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Crypto platforms a ‘getaway’ for half of scam proceeds
Half of all proceeds from fraud and financial scams in Australia are being washed through cryptocurrency platforms, according to data from the Australian Financial Crimes Exchange.
The not-for-profit group said data from its members, which include the big four banks, revealed that 47 per cent of scam funds were sent to accounts associated with cryptocurrency exchanges in the last 30 days of the financial year.
“Once funds have been transferred to crypto, it is extremely difficult to recover them.” said AFCX managing director David Pegley.
The consumer and competition watchdog has estimated that Australians lost more than $3 billion to financial scams last year and the role of cryptocurrency exchanges as a potential enabler has been a hotly debated issue. In June, the regulator reported consumers lost more than $38 million to scams over the month.
Although banks have sought to de-bank crypto exchanges, regarding them as an apparent blind spot in the financial system infrastructure, crypto industry insiders say it is social media and telco companies that allow scammers to access consumers.
Mr Pegley said the “funds are eventually channelled to organised crime organisations and facilitate their activities such as dealing in guns, drugs, and other crimes.”
The AFCX was created in 2015 so banks, financial institutions and law enforcement agencies could share information to prevent scams and financial crime. Its members include the big four banks, other lenders, Optus and the Department of Home Affairs.
Australian Banking Association chief executive Anna Bligh said the data showed that an alarming amount of scammed money was being laundered through cryptocurrency platforms, meaning funds were “virtually impossible to recover”.
“As well as stopping scams from reaching our phones, emails and social media, more needs to be done to ensure cryptocurrency is not used as the getaway vehicle for scam money stolen from Australians.
“To protect customers, several banks have responded by imposing limitations on transfers to these exchanges,” Ms Bligh said.
Commonwealth Bank, ANZ, National Australia Bank, Westpac and Bendigo & Adelaide Bank have all taken steps to limit transactions to “high-risk” crypto exchanges in recent months.
Although they have not publicly identified which exchanges were blocked, many have stopped transfers to Binance – the world’s largest exchange in terms of daily trading volume – as local and international regulators circle it.
In the US, the Securities and Exchange Commission has launched a lawsuit that alleges Binance and chief executive Changpeng Zhao “wilfully evaded” laws and ran an illegal exchange. The Australian Securities and Investments Commission also cancelled Binance’s local derivatives licence in April.
Blockchain Australia said that, while it appreciated that the banks were looking to protect consumers, a collaborative approach was needed to stop fraudulent activity. It is conducting a survey on the digital currency industry about the toll of de-banking on jobs and the sector.
“The protection of consumers is paramount, both in protection from scams and not burdening consumers with undue restrictions in who they choose to do business with, which must be evidence-based to ensure they bring genuine benefits without undue costs,” Blockchain Australia said.
The measures include additional verifications for first-time transfers, digital credit cards with security codes that change daily and additional detection technology.
Although banks and law enforcement agencies have investigated investment scams and made several arrests, the scale of financial crime has not subsided.
CBA last week said it had spent $750 million on scam detection while a rise customer losses from scams was a contributor to a $150 million in increased operating costs over the financial year.
The use of crypto exchanges to move stolen proceeds beyond the grasp of victims and law enforcement agencies has been apparent in the prevalent bond scams.
The Australian Financial Review first reported on the scam in January 2021 after a fake prospectus was circulated to prospective investors claiming to be from IFM Investors.
Since then, dozens of reputable investment firms have been cloned by scammers who have solicited funds from victims whose details were gathered by operating fake investment comparison websites.
The scammers either encouraged victims to deposit money into an account operated by a wholesale payment authorised deposit-taking institution that transacted payments on behalf of a crypto exchange.
But victims and their legal advisers have been left frustrated by blind spots in the financial system that have allowed their funds to be siphoned into crypto exchanges before vanishing.
They discovered that the responsibility to perform identity checks was passed around and authorised institutions would only conduct checks on their business customers and not the individual.
The exchanges in turn were also duped by scammers. In some instances, victims were asked to provide identity verification documentation such as images of their passport and a utility bill so scammers could open accounts at crypto exchanges in the victim’s name. In other instances, scammers told victims not to trust the exchanges when they sought to verify information.