Serious Financial Crime in Australia: Organised Superannuation Fraud

Australia’s large pool of superannuation funds is an attractive target for criminal groups and individuals. The complex nature of superannuation schemes offers a range of opportunities for fraud including the theft of contributions and fund assets, fraudulent fund investments, non-existent schemes and excessive fees charged by advisers.

In their 2017 report Serious Financial Crime in Australia, the Australian Criminal Intelligence Commission (ACIC) explains the key types of superannuation fraud in Australia, and outlines which factors can affect an individual’s vulnerability to fraud.

 

Australia’s Superannuation Industry

The superannuation industry in Australia primarily includes funds regulated by the Australian Prudential Regulation Authority (APRA), such as industry funds, corporate funds, retail funds and public sector funds, and self-managed superannuation funds (SMSFs), regulated by the ATO.

As at June 2017, over $1,400 billion in superannuation assets were held by APRA-regulated superannuation funds while close to $700 billion were held by SMSFs.

 

APRA-regulated super funds

 

How do criminal groups target these funds?

Organised crime groups target APRA-regulated super funds through the use of technology, cybercrime and identity crime to transfer superannuation funds across to illegitimate SMSFs that are accessible to the criminal. This can be achieved through:

  • Hacking the individual’s computer and using their personal identity information to fraudulently authorise the transfer.
  • Running ‘early release scams’ where criminal entities offer super members access to their funds before the legal release age. Once transferred to the SMSF, funds are stolen or a substantial fee is withdrawn by the criminal.

Policies have been introduced to discourage the early accessing of super funds, with those illegally accessing their super benefits being taxed at an incredibly high rate of 45%.

APRA-regulated super funds where the account holder has reached preservation age are particularly vulnerable to fraud, as funds can be freely transferred like a bank account. This provides an opportunity for criminal groups to access these funds by convincing victims to invest in fraudulent schemes using their super funds.

 

How are regulatory authorities and super funds responding to these threats?

Regulatory safeguards have been introduced by the Australian Taxation Office (ATO) to ensure that only legitimate SMSFs are registered, and new systems provide greater transparency around rollovers from APRA-regulated super funds to SMSFs.

Penalties have also been introduced to prevent illegal early release of super funds, with promoters of illegal early release schemes facing up to five years imprisonment.

APRA-regulated superannuation funds are responding to these vulnerabilities with the development of data analytic capabilities designed to detect unusual or suspicious activity.

AUSTRAC also plays an important role in combating superannuation fraud by analysing industry reports, investigating cases involving the use of fraudulent documentation to support the illegal early release of super benefits, and sharing this intelligence with partner agencies for further investigation.

 

Self-managed superannuation funds

There is an increasing popularity of SMSFs due to the desire of individuals to choose and control their own investments. Individual SMSF account holders are especially vulnerable to becoming victims of superannuation fraud through fraudulent fund investments, non-existent schemes and being charged excessive fees by SMSF advisers. Unlike APRA-regulated super funds, if an SMSF member loses money due to theft or fraud, they do not have access to any compensation schemes.

Superannuation fraud is also committed when an SMSF contravenes the ‘sole purpose test’, which dictates that the SMSF must be maintained for the sole purpose of providing retirement benefits to its members. Contravening the sole purpose test, for example through accessing the fund for a pre-retirement benefit, constitutes a tax crime which is carefully monitored by the ATO and could incur civil and criminal penalties.

 

What is the impact of Superannuation fraud on Australia?

Superannuation fraud has the potential to increase financial hardship, cause a greater reliance on welfare payments and a loss of trust in the superannuation system.

The Australian Government introduced ‘Stronger Super’ reforms in 2012–13, which included measures to strengthen the governance, integrity and regulation of the Australian superannuation industry, particularly SMSFs.

The reforms included giving the ATO powers to address wrongdoing and noncompliance by SMSF trustees, establishing a register of SMSF auditors, and making specialist knowledge and competencies mandatory for these auditors as well as financial advisers providing services to SMSFs.

Nyman Gibson Miralis provide expert defence in complex financial and white collar crime cases, often involving multiple jurisdictions. Contact us if you require assistance.