The first ever risk assessment of money laundering and terrorism financing in Australia’s superannuation sector has uncovered 19 cases of potential terrorism financing worth a total of $259,790.
Federal Government agency AUSTRAC conducted a two-year study through to the end of February 2016 looking at the criminal threats facing Australia’s collective retirement nest egg of $1.26 trillion.
Their report of the study, published on 31 October 2016, graded the overall risk of terrorism financing and money laundering within the super sector as “medium”.
The report identified several vulnerabilities and presented opportunities for the sector to harden its defences against threats.
Of the 294 suspicious matter reports submitted to AUSTRAC, there were:
- 249 suspected “predicate” offences (fraud, cybercrime, tax evasion)
- 26 suspected reports of money laundering and criminal proceeds
- 19 suspected cases of terrorism financing
But according to AUSTRAC, there could be far more cases than this, with 5 funds (out of the 242 in Australia) accounting for over half of the 249 suspicious matter reports submitted to AUSTRAC.
“It is highly likely there is significant under-reporting and non-reporting of suspicious matters across the superannuation industry,” the report said.
“There is considerable scope for superannuation funds to expand their suspicious matter reporting and strengthen internal controls against financial crime.”
Despite the under-reporting, Paul Jevtovic, CEO of AUSTRAC, commended the super sector’s cooperation with AUSTRAC’s investigation, but wants those involved to remain vigilant to the threat.
“I encourage the industry to use the report to evaluate and improve their anti-money laundering and counter terrorism financing (AML/CTF) systems and controls to ensure their business is protected against criminal misuse,” he said.
“Critically, the information in the risk assessment should empower the superannuation sector to identify and submit increased volumes of suspicious matter reports (SMRs) to AUSTRAC.”
All super funds are vulnerable
The report stated it is likely all funds would be exposed to potentially serious matters given the size of the sector and the level of criminal activity going on.
— AUSTRAC (@AUSTRAC) November 22, 2016
According to AUSTRAC, the specific characteristics that make super vulnerable to money laundering and terrorism funding include:
- Extremely large number of member accounts and volume of transactions
- Low levels of member engagement, which hampers timely detection of fraud
- Post-preservation accounts, which have few restrictions on making transactions to and from the accounts
- Voluntary contributions to accumulation accounts by members, where the source of money is difficult to verify
- Payments to members and outgoing rollovers that are vulnerable to fraud and illegal early release
- Growing reliance on online delivery of products and services, resulting in less face-to-face interaction with customers and increasing online data storage
How cybercriminals attack super
AUSTRAC reported that cybercriminals use a range of methods and techniques to attack the superannuation sector, including the following:
- Accessing members’ emails and social media accounts to obtain personal information, allowing them to satisfy identity checks and access members’ superannuation accounts.
- Hacking into members’ superannuation accounts to change contact and payment details, then waiting before trying to move money, to avoid detection by the fund.
- Using social media to determine when a member leaves the country (and is therefore unlikely to be monitoring their account) to make changes to a member’s superannuation account.
- Using the bank account of an unwitting third party to transfer money stolen from a member’s superannuation fund into the hands of overseas-based criminals.
Suspicious signs of criminal or terrorist activity within super
AUSTRAC also pointed out the signs of potential criminal use of superannuation for each type of offence:
- Large contributions into superannuation accounts, followed soon after by benefit withdrawal requests.
- Unusually large and/or regular contributions that did not match the financial profile of the member.
- Members making a series of structured contributions or withdrawals under $10,000 in an attempt to avoid detection.
- Super member identified in media reports as a foreign terrorist fighter.
- Identified foreign terrorist fighter has history of making attempts to access super early by claiming financial hardship provisions.
- Evidence of identified foreign terrorist fighter rolling over payments from super funds into SMSF (self-managed super fund) to ultimately use money for terrorism financing.
Fraud, cybercrime, or tax evasion
- Multiple claims of financial hardship to secure early release.
- Withdrawing maximum balance from fund, then rolling over the remaining balance into new fund and submitting a new request for early release.
- Falsified or altered documents (birth certificate, death certificate, letter from Department of Human Services) in support of financial hardship claims.
- Member conducting business activities that they’re not reporting to the ATO.
- Unusual account activity such as large deposits over a short period.