Context:
Banks are seeking the authority to freeze accounts involved in channelling illicit transactions without needing approval from law enforcement agencies (LEAs) or the court. Currently, banks can freeze accounts based on internal triggers, but under the Prevention of Money Laundering Act (PMLA), they lack the power to block accounts without proper legal authorization.
Mule Accounts and Their Role in Cyber Fraud
- Mule Accounts: Fraudsters use these accounts to move illegal funds through the banking system, making it harder for law enforcement to trace the money.
- Challenge: Despite freezing thousands of mule accounts each year, fraudsters create new accounts rapidly, exploiting systemic loopholes.
Proposed Solutions to Tackle Mule Accounts
- Account Verification: Banks are encouraged to verify and restrict accounts that are vulnerable to misuse as mule accounts.
- Use of Technology: A technology-driven approach is suggested, with AI and machine learning (ML) integrated into transaction monitoring systems to anticipate and prevent criminal strategies.
Additional Measures
- Election Commission Database: Banks propose using this database to verify voter ID cards and Form 60 in place of PAN cards for individuals opening new accounts.
- Transaction Capping: Limiting the number of transactions on accounts that lack permanent verification (such as PAN) to mitigate fraud risk.
Collaboration and Investment
- The proposal highlights the importance of investment in technology, staff training, and collaboration among banks, regulators, LEAs, and technology providers to curb the threat of mule accounts.
Future Outlook
- The implementation of these measures, detailed in a working group report by the Indian Banks’ Association, would significantly bolster efforts to protect the financial system and prevent cyber fraud.
