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Parliamentary Joint Committee on Law Enforcement
09/09/2014
Financial related crime

FONTANA, Mr Stephen, Assistant Commissioner, Victoria Police

CHAIR: I welcome Assistant Commissioner Stephen Fontana from the Victoria Police. Thank you, Stephen, for coming up. I remind committee members and officers that the Senate has resolved that an officer of a department or agency of the Commonwealth or of a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted.\

Jason, as a former Victorian, you would—

Mr WOOD: Yes, we know each other well.

Mr Fontana : Yes.

CHAIR: And Barry O'Sullivan, who was here earlier, is also a former police officer, as is Mr Matheson. So, I am the odd one out!

Mr Fontana : So, there is life after policing!

CHAIR: I invite you to make a brief opening statement, and the committee will then ask you some questions.

Mr Fontana : I will take the submission that we put in as read. I suppose the key focus from the Victoria Police perspective is that we would like to work a lot more closely with industry in relation to fraud related matters, because in reality there is a substantial amount of unreporting in terms of credit card fraud and other types of fraud across the nation. And to be quite honest we would be overwhelmed if it was all reported. But there are a lot of opportunities for us to work more closely with industry to look at their practices, particularly when they bring in new innovations, to think about what the impact will be in terms of other types of crime that might arise within the community. Also, there are opportunities for businesses to work together and with us and to share intelligence, and maybe we can actually identify some of the syndicates involved and maybe stop their activities much earlier through that relationship. So, we see that a key point for us working into the future is about how we engage with industry, because law enforcement cannot deal with this issue alone; we need cooperation from those particular bodies.

CHAIR: In relation to that, there was some evidence earlier today that the banking industry in particular is quite happy to work with law enforcement, but their view is that it is a one-way flow of information to law enforcement; there is not a flow of information back to the industry as such to help it improve its system and analytics.

Mr Fontana : There is a whole range of things there, and there is also a reluctance when you get the institutions together—that competitive nature. They do not like to share even the basics about what is happening in the security environment. So, you will get issues between industry players themselves but also that reluctance with law enforcement. But this is about how we move forward. We have had a number of meetings with a number of different financial institutions, and we have discussed ways that we can contribute to help provide them with indicators. They have very advanced technology for identifying when offences are occurring, but we are probably closer to the ground and can see when those triggers could go into place a lot sooner or be deactivated a lot sooner, because we are seeing some of the trends, particularly with tap-and-go technology. We can see when they are stealing these cards. They are being stolen in robberies, house burglaries, thefts from cars, and the offenders go on a spree. But they always start with a very low financial transaction, first, just to see if the card works, and if it works they then go on a spree very quickly. There are things that we can provide in working with their analysts to say, 'Look, these are the trends we see,' so that they can actually adjust their systems to maybe stop the advance of the use of that card by putting a PIN in at a certain time.

So, there is a whole range of things that, by working together, we can share—not necessarily intelligence about who the offenders are, but I think with some of these industries themselves, they are identifying trends. They are probably identifying potential suspects, but they are not talking. And if they are not talking, these people will continue to offend. Particularly when you look at some of the banks, with fraudulent loans they rarely report attempted thefts. I was recently talking to a detective sergeant who had retired after many years of experience in the fraud squad, and he said that if you actually want to stop some of these mortgage thefts or these fraudulent loans then maybe they should start reporting attempts. What happens is that these suspects who are involved in it make many attempts. They keep going from one institution to another until they finally succeed. He said, 'If we actually identified it earlier, or if they reported them, we might be able to step in and do things.' So, I think there is a lot of benefit to be had. By just thinking about what we see and how we work with industry, I think we could achieve a lot more.

CHAIR: Are those fraudulent loans mainly in the space of personal loans or consumer loans?

Mr Fontana : They could be a whole range of different types of loans. You just made the comment about some of the big loans they have seen go out where there is fraud involved. There have been a lot of attempts in the lead-up—maybe up to eight attempts on some occasions—and these people succeed in obtaining quite a significant fraudulent loan.

CHAIR: So, what would be some of the characteristics of that type of fraudulent loan that the banks are not picking up in the process, given that you are saying that they have tried up to eight times?

Mr Fontana : The banks may be picking it up, or one institution may be picking it up, and finding out through its own processes that it was fraudulent, but the people involved will try other institutions, and that data is not being shared with anyone; it is not being reported to the police. So, there is a whole range of things around thinking about how they share data amongst themselves and also with police.

CHAIR: Also, in an earlier comment, you touched on PayWave and tap-and-go technology, and it is interesting, because we asked that question earlier today, and the answer was, 'Well, we're not really seeing any increase of a significant level in crime in that space.' So I would be interested if you could maybe elaborate on that a little bit.

Mr Fontana : We have spoken with both MasterCard and Visa, after our crime stats had been released, because we are seeing a significant increase in the use of cards in credit fraud. When they look at the overall spend they will say, 'Look, it's flatlined in terms of volume'—in terms of what they are seeing. They say that the limit on the card—$100 or whatever it is—keeps the frauds to a minimum. But there is part of that that they are not seeing. And we are probably driving the volume ourselves, because if someone breaks into a house or robs someone in the street to steal their car, or breaks into their car, we do that investigation. When we get the offenders and the cards, we then follow up. We are charging them with all the deceptions that they are committing. They do go on a spree, because no pin is number required. They just get the card and, if it works, they will quickly go and use it as much as they can. We are seeing that in volume. We are driving that through the arrests of offenders. They do not see that in the overall volume in terms of total amount of dollars lost. We see volume in their flat line, basically.

CHAIR: So it is a case of the size of the transactions has reduced markedly but the number of transactions has increased.

Mr Fontana : That is right. When we follow up, we are driving those statistics. We have seen quite a significant increase in the number of people charged. More recently, we have also seen that a number of younger people are committing offences if they get these cards, because they do not need a pin number. Basically, they will just go out and use them in stores and things like that. Areas where self-payment terminals have been set up open up an even greater ability and opportunity for people to commit deceptions.

CHAIR: Are you talking about supermarkets?

Mr Fontana : That is right. Where you have self-service terminals.

CHAIR: Other than credit card fraud, what other financial fraud related activities are you seeing in your day-to-day activities?

Mr Fontana : We get a whole range of them. We see the ponzi schemes, which I think we have outlined. In terms of superannuation fraud, we deal primarily at a state level with the self-managed schemes. We see people who manage those schemes being targeted, generally through ponzi type set-ups, with corrupt mortgage brokers or facilitators and things like that. Across the board, we see a lot. We do not do a lot in terms of targeting money laundering. We work closely with the Australian Crime Commission, our federal partners. We have joined-up arrangements in terms of that. We have teams of investigators embedded with the Australian Crime Commission. They have certainly had that focus on remitters, and it is working quite well in terms of looking at the large volumes of money. What we are seeing from that is a lot of cash being carried around the country in backpacks and things like that, with no challenge. People are going through security at airport terminals and things like that and no questions are being asked, because that is not what the officers there are trained for. They are trained for other types of matters. There are probably opportunities for looking at how this money is being moved around by drug dealers and others.

CHAIR: So it is coming in and out?

Mr Fontana : Once it has hit the country and people are moving around, they do carry around backpacks. When they are working in these particular syndicates, they might find that they have large amounts of money in these backpacks. Some of them are coming through domestically, so there are probably opportunities to think about where these thing can be tightened up.

CHAIR: You wouldn't pick that up in the normal security checks at a domestic airport, would you?

Mr Fontana : No. You might on a scanner but the training is not there for what you need to ask about.

Mr WOOD: Yesterday, the Northern Territory assistant commissioner raised in his submission great concerns about the decision of the High Court in relation to case in Victoria. I think the name of the defendant was Momcilovic. Are you aware of that case? It was a fraud case and the High Court made the decision that, where Commonwealth and state legislation are involved, the Victorian police should have made charges under the Commonwealth legislation.

Mr Fontana : I have a vague recollection of it. I think we discussed the implications of that particular case in relation to a matter last week.

Mr WOOD: Is it of great concern?

Mr Fontana : It is. Commonwealth legislation does override. We do have the authority to use Commonwealth legislation, but it is an issue, particularly in the joined-up arrangements, when you are looking at the constitutional arrangements. It is quite important to get your head around that if you are looking at, say, introducing a national approach for dealing with unexplained wealth. You need to look at the implications of the Constitution and that needs to be tailored for any laws that you are drafting.

Mr WOOD: I assume it could have implications when it comes to the financing of terrorism and terrorism related laws too.

Mr Fontana : Yes, it could.

Mr WOOD: I suppose a recommendation for this committee would be to look at that as a legislative issue. Would you agree with that?

Mr Fontana : It is looking at where the barriers are and their implications, so that would be a good decision to go back and review and ask: 'Is it something that is still a problem there, or was it just the way we tackled that particular case?'

Mr WOOD: Also we heard again—it was Assistant Commissioner—

Mr Fontana : Paul Dickson?

Mr WOOD: Yes, regarding bitcoin. It sounds like we cannot introduce legislation for regulations because it is international. Are you finding a lot of financial crime money being laundered through bitcoin?

Mr Fontana : It is a new money. It is a volatile market. We seized a large volume. We have probably done the largest seizure of bitcoin in the world. We are still working through that in terms of the person who was charged with drug dealing. It was so volatile that it jumped up to $30 million and went down to $17 million. We are still going through a process to recoup that money once the matter has been finalised at court. It is used as currency and recognised as currency. There are some challenges with it. There are even challenges for us to work out how to realise that currency once we have seized it through criminal proceeds, but we are working through that.

Mr WOOD: Again would that be state laws or Commonwealth laws?

Mr Fontana : We are applying state laws in this particular case in terms of our criminal proceeds legislation. It is something that we do need to look at—the implications of bitcoin and its use—because it is commonplace.

Mr WOOD: Are you able to elaborate further on that inquiry? Is it still in the courts?

Mr Fontana : It is still under the courts. It should be finalised in the near future—I think in December. There was quite a challenge for us. We nearly blew our systems up when we got the money into a secure folder for seizure, but it is then: how do we realise it, because the market is so volatile that if we try to offload everything at one time we could upset the whole international market? It is a really interesting space. I do not know enough about it, but I know enough to know that the value of the money is going up and down like a yoyo. When we first seized it it was worth about $4.9 million and it went up to $30 million. It is an extremely volatile market, but it is still there.

Mr WOOD: Would it be possible after the case is finalised to give a submission to the committee about how it actually works, because it is all fairly new for us?

Mr Fontana : Yes, we could probably provide an overview. Some of our people are learning a lot about bitcoin because it is turning up in a lot of our operations.

Mr WOOD: The other new area for me was the dark internet. Is that the common police term for it now?

Mr Fontana : The darknet. Those are a whole range of different secure sites that criminals use for a whole range of things from selling firearms, drugs and child exploitation material, so it is an issue for us.

Mr WOOD: Was the matter you were talking about before on the darknet?

Mr Fontana : No, that particular person was selling. I do not think he was selling online. He may have been. On occasions there are exchanges that do go with bitcoin, but this person had a lot of bitcoin so I am presuming he would have got it through sales, but I am not too sure how.

Mr WOOD: This inquiry is looking at financial related crime. When it comes to the darknet are Victoria Police now moving to get their investigators trained to work in that space? Is this is an area, for example, that computer crime are looking at or the average detective can—

Mr Fontana : One of our key focuses is building our capability across the organisation in terms of digital type crime or data, e-crime or cybercrime. We have a specialist unit but we need to develop the capability of members in our regions to do some basic stuff so that they are not sending everything in for our specialists to do. It gets them bogged down. We do have a range of expertise within our e-crime squad and they do go across those particular nets. They can run a whole range of operations from time to time, but it is a struggle for us to keep up with the resourcing. It needs investment. We need specialist expertise in that area. I think that is something that was highlighted in the blue paper that the chief commissioner released earlier this year. It is the new age of policing and we do need to think about the mix of people we employ, particularly in this area with e-crime and cybercrime.

Mr WOOD: I was involved in an inquiry a number of years ago and we actually visited the UK fraud squad. They had an arrangement with insurance companies over there where the insurance companies were basically paying the wages of police detectives, to create more detective positions, to investigate fraud. Is that something Victoria Police has considered or would consider?

Mr Fontana : We look at a whole range of flexible employment options for the future under that paper. Our blue paper is pretty extensive in terms of saying, 'This is where we hope to go into the future and how we engage and build our capability.' We are looking for much greater flexible working arrangements but also the ability to bring on specialist skills when we need them. Some of those may be ex-police members who have retired and who we can bring back to review cold cases. They may have an expertise in fraud or a whole range of those things.

Mr WOOD: I think the idea of ex-detectives looking at cold cases is a fantastic idea. I have one final question. Are there any recommendations when it comes specifically to Commonwealth legislation, which Victoria Police would like this committee to look at?

Mr Fontana : I think my colleague this morning might have raised some issues in relation to the delays we have in getting data from some of the institutions.

Mr MATHESON: The MAR—

Mr Fontana : Yes. There are issues about the format we get data in. When I visit our fraud squad, particularly when they are dealing with complex cases, they get everything in hard copy and they are asking, 'Why can't we get this computerised?' They have to put it on the computer. They waste hours and hours. I am sure it is all electronic. There is a whole range of things that could be looked at in terms of how we get that information from financial institutions.

Mr WOOD: With this issue—obviously we are talking about legislation—if you get telephone intercepts, is that information supplied through the sort of data you want the banks to supply bank transactions on?

Mr Fontana : These are electronic financial statements and records we are looking for, more than anything, not telephone—

Mr WOOD: I understand. I am asking whether you get, from the telecommunications providers, the data in the form you want it, whereas the banks are just giving you a hard copy?

Mr Fontana : One of the challenges is how we get data from a whole range of industries. It is a challenge. It is not always in the same format, which makes it difficult. That is a significant challenge and it takes a lot of time to work through that.

Identity will probably be a key thing into the future, I would say. I know that we are looking at updating the strategy. We have mentioned to some of the financial institutions—I mentioned it in a meeting with Visa—that biometrics might be the way, in the future, to reduce fraud with credit cards, or even as a form of proving identity, because it is a real issue out there in terms of identity theft. With advancements in technologies, I think you could probably reduce a lot of it through biometrics. I actually read a small article in the paper on the weekend about some bank over in Europe that is introducing biometrics to its cards, and I thought, 'What a great idea!'

Mr MATHESON: In relation to your MARs, do you think there should be some sort of legislative requirement for banks to supply the information within a certain period? Some of these financial scams only go for days or weeks. If you are saying information you are trying to glean from banks or other organisations is taking up to 12 months, the scam is over. So you are going to be tracking someone who has probably diversified their assets or moved on. The banks are saying exactly the opposite. They are saying that the police are making requests for information that they really do not know anything about, or that they 'don't know what they want'. That was the terminology they used, which I find unbelievable, because I know that if a detective is going to contact a bank he knows what he is looking for.

Mr Fontana : They generally do. I suggest that my people in the fraud squad would know what they are looking for. One of the things that frustrates us is the delays in obtaining the data.

Mr MATHESON: Do you think there should be some sort of legislative requirement to respond to a request from states' and territories' law enforcement agencies?

Mr Fontana : It would be nice. It depends on what the cost is for us. There are always trade-offs. When we look at information coming from other areas, the cost of doing business is enormous.

CHAIR: Any request for information from a bank or a financial institution—

Mr Fontana : It would normally be under warrant.

CHAIR: requires a warrant.

Mr Fontana : That is right.

CHAIR: So that provides the scope of information that is required.

Mr Fontana : That is right.

CHAIR: As I said this morning, I find it strange that I can download my bank transactions to MYOB or Quicken or whatever, direct from my internet banking, yet the banks cannot provide you with an electronic CSV vile or and Excel file with that all formatted ready for the officers to go through it and look for the information they are after.

Mr Fontana : It is a real source of frustration for our members.

CHAIR: You touch on industry responsibility in your submission, but I think we have covered that off reasonably well.

Mr Fontana : I did mention that, with respect to the National Fraud Exchange, I am aware that some work is being done by the four big banks. I think that is a real plus. I think they are still working through that. It is probably a challenge, but getting business analysts in from each of those institutions and getting them to work together and share that data is a real advantage. The more institutions that get on board in that sort of arrangement the better. It would be great, but if you actually put in some criminal elements in there as well it would, in my view, really start to kick goals.

CHAIR: Do you find that, more generally, the financial services industry is becoming somewhat more proactive in dealing with issues of fraud—for example, the new ATMs are designed to minimise the capacity to put card skimmers on them and they are better protecting their premises from physical issues.

Mr Fontana : The institutions that I have spoken to certainly give a lot of consideration to security, particularly of Visa cards. They talk about the new technology they are putting in. There are flaws with it and there are risks. But they are thinking that way. At times we have said, 'It would be nice if you could consult with us in advance, so we can look at the implications of new technology.' We recently got invited to have a look at some new technology that was coming in, just so that we could start thinking about what the flow-on effect would be. It is about starting to engage with industry in that area.

When you look at the card technology in terms of the validation of cards, banking institutions have different practices. Your major card companies will say, 'No, they should not be validated before they are sent out.' But the banks themselves have different practices for new or renewed cards that are going out. There are a whole range. Some banks do not validate them and others do. Now we see some of the offenders jumping back into practices of stealing mail and things like that with respect to cards. That had stopped for quite awhile but, because these different practices are in place again and you have that 'no PIN required,' out you go. That is what is happening at the moment.

CHAIR: You mentioned the biometric data used by the banks in Europe. What sort of biometric data are they using to put in the cards that make it easy, because it is important at a point of sale or a bank branch to be able to—

Mr Fontana : I do not know what it was. I just read a little article referring to the fact that, with the card, they were going to introduce biometrics and I thought, 'What a great idea.' I actually said to Visa, 'Why can't you just walk up, put your finger on a thing and say "Visa, MasterCard" or whatever?' We have scanners here and, with a fingerprint, you can use it on your phone for security to get into your phone and things like that. So the technology is coming.

CHAIR: When you now enter the US you have to put four fingers—

Mr Fontana : When you think about the opportunities for reducing identity theft in particular, which is often used as a driver for fraud and other things, we should think of those advances and how they could be used in the future.

Mr WOOD: We have heard all about Nigerian scams and the claim: 'Receive $100 million here by depositing a bit of money into an account.' Recently in my electorate, in the south-eastern suburbs, my office got a phone call saying that we had flown on a Virgin plane and that, in fact, we had a $900 credit. We obviously realised it was a scam, so we thought we would put that out on Facebook to warn people. Thirty or 40 people came back on Facebook saying they had had the same phone call. We assume that they are heavily targeting that area. Obviously, it is very difficult for Victoria Police or anyone to investigate. Do you want to hear about those individual ones or is it—

Mr Fontana : With respect to many of those, it is about where the offence occurs.

Mr WOOD: I assume that it is all orchestrated overseas.

Mr Fontana : We do provide information on those two. I cannot remember which body it is, but it is about providing that preventative advice for people. Perhaps there is some more thinking that needs to be done about ongoing advertising and messaging to members of the community about how to reduce the risk of fraud with the use of their cards or a whole range of things, particularly in the online environment. It is an environment that is rife for a whole range of crimes. One of the key things that we are trying to focus on is not just conducting investigations but crime reduction and crime prevention. There is probably a lot more that can be done in terms of educating the community.

Mr WOOD: We have heard that the big issue in the Northern Territory is education. Has Victoria Police got a planned campaign? Or could you recommend that the committee maybe have a national—

Mr Fontana : At this stage, not to my knowledge. I think we would tap into other agencies for that advice, particularly with these international type schemes.

CHAIR: Just to follow on from Jason's point about education, another point was made in relation to the Northern Territory, particularly with Indigenous communities, that education material has to be available to them in their local language, not English because English could be two, three, four languages down the list.

Mr Fontana : Absolutely. And that goes for all the so-called CALD communities as well. We have a lot of new and emerging communities and it is important that everyone gets access to that information.

CHAIR: As there are no further questions, thank you, Assistant Commissioner, for taking the time to come here. Please pass on my thanks to the commissioner with regard to the submission as well. We will provide you with a copy of the Hansard transcript. If there are any corrections that need to be made, please let the secretariat know. Thank you for your time today. It is greatly appreciated.

Mr Fontana : Thank you.

CHAIR: Is it the wish of the committee that any documents tabled are accepted? There being no objection, it is so ordered. I thank all witnesses who have appeared before the committee for giving their time today. I would also like to thank Hansard, Broadcasting and our wonderful secretarial. That concludes today's public hearing.

Committee adjourned at 16:12