The ATO explains Operation Protego

Intro:
Welcome to CPA Australia's With Interest podcast, bringing you this week's need to know information for businesses and accounting professionals.

Elinor Kasapidis:
Hello and welcome to CPA Australia's With Interest podcast. I'm Elinor Kasapidis, Senior Manager of Tax Policy at CPA Australia. It's Wednesday 14th September and it's been a few months now since the ATO led Serious Financial Crime Taskforce executed a series of warrants across Australia against multiple individuals suspected of being involved in GST fraud and referred the details of 29,000 individuals to the Australian Criminal Intelligence Commission. Named Operation Protego, the swiftness of the multi-agency response reflects the scale of the attack, more than a billion dollars in attempted fraud and the investigation of 850 million in potentially fraudulent payments claimed by around 40,000 individuals. The fraud involves offenders inventing fake businesses and Australian business number applications, many in their own names, then submitting fictitious business activity statements in an attempt to gain a false GST refund. In some cases, people have been encouraged to hand over their personal details to facilitators. The operation remains live as the ATO and its partner agencies work through the fraudulent claims and progressively share information relating to participating individuals. Joining me to discuss this issue is Assistant Commissioner Michael Morton from the ATO. Michael has a leading role in coordinating the ATO's response to this significant fraud event. Thank you for speaking with us today on With Interest, Michael.

Michael Morton:
Thank you very much for having me on today, Elinor.

Elinor Kasapidis:
Thanks for joining us. So Michael, in the era of increasing cyber attacks and digital fraud, I imagine the ATO maintains very strong protections to keep the tax revenue and taxpayers accounts safe. With nearly half a trillion dollars flowing through ATO coffers each year, how does the ATO manage these serious risks while keeping the system functioning?

Michael Morton:
You're right, Elinor. We're committed to ensuring the integrity of Australia's tax and superannuation system. Detecting and responding to threats is a critical part of that commitment. Our systems are safe and secure. I think it's important to outline up front we have a zero tolerance to fraud. We hold a vast amount of customer information which can be very attractive to fraudsters and criminals. And unfortunately, sometimes they attempt to exploit this information for their own personal gain. Despite having strong and safe systems, we actually have to deal with fraud attempts on a daily basis. Fraud is a very broad risk and it can take on many different shapes and sizes. We target everything from small scale fraud, for example if an individual deliberately claims expenses that didn't occur, right through to more complex fraud, including offshore organised criminals attempting multimillion dollar fraud schemes. We have a very strong fraud and corruption control plan and we also have very strong measures to respond, including investigations, referrals, prosecutions and recovery. But the tax profession also has a fundamental role as well. It's through their understanding of their client's circumstances and the role that they have in providing tax services and advice. This is really fundamental in helping taxpayers correctly meet their obligations and protecting situations where taxpayers are trying to do the wrong thing.

Elinor Kasapidis:
It's so true. It's not just the ATO's tax system, it's actually our tax system and the tax profession is such an important interface and they know the clients a lot more than the ATO probably ever could. And with millions of accounts and billions of dollars, it's really important that we look at this problem as a joint problem and a shared responsibility. So you've outlined the ATO's comprehensive approach to monitoring and dealing with fraud attempts, what is different with this fraud event that has led to the formation of Operation Protego?

Michael Morton:
I think the first thing I'd call out, Elinor, is the fact pattern that we're dealing here as in the creation of the fake business and the lodgement of a fictitious activity statement to get a false refund is actually not a new fact pattern. What makes it different this time though is the size, scale and the rate of proliferation. From my perspective, it is unprecedented. But I think there's two factors that I wanted to call out today that really make this particular fraud event different to others. So the first factor I want to call out is how social media channels, for example TikTok and Facebook, have been used to promote the fraud. The material we've seen is actually quite different. So we've seen material encouraging others to become involved, but there's also material out there that is actually providing false information to individuals, including that the ATO offers loans to people with ABNs, but also ATO offering COVID disaster relief payments. So this is actually quite different to what we have seen in the past and has really played a part in the rapid proliferation of the fraud. I think the other differing factor, Elinor, is the brazenness of some of the behaviours by those involved we've seen. Some of these people are really trying it on. They know what they're doing is the wrong thing, they want the money and they want it quickly. What really concerns us is that they're not thinking about the consequences of what they're doing. They're not thinking that the action they're taking is criminal, which it actually is. And tax crime is not a victimless crime either. They're not thinking through that it could actually have other impacts for them including access to other government payments that they may already receive, or what could be some longer term financial consequences, like their ability to get finance down the track for the purchase of a house or a car. We began to receive information from various sources and responded quickly and decisively. As you pointed out, what we saw was people who were applying for ABNs for businesses that didn't exist and were never going to exist and then claiming GST refunds for fictitious amounts. We've seen individuals claim multiple times, even after the ATO has made an intervention. Unfortunately, we've seen people hand over their myGov login details to third parties to become involved as well. In the creation of fake businesses, it's not just people applying for new ABNs, we've actually seen individuals with older or dormant ABNs reuse those to participate as well. I think the final point here, it really does highlight the vast information that we do have and that we can actually see who has actually participated in this broad event.

Elinor Kasapidis:
Thanks, Michael. And that's a shocking description of an array of behaviours that I don't think many of us would tolerate. And it's disappointing I think. Like you say, people don't think through the consequences and many don't necessarily know that the ATO can actually track all of this and find out who they are. And I did mention before those referrals to the Australian Criminal Intelligence Commission. The ATO has been quite open just by providing us with those examples about what has been going on and keeping the public and tax practitioners informed of what to look out for. What's the thinking behind this approach the ATO's taking?

Michael Morton:
To start off, I think there's two points. The first around really needing to go out to the community to provide them confidence that we were aware that this was happening and that we are taking swift and decisive action to really promote and ensure integrity of the tax and superannuation system. The other is though we really needed to communicate with a very broad audience, including those that had been involved in the fraud, but then also the broader community to go out and bust some of this. So as I mentioned before, we were aware that there was material out there advertising the ATO offers, loans to people with ABNs and COVID disaster relief payments. There was really a need to go out there to the community and bust those and go, "If you see this, don't become involved." But we've also taken this as an opportunity to outline the potential consequences for those that have been involved. Part of this was wanting to reduce any barriers they may feel incoming forward. And we felt that was really important to give individuals the information they needed to make an informed and right decision. The first is we have set up a dedicated hotline for people that have been involved to call us, and we actually have a specific webpage where individuals can actually look at how they actually can rectify their affairs if they want to do it by themselves as well. Think just a couple more points, Elinor, on this, I think soon after the first round of communication, it was really pleasing to see some, particularly on TikTok, we saw some content from people warning their friends not to become involved in this because it was a fraud. This was excellent. These are content creators on a platform that we're not on and some of that content has been created by tax agents, some targeting diverse audiences at a speed we just can't match. And this has been really super helpful in helping us stop the further proliferation of this fraud. I think the final thing is just two weeks ago, we started an advertising campaign through social media channels to keep on getting the message out there to the community and make it very clear that this is fraud, there are consequences. And one of those potential consequences is individuals that are involved could potentially go to jail.

Elinor Kasapidis:
Like you said, Michael, that's such a comprehensive strategy. And in terms of signalling to the public, reassuring them that you were aware of it and we're dealing with it, that's such a powerful message. And then it also, of course, rallies others like the examples that you gave to try and also put their efforts into stopping it. So that's a fantastic approach internally though, the ATO has also been busy at work leading the Serious Financial Crime Taskforce response. And these numbers are in the tens of thousands, the billions. And so one thing what the public sees is that Operation Protego shows that the taskforce approach enables the ATO to quickly detect and respond to such large threats at scale. Can you give us a bit more of a peak behind the curtain into some of the actions that are taken to respond to fraud? And you've mentioned some of the consequences, but in terms of how that plays out, it'll be great to know a little bit more.

Michael Morton:
Certainly. The ATO does lead the Serious Financial Crime Taskforce. And this actually gives us access and the support of many other agencies, but we're also working with state and territory law enforcement agencies. And this actually gives us more boots on the ground. There is a real ripple effect here. Some of the participants involved are actually involved in other more serious crimes. You often find that tax evasion and fraud is only the tip of the iceberg. We've already commenced criminal investigations into many participants and there is the real potential that these people will get some jail time or face some serious financial penalties. There are a range of potential consequences those involved may face. At the heart of this, individuals involved will need to pay the money back to the ATO. Some individuals will also have to pay significant penalties too. What is really saddening here is that many involved haven't thought through the longer term consequences of their actions, thinking about, "Well what are the implications of having a debt with the ATO in the future when it comes to wanting to, say, them buying a house or buying a car?" And there could be other potential consequences, including administrative penalties, but also potentially limited ability to use our online channels for some transactions as well. I think the final point here is that we have been sharing information with other agencies. So the consequences of being involved may actually be broader than tax.

Elinor Kasapidis:
And I think in that sense, it really is important when you look at government services and the trust that we have as a society to be able to receive and engage. Like you said, that interconnected nature, people don't necessarily think through what it means for them as a citizen or even when perhaps they actually want to start a legitimate business and they have this debt and these restrictions hanging over them. And like you say, it's not just tax. What I also found particularly interesting was that sometimes this tax fraud or this participation is only one aspect of these people's behaviour and that it is emblematic of the opportunities they look for. So it's a really challenging problem. And like I said earlier, it's not just for the ATO to deal with, you also worked with social media platforms and financial institutions to reduce the spread of the fraud and stop payments from going through. How important are businesses, tax professionals, taxpayers and the public in assisting to deal with these threats?

Michael Morton:
I think just touching on something you just mentioned, Elinor, about the interconnectedness and the fact that tax is not just the thing at play here and it's the tip of the iceberg is in our response, we recognised quite early that we just couldn't do this alone. We actually had to partner with other agencies and other bodies to help us actually address those that have been involved, but also to stop the further proliferation of this fraud event. And that has included having very strong partner partnerships with social media platforms, but also financial institutions as well. This has been incredibly important in our response. So social media platforms have been keen to remove content from their platforms and also to protect their users from consuming potentially fraudulent content as well. We have worked really strongly with financial institutions in our response too and they have been great partners. And we've been working with them both from an intelligence perspective, really understanding those that have been involved and how they've been involved, but also through our recovery action here as well. As I mentioned before, and I think you mentioned before too, Elinor, the tax profession and the broader community are also partners with us in our response. So people who are concerned about fraud can always report that to the ATO and we will continue to educate people on the signs to watch out for with simple messages such as the ATO does not offer loans. If you're not in business or you're not going to be in business, you don't need an ABN. And finally, never share your myGov login details.

Elinor Kasapidis:
Thanks so much, Michael, for that comprehensive summary, I think it's been a really good walkthrough of just how this fraud came to be, how the ATO has responded with its partner agencies, but also that recognition of that shared responsibility. It's a clear example though disappointingly of how a relatively simple fraud can have the capacity to create widespread damage, but also as a good example, a great example of how the ATO leverages its relationships with others, other agencies, stakeholders, and businesses to tackle the problem. What's next for Operation Protego and any final messages for our listeners?

Michael Morton:
Operation Protego continues to be an ongoing priority for the ATO and will be for some time as we work through the debt collection and prosecution aspects of our response. We've changed our posture on ease of access to the tax system as a result. We will continue to support taxpayers by making it easy as possible for them to comply with their tax and superannuation obligations. That's a fundamental part of our role. However, we've had to place some extra controls to make sure that the right people are in the tax system, but also make it difficult for the wrong people to enter the tax system as well. Our digital world means that fraud schemes will continue to evolve. We are becoming incredibly technologically literate and more and more people entering the tax and superannuation system expect that they can perform every interaction online. And this poses new challenges to us in terms of our systems and controls that prevent and detect and deal with fraud. The tax profession plays a fundamental role in our tax system. And in this new environment, you provide us with an additional layer of support and defence, helping individuals meet their obligations and stopping them from doing the wrong thing. One call that I do have for the tax profession today is that we are seeking your help in this current environment. And it goes back to what I talked about upfront, really maybe asking a few more questions so you have that really thorough understanding of your client and their circumstances at all times, but in particular where you're starting to see things that don't look right, they seem out of patent or suddenly you have a client that is operating a business and they hadn't before. We want to work with the community to ask them to report instances of fraud. We've set up systems, but if you see something on social media that looks like fraud, please report it to us or to the social media channels directly. The tax system belongs to the community so the community has the right to expect that everyone plays by the rules. Reducing fraud is a shared responsibility that everyone should feel that they can play and have a role in.

Elinor Kasapidis:
Thank you so much, Michael. And that brings us to the end of today's episode. Thanks very much to our ATO guest, Assistant Commissioner, Michael Morton. If you or anyone has engaged in the fraud, you should call the ATO's dedicated hotline on 1300-130-017. There is also a dedicated webpage with more information on self-correction and when to contact the ATO available at www.ato.gov.au/gstrefundfraud. If you believe you may have given your myGov up details to a criminal, phone the ATO on 1800-467-033. You can also call the ATO's tax integrity centre on 1800-060-062 to report known or suspected activities. With Interest is a weekly podcast. If you like what you've heard today, please subscribe on your favourite podcast app. From all of us here at CPA Australia, thanks for listening.

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