Alignment of incentives and a genuine partnership model would reduce some of the pressure points that can make brokers more vulnerable to bad approaches.

Most of the time, these approaches don’t present themselves as obvious – they’re small things. Something is not quite lining up. A story that doesn’t feel right. A transaction that seems more complicated than it needs to be. A request to work around something rather than meet it properly. Individually, those things don’t always feel significant. But that’s usually where it starts.

It’s easy to look at this from a purely business point of view. Check your work, follow the steps, and then move on. That's the basic idea, but I think there is a bigger picture to see. Every time something goes through that shouldn’t, it makes the system that facilitates it stronger. And when that system gets strong enough, it starts to show up in other places. Not in banks’ balance sheets, but in communities where it affects our families.

We’ve already seen that with illicit tobacco. We’ve seen it with labour exploitation. There are different starting points, but it’s the same outcome. There’s no reason to think this will be any different if it’s treated the same way. This isn’t about being perfect – it’s about not being dismissive or turning a blind eye.

If something doesn’t feel right, don’t just think about whether you can get it through. Think about what sits behind it and where it might lead. Whether you realise it or not, you’re part of a system that can either make this easier or make it harder. And ultimately, it will likely have a direct impact on the communities we all live in.

My view is that this has some way still to run. And if I am right, brokers and lenders should probably strap themselves in, as this is highly likely to drive seismic changes in our industry over the next few years.

Kit Johnson is director/franchisee at Aussie Forest Lake and a former senior intelligence analyst at Queensland Police Service and the UK Home Office, where he was tasked with identifying, investigating, and disrupting serious organised crime.

You can hear more about his thoughts on mortgage fraud and how brokers can deal with it on The Adviser’s Elite Broker podcast, ‘From intelligence analyst to Editor’s Choice: How Kit Johnson declassifies the mortgage world’, here:

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