Gone in 120 seconds: how a $4.6b fraud wave unfolded (2024)

They believed the TikTok social influencers who told them “Everyone else got refunds, it’s OK, it’s just a temporary loan [from the ATO],” and stumbled into a costly life choice.

All up, the ATO admits to being out of pocket by $1.6 billion on what has been dubbed the TikTok GST scam. Coming on top of its messy relationship with PwC over the tax leaks scandal, and revelations that total outstanding tax has rocketed to $50 billion, the Tax Office is under increasing scrutiny.

The ATO pushed back hard against the Financial Review story, issuing a statement headed, “Correcting the record on Project Protego”. The fraud wasn’t the $4.6 billion figure reported in the Financial Review, the statement said: “In our Annual Report to June 2022 we reported a cost of $1.2 billion at that time.”

That’s the figure that the media and accounting bodies reported this week, a $1.2 billion cost to taxpayers. It was only near the bottom of the release that the ATO confirmed the numbers reported by the Financial Review – the $2.7 billion in claims stopped and the additional $700 million in the cost of the fraud, which included $300 million in penalties and charges. It added up to $4.6 billion.

“This was an unprecedented threat proliferated via social media and is now contained,” the ATO concluded flatly.

This has been a recurrent theme – that everything is under control. Accountants who spoke to AFR Weekend agreed that the rate of fraud had reduced. But they said it was still going on, often with smaller claims to avoid ATO scrutiny. The question is, what does it mean to be contained?

How it all began

The ATO first flagged the fraud in May last year when it announced that Operation Protego was investigating $850 million in suspected fraudulent GST payments.

How it cottoned on to the fraud was a little confusing: “Sophisticated risk models deployed by the ATO, coupled with intelligence received from banks including through the AUSTRAC-led Fintel Alliance and the Reserve Bank of Australia, identified a recent spike in suspicious refunds.”

Central banks don’t generally send GST fraud alerts so how did the RBA get involved? It has since emerged that the big banks had been alerting the ATO since late 2020 of suspicious large payments into the accounts of people on social security, which they froze. But as the fraud went viral from mid-2021, the banks, working with AUSTRAC’s FinTel Alliance to determine the size of the scam, became increasingly concerned about what to do with the frozen accounts, with no apparent response by the ATO.

In frustration, some bank executives took their concerns informally to the Reserve Bank, which met with the ATO in mid-February last year. The ATO says that by the end of that month, it stepped up its response to the scam, which was running at thousands of fraudulent claims per day.

Protego was launched on April 11, 2022, with 600 tax officers reviewing claims. The first arrests were in June that year. Last September, a senior tax officer told AFR Weekend, “We stopped it pretty quick.” It was in the clean-up phase. “We’re pretty confident we’re stopping pretty much all of them.”

Others were less sanguine. One Sydney accountant said cracking down on the more than 50,000 people taking part in the fraud was well beyond the ATO’s capacity. “Their policing, a lot is puffery. They manage risk and this was a new and emerging risk they didn’t account for – it was a function of the speed and spread on social media.

“However, their ability to hold people accountable for those funds is second to none.”

Difficult conversations

Meanwhile, from July last year, tax agents servicing Australia’s poorest communities discovered that the same people who had been part of the fraud now wanted their income-tax refunds. People were still showing up with undetected GST credits. It made for difficult conversations for tax agents, who are required to report fraud. Some clients took the news badly.

The lack of sophistication of the fraud –and the ATO’s failure to pick it up – is galling for tax agents. “The activity statements in some of these frauds don’t even balance to anything,” one agent says about fictitious GST claims being unrelated to fictitious sales and expense claims.

The ATO’s 2022 annual report noted that it had reported liabilities of $500 million by June 30 last year. Two months later, that was up to $1.2 billion. This was what the scam had cost taxpayers. The figure would have been higher but for another $1.7 billion in claims that Protego stopped last year.

Through 2022-23, a steady stream of people were still being caught by the ATO for new offences. By June this year, the liabilities had blown out by another $700 million, and a further $1 billion in claims had been stopped.

Amid the wave of fraud, the Australian Federal Police became aware of alleged members of outlaw motorcycle gangs (OMCG) who were taking advantage of a simple way to rip off taxpayers via the TikTok fraud. The police saw an opportunity to disrupt these gang members and joined with the Tax Office under Operation Protego-Cassowary, which specifically targeted bikies committing GST fraud.

In one week in March this year, the AFP’s specialist National Anti-Gangs Squad working with the state police executed 32 warrants against 29 persons of interest who used their own names when committing the GST fraud and are allegedly members of the Bandidos OMCG, Coffin Cheaters OMCG, Hells Angels OMCG, Mongols OMCG, Rebels OMCG, Comanchero OMCG, Nomads OMCG, Rock Machine OMCG and Finks OMCG.

‘Complete insanity’

The ATO is proud of Protego’s performance, and it said earlier this month that it had used AI and “gradient-boosting machine learning models to identify rapid evolution in GST fraud behaviour” to stop $2.5 billion in fraudulent GST claims – along with 600 staff, about 3 per cent of the organisation’s 20,000 employees, who still appear to be tied up with it. It cites Protego as one of its big compliance successes.

But a former ATO officer calls the agency’s criminal investigation model “complete insanity”.

With the AFP unable to investigate most fraud matters, “tax fraud is almost exclusively investigated by a handful of inexperienced public servants recruited internally at the ATO, with no experience in law enforcement,” the former officer said.

“The criminal investigations team in Sydney only has about three team members at the present time.” The Newcastle team was in similar straits. “More people work in the in-house prosecutions area, taking action against people who don’t lodge their returns, than those investigating serious crime.”

The ATO declined to comment.

“This was always going to happen and it was just a matter of time,” the IPA’s Greco says. “I have been on record saying that applying for an ABN is too easy, and that it should be vetted by tax agents to reduce the risk of fraud. It’s $2 billion of wasted taxpayer money, when there’s an easy fix that would help accountants improve the integrity of the tax system.”

Meanwhile, for the 56,000 participants who scored a payout from the fraud, this is the point where it gets messy. They now share $1.9 billion in tax bills. The ATO retrieved $66 million from the fraud last year, mostly from frozen bank accounts.

The $1.9 billion debt is unlikely to be paid, and has swelled the ATO’s collectable debt total. That works out to $434 million extra in collectable debt for last year and another $1.4 billion this year.

Not that it matters for those in the ATO’s sights. Another tax accountant strikes a cynical note: “If you’re going to cheat the system, you have to know it 110 per cent inside out, and most people don’t.”

That’s most of the people who signed up for the TikTok fraud, for whom any legitimate future tax refund will be swallowed by their tax debt.

“They’ve been caught out and they seem to think they’re still getting their income tax refunds,” says another accountant. “A young boy came in, 18 years old, he owed $80,000 to the ATO. He said, ‘I’m getting my refund. They said I could still lodge my tax return’.”

The personal tax debt for most of the 56,000 people involved in the fraud will head higher every year after interest, swallowing any payouts.

“These people have had their last tax refund for their life,” the accountant says. “They don’t get that part. They don’t get it.”