Data … Data … : ATO tax return data could help to alleviate mortgage fraud risk
CBA refers brokers, accountants to police over massive loan fraud
Commonwealth Bank has referred two mortgage brokers and a string of accountants to police as it works to unravel a loan fraud using fake documents and international funds that could extend to $1 billion.
The Australian Financial Review in February reported that the country’s largest lender had uncovered a cluster of loans that had been procured using false documents including fake income statements created with the help of artificial intelligence, draft tax returns and shell companies.
The $1 billion in potential mortgage fraud at CBA raises serious questions about the bank’s home loan systems and processes. Oscar Colman
CBA has been working with NSW Police, the Australian Securities and Investments Commission and AUSTRAC, the financial crimes agency, after it became concerned about the magnitude of the apparent fraud.
People with detailed knowledge of the investigation, all of whom requested anonymity given the sensitive nature of the inquiries, said the bank became particularly concerned after detecting anomalies in loans written by two mortgage brokers. That led to the discovery of several accountants who appeared to be using fake income statements to inflate the finances of their clients. A review by a third-party credit bureau engaged by CBA flagged that the clients those accountants and brokers were acting on behalf of had an average of seven credit products each across a range of banks, including CBA. These products can include home loans, credit cards and personal loans.
The racket obtained loans through two channels – the bank’s referrer program and through third-party mortgage brokers, five people briefed on the matter said. The accountants were assisting mortgage brokers to obtain loans from CBA while making commissions by referring their customers through the bank’s referrer program. That program allows real estate agents, accountants, lawyers and other partners to direct customers to CBA in exchange for an upfront commission if a loan was written.
National Australia Bank scrapped its loan referrer program in 2019 after being excoriated in the financial services royal commission, which revealed the scheme was being rorted by a fraud ring operating out of western Sydney, with employees accepting brown paper bags of cash over the counter.
Macquarie terminated its referrer program in 2018. Westpac and ANZ still run loan schemes which pay a commission for referrals.
Labor senator Deborah O’Neill, the chairwoman of a parliamentary committee with oversight over the corporate regulator, told a hearing on Friday that she was concerned about the role played by accountants in the CBA fraud. Accountants, lawyers, real estate agents and conveyancers have not been subject to the same anti-money-laundering regulations as banks, although changes to legislation mean they will be required to conduct stricter due diligence and reporting from next month.
“People are able to use the term, they can say they are an accountant, [but] they don’t have any qualifications. It affects the market,” O’Neill said.
“I think the extension of money laundering requirements to a wider scope of people who have the obligation to report what they see – conveyancers, real estate agents, accountants and lawyers – is very significant,” ASIC commissioner Kate O’Rourke said in response to O’Neill’s comments.
“In part because of their facilitation of commerce, property and other really important commercial transactions where the risks … of using dirty money and then repaying your mortgage, that’s exactly the basis on which those extensions occurred to try and improve visibility of that kind of misconduct.”
O’Rourke confirmed other major lenders had reported similar issues as CBA to ASIC but declined to name the banks.
At CBA, the bank has a home loan origination fraud team conducting urgent analysis of loans across both broker and referrer channels for anomalies that could point to potential misconduct, according to two people briefed on the team’s work. That research is ongoing but already shows both channels have been compromised through the use of fraudulent documents.
Other people with detailed knowledge of the investigation said there had also been some indication that brokers were partnering with referrers to send through fraudulent paperwork to protect their licences.
The loans are secured against property and are being paid down, so the bank is not at risk of losing the funds. But inflated income statements and large deposits using foreign funds suggest that there could be a desire to park criminal funds in Australia’s lucrative real estate market.
CBA chief executive Matt Comyn on Tuesday said the bank was spending $900 million annually to combat fraud, scams, cyber threats, and financial crime but described those areas of risk as “shifting at a very rapid rate”.
“Do I think the rapidly shifting technology landscape is shifting the different sort of risk vectors in the economy? Yes,” he said. “Financial institutions, for a long, long time, there’s always risks of fraud … you respond to one thing [then] you need, you start thinking about the next thing.”
Katie Miller, AUSTRAC’s deputy chief executive for regulation, said the banking sector had a “high inherent risk” of attracting money laundering and lenders were critical players in the fight against financial crime.
She declined to comment on the CBA investigation, but said AI had both helped identify fraud and money laundering and exacerbated the risks.
“Before, AI documents were generally ... pretty good evidence of the things they purported to say. But AI means you can make up any document pretty quickly, so I think that’s a challenge. It’s a challenge for regulated businesses, it’s a challenge for regulators,” Miller said.
“We are all grappling with how AI is changing the way we approach our functions and also changing the underlying money laundering risks.”
CBA declined to comment.
