FRAUDS IN BANKING

PROJECT ON FRAUDS IN BANKING

Bachelor of Commerce (Banking & Insurance) Semester V

th

(2011-2012) Submitted In partial Fulfillment of the requirements For the award of degree of B.Com----Banking & Insurance BY ARORA ROBIN RUPINDER Seat No: _________

TOLANI COLLEGE OF COMMERCE, 150-151, Sher-e- Punjab society, Guru Gobind Singh road, Andheri (E), Mumbai-400093.

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CERTIFICATE
This is to certify that Mr.ARORA ROBIN RUPINDER of B.com Banking & Insurance Semester Vth (2011-2012) has successfully completed the project on FRAUDS IN BANKING Under the guidance of PROFESSOR AMIT RAJAWAT.

Principal ____________

Course Co-ordinator_______________

Project Guide/Internal Examiner _________________

External Examiner __________

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DECLARATION

I ARORA ROBIN RUPINDER the Student of B.com Banking & Insurance Semester Vth (2011-2012) hereby declared that I have completed the project on FRAUDS IN BANKING The Information Submitted is True & Original to the Best of my knowledge.

Signature of Student

Name of the Student ARORA ROBIN RUPINDER SEAT NO:

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Acknowledgement

In preparing this project, I feel great pleasure because it gives me extensive practical knowledge in my career. I got idea about Frauds in Banking. I express my deep sense of gratitude to My Guide PROFESSOR AMIT RAJAWAT for his valuable guidance during my project work. I am thankful to PROFESSOR AMIT RAJAWAT (Faculty Guide) for valuable inspiration and guidance provided me throughout the course of this project. He has been patient and has critically gone through the subject matter. I would like to take this opportunity to express my gratitude towards all who have contributed directly or indirectly to my project work. I would firstly like to thank our principal Sir Dr. Raju Chandnani. I would like to take this opportunity to express my gratitude to my God, Parents that have supported me and my friends who have helped me for my project work.

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EXECUTIVE SUMMARY
The project scans the risky nature of banking with reference to various types of transactions and their vulnerability to fraud. Prevention is better than cure. In bank administration, one feels that not much attention is paid to preventive measures. Bank managements must direct their orientation towards preventive rather than detective or punitive measures. Preventive vigilance must be the prime agenda to bring down the occurrence of fraud in banks. Bankers must be properly educated and trained on the effect and consequences of dilution and distortion of the prescribed norms. Retention and deployment of experienced and specialized staff in the respective fields of operation will minimize fraud. Bankers have to overcome the inertia that prevents them from learning new and effective technology. Besides, the pressure of customers and their demands are increasing in the post-VRS scene prevailing in banks. There is comparatively less staff to do the increased quantum of business. More work load means neglecting systematic adherence to procedure in the routine transactions. Motivating the staff in the lower rung by proper promotional processes will help. A rational HRD policy has to be evolved to meet the pressing demands of customers. Are the Bankers concentrating on the preventive front of checking the frauds in banking or is the traditional approach still used. The Application of IT in Banking Frauds, and presence of banking frauds in the finance industry and their correlation, is it an essential element of preventive measures to be adopted by the Bankers?

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Means and Modes of Frauds and RBIs Guidelines for the detection and registration of the same and their dynamics should be made familiar to the employees of a Bank so as to bring about awareness and at the same time create vigilance amongst the employees, so as to equip them with the resources required to deal with such frauds, as and when they happen. The Major Banking Frauds that were bought into the limelight by the authorities and other relevant departments, which saw banking frauds, and revealed the loop holes in the already laid down strategy to deal with the frauds should be made familiar to the public at large and the bankers at the same time.

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CONTENTS
TOPIC
INTRODUCTION DEFINITION OF FRAUD CLASSIFICATION BY RESERVE BANK OF INDIA
INTRODUCTION CLASSIFICATION OF FRAUDS REPORTING OF FRAUDS TO RESERVE BANK OF INDIA QUARTERLY RETURNS REPORTS TO THE BOARD RESERVE BANK OF INDIA GUIDELINES GUIDELINES FOR REPORTING FRAUDS TO POLICE / CBI REPORTING CASES

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2 5
6 6 7 9 12 14 17 19

CLASSIFICATION BY BANKS
FRAUDS BY INSIDERS FRAUDS BY OTHERS

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20 23

REVELANT ISSUES TO TACKLE BANK FRAUDS IN INDIA

EXPECT FRAUD DEVELOP A FRAUD POLICY ASSESS RISK SEGREGATE DUTIES IN CRITICAL AREAS MAINTAIN THE TONE OF ETHICS AT THE TOP REVIEW AND ENFORCE PASSWORD SECURITY PROMOTE THE WHISTLE BLOWING CULTURE CONDUCT PRE-EMPLOYMENT SCREENING SCREEN AND MONITOR BORROWERS

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33 33 34 34 35 35 35 36 36

TOP BANKING FRAUDS AS PER IBN LIVE (BUSINESS)

JEROME KERVIEL VATICANS GOD BANKERS NORDEA BANK FRAUD

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TOPIC
CITIBANK GURGAON ZOOM DEVELOPERS CHINA CONSTRUCTION BANK JOHN RUSNAK NICHOLAS LEESON

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39 39 39 40 40

NEWS ARTICLES ON MODES OF FRAUDS AND FRAUDS IN 41 BANKING 41

ARTICLE FROM MONEY CONTROL (MSN) ARTICLE FROM JAGRAN POST 43

INFORMATION BY CANARA BANK FOR THEIR CUSTOMERS 45 WHILE OPERATING ACCOUNT BY E-MAIL SERVICE CONCLUSION BIBLIOGRAPHY 51 52

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INTRODUCTION THE three threats which have become a major nightmare for all banks, in general, and the public sector banks, in particular, are ballooning NPAs, high transaction costs and a sharp increase in the incidence of bank frauds. The rising graph of frauds does not seem to have activated any serious effort by the banks' top management to restructure controls, improve systems and institute better preventive measures. All the major operational areas in banking represent a good opportunity for fraudsters with growing incidence being reported under deposit, loan and inter-branch accounting transactions, including remittances. Broad analyses of various frauds that have taken place throw up the following high-risk areas in committing frauds: - Misappropriation of cash by fudging accounts. - Unauthorized withdrawal, mostly from long dormant accounts. - Opening of fictitious accounts to misappropriate funds from stolen instruments. - Use of interbank clearing for accommodation, kite-flying and misappropriation. - Cheating in foreign exchange transactions by flouting exchange control provisions. - Pawning of fake jewellery and misappropriation under jewel loans. - Withdrawal from deposit accounts through forged documents. - Misutilisation of credit facilities through diversion. - Fraud in collusion with bank staff in emerging areas and services under the computerized environment.

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Frauds take place in a financial system only when safeguards and procedural checks are inadequate or when they are not scrupulously adhered to, leaving the system vulnerable to the perpetrators. Anecdotal evidence shows that whether the agency or individual committing the fraud works for the bank or deals with it, careful planning is done by the culprit before he attacks the system at its most vulnerable point. The most effective defense banks could have against fraud is to strengthen their operational practices, procedures, controls and review systems so that all fraud-prone areas are fully sanitized against internal or external breaches. The huge expansion in banking transactions consequent to the transition of banks to mass banking has played a major role in creating a culture of mechanical disposal from the level of the counter staff to the supervisors in charge of various transactions. The culprit is invariably someone who has transacted regularly with the bank and is closely watching to detect the soft under-belly in various customer operations. The Reserve Bank of India, as the regulatory body, has not lost time in constituting an Advisory Board for banking, commercial and financial frauds. The moot question is: To what extent has this expertise translated into enlightened fraud-prevention measures at the public sector banks? The record of meaningful interventionist action is not at all inspiring. The Indian Banks' Association has been performing a very good post-office role in periodically circulating the history and modus operandi of various frauds committed to banks all over India. This red alert is faithfully re-copied by the head offices of the banks and sent to their branches in various corners of the country. At the branches and controlling offices, the circular containing the red alert is perfunctorily looked at and promptly filed till a similar very big fraud takes place in the same office!
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The advent of large-scale computerization in banks has opened a new dimension to the concept of fraud and brought about a compelling need for the wholesale review and adoption of a comprehensive fraud prevention control system. The potential for fraud in a computerized transaction environment is not only greater, but much more difficult to track down and, when successfully committed, can multiply the financial losses of banks to unimaginable levels. The recently-reported loss of Rs 100 crore to a broker in the Bombay Stock Exchange arising from a wrong quote and a careless press of the button underscores the manifold dangers of the electronic world. The password controls at the operators' level, the exception controls at the supervisors' level and the master controls at the managers' level represent critically vulnerable points in an automated environment that have to be validated by manual scrutiny of printed audit reports to prevent them from being hacked into or infringed. Preventive fraud management is, therefore, infinitely superior to postfraud containment or recovery of losses. Bank managements would do well to commission their Organization and Methods Departments (all banks are required to have an O&M department) to study a) b) c) d) e) f) operational level documentation; work practices; working procedures; accounting of transactions; level and periodicity of supervisory control; Post-transaction review and, most importantly, regular balancing of all books of accounts under exclusive manual/exclusive computerized and hybrid-manual-cum computerized working environments if the threat of fraud is to be effectively countered.
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A large number of banking frauds also take place on account of active employee-outsider partnerships, in which the bank staff concerned facilitate the crime and are often its undiscovered beneficiaries. Such cases are more difficult to track down, particularly when the area targeted for the operation is different from that in which the guilty staff is officially working. A not insignificant portion of NPAs is also a fallout of the unrecorded frauds committed under credit sanctions and disbursements, where tax-payers money is generously handed over under tax-payers money under the approved nomenclature of sanctioning credit. Target-based credit lending, which began in the early 1980s under the legendary loan melas, spawned this culture of irresponsible mass lending and opened the eyes of officials of thin integrity to the possibility of making a fast buck. This genre of fraud is committed by taking advantage of the volume of loans and by colluding with the borrower, whereby rapid sanction of limits is done, sanctioned amounts are enhanced and disbursement/monitoring requirements grossly violated. The widespread availability of professionally-constructed project reports and computerized cash flows give the credit proposals an acceptable flavor, making the sanctioning authority immune to any roving enquiry. The dividing line between operational neglect and the perpetration of a fraud is rather thin, considering the growing aspiration for effortless money which is always sweet, because it is not hard-earned but belongs to the sweating tax-payer. If financial systems and their large financial resources, drawn from public money, are to be protected, the occurrence of fraud -- big and small -has to be stamped out. What is needed is not another piece of complex legislation or another high-powered expert body of the RBI, but analysis and concerted application of controls by bank managements and their operational staff.
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DEFINITION OF FRAUD
A Fraud is: A representation (usually of fact) About a material point (important enough to make a difference) which is False as Truth or Correct Intentionally and knowingly so (some cases recklessly) Which is believed Acted upon by the victim Caused Damage (Financially or otherwise) Regulator of Banks in INDIA is RESERVE BANK OF INDIA Responsibility of regulators for prevention and detection of fraud has increased.

Role of Regulators should be Understand the need for creation / modification of laws to curb / eliminate opportunities for scams / frauds based on the study of global scenario Ensure appropriate powers to law enforcement agencies Provide facility for 2/3 levels of appeal before any one approach the judiciary Ensure time bound completion for the cases / designating case officer Announce very severe punishment for committing the crime Introduction of Compulsory Operations Audit on a periodical basis.

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CLASSIFICATION BY RESERVE BANK OF INDIA

INTRODUCTION 1. Incidence of frauds, dacoities, robberies, etc., in banks is a matter of

concern. While the primary responsibility for preventing frauds lies with banks themselves, the Reserve Bank of India has been advising banks from time to time about the major fraud prone areas and the safeguards necessary for prevention of frauds. The Reserve Bank has also been circulating to banks, the details of frauds of an ingenious nature not reported earlier so that banks could introduce necessary safeguards by way of appropriate procedures and internal checks. Banks are also being advised about the details of unscrupulous borrowers and related parties who have perpetrated frauds on banks so that banks could exercise caution while dealing with them. To facilitate this ongoing process, it is essential that banks report to the Reserve Bank full information about frauds and the follow-up action taken thereon. Banks may, therefore, adopt the reporting system for frauds. 2. It has been observed that frauds are, at times, detected in banks long after their perpetration. The fraud reports are also submitted to the Reserve Bank, many a time, with considerable delay and without the required information. On certain occasions, the Reserve Bank comes to know about frauds involving large amounts only through press reports. Banks should, therefore, ensure that the reporting system is suitably streamlined so that frauds are reported without any delay. Banks must fix staff accountability in respect of delays in reporting fraud cases to the Reserve Bank. 3. Delay in reporting of frauds and the consequent delay in alerting other banks about the modus operandi and issue of caution advices against
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unscrupulous borrowers could result in similar frauds being perpetrated elsewhere. Banks may, therefore, strictly adhere to the timeframe fixed in this circular for reporting fraud cases to the Reserve Bank failing which banks would be liable for penal action as prescribed under Section 47(A) of the Banking Regulation Act, 1949. 4. Banks should specifically nominate an official of the rank of General Manager who will be responsible for submitting all the returns referred to in this circular. CLASSIFICATION OF FRAUDS 1. In order to have uniformity in reporting, frauds have been classified as under based mainly on the provisions of the Indian Penal Code: a. b. Misappropriation and criminal breach of trust. Fraudulent encashment through forged instruments, manipulation of books of account or through fictitious accounts and conversion of property. c. d. e. f. g. Unauthorized credit facilities extended for reward or for illegal gratification. Negligence and cash shortages. Cheating and forgery. Irregularities in foreign exchange transactions. Any other type of fraud not coming under the specific heads as

above.

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2.

Cases of negligence and cash shortages' referred to in item (d) above are to be reported as fraud if the intention to cheat/defraud is suspected/proved. Cases of cash shortage up to Rs. 1,000/- reported on the same day by persons handling the cash and where there is no suspicion of fraud need not be reported as fraud. However, cases of cash shortage involving more than Rs. 1,000/- and those detected by the management/ inspecting officer, irrespective of the amount, may be reported as fraud.

3.

To ensure uniformity and to avoid duplication, frauds involving negotiable instruments may be reported only by the paying banker and not by the collecting banker.

4.

Banks (other than foreign banks) having overseas branches/offices should report all frauds perpetrated at such branches/offices also to the Reserve Bank as per the format and procedure.

5.

Cases of theft, burglary, dacoity and robbery should not be reported as fraud. Such cases may be reported separately.

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REPORTING OF FRAUDS TO RESERVE BANK OF INDIA

1. Frauds involving Rs. 1 lakh and above a. Fraud reports should be submitted in all cases of fraud of Rs. 1 lakh and above where banks have been put to loss through misrepresentation, breach of trust, manipulation of books of account, fraudulent encashment of instruments like cheques, drafts and bills of exchange, unauthorised handling of securities charged to the bank, misfeasance, embezzlement, misappropriation of funds, conversion of property, cheating, shortages, irregularities, etc. b. Fraud reports should also be submitted in cases where central investigating agencies have initiated criminal proceedings and/or where the Reserve Bank has directed that they be reported as frauds. c. Wherever information is available, banks may also report frauds perpetrated in their subsidiaries and affiliates/joint ventures. Such frauds should, however, not be included in the report on outstanding frauds and the quarterly progress reports d. The fraud reports should be sent to the concerned Regional Office of the Reserve Bank, Department of Banking Supervision, under whose jurisdiction the Head Office of the bank falls, in the format given in FMR 1, within three weeks from the date of detection.

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2.

Frauds committed by unscrupulous borrowers a. It is observed that a large number of frauds are committed by unscrupulous borrowers including companies, partnership firms/proprietary concerns and/or their directors/partners by various methods including the following: - Fraudulent discount of instruments or kite flying in clearing effects. - Fraudulent removal of pledged stocks/disposing of hypothecated stocks without the banks knowledge/inflating the value of stocks in the stock statement and drawing excess bank finance. - Diversion of funds outside the borrowing units, lack of interest or criminal neglect on the part of borrowers, their partners, etc. and also due to managerial failure leading to the unit becoming sick and due to laxity in effective supervision over the operations in borrowal accounts on the part of the bank functionaries rendering the advance difficult of recovery. b. In respect of frauds in borrowable accounts involving an amount of Rs. 5 lakh and above, additional information as prescribed under Part B of FMR 1 may also be furnished. In such cases, a copy of the above fraud report should also be forwarded separately to the Central Office of the Reserve Bank, Department of Banking Supervision.

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3.

Frauds involving Rs. 100 lakh and above a. In respect of frauds involving Rs. 100 lakh and above, in addition to the requirements given at paragraphs 3.1 and 3.2 above, banks may report the fraud by means of a D.O. letter addressed to the Chief General Manager in charge of the Department of Banking Supervision, Reserve Bank of India, Central Office, within a week of such frauds coming to the notice of the banks Head Office. The letter may contain brief particulars of the fraud such as amount involved, nature of fraud, modus operandi in brief, name of the branch/office, names of parties involved (if they are proprietorship/ partnership concerns or private limited companies, the names of proprietors, partners and directors), names of officials involved, and whether the complaint has been lodged with the Police/CBI. b. A copy each of the fraud report should also be sent directly to the Central Office of the Reserve Bank, Department of Banking Supervision, and to the Regional Office of the Reserve Bank under whose jurisdiction the banks branch, where the fraud has been perpetrated, is functioning.

4.

Cases of attempted fraud Cases of attempted fraud, where the likely loss would have been Rs. 100 lakh or more, if the fraud had taken place, should be reported to the Central Office of the Reserve Bank, Department of Banking Supervision, indicating the modus operandi and how the fraud was detected. Such cases should not be included in the other returns to be submitted to the Reserve Bank.

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Quarterly Returns
A. Report on Frauds Outstanding a. Banks should submit a copy each of the Quarterly Report on Frauds Outstanding in the format given in FMR 2 to the Central Office and the Regional Office of the Reserve Bank under whose jurisdiction the Head Office of the bank falls within 15 days of the end of the quarter to which it relates. Banks which may not be having any fraud outstanding as at the end of a quarter should submit a nil report. b. Part A of the report covers details of frauds outstanding as at the end of the quarter. Parts B and C of the report give category-wise and perpetrator-wise details of frauds reported during the quarter respectively. The total number and amount of fraud cases reported during the quarter as shown in Parts B and C should tally with the totals of columns 4 and 5 in Part A of the report. c. Banks should furnish a certificate, as part of the above report, to the effect that all individual fraud cases of Rs. 1 lakh and above reported to the Reserve Bank in FMR 1 during the quarter have also been put up to the banks Board and have been incorporated in Part A (columns 4 and 5) and Parts B and C of FMR 2.

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B.

Progress Report on Large Value Frauds 1. Banks should furnish case-wise quarterly progress reports on frauds involving Rs. 100 lakh and above in the format given in FMR 3 directly to the Central Office of the Reserve Bank, Department of Banking Supervision, within 15 days of the end of the quarter to which it relates. 2. In the case of frauds where there are no developments during a quarter, a list of such cases with a brief description including name of branch and date of reporting may be furnished in Part B of FMR 3.

Banks which do not have any fraud involving Rs. 100 lakh and above outstanding may submit a nil report.

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Reports to the board

1. Reporting of Frauds 1. Banks should ensure that all frauds of Rs. 1 lakh and above are reported to their Boards promptly on their detection. 2. Such reports should, among other things, take note of the failure on the part of the concerned branch officials and controlling authorities, and consider initiation of appropriate action against the officials responsible for the fraud. 2. Quarterly Review of Frauds 1. Information relating to frauds for the quarters ending March, June and September may be placed before the Board of Directors/Executive Committee/Local Advisory Board during the month following the quarter to which it pertains, irrespective of whether or not these are required to be placed before the Board/Management Committee in terms of the Calendar of Reviews prescribed by the Reserve Bank. 2. These should be accompanied by supplementary material analysing statistical information and details of each fraud so that the Board/Committee/Local Advisory Board would have adequate material to contribute effectively in regard to the punitive or preventive aspects of frauds. 3. A separate review for the quarter ending December is not required in view of the Annual Review for the year-ending December prescribed below.

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3. Annual Review of Frauds 1. Banks should conduct an annual review of the frauds and place a note before the Board of Directors/Local Advisory Board for information. The reviews for the year-ended December may be put up to the Board before the end of March the following year. Such review notes may be preserved for verification by the Reserve Banks inspecting officers. 2. The main aspects which may be taken into account while making such a review may include the following: a. Whether the systems in the bank are adequate to detect frauds, once they have taken place, within the shortest possible time. b. Whether frauds are examined from staff angle and, wherever necessary, the cases are reported to the Vigilance Cell for further action in the case of public sector banks. c. Whether deterrent punishment is meted out, wherever warranted, to the persons found responsible. d. Whether frauds have taken place because of laxity in following the systems and procedures and, if so, whether effective action has been taken to ensure that the systems and procedures are scrupulously followed by the staff concerned. e. Whether frauds are reported to local Police or CBI, as the case may be, for investigation, as per the guidelines issued in this regard to public sector banks by Government of India.

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3. The annual reviews should also, among other things, include the following details: a. Total number of frauds detected during the year and the amount involved as compared to the previous two years. b. Analysis of frauds according to different categories detailed in Paragraph 2.1 and also the different business areas indicated in the Quarterly Report on Frauds Outstanding (vide FMR 2). c. Modus operandi of major frauds reported during the year along with their present position. d. Detailed analyses of frauds of Rs. 1 lakh and above. e. Estimated loss to the bank during the year on account of frauds, amount recovered and provisions made. f. Number of cases (with amounts) where staff are involved and the action taken against staff. g. Region-wise/Zone-wise/State-wise break-up of frauds and amount involved. h. Time taken to detect frauds (number of cases detected within three months, six months and one year of their taking place). i. Position with regard to frauds reported to CBI/Police. j. Number of frauds where final action has been taken by the bank and cases disposed. k. Preventive/punitive steps taken by the bank during the year to reduce/minimise the incidence of frauds.

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Reserve Bank of India Guidelines

Supervisory Process A high powered Board of Financial Supervision (BFS), comprising the Governor of RBI as Chairman, one Deputy Governor as Vice Chairman, other Deputy Governors and four Directors f the Central Board of RBI as members were constituted in November 1994 with the mandate to exercise the power of supervision and inspection in relation to the banking companies, financial institutions and non-banking financial companies. Presently, BFS exercises supervision not only over banks but also over selected Developmental Financial Institutions (DFIs), Non Banking Financial Companies (NBFCs), Primary Dealers (PDs), and Urban Cooperative Banks (UCBs). Supervisory Strategy The Department of Banking Supervision has formulated and put in place a supervisory strategy which, besides retaining the importance of on-site inspections which has been the main plank of banking supervision, also focuses on three other areas: (1) off-site monitoring through introduction of a set of returns (2) strengthening of the internal control systems in banks (3) increased use of external auditors in banking supervision

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Guidelines for reporting frauds to Police/CBI

1. Private sector banks should follow the following guidelines for reporting of frauds such as unauthorised credit facilities extended by the bank for illegal gratification, negligence and cash shortages, cheating, forgery, etc. to the State Police authorities: a. In dealing with cases of fraud/embezzlement, banks should not merely be actuated by the necessity of recovering expeditiously the amount involved, but should also be motivated by public interest and the need for ensuring that the guilty persons do not go unpunished. b. Therefore, as a general rule, the following cases should invariably be referred to the State Police: i. Cases of fraud involving an amount of Rs. 1 lakh and above, committed by outsiders on their own and/or with the connivance of bank staff/officers. ii. Cases of fraud committed by bank employees, when it involves bank funds exceeding Rs. 10,000/-. 2. Public sector banks should note that, as a general rule, all the cases of fraud, whether committed by outsiders on their own or with the connivance of bank officials and cases of fraud committed by bank officials themselves, should invariably be reported to the investigating agencies or criminal cases filed with Courts where appropriate, immediately after the bank has concluded that a fraud has been perpetrated.

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Reporting Cases of Theft, Burglary, Dacoity and Bank Robberies

1. Banks should arrange to report instances of bank robberies, dacoities, thefts and burglaries to the following authorities immediately on their occurrence by fax/telegram. The report should include details of modus operandi and other information as at columns 1 to 10 of FMR 4. a. Reserve Bank of India, Department of Banking Supervision, Central Office, Mumbai. b. The concerned Regional Office of the Department of Banking Supervision, Reserve Bank of India, under whose jurisdiction the affected bank branch is located. c. The Security Adviser, Central Security Cell, Reserve Bank of India, Central Office Building, Mumbai 400001. d. Ministry of Finance, Department of Economic Affairs, (Banking Division), Government of India, New Delhi. 2. Banks should also submit to the Reserve Bank, Department of Banking Supervision, Central Office, a quarterly consolidated statement in the format given in FMR 4 covering all cases pertaining to the quarter. This may be submitted within 15 days of the end of the quarter to which it relates. 3. Banks which do not have any instances of theft, burglary, dacoity and/or robbery to report during the quarter, may submit a nil report.

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CLASSIFICATION BY BANKS
Fraud by insiders 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. Fraudulent loans 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.

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Wire 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 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. 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 a thief who wishes to conceal the minor detail that the bank's money has in fact been stolen and is now gone. Theft of identity Dishonest bank personnel have been known to disclose depositors' personal information for use in theft of identity frauds. The perpetrators then use the information to obtain identity cards and credit cards using the victim's name and personal information.

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Demand draft fraud Demand draft fraud is usually done by one or more dishonest bank employees. They remove 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. These Demand drafts will be issued payable at distant town/city without debiting an account. Then it will be cashed at the payable branch. For the paying branch it is just another DD. This kind of fraud will be discovered only when the head office does the branch-wise reconciliation, which normally will take 6 months. By that time the money is unrecoverable. 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 customers, and the unwitting bank. 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.

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Fraud by others
Forgery and altered cheques Thieves 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 a cheque (a few strokes of a pen can change $100.00 into $100,000.00, although such a large figure may raise some eyebrows). Instead of tampering with a real cheque, some fraudsters will 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 or even alleged accounts owned by non-existent depositors. The cheque will then be deposited to another bank and the money withdrawn before the cheque can be returned as invalid or for non-sufficient funds. Stolen cheques Some fraudsters obtain access to facilities handling large amounts of cheques, such as a mailroom or post office or the offices of a tax authority (receiving many cheques) or a corporate payroll or a social or veterans' benefit office (issuing many cheques). A few cheques go missing; accounts are then opened under assumed names and the cheques (often tampered or altered in some way) deposited so that the money can then be withdrawn by thieves. Stolen blank chequebooks are also of value to forgers who then sign as if they were the depositor.

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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. Accounting fraud has also been used to conceal other theft taking place within a company. Payment card fraud Credit card fraud is widespread as a means of stealing from banks, merchants and clients. 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 is discovered, the perpetrator goes on a spending spree or obtains cash advances until the newly"raised" available limit on the card is reached. The original cheque then bounces, but by then it is already too late.
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Money laundering The term "money laundering" dates back to the days of Al Capone; Money laundering has since been used to describe any scheme by which the true origin of funds is hidden or concealed. The operations work in various forms. One variant involved buying securities (stocks and bonds) for cash; the securities were then placed for safe deposit in one bank and a claim on those assets used as collateral for a loan at another bank. The borrower would then default on the loan. But what of the securities themselves? Perfectly good and worth the full amount. The transaction accomplished nothing except to disguise the original source of the funds. Cheque kiting 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. Deposit 1000 in one bank, write a cheque on that amount and deposit it to your account in another bank; you now have 2000 until the cheque clears. In-transit or non-existent cash is briefly recorded in multiple accounts.

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A cheque is cashed and, before the bank receives any money by clearing the cheque, the money is deposited into some other account or withdrawn by writing more cheques. In many cases, the original deposited cheque turns out to be a forged cheque. Some perpetrators have swapped checks between various banks on a daily basis, using each to cover the shortfall for a previous cheque. What they were actually doing was check kiting; like a kite in the wind, it flies briefly but eventually has to come back down to the ground. 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 a dishonest merchant copying clients' credit card numbers for later misuse (or a thief 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

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payment card while a hidden camera captures the numbers on the face of the card. Some thieves have surreptitiously added equipment to publicly accessible automatic teller machines; a fraudulent card stripe reader would capture the contents of the magnetic stripe while a hidden camera would sneak a peek at the user's PIN. The fraudulent equipment would then be removed and the data used to produce duplicate cards that could then be used to make ATM withdrawals from the victims' accounts. 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. Some corporations have engaged in over-expansion, using borrowed money to finance costly mergers and acquisitions and overstating assets, sales or income to appear solvent even after becoming seriously financially overextended. The resulting debt load has ruined entire large companies, such as Italian dairy conglomerate Parmalat, leaving banks exposed to massive losses from bad loans. Prime bank fraud The "prime bank" operation which claims to offer an urgent, exclusive opportunity to cash in on the best-kept secret in the banking industry, guaranteed deposits in "prime banks", "constitutional banks", "bank notes and

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bank-issued debentures from top 500 world banks", "bank guarantees and standby letters of credit" which generate spectacular returns at no risk and are "endorsed by the World Bank" or various national governments and central bankers sounds too good to be true? It is too good to be true. These official-sounding phrases and more are the hallmark of the socalled "prime bank" fraud; they may sound great on paper, but the guaranteed offshore investment with the vague claims of an easy 100% monthly return simply does not exist... these are all fictitious financial instruments and your money is gone forever. 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.

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Impersonation of officials has more recently become a way of stealing personal information for use in theft of identity frauds. Phishing and Internet fraud Phishing operates by sending forged e-mail, impersonating an online bank, auction or payment site; the e-mail directs the user to a forged web site which is designed to look like the login to the legitimate site but which claims that the user must update personal info. The information thus stolen is then used in other frauds, such as theft of identity or online auction fraud. A number of malicious "Trojan horse" programmes have also been used to snoop on Internet users while online, capturing keystrokes or confidential data in order to send it to outside sites. Counterfeit Cheques.... a Criminal Offence. Counterfeit cheques are becoming a huge problem for the Banking Industry because of the sheer numbers that are deposited into accounts and because of the naivet and greed of Individuals who are account holders. Many counterfeit cheques are made to look like authentic Company cheques and are drawn on accounts of legitimate Companies; these counterfeits in most instances come from Organized Crime and willing participants are recruited to deposit these cheques into their own accounts for a commission. The participants are usually substance abusers, fraudsters and nave and/or greedy people who think that this is an easy way to make money. In some instances Individuals are not told that the cheque is counterfeit, and in most instances they don't even know who gave them the cheque.

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Many of the counterfeit scams are run by Organized Crime and they manage to convince Individuals that the mother lode has just fallen into their lap..."yes we will give you a huge commission for doing nothing", etc. They neglect to mention that you will be the fall guy when the Police come knocking because it's your account which was used to commit the fraud. Whatever the circumstance, counterfeit cheques are leaving their mark on Financial Institutions because one cheque can result in a write-off worth tens of thousands of dollars. There are literally thousands of counterfeit cheques that are deposited into Customers' accounts at Financial Institutions every day resulting in substantial losses when the Customer is unable to make restitution when the funds have been withdrawn. The consequences for a naive or greedy person depositing a counterfeit cheque to his/her account can be devastating as they will be on the hook for the chargeback and will also have to convince local Police Authorities that they did not have the intent to commit fraud. Forging signatures and altering cheques.... is a Criminal Offence. Company cheques, personal information, credit card applications and many other items which criminals use to commit fraud are stolen from remote mailboxes and apartment mailboxes every day. The payee name is changed on the cheque and the dollar amount is raised substantially. These cheques are deposited via bank machine and a bank employee is not able to inspect them. When they are deposited over the counter, the bank employee may be too busy to notice that anything is wrong with the cheque.

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Many of these fraudsters are even so bold as to use their own name. The money is usually gone before the bank is notified that the cheque has been altered. Someone has to pay, either the fraudster or the bank, depending on the circumstances. And in most cases the bank will end up absorbing the loss because the fraudster has no money. Sometimes nave and/or greedy Individuals are recruited to deposit these items into his/her account with promises of a huge commission. There are consequences, and even though you may plead your innocence it will affect you in some way. You will have to pay the money back, your credit history may be affected, and your explanation may or may not be believed. After all, you can only be so nave, and either your credibility or your intelligence will be questioned, having a negative impact on some aspects of your life. i.e. family, job, friends, future employment if it results in criminal charges or bad credit history, etc. etc. The list is endless. What you have just read are the most common types of fraud that are perpetrated against Financial Institutions on a daily basis, and account for a significant loss for them. Awareness and education are key elements to prevention. Suffice it to say that having a criminal record and a bad credit history is like an anchor around your neck which will hamper family life, career opportunities, bank loans and travel outside the Country, among many other repercussions.

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Relevant Issues to tackle Bank Frauds in India

All the major operational areas in banking represent a good opportunity for fraudsters with growing incidence being reported under deposit, loan and inter-branch accounting transactions, including remittances. Broad analyses of various frauds that have taken place throw up the following high-risk areas in committing frauds: o Misappropriation of cash by fudging accounts. o Unauthorized withdrawal or transfers of funds, mostly from long dormant accounts. o Opening of fictitious accounts to misappropriate funds from illegal activities i.e. Laundering through the fictitious accounts o Use of interbank clearing for accommodation, kite-flying and misappropriation. o Cheating in foreign exchange transactions by flouting exchange control provisions. o Withdrawal from deposit accounts through forged documents. Fraud in collusion with bank staff in emerging areas and services under the computerized environment. Frauds take place in a financial system only when safeguards and procedural checks are inadequate or when they are not scrupulously adhered to, leaving the system vulnerable to the perpetrators. Anecdotal evidence shows that whether the agency or individual committing the fraud works for the bank or deals with it, careful planning is done by the culprit before he attacks the system at its most vulnerable point. The most effective defense banks could have against fraud is to strengthen their operational practices, procedures, controls and review systems
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so that all fraud-prone areas are fully sanitized against internal or external breaches. However, the huge expansion in banking transactions consequent to the transition of banks to mass banking and the large scale computerization have played a major role in the perpetration of the frauds. Hence mere reliance on the internal controls is of no use. The tenfoldINDIA FORENSIC approach to tackle the bank fraud will definitely play a crucial role in coming days.

Expect fraud: Nowhere in the world the fraud can be avoided hence can the banks be no exceptions. It is a human tendency of taking the risk to commit the frauds if he finds suitable opportunities. So it is wise to expect the occurrence of the fraud. If the fraud is expected, efforts can be concentrated on the areas, which are fraud prone. Fraud is the game of two. The rule makers and rule breakers. Whoever is strong in the anticipation of the situations wins the game of frauds. Fraud is a phenomenon, which cannot be eliminated, but it needs to be managed.

Develop a fraud policy: The policy should be written and distributed to all employees, Borrowers and depositors. This gives a moral tension to the potential Fraudster. Maintain a zero tolerance for violations. The Indian bank needs to roar against the action that is taken against the Fraudsters. The media publicity against the fraudsters at all the levels is necessary. The announcement by US president George W. Bush that the Corporate crooks will not be spared gave the deep impact to the Corporate America. In India also we need to consider it as a severe problem and need to fight against it.

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Assess Risk: Look at the ways fraud can happen in the organization. It is very important to study the trend and the style of frauds in the bank. Some of the big nationalized banks maintain the databases of the fraud cases reported in their banks. But the databases are dumb. They yield nothing unless they are analyzed effectively. Establish regular fraud-detection procedures. It could be in the form of internal audit or it could also be in the form of inspections. These procedures alone discourage employees from committing fraud. In addition to this the Institute of Chartered Accountants of India has issued a Accounting and Assurance standard on internal controls which is a real guideline to test internal controls. Controls break down because people affect them, and because circumstances change.

Segregate duties in critical areas: It is the absolutely basic principle of auditing a single person should not have the control of the books of accounts and the physical asset. Because this is the scenario which tempts the employee to commit the fraud. Hence it becomes essential to see that no one employee should be able to initiate and complete a critical transaction without involving someone else. Most of the banks in India have the well-defined authorization procedures. The allocation of the sanctioning limits is also observed in most of the cases. But still the bankers violate the authorities very easily. They just need to collude with the outside parties. However the detection of the collusions is possible in most of the cases if the higher authorities are willing to dig the frauds.

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Maintain the tone of Ethics at the top: The subordinates have the tendency to follow their superiors. When the signals are passed on to the middle management about the unethical behavior of the top management the fear of punishment gets reduced and the tendency of following the superior dominates. Fear vanishes when the tendency of If I have to die Ill take along the superior and die tendency rises.

Review and enforce password security: The incidences of hacking and the Phishing have troubled the Indian Private sector banks to a great extent. In addition to this most of the Indian banks are running behind the ATM and credit cards to compete with each other but have conveniently forgone the fact that ATM cards and the credit cards are the best tools available in the hands of the fraudsters. Inappropriate system access makes it possible to steal large amounts of money very quickly and, in many cases, without detection. Hence the review and the enforcement of the security policy is going to be a crucial.

Promote the Whistle blowing Culture: Many of the surveys on Frauds have shown that the frauds are unearthed by the TIPS from insider or may be from outsiders. Internal audits and internal controls come much later. The message about contacting the vigilance officers is flashed in most of the branch premises. However the ethics lines are very rarely seen. The ethics lines are the help lines to the employees or the wellwishers of the bank which tells them whether a particular activity constitutes a fraud or not.

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Conduct pre-employment screening: Since the raw material of the Banks is cash the banker needs to be more alert than any other employer before they recruit. Only testing the aptitude of a person is not of any use. Know whom you are hiring. More than 20 percent of resumes contain false statements. Most employers will only confirm dates of employment. Sometimes post employment condition might create the greed in the minds of employee, hence at least the bankers should test check the characters of their subordinates by creating real life scenarios such as offering the bribes by calling on some dummy borrower.

Screen and monitor Borrowers: Bad borrowers cause the biggest losses to the banks. What are they? Who they represent themselves to be? Look at their ownership, clients, references, and litigation history. In many cases the potential fraudsters have history of defaulting in some other bank or Financial Institution. Though this is not the foolproof solution to the disease of the frauds to some extent it helps to combat the frauds.

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TOP BANKING FRAUDS AS PER IBN LIVE (BUSINESS)

Business
1. Jerome Kerviel Jerome Kerviel is a French trader who was convicted in 2008 for causing trading loss, breach of trust, forgery and unauthorized use of bank Societe Generale's computers, resulting in losses valued at 4.9 billion pounds. The bank said Kerviel was a rogue trader and claimed he worked these trades alone, and without its authorization, assertions that have been met with skepticism from expert commentators and analysts alike. Kerviel had told investigators that such practices are widespread and that getting a profit makes the hierarchy turn a blind eye. Kerviel published a book in May 2010, in which he alleges that his superiors knew of his trading activities, and that the practice was very common.

2. Vatican's God Bankers Roberto Calvi was the chairman of Italy's second largest private bank, Banco Ambrosiano when it went bankrupt in 1982. A financial advisor to the Vatican, Calvi headed the Banco Ambrosiano, which collapsed in one of Italy's largest fraud cases following the disappearance of $1.3 billion in loans the bank had made to dummy companies in Latin America. The Vatican had provided letters of credit for the loan. After the collapse in 1982, Calvi suddenly disappeared from Italy. He was found a short time later hanging from scaffolding on Blackfriar's Bridge, his suit pockets loaded with 11 pounds of bricks and $11,700 in various currencies stuffed in his pocket.

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London investigators first ruled that Calvi committed suicide, but his family pressed for further investigation. Eventually murder charges were filed against five people, including a major Mafia figure, but they were all acquitted after a trial in 2007. While denying any wrongdoing, the Vatican bank agreed to pay $250 million to Ambrosiano's creditors. In past decades, two Vatican financial advisers died in the strangest of circumstances. The scandals blackened the bank's reputation, raised suspicions of ties with the Mafia, and cost the Vatican hundreds of millions of dollars in legal clashes with Italian authorities. Now the bank is back under harsh scrutiny - in a case involving money laundering allegations that caused police to seize $30 million in Vatican assets.

3. Nordea Bank Fraud Internet fraudsters stole around ($1.1m; 576,000) from account holders at Swedish bank Nordea. The theft, described by Swedish media as the world's biggest online fraud, took place over three months. The criminals siphoned money from customers' accounts after obtaining login details using a malicious program that claimed to be anti-spam software. Nordea said it had now refunded the lost money to all 250 customers affected by the scam. Police have said they suspect organised criminals from Russia used a Trojan (a programme that installs malware on computers), affecting more than 250 customers, leaving a log of information sent to servers in Russia. The attack started when the trojan sent in the name of the bank to the banks clients. The sender encouraged clients to download a spam fighting application. Users who downloaded the attached file raking.zip or raking.exe were infected by the trojan haxdoor.ki.

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4. Citibank Gurgaon A banking fraud which could run into a whopping Rs 400 crore was unearthed at Citibank's Gurgaon (Haryana) branch. Funds amounting to Rs 400 crore of 20 high networth customers was allegedly siphoned off by bank executive Shivraj Puri. Puri is accused of selling investment products to high networth clients claiming that they would generate unusually high returns. It is also alleged that Puri, who is named in the FIR, showed a forged notification of market regulator Securities and Exchange Board of India for obtaining funds from customers. He is also accused of claiming that these products were authorised by the bank's investment product committee.

5. Zoom Developers Termed as one of the largest banking scams in India, the CBI is investigating the disbursement by 27 banks to Zoom Developers. The ministry of finance has questioned Punjab National Bank, who is the lead banker to Zoom Developers. Nearly 27 Indian banks, with a majority of public sector banks have lent close to Rs 2,700 crore to Zoom Developers. This debt has been admitted in the corporate debt restructuring cell.

6. China Construction Bank China executed bankers Wang Liming and Miao Ping for fraudulent activity in 2004. Wang Liming, a former accounting officer with the China Construction Bank in Henan, stole 20 million yuan ($ 2.4 million) from the bank using fraudulent papers. Miao Ping was an accomplice in the same case.

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7. John Rusnak John Rusnak was a former currency trader at Allfirst bank, then part of AIB Group, in Baltimore, MD, United States. In 2003 he was sentenced to seven and half years in prison for hiding USD 691 million in losses at the bank, after bad bets snowballed in one of the largest ever cases of bank fraud. He was transferred from prison to a halfway house in June 2008, to home confinement in September 2008, and ultimately released from home confinement on January 5, 2009, serving just less than 6 years.

8. Nicholas Leeson Nicholas Leeson is a former derivatives broker whose fraudulent, unauthorized speculative trading caused the collapse of Barings Bank, the United Kingdom's oldest investment bank, for which he was sent to prison.

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NEWS ARTICLES ON MODES OF FRAUDS AND FRAUDS IN BANKING

Article from the Money Central (MSN)

MONEY

Bank Fraud? Theres an app for that Mobile banking once entailed little beyond the ability to receive a text message with your account balance. But these days, it's finally starting to live up to its name. Virtually every large bank and many regional banks and credit unions have rolled out applications that allow their clients to use a mobile phone for fund transfers, bill payments and even check deposits. But with the increasing popularity and convenience of mobile-banking apps mobile comes a big caveat: the risk of downloading and installing a fraudulent application that could steal your account information and, potentially, any other data stored on your mobile device. In other words, the next generation of phishing scams is about to explode, and it has the potential to do much more damage than earlier versions. The trend is still in its infancy, but there have already been instances of potential fraud. In January, Google pulled 50 applications from its Android Market in response to concerns that they might be malicious. All apps were uploaded by the same developer and claimed to offer access to bank accounts from a variety of institutions, from big names such as JPMorgan Chase, HSBC, U.S. Bank, USAA and ING to local credit unions.
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"Smart phones are extremely prolific right now, and there is opportunity there for criminals to be seeding stores with applications intended to capture personal information," says Nick Holland, a senior analyst at Aite Group, a market research firm. "We're on the tip of an explosion in terms of bad apps." Even more worrisome, fraudulent apps may be more difficult to spot than were the fake Web sites used by phishing scammers. An unusual Web address, or URL, could easily flag a Web site as fake, but that's not the case with smartphone applications. And the fact that an application is available through an app store gives it an aura of credibility, Holland says. Google declined to comment on the incident, and it isn't known just how many consumers have downloaded those apps. Scott Moeller, the chief executive officer of mShift, a company that develops applications for about 200 banks and credit unions, estimates that number to be below 1,000. (At least one of mShift's clients was among the affected institutions.) The apps were priced in U.K. pounds (at 0.99 each, or about $1.50), which must have kept U.S. consumers at bay, Moeller says. That would probably not have been the case if they had been free or priced in U.S. dollars. "There's a yearning for mobile applications," Moeller says. "You could put out 50 apps at once, and people would start downloading them immediately."

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The issue has already gotten the attention of banks' fraud departments, which are charged with monitoring for such incidents and warning customers. And it works both ways: Sometimes it's customers who flag potential fraud. Paul Berry, a spokesman for USAA, says the bank found out about the December 2009 Android incident "almost immediately" from a bank member.

"We have a fraud department that covers the vast range of banking fraud and insurance fraud -- and we have members who'll call us and let us know," he says. Companies that own the application marketplaces say they, too, are on the watch for fraudulent apps. At Apple, the policy is to vet each application before it appears in the App Store. But no system is foolproof. For example, there are apps for so-called jail-broken iPhones, which are unlocked in order to allow the use of other networks besides AT&T or to download applications sold on thirdparty marketplaces. The practice makes the compromised phones more prone to fraud. Apple spokeswoman Trudy Muller says the company takes security "very seriously and has a great track record of addressing potential vulnerabilities before they can affect users."

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Article from the Jagran Post.

Banks lost Rs 2,017 crore in fraud in 2009-10: CBI

New Delhi: Countrys banking sector lost over Rs 2000 crore in frauds during 2009-10 with more than 200 of these incidents involving cheating of above one crore each, according to CBI Director A P Singh. The CBI chief has warned the banks of latest trends emerging in banking frauds in areas like electronic payments, technology-related payments like RTGS, credit cards, ATM, cell banking, internet banking among others. "Banking Sector has lost as much as Rs 1,883 crore and Rs 2,017 crore during 2008-09 and 2009-2010, respectively. These include over 200 frauds of above Rs one crore during each year," he said during the 'Third Conference of Central Vigilance Officers of 31 Public Sector Banks and Financial Institutions' at the CBI headquarters here. Singh said CBI's role was to investigate the criminality in bank frauds and it does not interfere in cases of prudent commercial judgment, even if such decisions involve risks or have resulted in losses to banks. He called upon banks to adapt to changing technology and to sensitize its officers to new areas of fraud being used by scamsters. (Agencies)
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Information by Canara Bank for their customers while operating account by E-mail

Privacy Policy: Canara Bank ( Bank) under st ands that our

relationshi p is str ongl y b uilt o n tru st and f aith. An y personal i nf ormati on that we seek f ro m you would onl y be ai med at providing yo u qua lit y service and would be kept co nf idential. This inf ormation wou ld not be used in an y wa y detri me ntal to yo ur interest. We ma y how ever be re quired to d isclose yo ur perso nal inf or mation to Govern men t, judic ial bodies, and our regulators or to a n y per son to who m the Bank is under an obligation to make disclosure u nd er the require ment s of an y law bi ndin g on the Bank or an y of its branche s, when situation s o de mands. Security Policy: We accord t op p riorit y to Securit y a nd striv e to provide accidental pr otecti on acces s, to yo ur a ccounts access, ag ainst data

unaut horized

corruption or eras ure b y wa y of app ropriate ph ysical and manager ial p rocedures. We us e the Secured Socket L a yer p ro tocol wi th 12 8bit encr ypti on f or secure trans missio n of your mes sage s to our Web S er vers. This sec urit y aspect ha s bee n ce rtif ied b y the IDR BT, an instit ution of Reserve Ba nk o f India. Our Web S ervers are s ecurel y p laced b ehind F irewalls to preven t unauthorize d acces s to your ac count i nf ormation

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About E-mail Fraud Beware of Fraudulent E-mails requesting online banking security details! Internet Banking is a safe way to manage your money. However, there are Internet Fraudsters around who will try to gain access to your accounts by E-mailing you and prompting you to disclose your on-line banking security details to them. Banks will never send E-mails that ask for confidential information. If you receive an E-mail requesting your Internet Banking security details, you should not respond. How do Fraudulent E-mails work? Typically you will receive an E-mail claiming to be from your bank, either requesting your security details (perhaps as part of an update or confirmation process) or asking you to follow a link to a site where you will be encouraged to provide a range of information such as your credit card number, personal identification number (PIN), passwords or personal information, such as mother's maiden name. Clicking on the link then takes you to a fake website, designed to look like that of your bank, but operated by the Fraudster. Fraudulent E-mails and websites can be very convincing and Fraudsters are continually inventing new approaches to get you to divulge your security details. How to be cautious? Treat all unsolicited emails with caution and never click on links from such emails and enter any personal information. If you've replied to a suspicious E-mail and provided personal or sensitive information about your account please contact us immediately at cbgimb@canbank.co.in To ensure a legitimate and safe sign on, always enter Canara Banks official web site, www.canarabank.in in your browser's address field.

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ABOUT PHIS HIN G ( POT ENTIA L SECURI TY T HR EATS ) Phishing ' is a c o mmon f or m of Internet pirac y. I t is deplo yed t o steal users ' per son al and conf idential inf ormatio n like b ank account nu mbers, net ban king pas swords , c redit card nu mber s, perso nal identit y details etc . Later t he perp etr ators ma y use the inf ormatio n f or siphoning mon e y f ro m the victi m's a ccount or r un up bi lls o n victi m's credit car ds. In the worst ca se one cou ld also beco me the victi m of identit y thef t. A f ew custo mers of some o ther Indian banks have been aff ected b y th e attempt of phishing during the earl y 200 6. Phi s hing sca ms take advantage s of s of tware and securit y weak ness es of the clients. But even the mo st high-tec h phishing sc a ms w ork like old-f ashi oned con jo bs, i n which a phisher c onvince s his mark th at h e is reli able a nd trustwor th y Since mo st peop l e won't reveal th eir bank a ccount, credit car d nu mber or passw o rd to just an yon e, phishers have t o take extra steps to tr ick thei r victi ms into gi v ing up th is inf or mation. Thi s kind of deceptive atte mpt to get inf ormatio n is ca lled social engineering.

We woul d like yo u to be aware of met hodolo gies i n a 'Ph ishing ' attack, do 's a nd d on'ts in sha ring of personal inf or mat ion and the action to be taken in case you f all pr e y t o a phis hing at tempt.

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Methodologies: Phishing attacks use both social engineering and technical subterfuge to steal customers' personal identity data and financial account credentials. Customer receives a fraudulent e-mail seemingly from a legitimate Internet address. The email invites the customer to click on a hyperlink provided in the mail. Click on the hyperlink directs the customer to a fake web site that looks similar to the genuine site. Usually the email will either promise a reward on compliance or warn of an impending penalty on a non compliance. Customer is asked to update his personal information, such as passwords and credit card and bank account numbers etc. Customer provides personal details in good faith. Clicks on 'submit' button. He gets an error page. Customer falls prey to the phishing attempt.

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Don'ts: Do not click on any link which has come through e-mail from an unexpected source. It may contain malicious code or could be an attempt to 'Phish'. If you get an e-mail that you believe is a phishing attempt, you do not reply to it, click on the links or provide your personal information. Do not provide any information on a page which might have come up as a pop-up window. Never provide your password over the phone or in response to an unsolicited request over e-mail. Always remember that information like password, PIN, TIN, etc are strictly confidential and are not known even to employees/service personnel of the Bank. You should therefore, never divulge such information even if asked for.

Do's: Always logon to a site by typing the proper URL in the address bar. Give your user id and password only at the authenticated login page. Before providing your user id and password please ensure that the page displayed is an https:// page and not an http:// page. Please also look for the lock sign ( ) at the right bottom of the browser and the certificate from the verification authorities. Provide your personal details over phone/Internet only if you have initiated a call or session and the counterparty has been duly authenticated by you. Please remember that bank would never ask you to verify your account information through an e-mail

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What to do if you have accidentally revealed password/PIN/TIN etc: If you feel that you have been phished or you have provided your personal information at a place you should not have, please carry out following immediately as a damage mitigation measure. Change your password immediately. If you use the same password at other sites, we suggest you to change your passwords there, too. Report to the bank by clicking on the link 'Report Phishing' on login page. Check your account statement and ensure that it is correct in every respect. Report any erroneous entries to Bank.

Instructions for Submitting Phishing Email: Assuming you use Outlook or Netscape: 1. Create a new mail to cbgimb@canbank.co.in 2. Drag and drop the phishing email from your inbox onto this new email message In Netscape drop it on the 'attachment' area 3. Do not use "forward" if you can help it, as this approach loses information and requires more manual processing. The exception is when you use the Web interface to outlook: in that case forward is the only solution.

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CONCLUSION
The World, including India faces a unique challenge today of Frauds in Banking. The Concept of Frauds in Bank, although is an old and consistent concept in the Finance Industry, its changing dynamics make it a challenge nonetheless. The ways to deal with such frauds are available but, somehow are not being strongly supported by the framework or the structure of the economy as a whole. Increasing development in the field of Information Technology has made detection of frauds easy, but ironically it has also opened up new gateways for new frauds involving new dynamics altogether. The System exists, what lacks is the awareness that shall prevent the fraud from happening in the first place. As rightly said by Area Commander Superintendent John Hopgood, who worked on the case involving in the $550,550 fraud case of Federal Bank of United States Forget about the rest, Concentrate on the Fraud, is the attitude the economies around the world require.

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BIBLIOGRAPHY
BOOKS: 1. Bank Frauds Prevention and Detection by B.R Sharma 2. Frauds 101 : Techniques and Strategies for Understanding Frauds by Stephen Pedneault ARTICLES: 1. Marri Ramu, Bank Fraud, Articles of Times Of India. 2. Top Banking Frauds of All Time, Article of IBN Live India. 3. Bank Fraud? Is there an app for that?, Article Of MSN Money Control 4. CBIs Report on Bank Frauds, Article from Jagran Post. WEBSITES: 1. www.rbi.org 2. www.cyberfraudsources.com 3. www.canarabank.in SEARCH ENGINES: 1. www.google.in 2. www.yahooanswers.co.in 3. www.wikipedia.in OTHER REFRENCES: Mr. Gurmeet Singh Khurana, Manager, Punjab National Bank, Chandigarh Branch.

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