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.