By Prasanna Nirmal Kumar, Chief Credit Officer, axio
The digitalisation of financial products and services has played a crucial role in enhancing inclusion and convenience. However, the rapid pace of digital transformation has also introduced new vulnerabilities, leading to an increase in financial crimes, including the growing mule account menace.
As of November 2024, over 4.5 lakh mule accounts were frozen in India by the central government. These accounts were held in private and public sector banks. According to BioCatch, an Israel-based global leader in fraud detection, while 86% of first mule activity is detected from India, most of these accounts are operated from abroad.
The rise in global economic uncertainty and cyber threats have further fuelled mule-based money laundering activities in India. Combatting them is critical to protecting the integrity of the financial ecosystem and safeguarding consumer trust in it.
How do money mules operate?
The sole purpose of mule accounts is to fabricate legal transactions to conceal illicit sources of money. Money laundering via mule accounts is effectively a three-stage process:
1. Induction
Illicit funds are introduced into the digital financial ecosystem. This is where money enters a mule account. Unwitting individuals are coerced into sending money through fake advertisements or scams, including lottery, employment or honey-trapping.
2. Masking
The funds are moved through a series of transactions across several mule (or non-mule) accounts to obscure their origin. Innocent people might be hired just to conduct frequent transactions, often of varying small sizes.
3. Integration
Illegally sourced funds are integrated into the legal financial ecosystem. This is the stage where money is moved to “legitimate” accounts and out of the mule arena.
While a large percentage of money mules might be unaware of their participation, several are complicit. These are the seasoned brains orchestrating the entire scheme. They can also be involved in funding other types of sophisticated crime, phishing scams and even terrorism.
MuleHunter.ai: The RBiH’s mule firewall
Traditional systems were obviously failing to identify mule accounts, given the rise of fraud that takes advantage of the popularity of UPI and low-ticket transfers. Therefore, the Reserve Bank Innovation Hub (RBiH), a subsidiary of the RBI, launched an AI-powered project, MuleHunter.ai, to detect mule accounts. The solution leverages machine learning (ML) to analyse transactions in near real time and discover patterns and anomalies. These insights help it flag mule accounts faster and with higher accuracy than a simple rule-based system.
The RBI’s commitment to strengthening cybersecurity frameworks and promoting public awareness is commendable and essential in building a strong defence against financial crime. However, along with the RBI’s efforts, collaboration between technology providers and financial institutions becomes crucial to staying ahead of evolving threats. Additionally, reinforcing the first line of defence—enhancing user awareness—is key to creating a more secure financial ecosystem.
Improving vigilance by educating customers
Recognising the red flags associated with money mule scams can significantly improve customers’ chances of protecting themselves and their funds. Here are some key red flags to watch out for:
Unsolicited job offers
A job by transferring funds? Customers must know that an employer is NOT going to ask for money to hire you. Also, be wary of job opportunities that promise easy money. These could involve you in deceptive activities, even if your money is not involved.
Pressure or urgency
Fraudsters often create a sense of urgency to pressure victims into acting quickly, without thinking. The use of deepfake and digital arrests has become a common means of conducting such activities. Fake invoices or phishing attempts may also be used to create transaction urgency.
Poor grammar and spelling
A sure-shot sign of scams is the poor use of language. Scams often contain grammatical errors and typos in advertisements, emails, etc.
Requests for banking details
One thing that cannot be stressed enough is to never share your banking details, OTPs, passwords, etc., with anyone. This is especially true for executives calling you for any purpose.
Unexpected money transfers
Customers must be wary of unexpected fund transfers, especially those followed by immediate refund requests. These may be fake transfers, or worse, attempts to get you to open your account so that they can extract sensitive information.
Mule-proofing the financial ecosystem
In the digital age, creating a safe financial ecosystem is a shared responsibility and a constant challenge. By understanding the tactics of money mules, leveraging advanced technology, and educating end users, we can collaboratively create a safer and more secure financial ecosystem for everyone.