‘Frighteningly easy’: How fake AI payslips fuel mortgage fraud

Bank bosses are generally among the most enthusiastic artificial intelligence evangelists in the corporate world. AI can not only cut costs, they claim, it can also improve customer service and even protect people from scammers and others who are up to no good.

Time will tell if AI lives up to all this hype. What has undoubtedly become clearer, however, is that in financial services, AI also has a more sinister side: it is extremely useful for people trying to cheat the system.

The latest example of this is AI-facilitated mortgage fraud. We learned last week there could be hundreds of millions of dollars in fraudulent loans held by Australian banks, and AI appears to have accelerated this problem.

The financial crimes watchdog, Austrac, revealed that after conducting a probe together with banks dubbed “Operation Claw”, it found there were “potentially hundreds of millions of dollars in suspected fraudulent loans”. The investigation was carried out by the Fintel Alliance, which includes the biggest banks in the country, and it drew on data from 10 major banks.

The suspected fraud was enabled by fake payslips, fake company documents, and more. This array of fakes – which banks say can be much more easily created using AI – was then used to support home loans which were mostly linked to houses in Sydney.

In one sense, this is not a new problem for banks, which have always had to contend with fraud. But in another, Austrac’s finding underlines how AI has amplified problems such as scams, hacks and fraud .

It shows the need for ongoing technological change in the industry that is already one of the biggest investors in technology in the country. And it also suggests we need to make bigger policy changes in how our data is shared and verified in the financial system – more on that later.

So, how big a problem is mortgage fraud for banks? And what can they do about it?

Austrac is the most feared regulator in corporate Australia because of its ability to seek gargantuan fines for breaches of anti-money-laundering and counter-terrorism financing laws. So when Austrac talks, the industry listens. Yet, it’s important to note that last week’s update on potential mortgage fraud did not find evidence of widespread money laundering. Hefty fines are not in play at the moment.

What it did find were weaknesses in banks’ systems that could be exploited by criminals. The basic problem is that banks failed to detect false documents that were used to support loan applications – and it’s become much easier to generate such fakes.

“The scale of this activity should be a wake-up call for every lender.