Banks Seek RBI’s Permission To Freeze Mule Accounts To Curb Cyber Frauds

Amid rising instances of cyber frauds through mule accounts, banks have now asked for permission from the Reserve Bank of India (RBI) to directly freeze such accounts.

Banks can freeze accounts based on their internal checks and policies, but for any accounts suspected to be involved in money laundering, they cannot put a freeze on those accounts without authorisation from a court or law enforcement agencies (LEAs).

Banks’ Demands

In this rapidly-evolving digital landscape, cyber frauds are becoming common, where sometimes scamsters defraud people and/or use their personal information, such as bank account number for illegal transaction purposes. 

To curb such transactions using bank accounts, banks are now seeking the power to freeze suspected accounts without needing permission from the court or LEAs, which is a time-consuming process, and often leaves a good enough window for scamsters to bring their scam to fruition.

According to the media reports, banks want to use the Election Commission database for those who provide voter ID for account opening. In addition to this, they have also proposed using Form 60 in case a person did not hold a permanent account number (PAN) at the time of the account opening and limiting the number of transactions in those accounts.

Reportedly, a working group that the Indian Banks’ Association has constituted said, “In light of this, we may propose this as a suggestion for further consideration by the RBI”.

What Is A Mule Account

Mule accounts are just like any other bank account, but are used for carrying out illegal transactions. A mule account is one of the modes scamsters use for transferring money from one account to another to finally send to their desired account. These accounts make it difficult for the authorities to catch hold of scamsters and recover the amount.

Note that the accountholders of such mule accounts may or may not know about these transactions. Many a time, the accountholders are unaware that their accounts are being used as mule accounts by scamsters for transactions forbidden under the Prevention of Money Laundering Act (PMLA). At times, however, these might also be the accomplice of the fraudsters, giving them access to their account in return for some money.

These mule accounts are opened with all the necessary documents and are KYC-compliant. Thus, banks cannot always know for certain if an account is being used as a mule account.

Money Laundering Is A Punishable Offence

Money laundering is a punishable offence, and banks have to follow all precautions to prevent any laundering act. That is the reason banks are now seeking RBI’s nod to let them freeze such mule accounts without having the need to get permission from the authorities to do so. This will save time to prevent such transactions from happening and minimise fraud.

Another suggestion by the association is the integration of artificial intelligence (AI) and machine learning (ML) to monitor transactions, find suspicious activities, and prevent them beforehand.

To minimise digital fraud, the association has emphasised for greater cooperation among all financial institutions, LEAs, regulators, and other stakeholders.