Mushrooming mule accounts fuel rise in financial frauds, says official | Finance News

The proliferation of mule accounts has emerged as one of the major reasons behind rising financial fraud in the country, a senior cybercrime official said requesting anonymity.

 “Mule accounts are a major reason behind smooth transfer of money in a financial fraud…I can say that around 99 per cent of the frauds won’t happen if mule accounts do not exist. It’s very surprising to see how easily such mule accounts are opened and are used comfortably by cybercriminals across the country,” said the official. 

 

 Mule account holders are termed money mules who often are innocent victims duped by fraudsters into laundering stolen or illegal money through their bank accounts. Money mules are recruited, sometimes unwittingly, by criminals to transfer illegally obtained money between different bank accounts. When such incidents are reported, the money mule becomes the target of police investigations due to their involvement. 

 The official also said that apart from Jamtara and Mahabaleshwar, some hot spots in the Southern India of the country have been identified. However, the official did not reveal the names of the places.  The number of cyber fraud cases has skyrocketed from 2,677 in FY20 to 29,082 in FY24 registering a 10-fold increase, according to the data provided by the government in the Parliament. It also underscored the growing sophistication of fraudsters and exposing vulnerabilities within the financial system.

 Government agencies and the Reserve Bank of India (RBI) have increased their scrutiny of the mule accounts in recent times.

 

In a meeting last month, RBI Governor Shaktikanta Das urged heads of select public and private sector banks to step up efforts against mule accounts and asked them to intensify efforts to curb digital frauds.  The apex financial regulator has been working closely with the Indian Cyber Crime Control Centre (I4C) under the Ministry of Home Affairs (MHA) and multiple other agencies to curb mule accounts and digital frauds.

 

 The magnitude of the cyber frauds issue can be understood by the fact that I4C, which is the MHA wing for overseeing and coordinating cybercrimes, was recently ‘promoted’ to be an attached office under the Home Ministry, giving it more freedom and resources at its disposal. 

 

 “Mule accounts pose significant dangers, facilitating money laundering and other illicit activities that can undermine the integrity of the financial system. Given that many mule accounts are rented with the knowledge of the account holders, they are among the hardest to detect in fraudulent activity. As such, they require robust defence systems at both onboarding and transaction monitoring stages,” said Ashok Hariharan, co-founder & CEO, IDfy – an identity verification platform.  Hariharan said he strongly recommends that banks flag suspicious accounts at the on-boarding stage and have enhanced know-your-customer requirements for these accounts.

 

 “This allows the bank to on-board a majority of genuine accounts with no additional friction while still creating a check for suspicious accounts,” he added.

 

 Despite some advancements in recovering funds, these efforts have not matched the scale of frauds. The amount recovered rose more than 11 times from Rs 12 crore in FY20 to Rs 139 crore in FY24.  However, the recovery rate remains relatively modest, with only 9.5 per cent of the total fraudulent amounts being reclaimed in 2023-24, a slight increase from 9.3 per cent five years ago in 2019-20.

First Published: Aug 07 2024 | 10:56 PM IST