Rising Digital Fraud and Mule Accounts

Indian banks are now more cautious about deposit accounts than loans, driven by the rising misuse of dormant accounts as mule accounts in digital fraud. These accounts, typically inactive, are exploited for low-value, high-volume transactions, often linked to money laundering and cybercrime.

What are Mule Accounts?

• Dormant or inactive bank accounts used to transfer illicit funds.
• Account holders may be unaware or complicit.
• Typically involved in low-value, high-volume transactions to avoid detection.

How Fraud is Done:

• Fraudsters transfer illegally obtained money through mule accounts to obscure its origin.
• Used in scams like fake investment schemes, lottery frauds, or unauthorized digital payments.
• Often involves identity theft or misuse of KYC documents.

RBI’s rules and guidelines to curb digital fraud:

• Section 35A of the Banking Regulation Act, 1949 – Empowers RBI to issue directions to banks for controlling banking operations, including KYC, monitoring, and risk management.
• Prevention of Money Laundering Act (PMLA), 2002 – Obligates banks to maintain KYC, report suspicious transactions, and prevent misuse for money laundering.
• RBI (Know Your Customer (KYC)) Directions – Issued under the above acts to ensure proper customer identification, verification, and monitoring of accounts.
• RBI Master Circulars / Notifications – Provide operational instructions for dormant accounts, reporting to FIU-IND, and transaction monitoring.