AUTRAC’s Fintel Alliance discusses the indicators you need to know about Illegal Pheonixing
The Fintel Alliance last year published a typology describing indicators associated with suspected illegal phoenix activity, fraudulent taxation claims, money laundering activities specifically pertaining to labour hire and payroll services but likely to be characteristics of other suspect phoenix activity in various industries including construction.
The typology recommends reporting entities take a risked based approach to identify indicators while considering the obligations under the AML/CTF Act. This can be best achieved by having robust and stringent on-boarding processes, ongoing customer due diligence including monitoring of all designated services, and the reporting of suspicious matters (SMR’s) to AUSTRAC where required. In turn having the ability to identify, mitigate and manage the associated risks across your organisation.
What is Illegal Pheonxing?
Illegal phoenixing can be described as a company who liquidates its operations to avoid paying its creditors, taxes and other regulatory payments. Before liquidation, the company transfers its assets to a newly created company. The new company operates in the same, or similar industry using the same directors or close associates maintaining control. The impact of illegal phoenixing activity is far reaching for the individuals, businesses, government and the community. This includes loss of wages and entitlements for staff, non – payment to suppliers, avoidance of regulatory obligations and loss of government revenue. Suspicious matter reports to AUSTRAC should describe ML indicators associated with illegal phoenixing in the labour hire and payroll services industry.
Indicators such as the below should be considered on a case by case basis and used as red flags:
What should you do?
If your customer base includes companies or activities identified in the typology report, you should ensure that you:
- Provide appropriate training to your staff to be able to identify indicators
- Consider implementing transaction monitoring rules to detect activity
- Ensure that high quality, accurate and timely SMR’s include reference to phoenix indicators to provide AUSTRAC and Law Enforcement partners with the best opportunity to detect, deter and disrupt criminal activity.
For further information on how you can combat this crime type please visit Full Fintel Alliance Report.