Billion Dollar TikTok Scandal

Recent years have seen $1.7 billion paid out in fraudulent refunds, another $2.7bn in fraudulent claims stopped, around 56,000 alleged perpetrators and over 100 arrests to date.

A TikTok scandal was promoted as a victimless hack that delivered tens of thousands of dollars into your bank account. Like any hack, taking part was as simple as following the instructions. The streamlined process designed to make it easy for a small business to start-up under Australia’s self-assessment system, also made it easy for the ‘TikTok fraud’ to go viral.

What is TikTok?

TikTok is a video-sharing social media app that is currently leading the world by storm. With over 1 billion monthly active users, it is quickly catching up to Instagram as one of the leading social media platforms. It allows users to create and share short-form videos on any topic.

It has been the subject to worldwide controversy, with many countries looking to ban the app over security concerns.

How did it happen?

During 2021, videos started to spread that spelt out how to get the Australian Taxation Office (ATO) to deliver money into your account. Not quite a loan, but a ‘hack’ that sometimes saw tens of thousands delivered into accounts, no questions asked. As the message gained traction, and with more and more people validating the hack, facilitators emerged. All you had to do was hand over your personal details to the facilitators and they would take care of the rest.

The fraud saw offenders inventing fake businesses, applying for an Australian Business Number (ABN), many in their own names, then submitting fictitious Business Activity Statements (BAS) to claim GST refunds.

• Late 2021 - the Banks noticed the uptick in suspicious activity, mostly large refunds that were out of character for those accounts - in some cases, Centrelink recipients receiving large credits from the ATO. The banks froze a number of accounts and reported the suspicious matters as they are required to do under the Anti-Money Laundering & Counter Terrorism legislation, including to the ATO.
• April 2022 - The ATO formed ‘Operation Protego’ to disrupt the rapid increase in GST refund fraud by individuals that were not genuinely in business. By that stage however, the strategy had gone viral.
• May 2022 - The average GST refund paid was $20,000, claimed by around 40,000 people. The ATO conceded around $850 million had been paid out in potentially fraudulent claims.
• June 2022 - That figure had blown out to $1.2bn but the ATO had stemmed the flow, rejecting $1.7bn in fraudulent claims. Search warrants and arrests of scheme promoters followed.

It is hard to fathom that some 56,000 Australians made the leap in logic that this hack had been discovered and that it enabled you to claim thousands of dollars in tax refunds as a ‘loan’ from the ATO. At the best of times, the ATO is not known for its sporadic acts of generosity and laissez faire attitude to tax revenue. We know the opposite is true.

It is alarming why so many accepted a view promoted on TikTok - the act of participating in the fraud required falsifying records at several stages and yet, failed to ring alarm bells. Unfortunately, naivety is not a compelling defense against fraud.

Who has been caught in this web?

The TikTok tax fraud is extensive and has several layers of impact across the 56,000 taxpayers caught up in it.

The closest circle are the scheme promoters and facilitators. To date, more than 100 people have been arrested including members of outlaw motorcycle gangs, organised criminal organisations, and youth crime gangs – and more than 10 people have been convicted for their involvement.

The maximum penalty for promoting a tax fraud scheme is 10 years in prison.

The second circle are those actively engaged in the scheme - who declared that they were carrying on a business, established an ABN, and submitted GST refund claims for expenses they did not incur. For those who received fraudulent GST refunds, the money will be paid back, penalties are likely to apply, and there is a risk of criminal proceedings.

Where to now for identify theft victims?

The third circle is comprised of the unwitting identity theft victims whose details have been used to generate fraudulent GST refunds. The ATO have had reports of people offering to buy and sell myGov details in order to access refunds. The conversation within the accounting community is that the ATO are inundated at present trying to manage the fallout, not just from the TikTok GST refund fraud but identity theft in general.

Our experience

We have seen instances of scammers registering our clients for an Australian Business Number and GST. Had we not acted promptly to intercept these, we strongly suspect that the scammers would have lodged fake Business Activity Statements claiming large refunds in the victims names’, exposing our clients to identity fraud, challenging conversations with the ATO (at best) and potentially large financial losses if the ATO seeks recovery of fraudulent claims. We have so far been able to stop these claims by notifying the ATO very promptly after the fake registrations arise and before any refunds have been released by the ATO.

We strongly recommend that you notify us of any strange correspondence or activity, such as unexpected ABN and GST registrations or BAS lodgements, as early as possible so that we can help minimise any exposure to you being a victim of tax fraud.

Tips to keep your details safe

It is important to understand that this recent scandal is just one of many that are occurring.

You can keep track of the current active scams in relation to MyGov on the Services Australia website and via the the Government’s National Anti-Scam Centre website.

MyGov also has a very useful page on their website on how to identify a scam and how to keep your personal details safe. To read more about this, click here.

The best tips to ensure you are scam-safe are:

• Learn to identify the signs of a scam. Sites such as MyGov would never ask you through text, email or direct message on social media to share your bank details, ID or personal details.
• Keep on top of your myGov account and if you notice any unusual activity, contact us asap.
• If you get suspicious messages, don’t reply, don’t open links and don’t download any attachments. It is better to be on the side of caution.
• If you believe you have been scammed, act fast to prevent further losses. Visit ScamWatch to see the steps what to do.
• Get you tax advice from us, not Tik Tok!

As always, if you wish to discuss any of these matters further, please contact your Ruddicks trusted advisor.

DISCLAIMER:

Liability limited by a scheme approved under Professional Standards Legislation.

The content of this newsletter is general in nature. It does not constitute specific advice and readers are encouraged to consult their Ruddicks adviser on any matters of interest. Ruddicks accepts no liability for errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice. This information is current as at 17 October 2023, and was published around that time. Ruddicks particularly accepts no obligation or responsibility for updating this publication for events, including changes to the law, the Australian Taxation Office’s interpretation of the law, or Government announcements arising after that time.

Any advice provided is not ‘financial product advice’ as defined by the Corporations Act. Ruddicks is not licensed to provide financial product advice and taxation is only one of the matters that you need to consider when making a decision on a financial product. You should consider seeking advice from an Australian Financial Services licensee before making any decisions in relation to a financial product. © Ruddicks 2023