Bank Fraud in the Australian Banking Sector: A Comprehensive Report

This report provides a comprehensive overview of bank fraud in the Australian banking sector. It begins by defining various types of fraud, including cybercrime, scams, application fraud, card fraud, and mortgage fraud, highlighting the significant financial losses incurred. The report then exa...Read More

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Bank Fraud
Introduction
This paper is a review of fraud in the banking industry in Australia. The paper has
started by reviewing types of fraud and how the banking industry has responded them. Unlike
other criminal activities, fraudulent activities are rarely captured in the media hence giving
fraudsters ample time to continue carrying out the vice. The losses from such fraudulent
activities have been greatly felt by the community and banking industry. According to the
inaugural KPMG Global Banking Fraud Survey, 61% of banks have reported an increased
case of fraud between 2016 to 2018. In 2018, there were 177,000 scam reports that costed
Australia’s economy half a billion dollars. The US and the UK have recorded a scam alert of
85,000 combined ("Australia suffers from increases in bank fraud," 2019). This tells us of the
need to focus on the efforts to control bank fraud.
2.0 Cyber-crime in the Banking Sector
In a research done in 2016 by “Carbank”, Australian banks have been a major target through
cybercrimes. In 18 months, over 1.3 billion was stolen using malwares to issue transfers from
the bank systems such as ATMs. The Security and Exchange Commission (S.E.C) was
hacked in 2016 (Stevenson, and Tejadasept, 2017). Hackers accessed private information
used for insider trading. S.E.C recommends cyber risk management t avoid similar crimes.
Fraudsters use different methods to carry out financial crimes.
Bank and financial fraud can be committed in various ways:
Digital banking – Compromising online banking via porting or phishing emails. Scams –
Investment or romance scams. Application fraud- The Application of lines of credit or
lending by a fraudster who uses other individuals’ credentials via identity theft. Card fraud –
Illegal use of card fraud from skimming to computer generating card numbers and
performing a BIN attack. Mortgage fraud – Individuals that do not register for tax and earn
income via cash applying for home loans via made up payslips with assistance from brokers.
Most banking fraud is channelled through electronically, via the internet and used on
computers, tablets, and smartphones. Electronic banking is driving the world towards smarter
and faster cashless systems. Methods of data security breaches can be through Phishing,
Smishing, Scamming and Public Wi-Fi access.

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Banks need to take accountability and concede negligence in the contribution of Bank fraud.
Financial institutions continue to provide faster and convenient banking as a way of business
strategy to gain more clientele, but have not yet met the standard in the security and defence
to prevent fraud within their technologies, which has made it easier for customers but also
provided the same opportunity to a fraudster.
From digital online banking, 24-hour telephone banking, worldwide instant money
transfers and smart ATMS being some of the contributing factors. The issue is that the
methods to protect the integrity of these creative technologies are slowing down, leaving a
major gap within the system that is being exploited aggressively by worldwide hackers or
fraudsters despite the efforts of government and/or regulatory measures (Norton, and Walker,
2014).
Lack of documented fraud operating model and enterprise-wide fraud risk assessment.
Failure to detect impact management information and investment decisions.
Optimizing and focusing on innovative technology versus weak security breaches.
2.1 Government initiatives
The government has brought out many resources to assist in the defence and reporting of
bank fraud to keep people, businesses and communities safer.
Commonwealth Fraud Prevention Centre was established in July 2019 to partner with
government and non-government related agencies to: Detect and promote better practice
approaches to mitigate fraud vulnerabilities. Focus on barriers to effectively boost fraud
prevention. It offers assistance to agencies to design fraud prevention systems and promote
resistant strategies and procedures (Prenzler, 2011).
CFPC provides advise on fraud defence initiatives and adjustments to legislation and policy
to further progress Australia’s battle on bank fraud and cybercrime.
Collaboration and knowledge shared amongst government agencies (state and national),
international community to raise awareness, promote training and skills, and enhance tools
("Government responsibility for fraud | Attorney-General's Department," n.d.).
Scamwatch (ACCC) was developed and sourced by the ACCC for the purpose of our
reporting and educating people, businesses, and communities to avoid scams that are
currently widespread. Collaborating with state and territory government agencies, scamwatch

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promotes people to reporting a scam in which the ACCC can monitor trends and act where
necessary to look for innovative ways of defence to prevent and disrupt scams (Scamwatch
role, 2019).
Australian cyber security centre (ACSC) was established by the Government in the efforts
to enhance security and defence of online cyber threats and to keep our communities safer
from malicious viruses, malware, hackers by creating a 24-hour monitoring system (Chapter
4: Banking, Credit Card Fraud, and Money Laundering – Parliament of Australia).
Working with business and government agencies, cyber-security incidents can be reported by
professionals to gain a response on how to better protect their workplace and avoid becoming
vulnerable to constant new technology’s and cyber risks ("About," 2019).
National Identity Fraud Awareness week is promoted by the AFP to fight identity theft in
Australia by creating awareness to protect business and individuals. The organisation is set
out to create encouragement of enhanced security habits and the implementation of
organisations security procedures. The awareness program was launched due to year by year
national losses of approximately $1.6 billion per annum due to identify theft, credit card fraud
and scamsRaising public awareness of consumer fraud in Australia (2019, February 1).
2.1.1 Legislation
Despite the adequacy and appropriateness of offence provisions by the security and
fraud specialists, the level of sentencing is inadequate. Armed attacks and white-collar crimes
are not being prosecuted adequately. Banks have been reported to frustrate the effort by law
enforcers to process and prosecute similar crimes. Customer details must be kept confidential
but the law must be complied with to fully prosecute such crimes.
The Australian Law Reform has been reviewing the Financial Transaction Reports
Act and the Crime Act since 1998 (Sathye, 2008). There has been increased police powers to
obtain information that can help deal with financial crimes. The banking sector and the law
enforcement team must work together for successful prosecution. The Australian Banker’s
Association have lauded the move as an important approach to strengthening cooperation
between law enforcers and the banking sector.
Following the increase in cases of fraud in the banking sector, the Australian
government has come up with different legislation to control the crime. There are numerous
ways through which fraud can be committed under the Australian tax system and community.

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The government has come up with diverse forms of prosecution to protect the commonwealth
resources. The major forms of legislation include the criminal code, and the financial
transactions act of 1988. The main offences under the criminal code include the obtaining of
financial advantage by deception (s.134(1), general dishonesty by obtaining a gain (s. 135.1),
causing a loss directly or indirectly (s.135.1, 3 and 5 respectively. The law sets maximum
penalties for offences against sections 134 and 135 of the criminal code at 10 years in prison
(Criminal Code Act 1995).
The commonwealth and state legislation call for the reporting certain financial
transactions. The Financial Transaction Reports Act 1988 restricts tax evasion and detect
crimes involving money laundering. Any suspected accounts must be reported to the
Australian Transaction Reports and Analysis Centre (AUSTRAC). The transactions are
analysed by the law enforcement authorities for analysis for instance the Federal Police,
Customs Service and the Australian Taxation Office Australian. Different states have the
same legislation example the Financial Transaction Reports Act of 1992 in New South Wales
that monitors suspicious accounts. States must have their form of legislation to cover those
crimes that are not reported under the Commonwealth legislation. The New South Wales has
the Confiscation of Proceeds of Crime Act 1989 to control forms of financial crime such as
fraud and corruption.
The Australian Bankers’ Association are cooperating in an effort to exchange
information on fraudsters to help fight fraud. Databases are being developed to handle such
information similar to the system in the United Kingdom that lead to the reduction of bank
fraud cases. The system is designed to ensure customer privacy and compliance with law.
The cooperation between the banking sector and law enforcement authority is a major step in
reducing high risks involved in bank fraud.
2.1.2 Regulatory instruments
Australian payments network AusPayNet is a self-regulated body set up by the Australian
payments sector to improve the efficiency and security in various formats of payment.
AusPayNet sets policy, regulations and operations to administer different payment systems
such as cheques, credits and direct debits, ATM and EFTPOS transactions, high value
payments and the distribution of wholesale cash (Norton, and Walker, 2014). Detection and
prevention fraud systems to mitigate fraud on bank cards and cheques measures are also
regulated.

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ASIC (Australian Securities & Investments Commission) is and Independent Australian
government body, administered by the Australian Securities and Investments Commission
Act 2001 (ASIC Act) to regulate the financial services sector, corporate and consumer credit.
Banks by law, are to comply with several conditions set by the ASIC, to regulate and police
financial institutions.
Reserve Bank Of Australia is a governing body, established to ensure banks are conducting
their duty’s such as stability in currency and also regulate financial welfare of Australian
bank customers which functions under the Payment Systems (Regulation) Act 1998.
The RBA is focusing on different initiatives to target online identity theft and card fraud to
mitigate financial damage.
2.1.3 Investigative instruments
The Payment card fraud initiative is focused due to the growing amount of online card
fraud increases by a hype of e-commerce. The solution is the upgrading of security on
merchants that hold and save card numbers on their e-commerce payment system. This
would prevent fraudsters from breaching websites and leaking card numbers (Hall, 2019).
In 2014 the Marriott hotel chain was subject to a data breach and leaked over 500 million
users credit cards and identification details to fraudsters resulting in one of the biggest hotel
breaches and was hit by a $200 million fine for the incident (Credit card info and passport
details of 500 million Marriott guests stolen in mammoth data breach. (2018, December 2)
2.1.4 other countries’ approaches to address the crime(s)
The question of bank fraud is an international issue and different countries have come
up with measures to deal with the problem. In the United Kingdom, there is a central database
that stores statistics on fraudulent activities for further action. The data is kept secure to
protect the users such as customers and in compliance with the law. The British Bankers’
Association has been collecting data on bank frauds such as Cheque fraud and other
documentation (Levi, and Burrows, 2018). Going through the Crimewatcher summaries,
there are reports of losses from fraudulent activities against banks. The Fraud Prevention and
Intelligence Unit publishes the data the information to help the public and other parties take
up the need to protect themselves and communicate with relevant authorities.

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Similarly, the American Bankers’ Association has reported cases of bank fraud
involving cheques and other documents. Reports from the American Bankers Association
indicate that bank deposit frauds g as high as 19 billion dollars, debit card fraud accounting
for 1.3 billion dollars in 2019 with check fraud accounting for 35% of losses (Banks Stop $17
Billion in Fraud Attempts in 2016). Counterfeit cards remain the leading forms of card fraud
in most nations. Such data reveals the extent to which the financial sector has been affected
through fraud. Besides the direct losses, costs of fraud are high extending into prevention,
prosecution, investigation and legislation. The loss suffered by victims is even greater leading
to stress and trauma.
Source: American Bankers Association
Australian banks are heavily borrowing from the steps taken by the UK such as the
Contingent Reimbursement Model Code that authorises Push payments scams. Scam victims
are being reimbursed and around 8 banks are already using the system as of June 2019.
2.2. Industry Responses
The banking industry is responding to different forms of fraud including, cheque, card
and against financial institutions. First, the industry has come up with fraud detection

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software that highlight variances in transactions. The software scrutinizes bank statements
and cheques using machines such as the cheque kiting detection to identify certain patterns
that can be followed up to reveal cases of financial fraud.
Secondly, biometrics is increasingly being used to capture information relating to
behaviour and physiology of users ("Cyber crime," 2019). Biometrics collects information
relating to fingerprints, retina, facial, and quasi behaviour example speech, and identification
of a signature. Biometrics have helped in deterring identity theft since they cannot be stolen
nor lost.
Furthermore, financial institutions must adequately train their staff on the need to vet
cheques and looking for suspicious information. Account opening should be handled with
high precision. All stakeholders must be educated on security details to avoid fraud related to
cheques and other documents. Communication is important to help protect other internal
businesses and involve relevant authorities of any cases of fraud for easier prosecution.
3.1 Outline Strategies, Activities, and Recommendations
The banking industry must invest in the estimation and tracking of costs related to
bank fraud. The industry should willingly share information regarding the trends and
practices of fraud to enhance control through investigation and prosecution. However,
sharing information must be done under law while respecting the privacy of customers and
related information. Criminals must be brought to book and not be assisted to abet financial
crimes (Norton, and Walker, 2014). Customers are advised to sign cards on arrival, carry
cards separate from the wallet, keep records of account numbers, watch their cards during any
transaction, avoid incorrect receipts and save the receipts for comparison with billing
statements. Any suspicious charges and changes in address must be communicated to the card
companies as soon as possible (Aguilar et al., 2016).
Banks have continuously faced cases of difficulties in differentiating between the
criminal and customer through fraudulent cheques (Ryder, 2012). While the bank must
protect the customer assets, there must be a good balance between the risk and service
rendered to customers. It is recommended that cheque customers should avoid sharing cheque
account numbers to strangers. Anu suspicious activity such as stolen cheques must be
reported immediately for action. Bank statements must be put under regular check. The
following sections discuss what can be done to enhance these strategies and
recommendations.

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3.2 Enhancing Strategies, Activities and Recommendations
Educating staff on the need to be careful when handling customer information such as
credit cards and cheques will help reduce cases of fraud. Failure to verify the signature or
person presenting a card or cheque encourages fraud due to negligence. Counterfeit cards find
their way to the bank by way of forging the details of a genuine card that may have been
stolen or lost. Skimming is another technique that fraudsters use to change details of a
genuine card. Criminals can access the location or technology of the merchant to copy the
information on the card. Hackers can also use the internet to reach those customers and card
issuers that have not placed validation protection on magnetic strips. Therefore, banks must
provide both customer and staff education self-protection against fraud. Banks are publishing
brochures that outline the steps that customers can take to secure their cards. Before picking
of cards, a customer must produce their identification cards as way to fight crimes related to
Bankcards getting into wrong hands. Lowering of floor limits is another tool used to reduce
fraud (Norton, and Walker, 2014). Holograms, validation encryption on the magnetic strips,
tamper proof signature and micro printing are some of the ways that banks can use to enhance
security.
3.3 Justify importance for implementation
There is need for the banking sector and involved parties to practice all the safety
precautions due to the increase in cases of fraud (Two Alternative Investments for Financial
Independence, 2016). Almost every document can be forged from personal identification
cards, drivers’ licence, bank cards to even signatures. Fraudsters have gone miles ahead to
registering companies leading to greater losses among financial institutions. There is need for
cooperation among all stakeholders for instance regulators must be keen when registering
companies and businesses to avoid non-lending losses. Fraudsters are constantly finding ways
of bypassing any security measures. The banking sector continues to face challenges of
counterfeit documents that carry huge amounts of resources. Therefore, cases of fraud can be
reduced right from the level of account creation through the practice of due diligence by staff
and customers.
3.4 How the recommendations will assist to overcome the deficiencies
The recommendations outlined above will help in the implementation of the
Commonwealth Government’s initiatives and legislation against bank fraud. Information

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sharing will ensure that the banking sector and law enforcement work together to enhance
investigation and prosecution of bank fraud.
Conclusion
To conclude, the increasing sophistication among fraudsters in the banking sector,
banks must be agile in responding to emerging threats. Any new approaches and technology
to predict and control fraud should be taken up not only in Australia but across the world. The
Commonwealth regulations and government legislation is playing a big role in ensuring that
Australia fights bank fraud. It is a collective role in fighting bank fraud.

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