As India’s financial digital economy expands, fraudsters look for new ways to take advantage of technological backgrounds. One of the most significant issues for banks and financial organisations is the proliferation of mule accounts.
A prominent case in 2024 came when a daily wage labourer and small account holder unexpectedly received crores of rupees in their accounts. There is a 10% increase in digital fraud involving mule accounts as per Financial Express. According to mFilterIt reports, 9 out of 10 mule bank accounts went undetected and RBI is holding banks responsible and imposing penalties.
These occurrences prompted the regulatory bodies to issue recommendations asking banks to improve their client verification system and particularly those involving know your client that is KYC compliance and account monitoring.
Furthermore, the Prevention of Money Laundering Act, 2002 mandates financial institutions to develop robust transaction monitoring systems to detect and prevent mule account activity. Violations of this act may result in substantial fines, loss of licenses, and other legal consequences with loss of trust among the bank customers.
Let’s delve into what mule accounts are. The challenges banks face due to transaction laundering, And the transaction monitoring solution tool to combat it.
What is mule account?
A mule account is a bank account used by an intermediary known as “the money mule” to transfer unlawful monies. Many of these intermediaries are ignorant of their involvement in unlawful activities and they become mule accounts. Fraudsters trick individuals into transferring money in the name of legitimate business transactions, employment, and job offers, or even charitable donations.
Mule as a service and rise of fake payment gateways
Mule as a Service (MaaS) refers to the use of false payment gateways in a variety of scams, including e-commerce, task scams, loan scams, gambling apps, pig butchering scams, and betting sites.
For example, fake e-commerce sites dupe shoppers into paying for non-existent things, whereas task scams entice people with promises of huge returns for basic activities. Whereas loan frauds frequently seek upfront payments through these fake channels.
In gaming and betting scams, in-app purchases and bets are routed through fraudulent networks. These gateways build and manage a network of mule accounts by leveraging link sellers to reset free invites, selling invites to agents, transaction laundering, and mule groups that source and rotate money mule, making the money trail difficult to track for banks.
These mules can be in the form of P2P accounts for smaller transactions or merchant accounts for larger transactions. The money is then transferred through multiple accounts and routed offshore via Hawala channels, cryptocurrency, Forex, and more.
Major Compliance issues for banks
The proliferation of mule accounts brings various operational and reputational issues to banks like:
a. Reputational Damage-
Even a single mule account operating with a bank might damage its reputation. Financial institutions that are viewed as lax or reckless in fraud prevention risk losing customer trust, limiting their long-term growth.
b. Financial Losses –
Aside from reputational damage, mule accounts can result in direct money losses. These accounts enable fraud schemes such as credit card theft and load fraud in addition to money laundering.
c. Penalty and Chargebacks –
The use of a bank account for illicit purposes such as transaction laundering can lead to disputes, chargebacks, and frozen accounts, all of which have a significant operational cost.
d. Increased regulatory scrutiny –
Persistent non-compliance may result in license suspension, increased reporting requirements, and audits. Regulatory bodies like SEBI and RBI are likely to increase their scrutiny of banks that do not put in place an efficient monitoring system.
e. Loss of customers’ Trust and decline of market value –
One such case seen in Bengaluru revealed the use of over 126 mule accounts linked to cybercrime across India. These fraudulent activities erode the public trust in banks and down the market value through customers’ loss of financial security.
Mule account monitoring tool
To categorize and flag off the suspected websites such as betting, and gambling, otherwise difficult to locate the automated findings through OSINT scans the website for compliance breaches on such websites. Tools like mFilterIt mule account monitoring can bring down and report the mule account threat to the banks.
The detection data includes UPI IDs and card or bank transfer details, shared with the respective banks, this helps further investigate potential laundering activities. Till now mFilterIt has already identified over 4,000 suspicious websites across the digital ecosystem that engage in such practices. Banks can use the information provided by the tool to trace suspicious account holders and track funds to confirm laundering practices.
The Path Forward
To combat the threat of mule accounts, banks must prioritize strengthening their compliance framework, and public awareness with improved KYC procedures and undertaking transaction monitoring solutions that can help protect people from becoming mules.
