The impact of identity theft and its threat to superannuation savings were highlighted in a case that went before the Federal Court at the end of 2023.
Braz v Host-Plus Pty Ltd [2023] FCA 1454 dealt with a fund member who had been the subject of a scam when a scammer fraudulently transferred $170,000 out of their account.
The member complained to the Australian Financial Complaints Authority that the trustee should not have processed the rollover.
In its initial determination, AFCA considered many issues including whether the trustee’s “conduct satisfied its transfer obligations and complied with process checks and administrative controls which were in place”.
It found that the trustee “acted in a manner consistent with its legislative obligations” and that accordingly its decision to process the rollover was fair and reasonable in the circumstances.
The member appealed the AFCA determination on the basis that the trustee’s payment processes were inadequate. The court allowed the appeal and determined to set aside AFCA’s determination.
Sanela Osmanovic, senior associate with KHQ Lawyers, wrote in a recent issue of the Australian Superannuation Law Bulletin that the facts of the case state that Lee Braz wanted to set up an SMSF but did not realise he had engaged a con artist to assist him.
“The con artist had made a website which was very similar to an existing and legitimate accounting firm, so Mr Braz thought he was engaging a legitimate SMSF adviser. Mr Braz completed the required form and provided it and a copy of his passport to the scam company on 1 July 2020,” she wrote.
The scammer used that information to request a rollover out of Intrust Super and into a new SMSF’s bank account that turned out to be the scammer’s own account.
“The scammer had set up a legitimate SMSF, it was just the bank account which was fraudulent. The rollover was processed once the trustee had checked the information provided,” Osmanovic said.
The facts continued that Braz was not aware this rollover application was made on his behalf and at the time the rollover was processed, neither he nor the trustee was aware they were dealing with a scammer.
Osmanovic said the SMSF member verification check undertaken by the trustee sought to comply with reg 6.33E of the SIS Act, which states that if the transferring fund receives a request under regulation 6.33 to roll over or transfer the whole or a part of a member’s withdrawal benefit from the transferring fund to an SMSF, the trustee of the transferring fund must:
(a) Use an electronic service provided by the Australian government to verify: [(i)–(v) list various pieces of information such as the ABN of the SMSF].
(b) Use an electronic service provided by the Commissioner of Taxation to validate that the member is a member of the receiving fund.
“The trustee received a copy of a bank statement containing the account number and BSB for the rollover to go into. It was later revealed this bank statement was fraudulent. However, AFCA considered there was nothing obvious in the bank statement which indicated it was fraudulent,” Osmanovic said.
“A copy of Mr Braz’s passport was also provided to the trustee. The certification stamp on the copy of the passport was fraudulent but AFCA considered the way it was applied was not ‘enough to raise suspicion’ by the trustee.”
In its ruling, AFCA considered the trustee complied with all the verification checks required under law to give effect to this rollover and determined that the law did not require the trustee to call a member to obtain verbal confirmation before processing a rollover.
Braz appealed AFCA’s determination in the Federal Court and it committed it back to AFCA, with the court determining that Braz’s first question of law identified an error of law that was sufficient to require the matter to be reconsidered by AFCA.
“Mr Braz’s relevant question of law was whether AFCA ‘erred in law in its interpretation and purported application of reg 6.33 and further, in doing so, incorrectly applied reg 6.33’,” Osmanovic said.
“The court found that AFCA should have considered the absence of consent from Mr Braz and agreed that the application of reg 6.33E relating to verification procedures was not enlivened because reg 6.33 was a precondition to the operation of reg 6.33E and it had not been satisfied.”
Osmanovic said AFCA must now reconsider the argument from Braz that the SIS Regulations must be applied strictly, particularly the sections that state “if the member does not give consent, the rollover cannot happen” and “acting as a prudent trustee, contact should have been made with [him] to confirm the request”.
“The law, however, does not require trustees to call members before completing rollovers. In fact, the law requires rollovers to be processed quickly within three business days,” she said.
“AFCA noted that Mr Braz had armed the scammer with his confidential information which was used to carry out the fraudulent rollover in this way, Mr Braz himself ‘compromised the security of his account’. This also meant there was no way for the trustee to detect the forged documents as ‘they were used alongside information provided by [Mr Braz]’.”
