Author: Vivekananda J

Moving money around has never been easier in today’s digital age. Almost everyone is familiar with acronyms like UPI, IMPS, NEFT, and RTGS, even if they don’t know what they stand for. These systems form the financial superhighways of our economy, ensuring money flows as effortlessly as blood through veins. This financial innovation is part of the “Digital India” initiative, aimed at transforming the country into a digitally empowered society. But with great power comes great responsibility—and new challenges.

While Digital India is a technological marvel, it has inadvertently given rise to new forms of financial fraud.

The ease and simplicity of moving money have unfortunately benefited fraudsters too. According to the recent RBI annual report, there has been a staggering 300% increase in the number of financial fraud cases over the past year, although the total amount of fraud has decreased by nearly 50%. This suggests that fraudsters are now targeting smaller amounts, making it easier to commit fraud frequently.

However, there is hope. The RBI, MHA, and banks are collaborating to implement robust measures to track and prevent fraud. Public participation plays a crucial role in this fight. The National Cybercrime Reporting Portal (NCRP – https://cybercrime.gov.in/) and the SancharSaathi (https://www.sancharsaathi.gov.in/) portal from the Department of Telecommunications (DoT) empower citizens to report suspected frauds. For example, complaints on the SancharSaathi portal can lead to the suspension of fraudulent mobile numbers, which are then added to a negative registry used by financial institutions for KYC and monitoring. 

The NCRP portal, developed by the Indian Cybercrime Coordination Centre (I4C), enables banks to track the flow of funds across Indian banks, helping recover customers’ funds. Banks can also leverage information from NCRP to block fraudsters from accessing their accounts. Information from SancharSaathi and NCRP, along with the Central Payments Fraud Information Registry (CPFIR), creates a comprehensive database of frauds that financial institutions can check against to prevent further fraud. When enriched with customer demographic markers, this information becomes a powerful weapon against fraud. Banks are increasingly focused on using this data and leveraging tools such as Clari5™ (https://www.clari5.com/) to fight fraud and protect their customers’ interests.

Humans remain the weakest link in combating financial fraud. From the misuse of authority to citizens not practicing digital safety, vulnerabilities abound. Strengthening this human element is crucial. By leveraging advanced tools like Clari5™ and fostering greater public awareness, we can protect our financial systems and ensure that the technological marvel of Digital India does not turn into a modern-day monster.

A fraudster will deceive their victim into sending money straight from their account to an account under the criminal’s control in an Authorized Push Payment (APP) fraud.

Fraudsters use multiple methods to deceive the victims. Following are the common APP fraud scams.

Prevalent APP Fraud Scams

Investment Scam: Fraudsters convince their victim to move their money to a fictitious fund or to pay for a fake investment. 10,085 investment scams were filed amounting to £114.1m in 2022 . £57.2m was lost in the first half of 2023.

Impersonation Scam: Fraudsters, pretending to be either police or bank , convinces the victim to make a payment to an account they control. In the year 2022 16,948 impersonation scams amounting to £109.8m were filed. In the first half of 2023 £43.5m was reported as lost.

Purchase Scam: Victim pays in advance for goods or services that are never received. In 2022 117,170 purchase scams were filed amounting to £67m. In the first half of 2023, £40.9m was reported as lost due to purchase scams.

Invoice Scam: Victim attempts to pay an invoice to a legitimate payee, but the fraudster intervenes to convince the victim to redirect the payment to an account they control. In 2022, 3,340 purchase scams were filed amounting to £49.5m. The reported invoice scam fraud amounts to £24.8m in the first half of 2023.

Advance Fee Scam: Fraudsters convince their victim to pay a fee which they claim will result in the release of a much larger payment or as a deposit for high-value goods and holidays. 27,329 purchase scams were filed amounting to £32.2m in the year 2022. In the first half of 2023, £15.1m was reported as lost.

Data as reported by UK Finance for the year 2022 and 2023

How financial institutions can mitigate APP and mule account frauds

Collaborative Approach and Information Sharing: Banks should foster collaboration and information sharing among themselves to identify and mitigate emerging fraud patterns.  Banks can share information on identified bad actors and mule accounts and collaborate with other financial institutions and law enforcement agencies.

Acting in Real-time: With the new instant payment schemes coming in across the globe such as SEPA Instant Payment, UPI, etc.  It becomes very crucial for the banks as well to keep up their fraud detection systems in pace with the speed of payments. It is important for the banks to act in real-time to detect fraudulent activities originating from channels like payment cards, internet banking, mobile banking, etc.

Graph Enabled Investigation Workbench to detect hidden linkages between Mule Accounts

Clari5 provides Graph Intelligence Solution – a powerful visual investigation solution to assist the investigators with

• Money flow patterns that reveal hidden linkages between customers, accounts and transactions through multiple accounts – it uses large volumes of transactions – to create linkages of money flow in and out of the accounts, with drill downs available for any next account to see mule account behavior, round tripping of transactions across a group – presenting the complex, yet complete web of money trails, thereby empowering investigators during financial crime investigation.

Connect with us to discuss more on APP and mule account frauds.

• • Global Perspective: The global dimension of APP frauds is vast, with international agencies like INTERPOL and Europol recognizing it as a growing concern in advanced economies.
  • Variety of Tactics: Fraudsters use a range of tactics to commit APP fraud. These include impersonating bank staff, government officials, or business partners; sending fake invoices that mimic those from legitimate suppliers; and hacking email accounts to intercept and alter payment details.
  • Challenges in Recovery: Recovering funds lost to APP fraud can be challenging. While some financial institutions have committed to reimbursing victims, the specifics can vary widely between banks and jurisdictions. In some cases, victims may not be refunded, especially if they authorized the payment

What is What?

1. Authorized Push Payment (APP) Frauds:  Authorized Push Payment (APP) fraud occurs when fraudsters deceive individuals or businesses into voluntarily sending money directly from their bank account to an account controlled by the fraudster. Unlike traditional fraud methods that rely on unauthorized transactions, APP fraud involves tricking the victim into authorizing the payment themselves. This can make it particularly insidious and challenging to address because the transaction appears legitimate from the bank’s perspective.
2. Mule Account Frauds: When an individual or company moves or transfers illegal money for another party, it’s known as money muling, also known as mule fraud. The fact that the funds have illicit origins—fraud or trafficking —may be the reason the owner is attempting to dissociate oneself from such assets. A mule account is the one that a money mule uses. Using a mule separates criminals from their money, which makes it more challenging for law enforcement to follow money trails.

How financial institutions can mitigate APP and mule account frauds

Understanding Your Customer’s Behaviour:  Institutions should review the normal interactions that clients have with all banking channels in order to create a baseline of “normal” and spot unusual transactions. The purpose of this profile is to identify deviations and compare new activities.

Analyzing Large Amount of Data: Banks should be capable of sorting through massive amounts of transactional data in real-time to find any odd or fraudulent activity.

Machine Learning Model for APP Frauds and Money Mule Detection

Clari5 Machine Learning model for mule account detection can predict whether the account is mule or not by analyzing the various signals on the account. It uses a combination of demographic data on the customer, account and the transactions to assess this. This information is coupled with data changes on the account like mobile number, address changes, mobile banking enablement etc to give a razor focused result on the probable mule accounts.

Connect with us to discuss more on APP and mule account frauds.

New IBM LinuxONE system designed for cybersecurity, scalability and AI inferencing for hybrid cloud environments

We are excited to collaborate with IBM as the company unveils its new IBM LinuxONE 4 Express system available globally on Feb. 20, 2024. Powered by IBM’s Telum processor, this new system expands the performance, security and AI capabilities of IBM LinuxONE to small and medium sized businesses and within new data center environments. This can potentially bring Clari5 clients significant cost savings and is designed to remove the guess work for clients when it comes to spinning up workloads quickly and getting started with the platform.

In today’s fast-paced digital payment landscape, fraud has become a major concern, exploiting vulnerabilities in real-time transaction systems. The surge in digital transactions highlights the need for advanced real-time AI to combat this problem. Banks face significant risks during the brief moments of transaction processing, where preventing fraud, ensuring compliance, and maintaining productivity are crucial. Failure to do so can lead to substantial losses to a bank.

Clari5 Enterprise Fraud Management Solution on IBM LinuxONE 4 Express is designed to empower Financial Institutions with Powerful Decisioning Engine for Real–Time fraud Prevention. It is designed to monitor, detect and influence (stop/ hold) transactions, execute compliance and enhance productivity all while delivering at unprecented speed and scalability.

This next-generation LinuxONE 4 Express is meticulously engineered for exceptional throughput, high availability and resiliency, thereby delivering AI inferencing at speed and scale to support Clari5 as we aim to consistently monitor and prevent fraud without disrupting business operations.

Moreover, Clari5 leverages AI/ML models, powered by IBM’s Telum processor, to process large data volumes efficiently. This can reduce false positives and can improve customer onboarding. Together, with Clari5 EFM on IBM LinuxONE 4 Express, banks can analyse vast amount of data in real-time, employ  AI/machine learning and swiftly integrate decisions into every transaction.

Building an integrated hybrid cloud strategy for today and years to come 

According to IBM, when organizations move their products and services online quickly, oftentimes, they are left with a hybrid cloud environment created by default, with siloed stacks that are not conducive to alignment across businesses or the introduction of AI. In a recent IBM IBV survey, 84% of executives responding acknowledged their enterprise struggles in eliminating silo-to-silo handoffs. And 78% of executives answering say that an inadequate

operating model impedes successful adoption of their multicloud platform. To accelerate and scale the impact of data and AI across the enterprise – and ultimately improve business outcomes – IBM predicts that organizations are starting to build a more intentional hybrid cloud.

operating model impedes successful adoption of their multicloud platform.[1] To accelerate and scale the impact of data and AI across the enterprise – and ultimately improve business outcomes – IBM predicts that organizations are starting to build a more intentional hybrid cloud.

IBM brings the power of hybrid cloud and AI with LinuxONE to a simple, easy to use format that fits in many data centers. IBM LinuxONE 4 Express offers an approachable hybrid cloud platform entry point for small to medium sized businesses and startups. For example, IBM LinuxONE 4 Express systems, with GDPS, IBM DS8000 series with HyperSwap and running a Red Hat OpenShift Container Platform environment, are designed to deliver 99.999999% availability.[2]

IBM LinuxONE 4 Express is designed to help clients simplify their IT environments and cut costs by consolidating databases onto a LinuxONE system. Designed to bring significant cost savings for clients over time, clients that move Linux workloads from compared x86 server to an IBM LinuxONE 4 Express can save over 52% on their total cost of ownership over 5 years.[3]

Installing these systems in the data center can help create a new class of use cases, including the enhanced execution of Clari5  Enterprise Fraud Management, supporting smooth operations in a banking environment. Clari5 on IBM LinuxONE 4 Express can offer clients a highly efficient, secure and scalable platform to help businesses accelerate their fraud prevention journey powered by AI.

As a part of the IBM Ecosystem, Clari5 is helping companies unlock the value of their infrastructure investments by implementing the tools and technologies designed to help them succeed in a hybrid cloud world. We are excited to be working closely with the IBM Ecosystem to bring new innovations to our clients.

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[1] IBM IBV Research Insights: Mastering Hybrid Cloud, pg 11

[2] Disclaimer: IBM internal data based on measurements and projections was used in calculating the expected value. Necessary components include IBM LinuxONE Rockhopper 4; IBM z/VM V7.2 systems or above collected in a Single System Image, each running RHOCP 4.10 or above; IBM Operations Manager; GDPS 4.5 for management of data recovery and virtual machine recovery across metro distance systems and storage, including Metro Multi-site workload and GDPS Global; and IBM DS8000 series storage with IBM HyperSwap. A MongoDB v4.2 workload was used. Necessary resiliency technology must be enabled, including z/VM Single System Image clustering, GDPS xDR Proxy for z/VM, and Red Hat OpenShift Data Foundation (ODF) 4.10 for management of local storage devices. Application-induced outages are not included in the above measurements. Other configurations (hardware or software) may provide different availability characteristics.

[3] Disclaimer: Compared IBM LinuxONE 4 Express Model consisting of a CPC drawer and an I/O drawer to support network and external storage with 12 IFLs and 736 GB of memory in 1 frame, versus compared 3 x86 servers with two Xeon Sapphire Rapids Platinum 8444 processors with 32 cores each (2ch/32c) with a total of 384 cores. All Systems are modeled to be running Linux Postgres Enterprise-DB workloads with virtualization and DB tools. Results may vary based on client-specific usage and location. LinuxONE hardware is the expected global price in $USD and discounts. X86 purchase price was included and maintenance costs is from IDC’s Pricing Service: https://www.idc.com/myidc3/products with an aggressive discount. Postgres Enterprise-DB software and tools prices are based on street prices that is discounted from the list price. TCO is calculated over a 5-year horizon. Cost estimates include hardware costs and annual maintenance, Linux OS subscription costs, virtualization software, people cost, and infrastructure (network, energy, space) costs.

Additional information:

• Learn more about Clari5
• View the announcement on IBM Z and LinuxONE Community and sign up
• Learn more about LinuxONE 4 Express