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Super may be funding terrorism, says AUSTRAC

Cyber fraud is a growing danger in superannuation.

Cyber fraud is a growing danger in superannuation. Photo: Getty

Financial intelligence agency AUSTRAC has found evidence Australia’s $1.3 trillion superannuation pool may be being used to fund terrorism activities and remains vulnerable to criminal exploitation.

A two-year study of so-called “suspicious matter reports” (SMRs) by AUSTRAC found 19 reports related to potential terrorism funding, with transactions totalling almost $260,000.

However, AUSTRAC pointed out the study, conducted with the Australian Federal Police, Australian Crime Commission and Australian Taxation Office, may have significantly under-reported the problem given just five funds reported more than half of all SMRs.

Cyber-attacks on super funds are growing

The study — conducted over 2014 and 2015 — found terrorism financing is a small but emerging and serious threat.

“There is evidence foreign terrorist fighters have rolled over payments from APRA-regulated superannuation funds to SMSFs (self-managed superannuation funds), with the money ultimately being used for terrorism financing,” the AUSTRAC report noted.

“Fighters may also be supported by family or others in their community who are accessing their superannuation savings legitimately.”

Superfund accounts also appear to be a handy tool for patient criminals to launder proceeds of crime, parking their money in the legitimate financial system and securing long-term low tax capital gains.

However, AUSTRAC said by far the biggest threat of criminal activity in superannuation was fraud and cybercrime with most funds contacted for the study noticing regular, even daily, hacking attempts.

Super risk elements.

Super risk elements.

Around 85 per cent of all suspicious transactions reported to the study, or 249 in total, related to fraud or cybercrime.

“Hacking provides criminals with the data they need to breach the defences that superannuation providers have in place,” the report said.

“One large fund noted that cyber-enabled fraud attempts often started with small-scale attempts to find weaknesses in a fund’s procedures and systems.

“Once a weakness was established, the fund was subject to ‘mass waves of attack’ from a number of fraudsters.”

Danger points

The study found the superannuation system had several key vulnerabilities to breaches of money laundering and terrorist funding (ML/TF) laws.

These include:

  • The 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
  • The growing reliance on online delivery of products and services, resulting in less face-to-face interaction with customers and increasing online data storage

Low levels of reporting may indicate weak protection

The report urged all super funds to strengthen anti-money laundering and counter-terrorism funding controls.

“Given the size of superannuation holdings and the level of criminal activity in the sector, it is likely that all funds would be exposed to potential suspicious matters,” the report said.

“Low levels of reporting compared to industry peers may be an indicator of an ineffective [Anti-Money Laundering/Counter-Terrorism Financing] program.”

AUSTRAC chief executive Paul Jevtovic said the risk assessment report should encourage the superannuation sector to identify and submit increased volumes of suspicious matter reports.

“As with all regulated sectors, AUSTRAC will seek to engage funds that appear to have lower levels of compliance than their industry peers,” Mr Jetovic said.

“There is considerable scope for superannuation funds to expand their suspicious matter reporting and strengthen internal controls against financial crime.”

– ABC

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