Reserve Bank of India (RBI) Governor Shaktikanta Das recently called on banks to intensify measures against ‘mule accounts.’ These accounts, used for laundering money and other illicit activities, are becoming a significant concern for the regulator.
Mule accounts are bank accounts that facilitate illegal transactions by receiving and transferring funds from unlawful activities. In India, these accounts are often opened by individuals who offer their bank accounts for a fee, making detection difficult during the onboarding process. However, with effective controls and continuous monitoring of account behaviour, banks can identify and shut down these accounts.
Recently, concerns have been raised about the prevalence of mule accounts in certain banks, with reports indicating the existence of numerous such accounts used for fraudulent transactions and loan evergreening. In response, the RBI has urged banks to crack down on mule accounts and enhance customer awareness to curb digital fraud.
Money mules can be broadly categorized into five types based on their complicity in money laundering schemes. The first is the victim mule, who is unaware that their account has been compromised, often due to a data breach. The second type is the misled party, who unknowingly sends and receives money for a fraudster, typically after responding to a job advertisement. The deceiver opens new accounts with stolen or synthetic identities to handle stolen money. The peddler sells their genuine account to a fraudster for illicit transactions. Lastly, the accomplice willingly opens a new account or uses an existing one to send and receive money under a fraudster’s direction.
A recent study revealed that nine out of ten mule accounts at one Indian bank went undetected. The study found that while initial mule account activity primarily originated within India, a significant portion later used VPNs, indicating international involvement. Cities like Bhubaneswar, Lucknow, and Navi Mumbai, along with regions in West Bengal, have reported higher incidences of mule account activity.
How customers can protect themselves
To protect themselves, customers are advised to be sceptical of unexpected communications offering lucrative, effortless jobs, and to be cautious of high payments for simple tasks. Ambiguous job offers, especially those involving money transfers, should be approached with caution. Customers should also be wary of pressure tactics demanding swift decisions and be cautious when using unconventional payment methods like gift cards or virtual currency.
In October 2023, the RBI tightened customer due diligence norms, urging banks and regulated entities to adopt a risk-based approach for periodic updating of know-your-customer (KYC) data. The updated guidelines emphasize the need for meticulous monitoring and strict adherence to account opening and transaction monitoring instructions to minimize mule account operations. Banks are expected to implement diligence measures, identify mule accounts, take appropriate action, and report suspicious transactions to the Financial Intelligence Unit.
The RBI’s measures aim to strengthen the banking system’s resilience against financial fraud and ensure better protection for customers against the misuse of their accounts.
