Context: The Reserve Bank of India (RBI) has created an artificial intelligence (AI) powered model ‘MuleHunter.AI’ that could reduce digital fraud by helping banks deal with the increasing problem of “mule” bank accounts.
Relevance of the Topic: Prelims- Mule Accounts; MuleHunter.A; RBI’s Initiatives.
What are Mule Accounts?
- A mule account refers to a bank account that is used by criminals to launder illicit funds. Such accounts are often set up by individuals who are either unknowingly recruited through promises of easy money or coerced into participating in illegal activities.
- While high valued transactions are routinely screened as per the Prevention of Money Laundering Act (PMLA), mule accounts are very difficult to track.
Who is the Money Mule?
- Money Mule is a term used to describe innocent victims who are duped by fraudsters into laundering stolen/ illegal money via their bank account(s).
- When such frauds are reported, the money mule becomes the target of police investigations because it is their accounts that are involved, while the actual criminals remain undetectable.
What is MuleHunter.AI?
- MuleHunter.AI is an AI-model that enables detection of mule bank accounts being used for committing financial frauds.
- Developed by: Reserve Bank Innovation Hub (RBIH), Bengaluru (a subsidiary of the RBI).
- The tool has undergone successful pilot testing at two public sector banks that has yielded encouraging results.
- Benefits: As compared to conventional rule-based systems, advanced machine learning algorithms can anticipate mule accounts more quickly and accurately by analysing datasets pertaining to transactions and account details.
RBI's measures against Financial Frauds:
As reported by the National Crime Records Bureau (NCRB), online financial frauds make up 67.8% of cybercrime complaints, underscoring the urgent demand for AI-powered fraud prevention solutions. Mule bank accounts are seen as a key element in the majority of online financial frauds in India.
- RBI has issued the Revised Master Directions on Fraud Risk Management (July 2024) in Commercial Banks (including Regional Rural Banks) and All India Financial Institutions (AIFIs).
- Early detection of frauds through a robust framework for Early Warning Signals (EWS) and Red Flagging of Accounts (RFA). Integrate EWS with their Core Banking Solutions to monitor transactions effectively.
- External and Internal Audit can be conducted on red-flag accounts.
- Banks to report payment system related disputes, suspected or attempted fraudulent transactions to Central Payments Fraud Information Registry maintained by RBI.
- The Central bank has fixed a threshold of Rs 1 crore above which banks have to report fraud incidents to state police.
- Private banks have to report frauds above Rs 1 crore to the Serious Fraud Investigation Office and the Ministry of Corporate Affairs.
- Public sector banks have to report frauds over Rs 6 crore to the Central Bureau of Intelligence (CBI).
- Banks are required to constitute a ‘Special Committee of the Board for Monitoring and Follow-up of cases of Frauds’. It would comprise of minimum three members to monitor, review and propose risk management framework for reducing cases of fraud.
- RBI is running a hackathon on the theme “Zero Financial Frauds”, to encourage development of innovative solutions to tackle financial frauds, particularly mule accounts.
The RBI's measures aim to strengthen the banking system's resilience against financial fraud and ensure better protection for customers against the misuse of their accounts.