Banks scanning proprietor A/Cs to spot 'money mules'

Amid a surge in mule accounts since mid-2023, banks have spotted that an overwhelming number of such customers are sole proprietors and individuals holding current accounts. At many banks, the opening of such accounts requires the approval of a senior official. The menace of mule accounts, frauds and countering them is expected to be one of the key areas of discussion this week at a meeting called by the Reserve Bank of India (RBI) with select banks, a senior industry official told ET.

"In many cases, banks are capping the scale of transactions in such sole proprietorship accounts for six months or so in line with the size of the customer's business. But fraudsters are becoming smarter. Recently, some tried to dodge banks by forming private limited companies, where the husband and wife are the two directors. In some cases, LLPs (limited liability partnerships) are also opening accounts to act as mules. But most mule accounts are still sole proprietorships," said the products head of a private bank. "So, it has become a continuous process of staying ahead," he said.

For instance, banks are insisting that customary documents like 'import-export certificates' - which are comparatively easier to generate and have been unhesitatingly accepted by banks for decades as entity proofs of businesses - must be validated by higher authorities within the banks. Many banks have directed branch managers to undertake verification visits of sites of current account holders instead of leaving the job to young and inexperienced officials like relationship managers (or RMs) who could be more vulnerable.

On such visits, multiple time-stamped photos of the stock, office, business etc are taken. The accounting opening forms of some banks require stating the latitude and longitude of the business address. In several cases, once the account is opened, an external agency is hired by the bank to re-verify the site. And, if the agency gives a negative report, the account is tagged as a 'suspicious mule account' and immediately frozen.

A string of mule accounts aids in transferring money from one account to another, creating a chain that ultimately leads to the funds moving into the fraudster's account or exiting the financial system. The use of such mule accounts is rampant by perpetrators of digital frauds that have increasingly drawn the attention of the Ministry of Home Affairs.

In a draft SOP shared with banks and multiple fintech firms two months ago, the Indian Cyber Crime Coordination Centre (I4C), an arm of the home ministry, pointed out a case where numerous complaints were filed regarding a mobile app masquerading as an investment platform for cryptocurrency mining. The app promised investors a share in the profits from such investments. However, after luring victims to invest more, the app operators ceased withdrawals and the platform became inaccessible, with no response to investor inquiries, said the I4C paper.

Over the past few months, advisories have been issued by banks to RMs to ensure that new current account customers, particularly sole proprietorships, pass the smell test. "A man claiming to be the owner of a ₹100 crore turnover must at least have an office that looks like one and staff who appear credible. To a great extent, mule accounts and digital frauds are a 'people issue', not entirely related to 'technology'," said another banker.

According to him, banks are tackling the mule account problem in two ways: stricter on-boarding of proprietorship and partnership current accounts to minimise new mules infiltrating the financial system; second, weeding out the mules lurking in the books of banks for the past 18 months. "We look at the traditional parameters in identifying suspects - such as the 'washout logic' where money enters the account and soon flows out, often by the end of the day; or, the account of a say a wholesale trader witnessing hundreds of smaller UPI transactions throughout the day; in some cases, accounts are red-flagged when transaction volume or value don't match customer profiles," said the person.