New laundering route: Rs 1 crore in labourer’s account, RBI wakes up to ‘money mules’

Money mule is a term used to describe victims who are duped by fraudsters into laundering illegal money via their bank accounts.

Written by Anil Sasi | New Delhi | Updated: July 21, 2016 2:09 am
black money, 1 crore in labourer account, Black money, daily wager one crore, RBI, black money, RBI black money, Pradhan Mantri Jan Dhan Yojana, Ponzi scheme, Ponzi scheme operators, Ponzi scheme india, india news, banking news Against the backdrop of this case, the RBI has petitioned government and state-owned banks on the dangers of money muling.

An accidental discovery of a daily wager’s idle bank account being used by fraudsters to receive and transfer funds to the tune of Rs 1 crore, without the account holder’s knowledge, has set alarm bells ringing in the country’s banking circles.

What is particularly worrying is that the incident came to light only when the income tax authorities served a notice to the Punjab-based daily wager, who was subsequently found to be clueless about the transaction.

Against the backdrop of this case, the RBI has petitioned government and state-owned banks on the dangers of money muling. The RBI has cautioned that a number of newly opened accounts under the NDA government’s flagship Pradhan Mantri Jan Dhan Yojana (PMJDY) could be particularly vulnerable. Lenders have been apprised about the failure of bank’s systems and incremental processes to monitor such vulnerable accounts. They have also been told to remain vigilant about kite flyers and Ponzi scheme operators who use mule accounts to swindle public money. Money mule is a term used to describe victims who are duped by fraudsters into laundering illegal money via their bank accounts. Fraudsters typically contact customers through emails, chat rooms, job websites or blogs, and convince them to receive money into their bank accounts in exchange for a commission.

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Illegal money is deposited into the money mule’s account, who is then directed to transfer the money, typically to another money mule’s account, forming a chain that ultimately results in the money getting transferred to the beneficiary’s account. When such frauds are reported, the money mule becomes the target of police investigations, as was the case with the Punjab daily wager.

The potentially looming danger now, according to the RBI, is the increasing number of idle Jan Dhan accounts. Banks have been told to improve internal systems to monitor transactions being undertaken in accounts, especially idle ones. While traditionally, bank alerts and exceptional transaction reporting mechanisms have been rudimentary, the regulator has sought a beefing up of vigilance. Any failure to guard against misuse of customers’ accounts could result in banks incurring supervisory sanctions and enforcement actions. Experts have pointed to the easing of KYC norms for PMJDY, making the scheme vulnerable to frauds. The best way to counter this, experts say, is by linking them with Aadhaar — something that banks have been asked to look at.

On August 15, 2014, Prime Minister Narendra Modi had announced his mission to make banking facilities available to all households in India. As of end-May 2016, 22.29 crore accounts had been opened, with the total deposits amounting to Rs 39,251 crore. A heartening sign for policy makers is the progressively decreasing share of zero-balance accounts, which indicates lack of activity and makes an account vulnerable to money muling. The overall cash balances in no-frills accounts opened under the PMJDY are reported to have been steadily growing, more so in rural areas, over the last six months. Government data reports that zero-balance accounts as a percentage of total accounts have decreased to about 24 per cent during January-June 2016, down from over 30 per cent.

In March this year State Bank of India said it has seen a steady decline in the number of zero-balance accounts opened under the financial inclusion drive, and that their count is now below 46 per cent. “The number of zero-balance accounts at our branches is rapidly coming down and it is below 46 per cent now. In some of the branches, it is in the teens,” SBI chairman Arundhati Bhattacharya had said.

The percentage of zero-balance accounts in private banks is at a higher 37 per cent as against 26 per cent in public sector banks and 21 per cent in regional rural banks. Alongside the issue of money muling, another worry for the banking regulator could be the problem of a rise in duplication of accounts under the PMJDY. According to a survey by financial inclusion consulting firm MicroSave, conducted in 42 districts across 17 states and one union territory, the reasons for duplication of accounts include misconception that an account is only for government benefits/subsidy. “Around 33 per cent of the customers indicated that PMJDY was not their first account, in comparison to 14 per cent in wave II and I. Hence, indications are that fresh account opening drives are encouraging clients to open a second account. Most of these accounts are not used,” the survey said.

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