Types of Fraud in Real Estate Sector in Australia
Discuss about the Crime and fraud in Real Estate.
Crime and fraud is synonymous to each other and in the contents of Australia, there are many incidents recorded under the offences. The term fraud denotes something achieved through dishonest acts. Crime is anything that goes against the operated law. In both the section, criminal intention plays very important role. In general sense, when a person has delivered certain fraud statements and achieved profit from the same, it will be treated as fraud. Fraud is a criminal offence and in most of the cases, fraud has been observed in business sector or real estate sectors. In Australia, fraud has been observed at a large basis. Australia is a business country and it has been observed that many companies are engaged in fraudulent acts (Coffee, Sale and Henderson 2015). Further, in the real estate sectors, people earn money by indulge them in fraudulent acts. There are many Acts and Regulations implemented in Australia to stop or punish the people involved in such crime. This report prescribes the types of fraud and nature of fraud happens in the real estate sectors in Australia. An attempt has been made to prescribe certain processes so that these acts can be prevented. Necessary legal provisions have been stated thereto.
Fraud is an international crime and there are many instances where crime has been made through fraudulent activities. There are certain essentials prescribe for making an activity as fraud. Certain misrepresentations should take place regarding any material fact and the person who making the statements should have the knowledge that the statement is false. Further, the person to whom the false statement has been made should have to rely on the misstatements and he has suffered certain loss due to such statements. There are different types of fraudulent acts presents in Australia. In the real estate sector, most of the fraud happens regarding financial purpose or property-based fraud. Considering various documents and events, it can be stated that most of the frauds are making as against the property of Australia and many foreign investors are use the funds that are obtained by them through fraud acts. According to the Mutual Evaluation Report, allegation has been made against the Financial Action Tasks and it has been stated that they have failed to oversight the real estate agents and they have failed to comply with the anti-money laundering acts counter-terrorism financing legislations (Mani 2015). All these things have made the Australian real estate as a high-risk area for the money laundering. Further, according to the Annual Report for the year 2014 submitted by the Foreign Investment Review Board, the real-estate sector becomes the most corrupted space and more than $74.6 billion money laundering happened in Australia.
Prevalence of Fraud in Real Estate Sector in Australia
In Australia, certain cases have been observed on the real estate fraud and the government has to take serious steps to curb this phenomenon. The case of “Nigerian scam” plays significant role in this case. Certain African real estate agents have made certain fraudulent documents, hidden their identity, and committed the swindle effectively. Further, fraud has been held in Canberra where a South African agent without the knowledge of the owner has sold one house. This incident is known as “Canberra scam”.
It is a reported fact that real-estate sector of Australia becomes an ideal place for the money launders. There are certain reasons behind it. There are much ambiguity present in Australia regarding the authority who will be responsible for mitigate the risks of financial frauds. Further, there is no proper system to verify the investments made by the foreign investors in the real-estate sector in Australia. The risks and its impact on the Australian society have been increased for pale accountability at federal agency level. Certain facts has been estimated regarding the Chinese investment in Australian real estate sector and it has been observed that near about $1.7 trillion corruption has been done by them. Therefore, it can be started that absence of required legal provisions and strict action are the main cause for the real estate fraud in Australia. However, apart from the foreign corruption, there are certain traditional frauds observed in Australia. Local fraudsters are acquiring and selling the properties in Australia by using their false identification and lending all the necessary documents by way of misrepresented statements.
In Australia, there are certain kinds of frauds observed in the real estate sector. The classes of fraud could be categorized as stolen identities, forged documents, fraudulent transfer, mortgage broker, refinancing fraud and trust account fraud (Australian Criminal Intelligence Commission 2018). In 2015, it has been observed that the American and Chinese investors in Australia have made more than $12 billion corruption. Further, the Australian Federal Police and Chinese counterparts have made a joint operation in 2014 and it has been observed that most of the Chinese traders and investors are capturing the properties through false identification and obtained all the documents fraudulently. The matter of stolen identities and forged documents are most common facts and events in Australia. Further, fraudulent transfer has been observed in the major parts of Australia (Naheem 2017). According to the Annual Report published by the Australian Federal Estates, many Australian directors are engaged in fraudulent transfer by conveying title of the land or property in the name of their family members. Falsification of documents is the most common practice for the mortgage brokers in Australia. It has been observed that the brokers are supporting their home loan application through fraudulent acts. There are many cases pending on this ground. Further, according to certain news reporters, certain agencies in Perth involved into collecting fraudulent title deeds and engaged in the process of refinancing. Further, in Australia, many investors are involved in trust account fraud and many people are suffering loss due to such misrepresented activities.
Legal Measures to Prevent Fraud in Australia
Considering the above-mentioned facts, it can be stated that real estate market of Australia is at risk and the failure of Federal estates have enhanced the path precisely. According to the case study report submitted by the AUSTRAC in 2010, it has been observed that most of the money launders of Australia are working through the third party and employed them as legal owner (ABC News 2018). They are provided money to purchase the properties in Australia and the selected third parties have no criminal records. After buying the property, the criminals or illegal traders are using the money and properties of the third party and engaging them in fraudulent perspectives. Through loan back policy, the fraudsters are making their illegal money in legal money. After the loan process, the fraudsters are manipulating the values of the property and structuring the cash deposit by money laundering. The funds are using to buy the real estate property in Australia. Further, the fraudsters to increase the value of the property have done renovation.
Considering the increasing risks in the real estate industry, Australia has implemented certain legislations to deal with the money laundering frauds. In 2006, Anti-Money Laundering and Counter-Terrorism Financing Act has been implemented. The main objective of the Act is to protect Australia from money laundering and financing of terrorism. Further, it addresses all the related matters that are of international character and make international obligations to mitigate fluctuated risks in the real estate provision. Many related terms have been defined under the Act. Certain types of monies are also discussed under this Act and according to this Act, money laundering is a crime under division 400 of Criminal Code (Prenzler 2017). Various actions must be taken to mitigate all the risks regarding the real estate-based fraud. An attempt has been taken by the Act to protect the individuals from all the illegal acts of the real estate agents. The risks generated from the real estate can be mitigated by way of performing high level of risk assessment and they could make checklist.
It has been observed that the fraudsters are working on earning illegal monies and making false documentation for that. They are taking loan based on these documents and misrepresenting them before the bank. An institution has been set up for identify all these banking and insurance related offences namely Australian Prudential Regulation Authority (APRA). This institution has been established in 1998 and it has been working successfully (Apra.gov.au 2018). Since of its establishment, the institution has submitted many reports on the same. On October 2016, the institution has published an information paper where certain risks have been assessed and approaches to deal with the risks have been discussed. Australia has been suffering from financial loss due to financial crisis made in 2008 and the condition of risk measurements has become poor in Australia. In this condition, APRA has highlighted all the risk-generating factors and assessed the loan making processes strict. Main objective of APRA is to secure the interest of the financial institution and all the risks are identified for the betterment of the institution. A strong emphasis on robust framework has been implemented by APRA and it makes an observation on the current industry practices in Australia. Considering the works made by APRA, it can be stated that the institution has able to mitigate the risk generation factors in case of banking and insurance sector and to certain extent, the institution has control all the financial risks. However, the institution has to implement more strict rules and the government should have to take proper action for implementing and apply the rules practically.
Risk Assessment and Mitigation Strategies
Considering all the materials, it can be stated that Australia’s condition regarding the real estate sector is quite serious and proper application of legal approaches are required in these cases. The implementation of Anti-money laundering Act could bring certain changes in this perspective. However, it has been observed that due to certain loopholes, these objectives have not been fulfilled. The anti-money laundering Act has suffered from certain weak regulating process and it has been observed that the Act has failed to look over all the related matters properly. Further, it has been observed that most of the real estate related agents wjho are committing frauds and crimes occur problems. However, the Act is not applied on the real estate agents. Further, when the Act was implemented, it was promised that the scope of the Act will be widened, but the same had not happened. The government has failed to implement proper rules to reduce the negative effect of the fraudulent acts and therefore, the risks in the real estate are increasing day to day. In addition to this, it has been observed that the regulating authorities have failed to identify the recklessness of the agents and the criminals and make the real estate sector as an attractive destination for money laundering. According to a report submitted by Wolters Kluwer (2015), it has been observed that Australian financial authorities are concentrating on keeping pace with domestic regulatory changes with insufficient management focus. Further, the institution has failed to consider the entire terrorist funding that affect the real estate business in Australia. The responsible authorities are required to monitor the transaction and customer profile in more efficient manner. An instant change regarding the beneficiary information is needed. All the opportunistic sources for the fraudsters should have to analyze and the base of all the regulations are required to be improved.
Conclusion:
To conclude, it can be stated that the condition of Australia’s financial section and real estate sections should be verified and certain changes are required to make these sectors developed. Further, it is to be stated that the legal provisions should be strict while applying these provisions on the offenders. Considering the records, the government of Australia should have to take close vigil regarding the same. According to various reports, it is clear that the condition of these sectors is quite troublesome and the inabilities of the responsible authorities have made the situation worst. Certain steps have been taken by APRA by way of making change in these sections by assessing the risks. However, not all these steps are enough to compete with all the facts successfully. Legislative bodies should have to be more strict and conscious in this matter.
References:
ABC News. (2018). Australia a ‘place of choice’ for money laundering: ANZ. [online] Available at: https://www.abc.net.au/news/2017-07-13/should-australias-anti-money-laundering-laws-be-extended/8703354 [Accessed 14 May 2018].
Apra.gov.au. (2018). Pages – Search Results. [online] Available at: https://apra.gov.au/Search/Pages/Results.aspx?k=corporate%20culture [Accessed 14 May 2018].
Australian Criminal Intelligence Commission. (2018). Fraud. [online] Available at: https://www.acic.gov.au/about-crime/crime-types/fraud [Accessed 14 May 2018].
Coffee Jr, J.C., Sale, H. and Henderson, M.T., 2015. Securities regulation: Cases and materials.
Donovan, J., 2015. A framework for evaluating automated valuation models in real estate: an auditing perspective.
Grant Thornton Australia | Audit, Tax and Advisory. (2018). Fraud and corruption trends in the Australian property market. [online] Available at: https://www.grantthornton.com.au/client-alerts/2016/fraud-and-corruption-trends-in-the-australian-property-market/ [Accessed 14 May 2018].
Mani, D., 2015. Understanding Information Security Risk in Australian Real Estate Sectors (Doctoral dissertation, University of South Australia).
Naheem, M.A., 2017. Money laundering and illicit flows from China–the real estate problem. Journal of Money Laundering Control, 20(1), pp.15-26.
Prenzler, T., 2017. Reducing welfare fraud: An Australian case study. Security Journal, 30(2), pp.569-584.
Rogers, D., Wong, A. and Nelson, J., 2017. Public perceptions of foreign and Chinese real estate investment: intercultural relations in Global Sydney. Australian Geographer, 48(4), pp.437-455.
Singh, M.P., 2017. Credit Analysis of Real Estate Sector.
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