A

Project
On
Banking system frauds and control
SUBMITTED BY
HARSHITA PATEL
T.Y.B.C.B.I, SEM-V
PROJECT GUIDE
Dr. LIPI BHATTACHARIYA

SUMITTED TO
UNIVERSITY OF MUMBAI
RAJASTHANI SAMMELANS
Ghanshyamdas saraf college
Of Arts & Commerce
Affiliated to University of Mumbai
Reaccredited by NAAC with A Grade
S. V. Road, Malad (W)
Mumbai -400 064
A. Y. 2014 2015

RAJASTHANI SAMMELANS
Ghanshyamdas saraf college
Of Arts & Commerce
Affiliated to University of Mumbai
Reaccredited by NAAC with A Grade
S. V. Road, Malad (W)
Mumbai -400 064
CERTIFICATE
I Prof. Dr. Lipi Bhattacharya hereby certify that Harshita
Patel a student of Ghanshyamdas Saraf college of Arts &
Commerce, T.Y.B.C.B.I., SEM V as completed report on
Banking System Fraud and Control in the Academic Year
2014 2015.
Thus information submitted is true and original to the best of
my knowledge.

Project Guide:

Principal:

Date:
External Examiner:

College Seal:

Date:

ACKNOWLEDGEMENT

I take this opportunity to thank the UNIVERSITY OF MUMBAI

for giving me a chance to do this project.
I express my sincere gratitude to the Principal Dr. Sujata
Karmarkar, chief co-ordinator Dr. Rajyalakshmi Rao Guide Dr. Lipi
Bhattacharya, teaching faculty and our librarian for their constant
support and helping for completing the project.
My deep sense of gratitude to the staff and employees of for their
support and guidance.
I am also grateful to my friends for giving me moral support
during the course of my project work. Lastly, I would like to thank
each and every person who helped me in completing the project
successfully especially MY PARENTS.

Student Signature

DECLARATION

I Harshita Patel a student of Ghanshymdas saraf college of

Arts & Commerce, malad (W) T.Y.B.C.B.I., Sem v hereby
declare that I have completed project on Banking System
Fraud and Control in the Academic Year 2014 2015. This
information submitted is true and original to best my
knowledge.

Date:
Signature of Student

INDEX

Sr. No

Chapter Name

Page No.

Executive summary
Objective
1

Definition of fraud & Introduction of

Banking frauds

Types of frauds in banking industry

3
4
5
6
7
8
9
10
11

Cases of frauds in India

Major frauds in various countries
Frauds control in India
Frauds in banking sector; causes and cures
Banking frauds statistic
General safeguards / precautions
Suggestion to fight fraud in bank
A few recent articals
Conclusion
Bibliography

Executive summary
Over the time, banking customer have developed a preference for transacting
through newer channels like payment cards and online banking over traditional
banking channels. While these payment channels have the advantage of ease
and speed of transacting on the flip side, these very advantage make banks
customers vulnerable to the ploys of fraudsters. This paper looks at the common
weaknesses to which banking customer using cards and online banking for
executing transactions are exposed to. It focuses mainly on skimming and online
frauds, probes the nature of these frauds and reveals the newer trends within
these fraud types. Further, this paper examine how bank have been trying to
control these frauds by improving their system and processes. It is evident that it
requires considerable investment in system processes to improve the fraud
monitoring and detecting capabilities. Small and medium banks, with limited IT
budget or fund constraints, have not been able to keep pace with the newer
techniques developed by fraudsters. Their ability to adopt newer better
technology for prevention, detection and early warning of fraud being low, they
are losing million of dollar in addition to customer confidence. weve made an
efforts to suggest how smaller and medium bank could use the services of IT
solution providers, who expertise in frauds prevention domain, in developing
customized solutions for such banks, which can help them reduce the instances
of fraud and thereby improve customer confidence and their bottom lines.

Objective of the project

This paper examines the issue of frauds from the perspective of banking
industry. The study seeks to evaluate the various causes that are responsible for
banks frauds. It aims to examine the extent to which bank employees follow
the various fraud prevention measures including the once prescribed by Reserve
Bank of India. It aims to give an insight on the perception of bank employee
towards preventive mechanism and their awareness towards various frauds. The
study signifies the importance of training in prevention of bank frauds. A strong
system of internal control and good employment practices prevent frauds and
mitigate losses. The research reveals that implementation of various internal
control mechanism are not up to the mark. The results indicate that lack of
training, overburdened staff, competition, low compliance level(the degree to
which procedures and prudential practices framed by Reserve Bank of India to
prevent frauds are followed) are the main reasons for bank frauds. The banks
should take the rising graph of bank frauds seriously and need to ensure that
there is no laxity in the internal control mechanism

CHAPTER 1
INTRODUCTION
DEFINITION OF FRAUD
Fraud is defined as "Any behaviour by which one person intends to gain a
dishonest advantage over another". In other words , fraud is an act or
omission which is intended to cause wrongful gain to one person and wrongful
loss to the other, either by way of concealment of facts or otherwise. Fraud is
defined u/s 421 of the Indian Penal Code and u/s17 of the Indian Contract
Act.
Bank fraud is the use of potentially illegal means to obtain money, assets, or
other property owned or held by a financial institution, or to obtain money
from depositors by fraudulently posing as a bank or other financial institution.
In many instances, bank fraud is a criminal offence. While the specific
elements of a particular banking fraud law vary between jurisdictions, the term
bank fraud applies to actions that employ a scheme or artifice, as opposed to
bank robbery or theft. For this reason, bank fraud is sometimes considered a
white-collar crime. Stolen cheques The banks r able to recover less than 25%
in the losses in more than half of the fraud cases
Money laundering is the process of concealing the source of large amounts of
money that have been gained through illegitimate means. Money evidently
gained through crime is "dirty" money, and money that has been "laundered"
to appear as if it came from a legitimate source is "clean" money. Money can
be laundered by many methods, which vary in complexity and sophistication.
Different countries may or may not treat tax evasion or payments in breach of
international sanctions as money laundering. Some jurisdictions differentiate
these for definition purposes, and others do not. Some jurisdictions define
money laundering as obfuscating sources of money, either intentionally or by
merely using financial systems or services that do not identify or track sources
or destinations.

Other jurisdictions define money laundering to include money from activity that
would have been a crime in that jurisdiction, even if it was legal where the
actual conduct occurred. For example, under British law, spending proceeds
from a bull fight in Spain constitutes money laundering because the bull fight
would have been illegal if it had been conducted in the United Kingdom. This
broad brush of applying money laundering to incidental, extraterritorial or
simply privacy-seeking behaviours has led some to label it financial thought
crime.
Many regulatory and governmental authorities issue estimates each year for the
amount of money laundered, either worldwide or within their national economy.
In 1996, the International Monetary Fund estimated that two to five percent of
the worldwide global economy involved laundered money. The Financial Action
Task Force on Money Laundering (FATF), an intergovernmental body set up to
combat money laundering, stated that, "Overall, it is absolutely impossible to
produce a reliable estimate of the amount of money laundered and therefore
the FATF does not publish any figures in this regard." Academic commentators
have likewise been unable to estimate the volume of money with any degree
of assurance. Various estimates of the scale of global money laundering are
sometimes repeated often enough to make some people regard them as factual
but no researcher has overcome the inherent difficulty of measuring an
actively concealed practice.
Regardless of the difficulty in measurement, the amount of money laundered
each year is in the billions (US dollars) and poses a significant policy concern
for governments. As a result, governments and international bodies have
undertaken efforts to detect, prevent and apprehend money launderers. Financial
institutions have likewise undertaken efforts to prevent and detect transactions
involving dirty money, both as a result of government requirements and to
avoid the reputational risk involved. Issues relating to money laundering have
existed as long as there have been large scale criminal enterprises. Modern
anti-money laundering laws have developed along with the so-called modern
"War on Drugs" In more recent times anti-money laundering legislation is seen
as adjunct to the financial crime of terrorist financing in that both crimes
9

usually involve the transmission of funds through the financial system

(although money laundering relates to where the money has come from, and
terrorist financing relating to where the money is going to).
93% of the respondents said that they have seen growth in fraud incidents
since last years. The banking and financial services sector has witnessed
potential growth in the last decade. This growth has not been without its
pitfalls as incidents of frauds in the industry have also been on rise. Deloittes
fraud survey shows that banks have witnessed rise in the number of fraud
incidents in the last one year and the trend is likely to continue in the near
future. The survey points to the increased difficult scenario for banks with
increased fraud incidents and low recoveries, thereby directly affecting their
bottom line. With increased regulatory scrutiny, banks are under increased
pressure to implement best practices and fraud risk management frame work.
However, as indicated from the survey, this still appears to b work in progress
in many of the organizations Risks are inherent in the banking business. In
todays economic climate, the adage prevention is better than cure has never
been so accurate. No organization can be completely immune to fraudulent
activities, but steps can be taken to reduce the exposure to financial loss and
reputational damage, which are common consequences of fraud. This survey
was aimed at gaining an insight into the fraud scenario in the industry, the
area that incur the maximum number of fraud incidents, and the measures
organizations are taking to fight the menace.

10

CHAPTER 2
TYPES OF FRAUDS
Cashiers cheques
A scam of a counterfeit cashier's check that is made to appear to be issued by
Wells Fargo Bank.
Fraudsters may seek access to facilities such as mailrooms, post offices, offices
of a tax authority, a corporate payroll or a social or veterans' benefit office,
which process cheques in large numbers. The fraudsters then may open bank
accounts under assumed names and deposit the cheques, which they may first
alter in order to appear legitimate, so that they can subsequently withdraw
unauthorised funds.
Alternatively, forgers gain unauthorised access to blank chequebooks, and forge
seemingly legitimate signatures on the cheques, also in order to illegally gain
access to unauthorized funds.

Cheque kiting
11

Cheque kiting exploits a system in which, when a cheque is deposited to a

bank account, the money is made available immediately even though it is not
removed from the account on which the cheque is drawn until the cheque
actually clears.

Forgery and altered cheques

Fraudsters have altered cheques to change the name (in order to deposit
cheques intended for payment to someone else) or the amount on the face of
cheques, simple altering can change $100.00 into $100,000.00, although
transactions of this value are subject to investigation as a precaution to prevent
fraud as policy.
Instead of tampering with a real cheque, fraudsters may alternatively attempt to
forge a depositor's signature on a blank cheque or even print their own
cheques drawn on accounts owned by others, non-existent accounts, etc. They
would subsequently cash the fraudulent cheque through another bank and
withdraw the money before the banks realise that the cheque was a fraud.

Accounting fraud
In order to hide serious financial problems, some businesses have been known
to use fraudulent bookkeeping to overstate sales and income, inflate the worth
of the company's assets or state a profit when the company is operating at a
loss. These tampered records are then used to seek investment in the
company's bond or security issues or to make fraudulent loan applications in a
final attempt to obtain more money to delay the inevitable collapse of an
unprofitable or mismanaged firm. Examples of accounting frauds: Enron and
WorldCom. These two companies "cooked the books" in order to appear as
they had profits each quarter when in fact they were deeply in debt.

Uninsured deposit
A bank soliciting public deposits may be uninsured or not licensed to operate
at all. The objective is usually to solicit for deposits to this uninsured "bank",
although some may also sell stock representing ownership of the "bank".
12

Sometimes the names appear very official or very similar to those of

legitimate

banks.

For

instance,

the

unlicensed

"Chase

Trust

Bank"

of

Washington D.C. appeared in 2002, bearing no affiliation to its seemingly

apparent namesake; the real Chase Manhattan Bank] is based in New York.
Accounting fraud has also been used to conceal other theft taking place within
a company.

Demand draft fraud

Demand draft (DD) fraud typically involves one or more corrupt bank
employees. Firstly, such employees remove a few DD leaves or DD books
from stock and write them like a regular DD. Since they are insiders, they
know the coding, punching of a demand draft. Such fraudulent demand drafts
are usually drawn payable at a distant city without debiting an account. The
draft is cashed at the payable branch. The fraud is discovered only when the
bank's head office does the branch-wise reconciliation, which normally take six
months, by which time the money is irrecoverable.

Rogue traders
A rogue trader is a highly placed insider nominally authorised to invest
sizeable funds on behalf of the bank; this trader secretly makes progressively
more aggressive and risky investments using the bank's money, when one
investment goes bad, the rogue trader engages in further market speculation in
the hope of a quick profit which would hide or cover the loss.
Unfortunately, when one investment loss is piled onto another, the costs to the
bank can reach into the hundreds of millions of dollars; there have even been
cases in which a bank goes out of business due to market investment losses.
Some of the largest bank frauds ever detected were perpetrated by currency
traders John Rusnak, and Nick Leeson. Jrme Kerviel, allegedly defrauded
Socit Gnrale of 4.9 billion euros ($7.1 billion) us dollars, while trading
stock derivatives.

Fraudulent loans
13

One way to remove money from a bank is to take out a loan, a practice
bankers would be more than willing to encourage if they know that the money
will be repaid in full with interest. A fraudulent loan, however, is one in
which the borrower is a business entity controlled by a dishonest bank officer
or an accomplice; the "borrower" then declares bankruptcy or vanishes and the
money is gone. The borrower may even be a non-existent entity and the loan
merely an artifice to conceal a theft of a large sum of money from the bank.
This can also be seen as a component within mortgage fraud (Bell, 2010).

Fraudulent loan applications

These take a number of forms varying from individuals using false information
to hide a credit history filled with financial problems and unpaid loans to
corporations using accounting fraud to overstate profits in order to make a
risky loan appear to be a sound investment for the bank.

Forged or fraudulent documents

Forged documents are often used to conceal other thefts; banks tend to count
their money meticulously so every penny must be accounted for. A document
claiming that a sum of money has been borrowed as a loan, withdrawn by an
individual depositor or transferred or invested can therefore be valuable to
someone who wishes to conceal the minor detail that the bank's money has in
fact been stolen and is now gone.

Wire transfer fraud

Wire transfer networks such as the international SWIFT interbank fund transfer
system are tempting as targets as a transfer, once made, is difficult or
impossible to reverse. As these networks are used by banks to settle accounts
with each other, rapid or overnight wire transfer of large amounts of money
are commonplace; while banks have put checks and balances in place, there is
14

the risk that insiders may attempt to use fraudulent or forged documents which
claim to request a bank depositor's money be wired to another bank, often an
offshore account in some distant foreign country.
There is a very high risk of fraud when dealing with unknown or uninsured
institutions.
The risk is greatest when dealing with offshore or Internet banks (as this
allows selection of countries with lax banking regulations), but not by any
means limited to these institutions. There is an annual list of unlicensed banks
on the US Treasury Department site which currently is fifteen pages in length.

Bill discounting fraud

Essentially a confidence trick, a fraudster uses a company at their disposal to
gain confidence with a bank, by appearing as a genuine, profitable customer.
To give the illusion of being a desired customer, the company regularly and
repeatedly uses the bank to get payment from one or more of its customers.
These payments are always made, as the customers in question are part of the
fraud, actively paying any and all bills raised by the bank. After time, after
the bank is happy with the company, the company requests that the bank
settles its balance with the company before billing the customer. Again,
business continues as normal for the fraudulent company, its fraudulent crust
Only when the outstanding balance between the bank and the company is
sufficiently large, the company takes the payment from the bank, and the
company and its customers disappear, leaving no-one to pay the bills issued by
the bank.

Payment card fraud

Credit card fraud is widespread as a means of stealing from banks, merchants
and clients.

15

 Booster cheques
A booster cheque is a fraudulent or bad cheque used to make
a payment to a credit card account in order to "bust out" or
raise the amount of available credit on otherwise-legitimate
credit cards. The amount of the cheque is credited to the
card account by the bank as soon as the payment is made,
even though the cheque has not yet cleared. Before the bad
cheque
spree

is
or

discovered,
obtains

the

cash

perpetrator

advances

goes

until

the

on

spending

newly-"raised"

available limit on the card is reached. The original cheque

then bounces, but by then it is already too late. Forged or
fraudulent documents
Forged documents are often used to conceal other thefts; banks tend to count
their money meticulously so every penny must be accounted for. A document
claiming that a sum of money has been borrowed as a loan, withdrawn by an
individual depositor or transferred or invested can therefore be valuable to
someone who wishes to conceal the minor detail that the bank's money has in
fact been stolen and is now gone.

Wire transfer fraud

Wire transfer networks such as the international SWIFT interbank fund transfer
system are tempting as targets as a transfer, once made, is difficult or
impossible to reverse. As these networks are used by banks to settle accounts
with each other, rapid or overnight wire transfer of large amounts of money
are commonplace; while banks have put checks and customer, the company
regularly and repeatedly uses the bank to get payment from one or more of its
customers. These payments are always made, as the customers in question are
part of the fraud, actively paying any and all bills raised by the bank. After
time, after the bank is happy with the company, the company requests that the
bank settles its balance with the company before billing the customer. Again,
business continues as normal for the fraudulent company, its fraudulent
customers, and the unwitting bank. Only when the outstanding balance between
16

the bank and the company is sufficiently large, the company takes the payment
from the bank, and the company and its customers disappear, leaving no-one
to pay the bills issued by the bank.

Stolen payment cards

Often, the first indication that a victim's wallet has been stolen is a phone call
from a credit card issuer asking if the person has gone on a spending spree;
the simplest form of this theft involves stealing the card itself and charging a
number of high-ticket items to it in the first few minutes or hours before it is
reported as stolen.
A variant of this is to copy just the credit card numbers (instead of drawing
attention by stealing the card itself) in order to use the numbers in online
frauds.

Duplication or skimming of card information

This takes a number of forms, ranging from merchants copying clients' credit
card numbers for use in later illegal activities or criminals using carbon copies
from old mechanical card imprint machines to steal the info, to the use of
tampered credit or debit card readers to copy the magnetic stripe from a
payment card while a hidden camera captures the numbers on the face of the
card.
Some fraudsters have attached fraudulent card stripe readers to publicly
accessible ATMs, to gain unauthorised access to the contents of the magnetic
stripe, as well as hidden cameras to illegally record users' authorisation codes.
The data recorded by the cameras and fraudulent card stripe readers are
subsequently used to produce duplicate cards that could then be used to make
ATM withdrawals from the victims' accounts.

Empty ATM envelope deposits

17

A criminal overdraft can result due to the account holder making a worthless
or misrepresented deposit at an automated teller machine in order to obtain
more cash than present in the account or to prevent a check from being
returned due to non-sufficient fund. United States banking law makes the first
$100 immediately available and it may be possible for much more uncollected
funds to be lost by the bank the following business day before this type of
fraud is discovered. The crime could also be perpetrated against another
person's account in an "account takeover" or with a counterfeit ATM card, or
an account opened in another person's name as part of an identity theft scam.
The emergence of ATM deposit technology that scans currency and checks
without using an envelope may prevent this type of fraud in the future.

The fictitious 'bank inspector'

This is an old scam with a number of variants; the original scheme involved
claiming to be a bank inspector, claiming that the bank suspects that one of
its employees is stealing money and that to help catch the culprit the "bank
inspector" needs the depositor to withdraw all of his or her money. At this
point, the victim would be carrying a large amount of cash and can be
targeted for the theft of these funds.
Other variants included claiming to be a prospective business partner with "the
opportunity of a lifetime" then asking for access to cash "to prove that you
trust me" or even claiming to be a new immigrant who carries all their money
in cash for fear that the banks will steal it from them if told by others that
they keep their money in banks, they then ask the depositor to withdraw it to
prove the bank hasn't stolen it.
Impersonation of officials has more recently become a way of stealing personal
information for use in theft of identity frauds.

CHAPTER 3
18

FRAUDS IN INDIA
NEW DELHI:
A gang of 11 men, comprising a B.Com graduate from St Xavier College in
Kolkata, two Delhi University graduates and seven Nigerians, has been arrested
in connection with a series of email and net banking frauds.

The cyber crooks, who are estimated to have cheated people of several crores,
duped people in two ways. They would empty their targets' accounts using a
combination of hacking and SIM card deactivation as well as send out emails,
1,000 at a time and text messages congratulating people on having won
astronomic sums which is a common phishing technique. In their last bid, the
gang stole Rs 19.31 lakh from the salary account of the country head of a
Geneva-based organization.

MONEY

LAUNDERINGPROBE:RBI

TO

SEE

CORBAPOST VIDEO ON BANK FRAUDS

MUMBAI; 16 march 2013
Intensifying its probe into charges of alleged money-laundering by banks, the
Reserve Bank has decided to study video clips that show bank staff
encouraging tax evasion and overseas remittances.
The investigation will focus on the possible violation of KYC norms even as
banks are independently probing any fraud by their staff, said three persons
familiar the development.
RBI is looking to get to the bottom of the charges made by Cobrapost.com,
an online news provider, that dozens of staff at various branches of ICICI
Bank, HDFC Bank and Axis Bank connived with tax evaders, resulting in loss
to the exchequer, said the persons on condition of anonymity. "The authenticity
of the tape would have to be checked. We would also wait for the
19

investigation report of the banks and then take a view on the matter," said one
of the persons.
Cobrapost on Thursday said bankers at these private lenders advise their clients
to avoid tax by various means, including declaring oneself as a farmer,
opening multiple accounts with small amounts, using other customers' accounts
for a fee, and creating shell companies to account for overseas travel and
other expenses.

BANK MANAGER HELD FOR FRAUD

KOLKATA
A manager of the Indian Overseas Bank, Gariahat branch, was arrested on
Thursday in connection with the Rs 60 crore fixed deposit scam. Bhaskar
Toleti, who had gone into hiding, was rounded up from Malkajgiri near
Hyderabad with Rs 2.39 crore in cash.
"The money seized is part of the Rs 60 crore West Bengal State Cooperative
Bank (WBSCB) fraud," said joint commissioner (crime) Pallab Kanti Ghosh. It
was on interrogating a 1979 batch WBCS officer, Udayan Majumdar, that cops
were led to Toleti, sources said.
Probe revealed that WBSCB had deposited Rs 60 crore in three nationalized
bank at a higher rate of interest. But the account numbers provided belonged
to the fraudsters and were created under fictitious names.
Police said it was with help from a section of employees of the depositing
organization and the nationalized banks that the fraudsters siphoned off the
money.
"They posed as the bank authority and sent forged letters to the depositor.
Soon as the amount was electronically transferred to these accounts, the
fraudsters siphoned off the money," said an investigator.

20

The city police arrested another bank manager in connection with the multicrore bank fraud, commonly earned notority as fixed deposit scam, involving
several bank and government agencies. Bhaskar Toleti, a manager of Indian
Overseas Bank (IOB), Gariahat branch from Malkajgiri near Hyderabad. Police
retrieved from his possession Rs 2.39 crore in cash. This money is part of the
Rs 60 crore West Bengal State Cooperative Bank (WBSCB) fraud, said joint
commissioner (crime) Pallab Kanti Ghosh.
Earlier, a 1979 batch state civil service officer Udayan Majumdar was arrested
on April 22. Interrogating him, the anti-bank fraud section officer came to
know about the connivance of bank manager Bhasakar Toleti in the fraud case.
Probe revealed that WBSCB was supposed to deposit Rs 60 crores in three
different nationalized banks as a fixed deposit for higher rate of interest. But
finally following an electronic money transfer, the amount landed into
fraudsters account what soon siphoned off.
Investigators found that in connivance with a section of employees of the
depositing organization and the nationalized bank where the money was
deposited, fraudsters managed to create an account in fictitious name with IOB
at Gariahat branch. "The fraudsters, with the help of the insiders, sent forged
letters posing as bank authority and gave another account number to the
depositor, what was created in fictitious name. As soon the amount was
electronically transferred, the fraudsters got hold of the amount," said an
officer of detective department.
Investigation revealed that Toleti played the crucial role in offering higher rate
of interest to the State Cooperative bank and facilitating the bank account in
fictitious name. Toleti, ofcourse, was offered a handomse commission. The
money retrived from him is part of the commission of the scam.
On the other hand, as a bureaucrat Udayan Majumdar had access to a section
of employees of West Bengal State Cooperative Bank, who helped him to
execute the forgery. Majumdar has been suspended in September 2012 for
several corruption charges. His last posting was deputy commissioner of State
refugee rehabilitation department. Earlier he served as the sub-divisional officer
21

of Kakdwip in south 24 Paraganas and later also served as the joint

commissioner in Agriculture department. During his tenure, a major job scam
happened
Majumdar's

in

Agriculture

department

and

following

departmental

inquiry,

name was cropped up. Several vigilance inquiries are pending

against him. Like State Cooperative Bank, in similar modus operandi, Rs 120
crore was siphoned off from West Bengal Industrial Infrastructure Development
Finance Corporation. In same manner fraudsters duped West Bengal Marketing
Board and Fisheries and Animal Husbandry University. Police have initiated
probe on the Rs 120 crore fraud and rounded up notorious fraudster Indrajit
Chatterjee. Due to the similarities in the modus operandi, police have reasons
to believe that the same gang is behind all the frauds.

BANK EMPLOYEES ARRESTED FOR FRAUD

New Delhi; 17 january 2010
Five youths, including two bank employees and a struggling model were
arrested in New Delhi for allegedly cheating by withdrawing around Rs. 20
lakh using phone banking facility, police said on Sunday.
The arrested have been identified as Amit Chauhan (29), Sunil Grover (21),
Raman Preet Singh (26), Ashish Tiwari (24) and Deepak Malik (33), Deputy
Commissioner of Police (South) H G S Dhaliwal said.
Malik is a graduate from Nagpur University who is working in the Preet Vihar
branch of ICICI bank as a Branch Sales Manager at a salary of Rs. 35,000
per month while Tiwari is an MBA who is also an employed in the same
branch.
Singh, son of a retired bank official, is basically a Printer and Photographer
while Grover, a struggling model, has earlier been arrested in similar type of
bank related cheating case in Shalimar Bagh police station two years ago and
remained in jail for two months, police said.
Chauhan is the alleged kingpin of the gang and is the main person who used
22

to put fake signature on the cheque leaf meant for fraudulent transaction and
physically went to the bank to withdraw cash. He spent all the money on his
paramour in a red light area, they said.
"They used to collect the information of a bank customer by going to them in
the guise of a bank official and making them fill personal details in the
feedback form. Later they use the same detail to cheat the customer," Dhaliwal
said.
The arrests came following investigations into a complaint by one Sidharth
Bharadwaj, that someone had fraudulently withdrawn amount Rs. 2.95 lacs
from his account.

3 HELD FOR NET BANKING FRAUDS, HAD DETAILS

OF 1 CRORE ACCOUNTS
NEW DELHI; 28 august 2013
Pause before you click on an attachment addressed to you from an e-mail id
seemingly from your bank. The mail could contain a malware sent to you by
hackers which would transfer your banking data to them.
On trail of suspects in an internet banking fraud, the special staff of south
district has taken into custody two students and a Nigerian national. The
malware was being sent from abroad while the SIM deactivation and actual
withdrawal of money took place in India. The trio has admitted to cheating
100 people.
Police have recovered the customer data of a staggering one crore customers
of different banks from the laptops of the arrested men who have been
identified as Saket Anand (21), a BTech student, Ujjwal Anand (21), a BCA
student, and Anthony Chienedu alias Tony (34), additional DCP (south) P S
Kushwah said. "A total of 136 SIM cards, five data cards, flash drives, three

23

laptops and fake debit and credit cards of various banks have been found,"
Kushwah added.
Explaining the modus operandi, Kushwah said a group of hackers, operating
from abroad, first obtained the e-mail IDs of customers of various banks using
special software. Then, they send a malware via a bogus attachment to all
these IDs.
"When the customer opened the attachment, a parallel folder with his details
was created on the hacker's computer. Whenever the customer used his internet
for banking, his data was stored in the hacker's computer. The Indian
counterparts then got the mobile number of the customer blocked so that he
did not receive SMS transaction alerts. They then transferred the money to
various bogus accounts abroad which was withdrawn at ATMs here," he said.
Arun Aggarwal had lodged a complaint with Hauz Khas police. On July 23 he
had received an SMS alert from ICICI Bank for a transaction he had not
made. On August 2, he received a similar SMS from OBC Bank. Upon
inquiry it was revealed that 33 transactions had been made within two hours
the previous night. In all, Rs 1.65 lakh had been transferred to unknown
accounts.
A team comprising inspectors Jasmohinder Chaudhary and Neeraj Kumar began
investigations. Chaudhary found the transfers were made from a single location
and the money was transferred to five different bank accounts located in
Bhagalpur, Bihar. A team led by ACP Kulwant Singh camped in Bihar and
traced the ATM addresses. The team apprehended Saket and Ujjwal from
Laxmi Nagar in east Delhi. Tony was arrested from Dabri Extension in west
Delhi on their instance.

Woman alleges bank fraud

GURGAON; 26 may 2011, 06.57am IST

24

A woman has lodged a case against the branch manager and cashier of a
nationalized bank for allegedly diverting Rs 5 lakh from her account. The case
has been registered at Civil Lines police station.According to the police, the
woman has lodged an FIR alleging that she lost her savings due to the
negligence of bank officials. The victim, Pushpa Devi, has a savings account
in the Gurdwara Road branch of the bank. She has alleged that few days back
Rs 5 lakh had been transferred from her account to another account without
her permission.
"When she filed a compliant with the bank, the branch officials investigated
the case and found that the amount was transferred to the account of another
customer," said a senior police officer. The victim, Pushpa Devi, has a savings
account in the Gurdwara Road branch of the bank. She has alleged that few
days back Rs 5 lakh had been transferred from her account to another account
without her permission.

CHAPTER 4
MAJOR FRAUDS IN VARIOUS COUNTRIES
25

 Bank fraud in the United States

Under federal law, bank fraud in the United States is defined, and made
illegal, primarily by the Bank Fraud Statute in Title 18 of the U.S. Code. 18
U.S.C. 1344 (Bank Fraud Statute) states:
Whoever knowingly executes, or attempts to execute, a scheme or
artifice
(1) To defraud a financial institution; or
(2) To obtain any of the moneys, funds, credits, assets, securities, or
other property owned by, or under the custody or control of, a financial
institution, by means of false or fraudulent pretenses, representations, or
promises shall be fined not more than $1,000,000 or imprisoned not
more than 30 years, or both.
State law may also criminalize the same, or similar acts.
The Bank Fraud Statute was passed following the Supreme Court's decision in
Williams v. United States, 458 U.S. 279 (1982), in which the Court held that
cheque-kiting schemes did not constitute making false statements to financial
institutions (18 U.S.C. 1014). Congress responded by passing the Bank Fraud
Statute (18 U.S.C. 1344). Section 1344 has subsequently been bolstered by
the Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA), Pub. L. No. 101-73, 103 Stat. 500.
The Bank Fraud Statute criminalizes federally cheque-kiting, cheque forging,
non-disclosure on loan applications, diversion of funds, unauthorized use of
automated teller machines (ATMs), credit card fraud, and other similar offenses.
Section 1344 does not cover certain forms of money laundering, bribery, and
passing bad checks. Other provisions cover these offenses.
In the United States, consumer liability for unauthorized electronic money
transfers on debit cards is covered by Regulation-E of the Federal Deposit
Insurance Corporatin. The extent of consumer liability, as detailed in section
205.6, is determined by the speed with which the consumer notifies the bank.
26

If the bank is notified within 2 business days, the consumer is liable for $50.
Over two business days the consumer is liable for $500, and over 60 business
days, the consumer liability is unlimited. In contrast, all major credit card
companies have a zero liability policy, effectively eliminating consumer liability
in the case of fraud.

BANK FRAUD IN CHINA

China has executed bankers for fraudulent activity; some recent cases (Sept
2004) which ended in capital punishment include:

Wang Liming link goes to the wrong person, former accounting officer,
China Construction Bank, Henan, with others stole 20 million yuan
($2.4 million in U.S. Currency) from the bank using fraudulent papers,
executed.

Miao Ping, an accomplice in the same case, executed.

Wang Xiang link goes to the wrong person, same bank in an unrelated
case, also executed for taking 20 million yuan from the bank.

Liang Shihan, Bank of China, Zhuhai, executed for helping cheat his
bank out of $10.3 million US.

In China, consumer liability for fraudulent electronic money transfers is

covered by an order of the China Banking Regulatory Commission, called The
Measures Governing Electronic Banking. Chapter 8 deals with legal liabilities.
Article 89 stipulates that if the bank causes any monetary loss for any reason
"irrelevant to the customer, it shall bear the liabilities accordingly." This leaves
consumer liability open to interpretation. As such, Chinese banks have a policy
of refusing to repay any fraud victim unless a lawsuit is filled. If a fraud
victim is successful in filling a lawsuit, the bank might settle out of court. If
a lawsuit goes to court, the success of the lawsuit depends largely on the
disposition of the local court in question. A lawsuit concluded in 2012 in the
city of Wenling, Jejiang province made news because the local court ordered
27

the bank to fully reimburse a man who was the victim of card duplication.
However, the extent of the uncompensated fraud victim issue is unknown, as a
result of China's censored media.

Bank fraud claims over four million victims in UK

Nearly 4.6 million people in the UK have had their personal details stolen and
their bank accounts used to buy goods or services, according the latest Deloitte
Consumer Review.
About two-thirds of more than 2,000 UK adults polled claimed to have
received phishing emails aimed at stealing personal information. A third of
respondents said they had been a victim of cybersquatting where a website
that appears to be the site of a genuine company or brand is actually owned
and operated by a third party who may be trying to defraud visitors.
Consequently, only 44% said they trusted companies to tell the truth about the
quality of their data security procedures. And only 40% thought their data safe
when they shared it with a company even one they trusted.
People are doing more and more online, and as consumers digital activities
expand, so does their data footprint, said Chris Gaines, partner in Deloittes
enterprise risk services practice.
Consumer awareness of cyber crime is at an all-time high, fuelled by firsthand experience and media coverage of recent high-profile security breaches,
he said.
Nine out of 10 people said they had thought about the need to protect their
activities and data online, while 88% thought it was the responsibility of the
companies that collect their data to keep it secure and protect them from
fraud.
Consumers want companies to take more action too. Three-quarters said they
want businesses to introduce more ID authentication processes on their
websites, despite the extra effort this would mean for them.
28

Deloitte said consumers are clearly placing the burden of security with the
company, but this also presents an opportunity for retailers to differentiate
themselves.
Two-thirds of respondents said they were more likely to use companies that
went out of their way to show customers they kept their information safe.
Conversely, nearly a third of people affected by security breaches said they
had shifted their loyalty away from the company responsible for losing their
data.
Exceeding consumers expectations could help in maintaining loyalty and
attracting customers, while failure to do enough could push them away, the
Deloitte report said.
Banks top the list of organisations people trust least with their personal data,
according to a survey of 2,000 UK consumers.
Mobile phone operators and retailers also fare badly, according to the study
commissioned by collaboration and communication services firm Avaya and
contact centre technology firm Sabio.
According to a similar report by research consultancy Davies Hickman
Partners, six million UK consumers have stopped doing business with an
organisation because of concerns about security.
The information companies hold about their customers is one of their most
valuable assets. In this new digital world, consumers will turn to trusted
brands who they know will protect this data. Those that fail to act risk losing
loyal customers, said Gaines.

Himalayan Bank loses Rs 4 million in debit card fraud

Himalayan Bank Limited (HBL) has reported that Rs 4 milion was stolen from
the accounts from depositors through fraudulent use of the banks debit cards.
HBL has now halted all debit card transactions after it found the theft. HBL
29

has also announced that it will upgrade the banks entire security system as
well.
According to media reports, Rs 4 million was withdrawn last week from New
Delhi, India through HBLs debit cards. The bank launched an investigation
after dozens of account holders complained about the missing funds. HBL has
reported that it suspects a former employee is involved in the fraud. The
former employee has been absconding after embezzling millions of Rupees
from the bank.
HBL customers will not be able to use their debit cards for another two
weeks. The countrys central bank has directed HBL to provide details of the
fraud. HBL has asked its debit card holders to contact their respective
branches to replace their existing pin numbers.

Nigerian scam
It is also called 419 scams, are a type of fraud and one of the most common
types of confidence trick.
There are many variations on this type of scam, including advance fee fraud,
Nigerian Letter, Fifo's Fraud, Spanish Prisoner Scam, black money scam. The
number "419" refers to the article of the Nigerian Criminal Code dealing with
fraud. The scam has been used with fax and traditional mail, and is now used
with the internet.
While the scam is not limited to Nigeria, the nation has become associated
with this fraud and it has earned a reputation for being a center of email
scam crimes. Other nations known to have a high incidence of advance fee
fraud include Ivory Coast, Benin, Togo, South Africa, Russia, India, Pakistan,
the Netherlands, and Spain.

Kenya
The Central Bank of Kenya ( CBK) has raised concerns over the rising
incidents of internally generated fraud within the banking industry.
30

Reported figures show commercial banks lost an estimated Sh1.5 billion

through electronic fraud in 12 months (April 2012-April 2013).
The funds were stolen through automated teller machines, payment cards and
Point of Sale between April 2012 and April 2013. Most of these fraud is
internal to these institutions, Stephen Nduati, Head of National Payments
System at the Central Bank told The Standard on Sunday.
We have enhanced our ability to oversee payment systems. My job is to
ensure efficiency and safety of the payments system, he noted
If there is fraud, it is within a bank. Our Real Time Gross Settlement
(RTGS) system is clear and safe. We have encouraged banks to put in place
in internal controls as fraud can only be in an individual institution but not
within the RTGS systems.
According to the bankers lobby, the Kenya Bankers Association (KBA) fraud
could take place at the point of entry into the RTGS.
We are fairly confident about the RTGS system. Vulnerability lies at the point
of entry into the RTGS, Chief Executive Habil Olaka told The Standard on
Sunday in an earlier interview.
Individual banks are required to put in an elaborate internal control system to
ensure that the system is not interfered with.
The introduction of RTGS was a risk mitigation measure, which has seen an
average of over 7,000 transactions valued at Sh86 billion moved through the
system daily according to the CBKs latest statistics.
In 2011 commercial banks agreed to combine efforts in weeding out dishonest
employees from the banking industry following shocking incidents of banking
fraud. Under the arrangements commercial banks agreed to discuss and share
information on fraudulent staffs implicated in financial scams with a view of
tracking and blacklisting them.

31

In some incidences, bank tellers or clerks collude with outsiders and even with
their supervisors to defraud the banks they worked for.
KBA has since directed its members to re-audit their employees after it
emerged that most of the banking fraud, which have hit the industry, were
internally instigated.
KBA expects individual banks to put in place elaborate procedures to deal
with errant employees. We are taking a zero-tolerance position where severe
action, including criminal prosecution would be taken against employees found
to have colluded with fraudsters, said Olaka.

CHAPTER 5
FRAUDS CONTROL IN INDIA

32

In the banking and financial sectors, the introduction of electronic

for transactions, settlement of accounts, book-keeping and all

technology
other related

functions is now an imperative. Increasingly, whether we like it or no, all

banking transactions are going to be electronic. The thrust is on commercially
important centers, which account for 65 percent of banking business in terms
of value. There are now a large number of

fully computerized branches

across the country. A switchover from cash-based transactions to paper-based

transactions is being accelerated. Magnetic Ink character recognition clearing of
cheques is now operational in many cities, beside the four metro cities. In
India, the design, management and regulation of electronically-based payments
system are becoming the focus of policy deliberations. The imperatives of
developing an effective, efficient and speedy payment and settlement systems
a r e getting sharper with introduction of new instruments such as credit cards,
tele-banking, ATMs, retail Electronic Funds T r a n s f e r

(EFT) and Electronic

Clearing Services (ECS). We are moving towards smart cards, credit and
financial Electronic Data Interchange (EDI) for straight through processing,
amalgamation, reconstruction and liquidation. Under the RBI's supervision
and inspection, the working of banks has greatly improved. Commercial
banks have developed into financially and operationally sound and viable units.
The RBI's powers of supervision have now been extended to non-banking
financial

intermediaries.

nationalization 1949,
vigorously

and

Since

independence,

the RBI has

has

been

particularly

after

its

followed the promotional functions

responsible for strong financial support to

industrial and agricultural development in the country. India has a financial

system that is regulated by independent regulators in the sectors of banking,
insurance, capital markets, competition and various services sectors. In a
number of sectors Government plays the role of regulator. Ministry of Finance,
Government of India looks after financial sector in India. Finance Ministry
every year presents annual budget on February 28 in the Parliament. The
annual budget proposes
policy in

almost

all

changes
the

in

sectors

taxes,
and

changes

in

budgetary

government
and

other

allocations for all the Ministries of Government of India the annual budget is
passed by the parliament after debate and

takes the shape of law. Reserve

bank of India (RBI) established in 1935 is the Central bank. RBI is regulator
33

for financial and banking system, formulates monetary policy and prescribes
exchange control norms. The Banking Regulation Act, 1949and the Reserve
Bank of India Act, 1934 authorize the RBI to regulate the banking sector in
India. India has commercial banks, co-operative banks and regional rural banks.
The commercial banking sector comprises of public sector banks, private
banks

and foreign

banks. The

public

sector

banks

comprise

the

State Bank of India and its seven associate banks and nineteen other banks
owned by the government and account for almost three fourth of the
banking sector. The Government of India has majority shares in these public
sector banks. India has a two-tier structure of financial institutions with thirteen
all India financial institutions and forty-six institutions at the state level.
All India financial institutions comprise term-lending institutions, specialized
institutions and investment institutions, including in insurance.
institutions
Development

comprise

of

Corporations

State

Financial

providing

Institutions

project

and

finance,

State

State

equipment

level

Industrial
leasing,

corporate loans, short term loans and bill discounting facilities to corporate.
Government holds majority shares in these financial institutions. Non-banking
Financial Institutions provide loans and hire-purchase finance, mostly for retail
assets and are regulated by RBI. Insurance sector in India has been
traditionally dominated by state owned Life Insurance Corporation and General
Insurance Corporation and its four subsidiaries. Government of India has now
allowed FDI in insurance sector up to 26%. Since then, a number of new
joint venture private companies have entered into life and

general insurance

sectors

rising.

and

their

share

in

the

insurance

market

in

Insurance

Development and Regulatory Authority (IRDA) is the regulatory authority in

the insurance sector under the Insurance Development and Regulatory Authority
Act, 1999.RBI also regulates foreign exchange under the Foreign Exchange
Management Act (FERA). India has liberalized its foreign exchange controls.
Rupee is freely convertible on current account. Rupee is also almost fully
convertible on capital account for non-residents. Profits earned, dividends and
proceeds out of the sale of investments are fully repatriable for FDI. There are
restrictions on capital account for resident Indians for incomes earned in India.
Securities and Exchange Board of India (SEBI) established under the Securities
and Exchange aboard of India Act, 1992is the regulatory authority for capital
34

markets in India. India as 23 recognized stock exchanges that operate under

government approved rules, bylaws and regulations. These exchanges constitute
an organized market for securities issued by the central and state governments,
public sector companies and public limited companies. The Stock Exchange,
Mumbai and National Stock Exchange are the premier stock exchanges. Under
the process of

d e mutualization, these stock exchanges have been

converted into companies now, in which brokers only hold minority share
holding. In addition to the SEBI Act, the Securities Contracts (Regulation) Act,
1956 and the Companies Act, 1956 regulates the stock markets.

CHAPERT 6
FRAUDS IN BANKING SECTOR; CAUSES, CONCERN AND
CURES

35

Inaugural address by Dr. K. C. Chakraborty , Deputy Governor,

Reserve Bank of India on July 26, 2013 during the National
Conference on Financial Fraud organized by ASSOCHAM at New
Delhi
Dr. Rana Kapoor, President, ASSOCHAM and MD & CEO, Yes Bank; Shri
M. J. Joseph, Additional Secretary and Chief Vigilance Officer, Ministry of
Corporate Affairs, Ms. Preeti Malhotra, Chairperson, ASSOCHAM National
Council for Corporate Affairs; senior members from the financial services
industry; delegates to the conference; members of the print and electronic
media; ladies and gentlemen. It is a pleasure to be here this morning to
deliver the inaugural address at the National Conference on Financial Frauds
-Risk & Prevention.
We all know that fraud, and more so, the financial frauds have been in
existence for a very long time. Some may be surprised, but, it is interesting to
note that Kautilya, in his famous treatise Arthashastra penned down around
300 BC, painted a very graphic detail of what we, in modern times, term as
fraud. Kautilya describes forty ways of embezzlement, some of which are:
what is realised earlier is entered later on; what is realised later is entered
earlier; what ought to be realised is not realised; what is hard to realise is
shown as realised; what is collected is shown as not collected; what has not
been collected is shown as collected; what is collected in part is entered as
collected in full; what is collected in full is entered as collected in part; what
is collected is of one sort, while what is entered is of another sort. As you
would all agree, some of the above actions continue to be the modus operandi
adopted in many instances of financial fraud that have hit the headlines in
recent times. This shows that very little has changed over such a long period
in the basics of fraud and brings me to the question why has ASSOCHAM
now been forced to devote an entire day for deliberating the issue.
Statistics quoted in a recent report by the Association of Certified Fraud
Examiners (ACFE) 2012 titled Report to the Nation on Occupational Fraud
and Abuse may have some answers. The report has estimated that a typical
organization loses 5% of its revenues to fraud each year and cumulative
36

annual fraud loss globally during 2011 could have been of the order of more
than $3.5 trillion. The amount involved in the frauds reported by the banking
sector in India has more than quadrupled from Rs. 2038 crore during 2009-10
to Rs. 8646 crore during 2012-13. Similarly, another report has estimated the
losses of the Indian insurance companies at a whopping Rs.30, 401 crore in
the year 2011 due to various frauds which have taken place in the life and
general insurance segments. The losses work out to about nine per cent of the
total estimated size of the insurance industry in 2011. Enron, World com and
more recently, the Libor manipulation scandals, have caused major upheavals in
western nations and their impact has been felt not only in the individual
institutions or countries but across the global financial system. India too has
witnessed a spate of fraudulent activities in the corporate sector over the last
decade in the form of Satyam, Reebok, Adidas, etc. The ACFE report further
mentions that as in the previous years, banking and financial services industry
continues to be among the most commonly victimized sectors as far as fraud
is concerned. What the above statistics reveal is that the frequency, volume
and the gravity of instances of fraud across various sectors, particularly in the
financial sector, has gone up tremendously over the past few years. With the
sweeping changes in the scope and magnitude of banking transactions
witnessed in the past few decades, the emergence of hybrid financial products,
the increasing trend of cross border financial transactions and the dynamics of
real-time fund movement and transformation, the vulnerability of the system to
the menace of fraud has become higher than ever before

CHAPTER 7
BANKING FRAUDS STATISTICS
Table 1: No. of frauds cases reported by RBI regulated
entities
(No. of cases in absolute terms and amount involved in Rs.

37

crore)
Category

No. of Cases

Amount Involved

Commercial Banks

169190

29910.12

NBFCs

935

154.78

UCBs

6345

1057.03

FIs

77

279.08

176547

31401.01

As is evident from the above table, the cumulative number of frauds reported
by the banking sector and the total amount involved in these fraud cases have
a major share in the frauds reported by all entities under RBIs supervisory
jurisdiction. A year-wise break up of fraud cases reported by the banking
sector together with the amount involved is given in Table below:
Year-wise no. and amount of fraud cases in the banking sector
(No. of cases in absolute terms and amount involved in Rs. crore)
Year

No. of cases

Total Amount

2009-10

24791

2037.81

2010-11

19827

3832.08

2011-12

14735

4491.54

2012-13

13293

8646.00

169190

29910.12

Total frauds reported as of March

2013

It may be observed that while the number of fraud cases has shown a
decreasing trend from 24791 cases in 2009-10 to 13293 cases in 2012-13 i.e.
a decline of 46.37%, the amount involved has increased substantially from Rs
38

2037.81 crore to Rs. 8646.00 crore i.e. an increase of 324.27%. A granular

analysis reveals that nearly 80% of all fraud cases involved amounts less than
Rs. one lakh while on an aggregated basis, the amount involved in such cases
was only around 2% of the total amount involved. Similarly, the large value
fraud cases involving amount of Rs.50 crore and above, has also increased
more than tenfold from 3 cases in FY 2009-10 (involving an amount of Rs
404.13 crore) to 45 cases in FY 2013 (involving an amount of Rs 5334.75
crore) . Further, a bank group wise analysis of frauds reveals that while the
private sector and the foreign bank groups accounted for a majority of frauds
by number (82.5%), the public sector banks (including SBI Group) accounted
for nearly 83% of total amount involved in all reported frauds Table below.

Bank Group wise fraud cases

(No. of cases in absolute terms and amount involved in Rs. Crore)

Bank Group

No.

of % to Total Amount

to

Total

cases

Cases

Involved

Nationalised Banks including SBI Group

29653

17.53

24828.01

83.01

Old Pvt. Sector Banks

2271

1.34

1707.71

5.71

New Pvt. Sector Banks

91060

53.82

2140.48

7.16

Sub Total (Private Banks)

93331

55.16

3848.19

12.87

Foreign Banks

46206

27.31

1233.92

4.12

Total

169190

100

29910.12

100

Amount

While the sheer number of frauds and the amount involved, when seen in
isolation, may appear overwhelming, it is important to view the incidence of
frauds in the banking sector in the context of the massive increase in the
number of deposit and credit accounts in banks and the staggering volume and
value of transactions that are processed by the banks every day. To put things
39

in perspective, let me quote some statistics again. The number of deposit

accounts in the banks over the last ten years (between end 2002 and end
2012) has gone up from 43.99 crore to 90.32 crore while the number of loan
accounts in the same period has also more than doubled from 5.64 crore to
13.08 crore. A quick estimate puts the average number of all transactions that
happen every day in the banking system at approximately 10 crore, which is
enormous. The number of frauds per million banking transactions was about
0.4, which is not a very high figure. Likewise, besides increase in the number
of brick and mortar branches, additional service delivery points like ATMs and
Point of Sale (POS) terminals have also gone up significantly. While the
number of ATM machines has grown from 34789 in March 2008 to 114014 in
March 2013, the number of POS terminals has also more than doubled (from
423667 to 845653) during the same period. The point I am trying to drive
home here is that on a standalone basis the quantum of frauds, both in terms
of number and amount involved, may appear to be very high, but when one
weighs it against the sheer magnitude of accounts and transactions handled by
the banking system, they are not alarming.

Category of Frauds
Broadly, the frauds reported by banks can be divided into three main subgroups:
a. Technology related
b. KYC related (mainly in deposit accounts)
c. Advances related
A closer examination of the reported fraud cases has revealed that around 65%
of the total fraud cases reported by banks were technology related frauds
(covering frauds committed through /at internet banking channel, ATMs and
other alternate payment channels like credit/ debit/prepaid cards) while the
advances portfolio accounted for a major proportion (64%) of the total amount
involved in frauds. Table below shows that relatively large value advances
40

related frauds (> Rs. 1 crore) have increased both in terms of number and
amount involved over the last four years.

Table 4: Bank Group wise Advance Related Frauds (Rs. 1 Crore & above in value)
(No. of cases in absolute terms and amount involved in Rs. Crore)
Cumulative total
2009-10

2010-11

2011-12

2012-13

(As
at end March
2013)

Bank
Group

No.
of
cases

Amount
Involved

No.
of
cases

Amount
Involved

No.
of
cases

Amount
Involved

No.
of
cases

Amount No. of

Amount

Involved cases

Involved

14577.28

Nationalised
Banks
including

152

736.14

201 1820.12 228 2961.45 309

6078.43 1792

16

99.10

20

289.31

14

63.31

12

49.87

149

767.75

10

63.38

18

234.18

12

75.68

24

67.47

363

1068.18

26

162.48

38

523.49

26

138.98

36

117.34

512

1835.93

45.26

33.20

19

83.51

16.75

456

277.05

SBI Group
Old Private
Sector
Banks
New Private
Sector
Banks
Sub-total
Foreign
Banks

41

Grand Total 182

Year

wise

943.87

fraud

242 2376.81 273 3183.94 349 6212.51

cases

reported

by

commercial

2760

16690.26

banks

(As on March 31, 2013)

(No. of cases in absolute terms and amount involved in Rs. Crore)

Amt
Involved

FY
(AprMar)

Pre-

> 1 lakh and > Rs 1 cr and

< Rs 1 lakh

No. of

up to Rs 1

up to Rs 50

crore

crore

Total No. of

Total

cases Amount cases Amount

No.
of
cases

Total
Amount

> Rs.50 crore

No.

Total

of
cases

Total Fraud
cases

No. of

Total

Amount cases Amount

2292

4.24

819

96.65

613

2951.64

2004-05

7553

12.50

2407

287.32

111

584.89

2005-06

11395

18.63

2334

290.20

192

1009.23

135.47 13923 1453.53

2006-07

20415

31.22

3048

325.02

158

791.17

78.45 23622 1225.86

2007-08

17691

30.25

3381

383.98

177

662.31

- 21249 1076.54

2008-09

19485

33.85

4239

442.94

214

1129.56

305.33 23941 1911.68

2009-10

20072

30.36

4494

474.04

222

1129.28

404.13 24791 2037.81

2004

13 1244.26

3737 4296.80

53.57 10072

938.29

42

2010-11

15284

26.09

4250

494.64

277

1515.15

16 1796.20 19827 3832.08

2011-12

10638

19.05

3751

509.17

327

2113.23

19 1850.08 14735 4491.54

2012-13

9060

22.11

3816

491.13

372

2798.00

45 5334.75 13293 8646.00

228.31 32539 3795.10 2663 14684.46

103 11202.25 169190 29910.12

Total

133885

Bank Group wise fraud cases reported

(As on March 31, 2013)

(No. of cases in absolute terms and amount involved in Rs. Crore)

Amt
Involved

Bank
Group

> 1 lakh and

< Rs 1 lakh

up to Rs 1 and up to Rs > Rs.50 crore

crore

No. of

Total

cases Amount

> Rs 1 cr

No.
of
cases

Total
Amount

50 crore

No.
of
cases

Total
Amount

No.
of
cases

Total

Total Fraud
cases

No. of

Total

Amount cases Amount

43

Nationalised
Banks
including

7622

31.97 19753 2847.11 2184 11867.24

94 10081.69 29653 24828.01

SBI Group

Old Pvt.
Sector

622

2.38 1463

225.09 181 1001.56

478.68

2271 1707.71

83850

112.36 6984

510.18 225 1445.82

72.11 91060 2140.47

84472

114.74 8447

735.27 406 2447.38

550.79 93331 3848.19

41791

81.60 4339

212.72

569.76 46206 1233.92

Banks

New Pvt.
Sector
Banks

Sub Total
(Private
Banks)

Foreign
Banks

Grand Total 133885

73

369.84

228.31 32539 3795.10 2663 14684.46 103 11202.25 169190 29910.12

Year wise details of fraud cases closed

44

(No. of cases in absolute terms and amount involved in Rs. Crore)

Amt
Involved

FY
(AprMar)

> 1 lakh and > Rs 1 cr and

< Rs 1 lakh

No. of

Total

cases Amount

up to Rs 1

up to Rs 50

crore

crore

No.
of
cases

Total
Amount

No.

Total

of
cases

Amount

> Rs.50

Total Fraud

crore

cases

No.

Total

of
cases

No. of

Total

Amount cases Amount

Pre-2004

1661

2.85

568

36.33

11

94.64

85.66

2241

219.48

2004-05

6047

8.47

470

33.27

13

99.68

6530

141.42

2005-06

11611

9.47

154

10.86

11

75.93

55.28 11777

151.54

2006-07

14291

9.46

248

17.53

34.30

- 14543

61.29

2007-08

12861

11.23

374

26.79

32.05

- 13238

70.07

2008-09

6796

9.25

420

20.84

10

49.28

7226

79.37

2009-10

5828

8.99

636

38.03

21.18

6468

68.20

2010-11

13526

13.47

649

42.88

14.26

- 14182

70.61

2011-12

38330

23.58

756

49.80

10

33.04

- 39096

106.42

45

2012-13

Total

11198

122149

8.45

556

35.83

14

78.51

105.22 4831

312.16

87

532.87

- 11768

122.79

140.94 127069 1091.18

CHAPTER 8
GENERAL SAFEGUARDS/PRECAUTIONS
1. Frauds cannot be prevented merely by laying down well conceived and well
defined procedural instructions.

What is more important is the strict adherence

to the implementation of such instructions at the various levels.

The need for

the banks to be on their guard all the time and to make available suitable
machinery for ensuring proper checks and counter checks at various stages
need hardly be emphasized.

Some general precautions which may help early

detection of frauds are listed below:

2. Balancing of books of accounts with the general ledger balances should be
done every month and this should be checked by a responsible officer.

An

element of rotation should also be introduced in the balancing of books of

accounts.

Differences in balancing should be got reconciled promptly.

3. Prompt reconciliation of bank accounts and inter branch transactions should

be done atleast every month and this should be checked by a responsible
officer. Unreconciled entries especially which are old, large value and having
debit balances need to be reconciled as quickly as possible.
46

4. All debit and credit vouchers pertaining to a day's transactions should be

serially numbered and the totals of the same recorded in the main cash book.
The vouchers should be in the custody of passing officials who should hand
them over to another Officer for independent checking the next day.
5. Number of accounts as per the monthly balancing books should be tallied
with accounts opened closed register and account opening forms.
6. Inoperative accounts should be transferred to a separate register and all
precautions taken while allowing operations in such accounts.
7. The blank passbooks, cheque books, deposit receipts, specimen signature
cards and other important documents should be done in the custody of a
responsible officer.
8. Specimen signature cards should be in the custody of passing officials only
and withdrawal slips should be serially numbered and the stocks accounted.
The slips should be issued to account holders over the counter against
acknowledgement and passing officials should verify the balances in the
accounts before passing cheques for payment.
9. Balance confirmation should be obtained from depositors periodically.
10. In the case of withdrawal by means of withdrawal slips, pass books should
invariably accompany the slips.
11. For remittance by borrowers, supervisory officials should issue serially
12. numbered chalans after posting the number of the chalanas in the loan
accounts.

At the end of the day it should be ensured that all the chalans

have been tendered to the bank.

13. Pledged jewels and other valuables should be verified independently by
officials unconnected with their custody.

Surprise element for such verification

should be introduced.
14, Periodic rotation of duties among staff should be introduced.
47

15. Books of accounts of the bank should be periodically checked up by the

Chief Executive and other Senior Executives to ensure that unauthorized entries
and unauthenticated corrections do not exist.
16. After yearly closing of accounts, verification should be done to ensure that
inflated credit balances are not carried forward and differences, if any, are
reconciled immediately.
17. Banks should introduce a sound system of internal audit.

The report of

the auditor and the action taken to rectify the defects should be placed before
the Board of Directors.
18. Banks should prescribe suitable periodical returns for branches and
submission of the same should be watched at Head Office.
Reporting of frauds by the UCBs to RBI
1.
RBI.

Frauds less than Rs.1 lakh They need not be reported individually to
However, the data regarding them should be submitted in the quarterly

report on frauds outstanding to the RO of UBD of the RBI under whose

jurisdiction the Head Office of the banks falls.
2. Frauds of Rs.1 lakh and more but less than Rs.25 lakh The cases of
individual frauds should be reported to the concerned RO of UBD of RBI
within three weeks from the date of detection
3. Frauds involving Rs.25 lakh and above Individual cases should be
reported to the Fraud Monitoring Cell, DBS, CO, RBI, Mumbai within three
weeks from the date of detection. Additionally, banks may report the fraud by
means of a DO letter addressed to the CGM-in-Charge, DBS, CO, RBI within
a week of the fraud coming to notice of the banks head office, with a copy
endorsed to RO, UBD, RBI.

The letter should contain particular such as

amount involved, nature of fraud, modus operandi, names of parties / officials

involved, complaint lodged with the police etc.

48

4. Quarterly progress reports on frauds of Rs.1 lakh and above are required to
be submitted to the RO, UBD, RBI.
5. Reports to Board of Directors (BOD) Bank should report all frauds of
Rs.1 lakh and above to the BOD promptly on their detection, quarterly review
of frauds (March, June and September) and annual review of frauds for the
year ended December which may be reported by the end of March of the
following year.

The review should cover whether frauds have occurred due

to laxity in following the systems.

CHAPTER 9
SUGGESTIONS TO FIGHT FRAUDS IN BANKS

Banks continue to be prime targets for all sorts of cybercrime and fraud. As the
risks escalate, so do the efforts of financial institutions to identify the fraudsters
and stymie their actions. These efforts, however, also have the potential to
complicate banks efforts to provide a good customer experience. What are the
current and emerging fraud threats to banks, and what kinds of technologies are
banks using (or should be using) to combat these threats? How can banks
balance fraud prevention and protection of customer information with the need
to optimize convenience, simplicity and ease of use for consumer and corporate
customers?

Give Customers A Sense Of Control

Today, we see threats associated with denial of service attacks, potential
disruptions of sites, not necessarily intrusion onto sites. Phishing exploits
continue, as do attacks on individual company databases. We have seen fewer
attacks on individual financial company databases to try to compromise data
and more attempts to attack our customers directly. Phishing attacks are
designed to essentially accumulate bank credentials so that unauthorized
transactions can be made.
49

Over the years, banks have grown accustomed to the balancing act between
protection and convenience. As threats change, protection measures must
change, as well. Some protection measures are more transparent to the
customer. One example is device authentication. Many customers use the same
personal computer to conduct online banking, and their financial institutions are
able to recognize the familiar computer as a method of authentication.
In some cases, the additional authentication is important to the customer. But
the customer can opt into that or not. As an example, banking customers can
opt to receive a text message on their mobile phones that a certain transaction
has occurred. The ability to set up these alerts according to their preferences
gives customers some control over their devices and authentication measures.
Banking customers may have to do something they might not ordinarily do to
get a measure of convenience. For example, a customer might use a computer
or device he or she doesnt typically use to log on to mobile banking. This
will cause them to answer not some simple shared secrets but maybe some
complex

information

about

themselves

like

transaction

information.

This

additional authentication measure gives additional protection while allowing the

customer the convenience of using an

Connect Fraud, AML, Security Data To Spot Patterns

While techniques evolve, todays threats are as old as the financial system
itself. Cyber criminals are after money or other assets of value. Hacktivists are
politically and socially motivated so their attacks are often highly visible (e.g.,
DDoS). While they aim to disrupt services, attacks can result in financial loss
and reputational damage. Criminals may use DDoS as a diversionary tactic
while executing fraudulent activity.
Its challenging to understand normal customer behavior across devices and
entry points. Many are implementing identity- and behavioral-based fraud
detection systems designed to identify and address issues before they become
major problems. Banks should connect fraud, anti-money laundering and
security data to recognize patterns and suspicious behavior.
50

Its a delicate balance to successfully protect against fraud while minimizing

customer disruption. Banks should acknowledge that the customer end point is
compromised. Real-time, behavioral-based fraud detection helps allow legitimate
transactions while blocking malicious attacks. Early detection is critical to
minimizing consequences.
Security must be an ongoing practice, not a one-time exercise. Rules should
continuously be updated in response to new attacks. With mobile applications,
operating system updates should trigger an assessment. Independent security
assessments should be an integral part of the process.
According to EYs Global Consumer Banking Survey 2012, greater confidence
in security would encourage 78 percent of young people to make greater use
of mobile banking. Banks should communicate to provide their customers with
greater assurance about the security of online and mobile banking. Security is
a shared responsibility. Conveying how security practices will benefit the
customer will promote accountability and more secure online behaviour.

Pursue the Convergence Of Biometrics & Mobile

Its nothing new that banks are prime targets for all sorts of cybercrime and
fraud. The threat of Distributed Denial of Service (DDoS) attacks and phishing
expeditions, for instance, is constant. However, efforts to enhance fraudprevention and detection capabilities, such as requiring customers to use multifactor authentication, has the potential to diminish a good customer experience.
The bulk of fraud losses continue to come from traditional payment methods
such as credit cards, debit cards and checks. However, one of the current
fraud threats that the industry battles today is account takeover. This is partly
due to difficulties in accurately authenticating the customer as they are
transacting with the financial institution, even in the branches and call centers.
Account takeover results from criminals taking advantage of the vast amount
of personal information freely available on the Internet, through malware and
51

spear-phishing attempts, the utilization of social engineering tactics and the

compromise of data from merchant and processor breaches.
These threats do require enhanced methods like multi-factor authentication.
Financial institutions continue lead the pack in fraud detection and mitigation,
but are still dependent on using customer information and passwords that are
readily available and easily compromised. Technologies that use biometrics for
authentication are on the horizon and could make a difference with this issue.
The use of mobile devices for things like fingerprints, voice recognition and
visual identification appears promising and much more difficult to compromise.
Financial Institutions also need to combine all available data to enhance their
ability to identify anomalies in all aspects of customer interaction.
Educating and enlisting customers in the fight against fraud must remain a
priority. In addition, the biometric technologies mentioned are beginning to be
incorporated into the mobile devices which have become ubiquitous throughout
the world. These techniques, along with comprehensive data analysis,g may be
able to enhance the institutions ability to properly authenticate without
inconveniencing the customer.

Adopt a Layered Approach Leveraging Multiple Analytical

Techniques
There has been an increase in both frequency and complexity in bank fraud.
Opportunistic fraudsters are taking advantage of financial institutions customercentric programs, while organized fraudsters are becoming more and more
sophisticated in multi-dimensional attacks. Today's fraud exposure is growing
with more advanced plays involving everything from cyber to organizational
and logistical capabilities to attack banks in multiple locations at once.
We believe that banks need to look at layered approaches to predict fraud and
protect the organization on multiple levels. Organized fraudsters are smart and
know how to defeat your models and your rules, but they leave trails. Banks
52

need the ability to identify these trails, and uncover how the fraudsters mask
their identities. On the other hand, opportunistic fraudsters do not leave trails,
but can be caught with more sophisticated predictive analytics.
Banks also must widen their observation space, which defines the areas and
sources of data that they can analyze and observe behavior. The richer and
broader that you can make this space, the more likely youll be able to
disrupt and defeat the more sophisticated fraudsters.
Theres no magic for balancing fraud protection with customer convenience,
but a layered approach can go a long way for financial firms. Banks cannot
separate fraud from other customer-centric activities. Launching a customerfocused enterprise or doing a digital transformation and other customer-focused
initiatives create avenues and opportunities for fraudsters.
To protect themselves from both organized and opportunistic fraudsters, banks
need to be able to model behaviors using predictive analytics and have the
ability to recognize and understand history and relationships. Otherwise, if an
individual exhibits a behavioral tendency that indicates that he or she is a
fraudster, but if a bank doesnt connect that information to the individuals
identify or relationships, the institution could make a big mistake in flagging
the activity as fraudulent. On the flipside, todays sophisticated analytics may
be able to uncover hidden patterns and relationships that can help banks to
contain fraud and better manage risk while improving customer relationships.
The normal approach is to use pattern recognition and behavioral tendency, but
if you dont couple that with identity detection and relationship analysis, you
could come up with many false positives. It all goes back to the essential
layered approach that leverages multiple advanced analytical techniques.

53

CHAPTER 10
A FEW RECENT ARTICLES
ARTICLE: 1
Source: The times of India
CBI developing database to curb banking frauds
NEW DELDI
August 8, 2012 | TNN
The CBI is developing a database of bank fraudsters to check cheating cases,
which have resulted in loss of Rs 3,799 crore during 2010-11, an increase of
53% as compared to the previous year, agency chief A P Singh said on
Tuesday. "Banks lost Rs 2, 017 crore due to frauds in 2009-10. This has seen
a quantum jump in 2010-11, with the loss amount rising to Rs 3,799 crore,"
he told the annual conference of Chief Vigilance Officers of public sector
banks and financial institutions. While CBI's Bank Securities and Fraud Cell
registered criminal cases involving Rs 4,000 crore in 2011, cases regarding
frauds worth Rs 2,500 crore have been registered from January to July this
year," he said. Singh said the CBI is developing a Bank Case Information
System (BCIS) which contains names of accused, borrowers and public
servants in its records. "This information may also be made accessible to field
functionaries of the banking sector in collaboration with the Indian Bank
Association (IBA) once modalities are worked out," he said.
Delivering the keynote address, Singh said the increasing amount of frauds in
the banking sector is a "disturbing factor". The CBI chief said the agency
54

would now probe only those bank fraud cases where loss is more than Rs 3
crore, while those below it would be investigated by the state police.
"On the request of CBI, CVC has notified revised threshold limits for
reporting bank fraud. CBI will now only register bank fraud cases involving
loss of over Rs 3 crore. Frauds involving loss of below Rs 3 crore shall be
reported to state police," he said.
The conference on Preventing Bank Frauds with Systemic Intervention was
organized by the CBI at its headquarters to sensitize the vigilance officers of
the banks. Singh pointed out that the losses incurred by public sector banks
and financial institutions clearly suggest that a better system of checks and
balances is required to prevent such frauds. He said existing loopholes need to
be plugged, manuals updated and Standard Operating Procedures framed to
ensure that lending and borrowing takes places in a healthy environment, free
of fraud.
Singh asked the Chief Vigilance Officers to sensitize their respective banks to
grant sanction for prosecution of public servants promptly as undue delay
sends a wrong signal to persons engaged in corrupt activities. He said that
some banks report fraud to the CBI to put pressure on borrowers to get their
dues recovered, and, later show reluctance to cooperate with investigation.
The CBI, he said, does not interfere in cases where commercial decisions
involving risks have resulted in losses to banks.

ARTICLE: 2
Ludhiana businessman booked for bank fraud
SHIMLA
TNN Sep 5, 2012, 02.17AM IST

55

CBI has arrested a Ludhiana businessman Rakesh Narula and charged him with
fraud with a bank in Baddi. He had allegedly obtained Rs 9 crore loan on
fake property documents. Investigation has found that he also duped a bank in
Chandigarh to the tune of Rs 10-11 crore. CBI officials, however, say the
accused might have cheated more banks.
A case was registered against Narula on a complaint by the Baddi bank.
Sources said he took the loan in 2009 and had submitted fake documents
citing property in Ludhiana, and used this money to open a garment factory in
Jharmajri area of Baddi. Irregularities in his account made the bank suspicious.
Sources said the bank officials initially investigated on their own and took
possession of the Jharmajri plant. Later, they discovered the property in
Ludhiana registered in another person's name. A case was registered under
sections 420, 467, 468, 471 and 120 (B) of IPC and Section 13(2) of the
Prevention of Corruption Act. CBI has also booked two bank officials and a
lawyer.

ARTICLE: 3
Bank fraud training for men in uniform
BHUBANESHWAR
January 17, 2011 | TNN
As bank-related frauds have emerged as a major crime in the city and across
the state, often leaving the police at their wit's end, a workshop was organized
here recently to familiarize the men in uniform with the technical know-how
for tackling such offences. The orientation programme was organized by the
commissionerate police in collaboration with the ICICI bank. "The aim behind
organizing such an event was to understand the nitty-gritties of banking,
mostly e-banking functioning which has become more prone to fraud," twin
city police commissioner Bijay Kumar Sharma said after inaugurating the event
on Saturday. Even though the bank fraud scenario, relating to credit card theft

56

and hacking of e-accounts is not so grave in Bhubaneswar and Cuttack, but

police received some complaints in past, he said.
"At times, the investigating officers struggle to crack such cases because of
their ignorance about the dos and don'ts of e-banking, credit card and digital
documents. So they need to be prepared professionally and mentally to tackle
the cyber offences," the police commissioner pointed out. As many as 30
police officers between the ranks of sub-inspector and assistant commissioner
of police took part in the orientation programme.
"Apart from sensitizing police officers, we have been urging the public to take
steps to protect their personal information, keep PIN numbers safe and secure,
check financial statements regularly and alert the financial institution if they
see any anomalies," a bank official said.

ARTICLE: 4
Bank fraud: Cops to grill suspect's wife
KOLKATA
April 18, 2013 | TNN
The bank fraud squad of the detective department of Kolkata Police has found
Rasika Chattopadhyay, wife of the mastermind of the Rs 120-crore bank fraud
with state run WBIDFC, Indrajit Chattopadhyay, as his partner in the crime.
Police said that they would interrogate his wife shortly. The police have, so
far, traced movable and immovable properties worth Rs 60 crore belonging to
Indrajit. Investigation revealed that his wife Rasika was the owner of Ma
Karunamoyee Films Ltd, that produced films and serials. Indrajit was the
promoter of a company, Amtech Universal. The duo had produced a Bengali
film, 'Greftar'. With steady flow of easy money from various fraudulent
transactions with banks, Indrajit ventured into Bollywood and invested Rs 7
crore in a movie. Probe also revealed that Indrajit developed a steady network
with

bankers,

bureaucrats,

police

and

politicians,

so

that

he

remained
57

perpetually elusive to police. After his arrest in 2008, following a Rs 10-crore

fraud with a bank, Indrajit became extremely careful not to come to the
forefront of such fraudulent dealings, unless it was really big. He used to
operate from behind the scene.
Because of his connections, he used to travel in beacon-fitted expensive cars.
Police have seized many of his cars. He invested in real estate in some prime
localities of South Kolkata. Police said he also used to throw expensive parties
for his associates and contacts. Chattopadhyay used to live a lavish life.
The apartment at posh South City, where he lived, was in his wife's name. He
used to live at an apartment he bough at the upscale South City in the name
of his wife.
Police suspected that he invested in the realty after siphoning off the WBIDFC
funds. He often posed as a senior banker while duping the victims. had
amazing relationship with bankers and often project himself as senior banker.
He was often seen occupying the chairs of senior officials of banks, said an
investigator.
Police are, so far, convinced that Indrajit also played a crucial role in
fraudulent transactions worth Rs 50 crore - with the West Bengal University of
Fisheries and Animals and State Agricultural Marketing Board.
The UCO Bank had responded to a tender floated by the WBIDFC for
perking their money in fixed deposits with bankers quoting the highest interest
rate. Two branches of the UCO Bank - Circus Avenue and Howrah responded. The Circus Avenue Branch quoted the highest interest rate of 9.65%
for a three-year deposit. The WBIDFC perked Rs 59 crore in August and
another Rs 61 crore in January, 2013.
In fact, his track record in bank fraud case dated back to 2006. The economic
offences wing of the CBI was looking for him as he had been duping various
banks since 2006.

58

ARTICLE: 5
Bank frauds on rise, trigger fear
LUDHIANA
June 22, 2012 | Naveen Kalia , TNN
Three bank frauds involving crores of rupees reported within three months in
the city is setting off alarm bells among residents, who claim that the
industrial town is becoming an easy target for such crimes. On Wednesday,
Punjab police and Kerala police detained three people in the city for a Rs 1.5
crore-fraud, recovering 200 ATM cards, 900g gold and land registry documents
worth Rs 9 lakh. Police sources said the gang used to open accounts for
acquaintances and take their cheque book and ATM card in exchange for a
nominal amount. They would then deposit Rs 10,000 in the account and carry
out multiple incomplete transactions to withdraw that amount. Each time, the
accused would pick up Rs 9,900 from the machine and leave behind Rs 100.
On June 18, division no 2 police booked Harbhajan Singh, owner of Royal
Industries, for issuing a fraudulent cheque of Rs 5.95 crore to Kunal Tanuja of
Ramsons Tyre. Police said Harbhajan had a network of people who were
procuring fake cheques from a Mumbai-based finance company, Shri Ram
Industries and issuing them to clients. They would write the cheque for an
amount larger than what they owed the client, ask him to encash it and
deposit the balance in their account. Four more people of the gang were
arrested while four others are absconding. The matter came to light when
Harbhajan, who owed Rs 2 crore to Kunal, issued a cheque worth Rs 5.95
crore and asked him to transfer the remaining Rs 3.95 crore in his bank
account. Kunal grew suspicious and reported it to the police.

59

On April 27, police busted a gang of six people including a bank employee
from Ludhiana for withdrawing Rs 26 lakh from various banks across Punjab.
The bank employee used to provide details of those holding accounts in their
bank. The gang would then issue cheques with forged signatures and withdraw
money.
Residents say banks should have tighter security systems to stall the rise of
such crimes. IT businessman Harpreet Singh, a resident of BRS Nagar, said he
is also a victim of bank fraud and saw the apathy of authorities up close. "A
few months ago, my ATM account was hacked and transactions were done in
Russia. I had lodged a complaint in a police station but nothing was done
about it. Banks should improve their security system to curb illegal activities,"
he said.
Barewal resident Amanpreet Singh, a businessman, said exemplary action
should be taken against those accused in the cases. "Banks also have the
responsibility of keeping a tight check on transactions and reporting any
suspicious pattern," he said. Charanjeet Singh, a resident of Shaheed Karnail
Singh Nagar said the rising incidents of bank frauds have caused fear and he
is hesitant to deposit his money in his account. A bank official, requesting
anonymity,

said

account

holders

have

the

responsibility

of

maintaining

confidentiality regarding their accounts. "One should never disclose or share

details of the account with strangers," he added.
Commissioner of police, Ludhiana, Ishwar Singh said cases of bank frauds are
a cause of concern as public money is being swindled. "However, we are
suspicious about the role of banks also in such cases and will investigate.
Banks also need to be stricter," he said.

ARTICLE: 6

60

Banks under lens for funding Delhi airport line

NEW DELHI
TNN | Oct 2, 2013, 06.08AM IST
The role of banks in funding about Rs 2,200 crore to the Delhi airport Metro
line is under the scanner. Separately, the road ministry has written to the
Central Vigilance Commission (CVC) to investigate if the developer, NHAI and
banks violated norms while building the Rs 1,600 crore Delh-Gurgaon
Expressway.
In the case of Airport Metro Express project, which was bagged by Reliance
Infra, lenders led by Axis Bank had extended a loan of Rs 2,220 crore against
government-approved debt of Rs 1,247 crore. "The funding pattern mentioned
what would be the debt component, equity and contribution of DMRC, Delhi
and central governments. While DMRC has taken approval for higher spending,
we have nothing on record showing the private player getting clearance for
higher debt," said an urban development ministry official.
Due to this increase, the DMRC now has to pay almost double the termination
fee than what was envisaged. Responding to this, a Reliance Infra
spokesperson said the project was awarded under competitive bidding to the
highest bidder and therefore estimated cost of DMRC was not relevant in the
present case. "Moreover, estimated cost of concessionaire was advised to
DMRC at the initial stage itself and it has not escalated further. It does not
require any formal approval from government or DMRC," he added.
Sources in the road transport and highways ministry said the role of five
major PSU banks including IDFC which refinanced the Gurgaon expressway
project also may be investigated.

61

The ministry has asked the central watchdog to examine whether a criminal
case is made and if so, the CVC can refer the case to Central Bureau of
Investigation (CBI). This is perhaps the first time when the ministry has taken
such a step. "Since there are allegations of NHAI that the fresh set of lenders
led by IDFC paid Rs 1,597 crore to the company without the authority's prior
approval, there is a need to investigate how banks did this," said a senior
ministry official.
NHAI in its termination notice has alleged the company Delhi-Gurgaon Super
Connectivity Ltd (DGSCL) did a "fraud" in obtaining this loan. Since the
beginning of this project, DGSCL has changed lenders thrice. NHAI has
alleged that the last two cases the company had concealed the transactions
until these were detected by the authority.
Originally, a consortium of banks led by HUDCO had provided Rs 483 crore
loan to the company. Later in 2009, it had requested for changing the lenders
with a new set of eight banks led by SBI to obtain Rs 1,275 crore only for
the project works. NHAI had given conditional clearance to get the loan. The
authority had alleged that DGSCL had suppressed the transaction and had even
diverted Rs 327 crore to its parent/ group company. Then the company again
changed the lenders led by IDFC and other PSU banks including Bank of
India, PNB and OBC to get Rs 1,600 crore loan without prior permission of
NHAI.
After getting this fresh loan DGSCL had paid back the entire outstanding
amount to SBI and others besides diverting a portion of this to its parent
company. The total diversion was Rs 656.9 crore in two installments.
"We have forwarded the entire bunch of documents relating to the project to
the CVC for investigation so that responsibility can be fixed and we can avoid
such controversies in future projects," said a ministry official.
It has also asked the enforcement directorate to find out whether DGSCL's
parent company or its sister firms have used the loaned amount for
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infrastructure projects in foreign countries including Libya and Ghana. "In case
it has violated the laws then a case must be registered," officials said.
The ministry has also raised questions on why NHAI did not keep track of
the money trail to different projects. "There have been several negotiations to
save the project among all the stakeholders and have failed. All these should
be investigated to fix responsibility for the present mess," sources said.

ARTICLE: 7
Banks to pay for credit card frauds, RBI says
MUMBAI
TNN | Sep 29, 2013, 12.17AM
The Reserve Bank of India has refused to extend the deadline for upgrading
security on credit card swipe machines and has ordered banks to compensate
cardholders in seven days if any fraud occurs on non-compliant terminals.
If the bank fails to refund the disputed amount in seven days, it has to
compensate the cardholder with a penalty of Rs 100 per day until the date of
payment. At present, dispute resolution is a cumbersome process and takes
several weeks in case of credit card frauds.
Banks see the new directive as indicative of the central bank's seriousness on
card security. After a rise in credit card frauds, the RBI had asked banks to
add security features including an electronic chip and a secret PIN which the
cardholder is required to punch in the terminal to authenticate payment. This
feature was to come in force from July 1. But banks were behind schedule in
both issuing chip cards and in upgrading terminals to meet the new security
standards. Since the entire industry was behind schedule, the RBI was forced
to extend the deadline. Banks were required to get credit card swipe machines
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upgraded by September-end and have all the cards upgraded by November. But
a few days ahead of the September deadline, banks have again said that they
are not ready.
"Various banks have approached us, seeking further extension of the time line
of September 30, 2013 for complying with the task of securing the technology
infrastructure," the central bank said in a statement.
Pointing out that banks were told that there would be no further extensions,
the RBI said, "It has been decided not to grant any further extension of time.
Accordingly, banks not complying with the requirements shall compensate loss,
if any, incurred by the cardholder using card at POS terminals not adhering to
the mandated standards."
There are usually two banks in every credit card transaction. One that issued
the credit card and the other that has installed the swipe machine. The RBI
has said that the card issuing bank should ascertain in three days whether the
fraud has taken in a non-compliant machine and within seven days refund the
money to the cardholder. The card issuing bank will in turn recover the
money from the bank which has installed the swipe machine.

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CHAPTER 11
CONCLUSION
Banks are facing a tidal wave of regulatory requirements and are increasingly
under regulatory scrutiny bid to tackle the rising incidents of frauds, The
Reserve Bank of India has issued various circulars and guidelines for banks to
implement robust anti-fraud system and controls to counter fraud risk. With the
expected economic slowdown, the incidents of frauds are expected to increase
further which is confirmed by the survey results. An interesting finding of the
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survey is that greater the asset size, higher is the number of fraud incidents
encountered. This could be due to fact that as banks continue to increase their
assets size by entering into new geographies or by introducing new products
and systems, these developments not managed well could contribute to
increased fraud. However, it is important first to note the cause of increase in
fraud incidents.
According to the survey respondents, it appears that lack of oversight by the
line

managers

or

senior

managers

to

the

deviations

from

existing

process/controls is cited as one of the major reasons for fraud followed by the
current difficult business scenario and business pressure to meet targets. It is
now indicated that there is going be a rise in fraud incidents, where increase
will be at least 6%. In the current fraud situation coupled with the economic
scenario it becomes all the more imperative for banks to ensure that they
adopt realistic business strategies and ensure adequate internal control and
vigilance so as not to accentuate the existing problem. It comes as no surprise
that the usual suspect -Retail Banking-has been identified as the major
contributor of fraud and will continue to do so in the foreseeable future. This
fact has been highlighted by The Reserve Bank of India well through their
circular in 2009. As retail banking is more process as well as volume driven
and decentralized, increased fraud incidents in this area could possibly be the
tip of the iceberg- an indicator of deeper issues waiting to surface that can
adversely impact the entire portfolio of the bank.
The Reserve Bank of India has been coming with various circulars and
guidelines prodding banks to adopt measures to fight the menace of fraud. The
challenge of banks is to develop comprehensive fraud risk management controls
that will not only prevent frauds, but also detect them as soon as they occur
and respond to them.

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BIBLIOGRAPHY
NEWS PAPER ARTICLES
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BOOKS ON FRAUDS AND BANKING LAW

WEBLIOGRAPHY
WWW.TIMESOFINDIA.COM
WWW.ECONOMICTIMES.COM
WWW.RBI.COM
WWW.DRTSOLUTIONS .COM

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