New "cooling-off facility" could soon mitigate mule menace as govt, RBI seek to stay a step ahead of fraudsters
Jan 20, 2025
Synopsis
The government and RBI are considering a 'cooling off facility' to temporarily block funds in bank accounts to combat online fraud through mule accounts. Enhanced KYC protocols and inactive account closures are also being explored as measures to prevent digital payment fraud.
In an ongoing effort to combat online fraud, the government and the Reserve Bank of India (RBI) are exploring the option of implementing a "cooling off facility" designed to temporarily block funds deposited into bank accounts, ToI reported on January 20. This initiative aims to curb the routing of funds through multiple mule accounts, which are notoriously difficult to trace and recover. Such a facility already exists in certain countries, and Indian authorities are assessing the potential effectiveness of freezing fund transfers while ensuring that customers do not face undue inconvenience, the report (Sidhartha and Mayur Shetty) said.
Mule accounts are third-party bank accounts exploited to funnel illicit funds for criminals. Banking experts suggest that prompt reporting of digital payment fraud within the critical "golden hour" can significantly enhance the chances of freezing stolen assets before they are transferred to the fraudsters' accounts. The proposed "cooling off period" would serve to halt immediate fund transfers, thus giving authorities more time to act.
Mule accounts can be categorised into two groups: some account holders knowingly participate in the fraudulent activities, while others are unsuspecting victims who are unaware that their accounts are being exploited for criminal purposes.
The Home Ministry, along with the ministries of Finance, IT, and the RBI, is considering various strategies to crack down on online fraud, as banks intensify their efforts to address the issue of mule accounts, which facilitate online scams occurring at an alarming rate of nearly once every two minutes. Although most online fraud schemes, such as "digital arrests" and phishing attacks, may not directly involve banks, the illicit proceeds are often withdrawn using mule accounts.
The Ministry of Home Affairs (MHA), through its Indian Cyber Crime Coordination Centre (I4C), has issued warnings to the public against selling or renting out their bank accounts. Additionally, it has urged banks to enhance their Know Your Customer (KYC) protocols to prevent the creation of accounts without adequate identity verification. In response, banks have begun establishing central units to address mule accounts and are implementing technology to identify them. Furthermore, banks are closing accounts that have remained inactive for two years to mitigate the risk of misuse.
A year ago, mule accounts were primarily a concern for mid-level management. Today, they have become a top priority, with CEOs across the banking sector focusing on strategies to combat this issue," Peeyush Dalmia, a senior partner at McKinsey & Co, told ToI.
[The Economic Times]
