FRAUDS IN BANKING

FRAUDS IN BANKING
Before we start discussing about frauds in banks, their reasons and their effects and
ways to combat them it is necessary that we first understand the term.
FRAUD
Fraud is any dishonest act and behavior by which one person gains or intends to
gain advantage over another person. Fraud causes loss to the victim directly or
indirectly. Fraud has not been described or discussed clearly in The Indian penal
code but sections dealing with cheating, concealment, forgery counter feiting and
breach of trust has been discusses which leads to the act of Fraud as described in
the Indian Contract Act, Sec 17 is any of the acts by a party to a contract or
with his connivance or by his agents with the intention to deceive another party or his
agent or to induce him to enter in to a contract
BANK FRAUD
Bank fraud is the use of fraudulent means to obtain money, assets, or
other property owned or held by a financial institution. In many instances, bank fraud is a
criminal offense. 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 considered a white coller crime Bank fraud is a big business in today,s
world. with more educational qulaifications , banking becoming impersonal and increasing in
banking sector have gave rise to this white collar crime. In a survey made till 1997 bank
frauds in nationalized banks was of Rs.497.60crore
REASONS OF BANK FRAUDS
1. Lack of properly trained and experienced employees in banks.
2 . There is a sudden and tremendous increase in banking business. This expansive explosion
has created a vacuum of personnel.
3. New recruits often do not have adequate training or experience before they are
put in responsible positions.
4. Bank employees feel overburdened due to excess pressure.
5. Dilution of system and non-adherence to procedures.
6. Unauthorized delegation at branches.
7. Frauds in deposits accounts are mainly due to policy of know your customer (KYC) are
not followed properly.

FRAUDS IN BANKING

Types of banking fraud

As a customer you may be seen as a potential target for fraudulent activities.
However by arming yourself with information and tools you can protect yourself
from becoming a victim of fraud.
Do you know the four biggest fraud threats you face?

Electronic fraud

Identity theft

Credit/Debit card fraud

Cheque fraud.
.ELECTRONIC FRAUDS
Email scams and fake websites
A number of customers from Australian financial institutions have been targeted
with hoax emails. These emails appear to be genuine bank emails.
Some emails inform the customer that their security details and passwords need to
be updated by logging into an authentic looking, but fake website. The purpose of
these websites is to obtain your log on details to access your bank accounts.
Others communicate security messages and advise you to install software from the
email that checks and removes viruses. By downloading the software you are in
fact tricked into downloading a virus.
ANZ will not send you an email asking for your Account Details, Financial
Details, or login details for ANZ Phone Banking, ANZ Mobile Banking or ANZ
Internet Banking.
If you have any concerns, call the Internet Banking Help Desk on13 33
50 or forward the suspicious email to us.
Also check our security alerts page for updated information on fraudulent
communications.
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FRAUDS IN BANKING

This is an example only, the content and look of the emails change.
.IDENTITY THEFT
Identity theft is where your personal details are obtained to get some sort of
financial or other benefit, leaving you the owner of that identity often in large debt
with a negative credit history and in some cases with legal implications.
Your information can be obtained in many ways:

Theft, including theft of mail from your mailbox at home

By going through your garbage bins

Telephone, Fax and Mail scams

Internet.

The following can be used to assume your identity:

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FRAUDS IN BANKING

Date of birth

Utilities bills (phone, gas, water and rates notices)

Address.
Credit card and debit card fraud is a crime whereby your credit or debit card can be
reproduced in order to use the credit balance to obtain a financial advantage. The
creation and/or alteration of a credit/debit card occurs when the information
contained on the magnetic strip is reproduced. This type of crime is known as
skimming.
Credit or debit card fraud can also occur when your card is lost or stolen and used
by a third party to purchase goods with those cards or to remove cash from the
cards.
Credit or debit cards can also be intercepted in transit while being sent to you. Your
cards can also be compromised by a dishonest merchant who undertakes
unauthorised duplicate transactions on your card.
.Protect your credit / debit card:

Memorise your personal identification number (PIN). Don't use the same
PIN for all your cards, and don't choose your birth date or other easily identifiable
numbers that might be on something else in your wallet.
Check statements and call your credit card issuer immediately if you see
anything suspicious on your bill. You could help the company uncover fraudand
save yourself from paying unauthorised charges.
Do not let your credit card out of your sight at anytime for example, at a
restaurant go with the card.
Card fraud is not applicable in Australia only be just as vigilant when
travelling overseas, credit card skimming is an international crime.
Always sign your card in ink as soon as you receive it.

Keep track of when new and reissued cards should arrive, and call the credit
card issuer if they don't come on time.

Make sure your mailbox is secure, and that only you and the postal carrier
have access to it.

Tear up all credit card receipts and pre-approved credit card offers into small
pieces before you throw them away. Keep your billing statements in a safe place.
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FRAUDS IN BANKING

When you use your credit card online, make sure you are using a secure
website. Look for a small key or lock symbol at the bottom right of your browser
window.

Never give your card number to strangers or telemarketers who call you on
the phone. Don't give your card number unless you initiated the call.
.CHEQUE FRAUDS
What is cheque fraud?
Cheque fraud is the use of a cheque to get financial advantage by:

altering the cheque (payee/amount) without authority

theft of legitimate cheques and then altering them

duplication or counterfeiting of cheques

using false invoices to get legitimate cheques

depositing a cheque into a third party account without authority

depositing a cheque for payment knowing that insufficient funds are in the
account to cover the deposited cheque.

TYPES OF CHEQUE FRAUD

How to protect yourself from cheque fraud

Reconcile your accounts promptly and regularly

Never sign blank cheques, and only sign cheques after all details have been
completed.

Limit the number of signatures to your account to ensure control.

Ensure that your signature is not with documents that can be accessed by the
general public.

Keep all cheques secure when not in use to deter theft.

FRAUDS IN BANKING

Dont leave any gaps in the completion of the payee name, amount in words
and in figures.

If cheques are lost or stolen contact ANZ immediately and ask them to stop
payment on the cheque.

Ensure that any invoices are valid before payment.

Consider using electronic means of payment (if possible) for high value
payments.

Ensure that your mailbox is secure to protect your inward cheques

BANKING FRAUD CAN BE CLASSIFIED AS:
1.Fraud by insiders
I . Rogue traders
A rogue trader is a highly placed insider nominally authorized to
invests i z e a b l e f u n d s o n b e h a l f o f t h e b a n k ; t h i s t r a d
e r s e c r e t l y m a k e s p r o gr e s s i v e l y m o r e a g g r e s s i v e a n d r i s ky i n
v e s t m e n t s u s i n g t h e b a n k ' 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 rupees;
there have even been cases in which a bank goes out of business due to market
investment losses.
II. 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 nonexistententity and the loan merely an artifice to conceal a theft of a large
sum of money from the bank.
III. Wire fraud
Wire transfer networks such as the international, interbank fund transfer system
a r e t e mp t i n g a s t a r ge t s a s a t r a n s f e r, o n c e m a d e , i s d i ffi c u l t
or i m p o s s i b l e t o r e v e r s e . A s t h e s e n e t w o r k s a r e u s e d b y b a n
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FRAUDS IN BANKING

k s t o s e t t l e 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.
2 . F r a u d b y o t h e r s Forgery and altered cheques
T h i e v e s h a v e a l t e r e d c h e q u e s t o c h a n g e t h e n a me ( i n or d e r t o
d e p o s i t 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
1 0 0 , 0 0 0 . 0 0 , although such a large figure may raise some eyebrows).Instead of
tampering with a real cheque, some fraudsters will attempt toforge a
depositor's signature on a blank cheque or even print their own cheques
drawn on accounts owned by others, non-existent accounts or evenalleged accounts
owned by non-existent depositors. The cheque will then bedeposited to another bank and
the money withdrawn before the cheque can be returned as invalid or for non-sufficient
funds.
Stolen cheques
S o m e f r a u d s t e r s o b t a i n a c c e s s t o f a c i l i t i e s h a n d l i n g l a r ge a mo u n t s
o f 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;
accountsare then opened under assumed names and the cheques (often tampered
or altered in some way) deposited so that the money can then be withdrawn bythieves.
Stolen blank cheque books are also of value to forgers who then sign as if
they were the depositor.
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
investmenti n t h e c o m p a n y ' s b o n d o r s e c u r i t y i s s u e s o r t o m a k e
f r a u d u l e n t l o a n applications in a final attempt to obtain more money to delay
the inevitable collapse of an unprofitable or mismanaged firm.
Bill discounting fraud
Essentially a confidence trick, a fraudster uses a company at their
disposalt o g a i n c o n f i d e n c e w i t h a b a n k , by a p p e a r i n g a s a g e n u i n e ,
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FRAUDS IN BANKING

p r o f i t a b l e 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 i t s c o s t u m e r. Th e s e p a y me n t s a r e a l w a y s m a d e , a s t h e
c u s t o m e r s i n q u e s t i o n a r e p a r t o f f r a u d , actively paying any and all bills
raised by the bank. After certain 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.
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 isn o t r e mo v e d
f r o m t h e a c c o u n t o n w h i c h t h e c h e q u e i s d r a w n u n t i l t h e cheque
actually clears.Deposit 1000 in one bank, write a cheque on that amount and deposit
it toyour account in another bank; you now have 2000 until the cheque clears.Intransit or non-existent cash is briefly recorded in multiple accounts.A cheque is cashed and,
before the bank receives any money by clearing thecheque, the money is deposited
into some other account or withdrawn bywriting more cheques. In many
cases, the original deposited cheque turnsout 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, itflies briefly but eventually has to come back down to the ground.
Credit card fraud
Credit card fraud is widespread as a means of stealing from
b a n k s , merchants and clients. A credit card is made of three plasti
c s h e e t o f polyvinyl chloride. The central sheet of the card is known as the
core stock. These cards are of a particular size and many data are embossed over it. But credit
cards fraud manifest in a number of ways. They are:
Genuine cards are manipulated
Genuine cards are altered
Counterfeit cards are created
Fraudulent telemarketing is done with credit cards.
Genuine cards are obtained on fraudulent appli
c a t i o n s i n t h e names/addresses of other persons and used.I t i s f e a r e d t h a t
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FRAUDS IN BANKING

with
the
expansion
of
E-Commerce,
M-Commerce
a n d Internet facilities being available on massive scale the fraudulent fun
dfreaking via credit cards will increase tremendously.
Counterfeit credit cards are known as white plastics.
.Booster cheque
A booster cheque is a fraudulent or bad cheque used to make a payment to acredit card
account in order to "bust out" or raise the amount of availablecredit on
otherwise-legitimate credit cards. The amount of the cheque iscredited to
the card account by the bank as soon as the payment is made, e v e n
though the cheque has not yet cleared. Before the bad cheque
i s d i s c o v e r e d , t h e p e r p e t r a t or g o e s o n a s p e n d i n g s p r e e or o b t a i n s
c a s h advances until the newly-"raised" available limit on the card is reached. Theoriginal
cheque then bounces, but by then it is already too late.
.Stolen payment cards
Often, the first indication that a victim's wallet has been stolen is a 'phonecall
from a credit card issuer asking if the person has gone on a
spendingspree; the simplest form of this theft involves stealing the card
itself andcharging 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 drawingattention by stealing the card itself) in order to use the numbers
in onlinefrauds.
.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 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.
.Impersonation and theft of identity
Theft of identity has become an increasing problem; the scam operates by
obtaining information about a victim, then using the information to apply for
identity cards, accounts and credit in that person's name. Often little
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FRAUDS IN BANKING

more than name, parents' name, date and place of birth are sufficient
too b t a i n a b i r t h c e r t i f i c a t e ; e a c h d o c u m e n t o b t a i n e d t h
e n i s u s e d a s identification in order to obtain more identity document
s. Government-issued standard identification numbers such as "Social
security numbers, PAN numbers" are also valuable to the identity thief .Unfortunately
for the banks, identity thieves have been known to take out loans and disappear
with the cash, quite content to see the wrong persons blamed when the debts go bad.
.Fraudulent loan applications
These take a number of forms varying from individuals usin
g f a l s e i n f o r m a t i o n t o h i d e a c r e d i t h i s t o r y f i l l e d w i t h f i n a n c i a l pr
o b l e m s a n d unpaid loans to corporations using accounting fraud to overstate
profits inorder to make a risky loan appear to be a sound investment for the bank.Some
corporations have engaged in over-expansion, using borrowed moneyto finance costly
mergers
and
acquisitions
and
overstating
assets,
sales
or i n c o m e t o a p p e a r s o l v e n t e v e n a f t e r b e c o m i n g s e r i o u s l y f i
n a n c i a l l y overextended. The resulting debt load has ruined entire large
companies,s u c h a s I t a l i a n d a i r y c o n g l o me r a t e P ar m a l a t , l e a v i n g b a
n k s e x p o s e d t o massive losses from bad loans
.
.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 sitewhich is
designed to look like the login to the legitimate site but which claims that
the user must update personal info. The information thus stolenis 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 tosnoop on Internet users while online,
capturing keystrokes or confidentialdata in order to send it to outside sites.
.Money laundering
The term "money laundering" dates back to the days of Al Capone
Moneylaundering has since been used to describe any scheme by which
the
trueorigin
of
funds
is
hidden
or
concealed.T h e o p e r a t i o n s w o r k i n v a r i o u s f o r m s . O n e v a r i a n t i n
v o l v e d b u y i n g 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 aloan at another bank. The borrower would then default on the loan.
Thesecurities, however, would still be worth their full amount. The
transactionserved only to disguise the original source of the funds.
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FRAUDS IN BANKING

.Forged currency notes

Paper currency is the usual mode of exchange of money at the
personallevel, though in business, cheques and drafts are also used
considerably.Bank note has been defined in Section 489A. If forgery of currency
notesc o u l d b e d o n e s u c c e s s f u l l y t h e n i t c o u l d o n o n e h a n d m a d e
the
f o rge r m i l l i o n a i r e a n d t h e o t h e r h a n d d e s t r o y t h e e c o n o m y o
f t h e n a t i o n . A c u r r e n cy n o t e i s m a d e o u t o f a s p e c i a l p a p e r w i t h
a c o a t i n g o f p l a s t i c laminated on both sides of each note to protect the ink and
the anti forgerydevice from damage. More over these notes have security
threads, water marks. But these things are not known to the majority of
the population.Forged currency notes are in full circulation and its very difficult
to catchhold of such forgers as once such notes are circulated its very difficult
totrack its origin.B u t t h e l a t e s t f r a u d w h i c h i s c o n s i d e r e d a s t h e s a f e s t
m e t h o d o f c r i me without making physical injury is the Computer Frauds in
Banks.Computerization of banks had started since 1994 in India and till 2000
4000 b a n k s w e r e c o m p l e t e l y a n d 9 0 0 0 b r a n c h e s h a v e
b e e n p a r t i a l l y computerized. About 1000 branches had the facilities for
International bank Transaction. Reserve Bank of India has evolved working pattern
for Local
The Reserve Bank of India has come up with different proposals to
maket h e w a y e a s i e r , t h e y h a v e e n a c t e d e l e c t r o n i c f u n d t
r a n s f e r a c t a n d regulations, have amended, The Reserve Bank of India Act,
Bankers book evidence act etc., experience of india in relation to information and
technology is limited and is in a very immature state. It is very much imperative
that the state should seek the help of the experienced and developed nations.
HOW TO TACKLE BANK FRAUDS
Nowhere in the world the fraud can be avoided hence the banks can be noexceptions. 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 thefraud. 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 thegame of frauds. Fraud is a phenomenon,
which cannot be eliminated, but itneeds to be managed.
Develop a fraud policy:
The policy should be written and distributed to all employees,
Borrowersa n d d e p o s i t o r s . T h i s g i v e s a m o r a l t e n s i o n t o t h e p o t e n t i a
l F r a u d s t e r.Maintain a zero tolerance for violations. The Indian bank
needs to roar against the action that is taken against the Fraudsters. The media
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FRAUDS IN BANKING

publicityagainst the fraudsters at all the levels is necessary. The announcement

byU S p r e s i d e n t G e o rge W. B u s h t h a t t h e " C o r p o r a t e c r o o k s w i l l n o
t b e spared" gave the deep impact to the Corporate America. In India also
weneed to consider it as a severe problem and need to fight against it
.
Assess Risk:
Look at the ways fraud can happen in the organization. It is very importantt o
s t u d y t h e t r e n d a n d t h e s t y l e o f f r a u d s i n t h e b a n k . So m e o f t h e
b i g nationalized banks maintain the databases of the fraud cases reported
intheir banks. But the databases are dumb. They yield nothing unless
they areanalyzed 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. Inaddition to this the
Institute of Chartered Accountants of India has issued an "Accounting and Assurance
standard
on
internal
controls
which
is
a
realguideline to test internal controls. Controls break down because peopl
eaffect them, and because circumstances change.
Segregate duties in critical areas:
It is the absolutely basic principle of auditing a single person should
nothave the control of the books of accounts and the physical asset. Becausethis is
the scenario which tempts the employee to commit the fraud. Henceit becomes
essential to see that no one employee should be able to initiateand complete a critical
transaction without involving someone else.Most of the banks in India have the welldefined authorization procedures.T h e a l l o c a t i o n o f t h e s a n c t i o n i n g l i m i t s
i s a l s o o b s e r v e d i n m o s t o f t h e cases. But still the bankers violate the authorities
very easily. They just needto collude with the outside parties. However the detection
of the collusionsis possible in most of the cases if the higher authorities are willing to dig
thefrauds.
Maintain the tone of Ethics at the top:
The subordinates have the tendency to follow their superiors. When
thes i g n a l s a r e p a s s e d o n t o t h e m i d d l e m a n a g e m e n t a b o u t t h
e u n e t h i c a l behavior of the top management the fear of punishment gets
reduced andthe tendency of following the superior dominates. Fear vanishes when
thetendency of "If I have to die I'll take along the superior and die" tendencyrises.
Review and enforce password security:
The incidences of hacking and the Phishing have troubled the Indian PrivateSector banks to a
great extent. In addition to this most of the Indian banksare running behind the
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FRAUDS IN BANKING

ATM and credit cards to compete with each other but have conveniently
forgone the fact that ATM cards and the credit cardsare the best tools available
in the hands of the fraudsters. Inappropriate sy s t e m a c c e s s m a k e s i t
p o s s i b l e t o s t e a l l a rge a m o u n t s o f m o n e y v er y quickly and, in many
cases, without detection. Hence the review and the enforcement of the security
policy are going to be a crucial.
Promote the Whistle blowing Culture:
Many of the surveys on Frauds have shown that the frauds are unearthed byt h e " T I P S "
f r o m i n s i d e r or m a y b e f r o m o u t s i d e r s . I n t e r n a l a u d i t s
a n d i n t e r n a l c o n t r o l s c o m e m u c h l a t e r. T h e m e s s a g e a b o u t c o n t a c t i
n g t h e vigilance officers is flashed in most of the branch premises.
However theethics lines are very rarely seen. The ethics lines are the help
lines to thee m p l oy e e s or t h e w e l l - w i s h e r s o f t h e b a n k w h i c h t e l l s
t h e m w h e t h e r a particular activity constitutes a fraud or not.
Conduct pre-employment screening:
Since the raw material of the Banks is cash the banker needs to be
morealert than any other employer before they recruit. Only testing the aptitudeof
a person is not of any use. Know whom you are hiring. More than
20 percent of resumes contain false statements. Most employers will
onlyconfirm dates of employment. Sometimes post employment condition mightcreate the
greed in the minds of employee, hence at least the bankers shouldtest check the characters
of their subordinates by creating real life scenariossuch 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?
Whot h e y r e p r e s e n t t h e m s e l v e s t o b e ? L o o k a t t h e i r o w n e r s h i
p , c l i e n t s , references, and litigation history. In many cases the potential
fraudstershave history of defaulting in some other bank or Financial Institution.
Forged currency notes
Paper currency is the usual mode of exchange of money at the
personallevel, though in business, cheques and drafts are also used
considerably.Bank note has been defined in Section 489A. If forgery of currency
notesc o u l d b e d o n e s u c c e s s f u l l y t h e n i t c o u l d o n o n e h a n d m a d e
the
f o rge r m i l l i o n a i r e a n d t h e o t h e r h a n d d e s t r o y t h e e c o n o m y o
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FRAUDS IN BANKING

f t h e n a t i o n . A c u r r e n cy n o t e i s m a d e o u t o f a s p e c i a l p a p e r w i t h
a c o a t i n g o f p l a s t i c laminated on both sides of each note to protect the ink and
the anti forgerydevice from damage. More over these notes have security
threads, water marks. But these things are not known to the majority of
the population.Forged currency notes are in full circulation and its very difficult
to catchhold of such forgers as once such notes are circulated its very difficult
totrack its origin.B u t t h e l a t e s t f r a u d w h i c h i s c o n s i d e r e d a s t h e s a f e s t
m e t h o d o f c r i me without making physical injury is the Computer Frauds in
Banks.Computerization of banks had started since 1994 in India and till 2000
4000 b a n k s w e r e c o m p l e t e l y a n d 9 0 0 0 b r a n c h e s h a v e
b e e n p a r t i a l l y computerized. About 1000 branches had the facilities for
International bank Transaction. Reserve Bank of India has evolved working pattern
for Local area Network and wide area Network by instituting different
microwavestations so that money transactions could be carried out quickly and safely.The
main banking tasks which computers perform are maintaining debit- credit
records of accounts, operating automated teller machines, and carryout electronic
fund transfer, print out statements of accounts create periodic balance sheets
etc.Internet facilities of computer have revolutionized international banking
for fund transfer and for exchanging data of interest relating to banking and
toc a r r y o u t o t h er b a n k i n g f u n c t i o n s a n d p r o v i d e s c e r t a i n s e c u r i t y t
o t h e customers by assigning different pin numbers and passwords.
C o m p u t e r d e p r e d a t i o n s h a v e b y s o m e b
e e n c l a s s i f i e d a s :
Computer frauds;
Computer frauds are those involve embezzlement or defalcations achieved by
tampering with computer data record or programme, etc.
Computer crimes
C o m p u t e r c r i me s ar e t h o s e c o m mi t t e d w i t h a c o m p u t e r t h a t i s
w h e r e a c o m p u t e r a c t s a s a m e d i u m . Th e d i ffe r e n c e i s h o w e v e r
a c a d e m i c o n l y.Bank computer crimes are committed mainly for money,
however other motive or The Mens rea can be: Personal vendetta; Black mail; Ego;
Mental aberrations; Mischief Bank computer crimes have a typical feature, the evidence
relating to crimeis intangible. The evidences can be easily erased, tampered
or secreted.More over it is not easily detectable. More over the evidence connecting
thecriminal with the crime is often not available. Computer crimes are differentfrom the usual
crimes
mainly
because
of
the
mode
of
investigation.
14

FRAUDS IN BANKING

Therea r e n o e y e w i t n e s s , n o u s u a l e v i d e n t i a r y c l u e s a n d n o d o
c u m e n t a r y evidences.
W H Y I S I T D I F F I C U L T T O T R A C K B A N K FRAUDS?
Hi-tech crime
The information technology is changing very fast. The normal investigator does
not have the proper background and knowledge .special investigatorshave to be
created to carry out the investigations. The FBI of USA have
ac e l l , e v e n i n l a t e s t s c e n a r i o t h e r e h a s b e e n c e l l s o p e r
a t i n g i n t h e Maharashtra police department to counter cyber crimes. CBI also
has beenasked to create special team for fighting cyber crimes.

International crime
A computer crime may be committed in one country and the result can be inanother country.
There has been lot of jurisdictional problem a though theInterpol does help but
it too has certain limitations. The different treaties and conventions have
created obstructions in relation to tracking of cyber criminals hiding or operation in
other nations

No-scene crime:
The computer satellite computer link can be placed or located
anywhere.The usual crime scene is the cyber space. The terminal may be
anywhereand the criminal need not indicate the place. The only evidence a
criminalleaves behind is the loss to the crime.

Faceless crime:
The major advantage criminal has in instituting a computer crime is
thatt h e r e i s n o p e r s o n a l e x p o s u r e , n o wr i t t e n d o c u m e n t s , n o s i g n a t
u r e s , n o fingerprints or voice recognition. The criminal is truly and in
strict sensefaceless.There are certain spy softwares which is utilized to find out
passwords andother vital entry information to a computer system. The
entry is gainedthrough a spam or bulk mail.The existing enacted laws of India are
not at all adequate to counter cyber crimes. The Indian Penal code, evidence act,
and criminal procedure codehad no clue about computers when they were codified.
It is highly requiredto frame and enact laws which would deal with those
subjects which arenew to the country specially cyber law; Intellectual property right etc.
The Reserve Bank of India has come up with different proposals to
maket h e w a y e a s i e r , t h e y h a v e e n a c t e d e l e c t r o n i c f u n d t
r a n s f e r a c t a n d regulations, have amended, The Reserve Bank of India Act,
Bankers
15

FRAUDS IN BANKING

Book E v i d e n c e A c t e t c . , e x p e r i e n c e o f I n d i a i n r el a t i o n t o i n f o r m a t
i o n a n d t e c h n o l o g y i s l i mi t e d a n d i s i n a v e r y i m ma t u r e s t a t e . I t i s
very
m u c h i mp e r a t i v e t h a t t h e s t a t e s h o u l d s e e k t h e h e l p o f t h e e x p e r i e n
c e d a n d developed nations.
HOW TO TACKLE BANK FRAUDS
Nowhere in the world the fraud can be avoided hence the banks can be noexceptions. 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 thefraud. 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 thegame of frauds. Fraud is a phenomenon,
which cannot be eliminated, but itneeds to be managed.
Develop a fraud policy:
The policy should be written and distributed to all employees,
Borrowersa n d d e p o s i t o r s . T h i s g i v e s a m o r a l t e n s i o n t o t h e p o t e n t i a
l F r a u d s t e r.Maintain a zero tolerance for violations. The Indian bank
needs to roar against the action that is taken against the Fraudsters. The media
publicityagainst the fraudsters at all the levels is necessary. The announcement
byU S p r e s i d e n t G e o rge W. B u s h t h a t t h e " C o r p o r a t e c r o o k s w i l l n o
t b e spared" gave the deep impact to the Corporate America. In India also
weneed to consider it as a severe problem and need to fight against it
.
Assess Risk:
Look at the ways fraud can happen in the organization. It is very importantt o
s t u d y t h e t r e n d a n d t h e s t y l e o f f r a u d s i n t h e b a n k . So m e o f t h e
b i g nationalized banks maintain the databases of the fraud cases reported
intheir banks. But the databases are dumb. They yield nothing unless
they areanalyzed 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. Inaddition to this the
Institute of Chartered Accountants of India has issued an "Accounting and Assurance
standard
on
internal
controls
which
is
a
realguideline to test internal controls. Controls break down because peopl
eaffect them, and because circumstances change.
Segregate duties in critical areas:
16

FRAUDS IN BANKING

It is the absolutely basic principle of auditing a single person should

nothave the control of the books of accounts and the physical asset. Becausethis is
the scenario which tempts the employee to commit the fraud. Henceit becomes
essential to see that no one employee should be able to initiateand complete a critical
transaction without involving someone else.Most of the banks in India have the welldefined authorization procedures.T h e a l l o c a t i o n o f t h e s a n c t i o n i n g l i m i t s
i s a l s o o b s e r v e d i n m o s t o f t h e cases. But still the bankers violate the authorities
very easily. They just needto collude with the outside parties. However the detection
of the collusionsis possible in most of the cases if the higher authorities are willing to dig
thefrauds.
Maintain the tone of Ethics at the top:
The subordinates have the tendency to follow their superiors. When
thes i g n a l s a r e p a s s e d o n t o t h e m i d d l e m a n a g e m e n t a b o u t t h
e u n e t h i c a l behavior of the top management the fear of punishment gets
reduced andthe tendency of following the superior dominates. Fear vanishes when
thetendency of "If I have to die I'll take along the superior and die" tendencyrises.
Review and enforce password security:
The incidences of hacking and the Phishing have troubled the Indian PrivateSector banks to a
great extent. In addition to this most of the Indian banksare running behind the
ATM and credit cards to compete with each other but have conveniently
forgone the fact that ATM cards and the credit cardsare the best tools available
in the hands of the fraudsters. Inappropriate sy s t e m a c c e s s m a k e s i t
p o s s i b l e t o s t e a l l a rge a m o u n t s o f m o n e y v er y quickly and, in many
cases, without detection. Hence the review and the enforcement of the security
policy are going to be a crucial.
Promote the Whistle blowing Culture:
Many of the surveys on Frauds have shown that the frauds are unearthed byt h e " T I P S "
f r o m i n s i d e r or m a y b e f r o m o u t s i d e r s . I n t e r n a l a u d i t s
a n d i n t e r n a l c o n t r o l s c o m e m u c h l a t e r. T h e m e s s a g e a b o u t c o n t a c t i
n g t h e vigilance officers is flashed in most of the branch premises.
However theethics lines are very rarely seen. The ethics lines are the help
lines to thee m p l oy e e s or t h e w e l l - w i s h e r s o f t h e b a n k w h i c h t e l l s
t h e m w h e t h e r a particular activity constitutes a fraud or not.
Conduct pre-employment screening:
Since the raw material of the Banks is cash the banker needs to be
morealert than any other employer before they recruit. Only testing the aptitudeof
a person is not of any use. Know whom you are hiring. More than
20 percent of resumes contain false statements. Most employers will
onlyconfirm dates of employment. Sometimes post employment condition mightcreate the
17

FRAUDS IN BANKING

greed in the minds of employee, hence at least the bankers shouldtest check the characters
of their subordinates by creating real life scenariossuch 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?
Whot h e y r e p r e s e n t t h e m s e l v e s t o b e ? L o o k a t t h e i r o w n e r s h i
p , c l i e n t s , references, and litigation history. In many cases the potential
fraudstershave history of defaulting in some other bank or Financial Institution.
TYPES OF SCAMS
Scams are attempts to intentionally mislead a person, usually with the goal of
financial or other gain. Many Australian customers have fallen prey to various
different scams. It's important for you to understand how to recognise scams and
avoid them. So heres a few tips to help you.
Top tips to avoid scams
1.
2.
3.
4.
5.
6.

If it looks too good to be trueit probably is.

ALWAYS get independent advice if an offer involves significant money,
time or commitment.
Remember there are no get-rich-quick schemes: the only people who make
money are the scammers.
NEVER send money or give credit card or online account details to anyone
do not know and trust.
Check your bank account and credit card statements regularly. If you see a
transaction you cannot explain on your ANZ account, contact us on 13 13 14.
Keep your credit and ATM cards safe. Do not share your personal identity
number with anyone. Do not keep any written copy of your PIN with the card.
Scams come in all shapes and sizes, its good to understand what the latest and
most common scams affecting Australian consumers are. So heres some
descriptions of scams and how they work to try and take your money.
Job scams
Mystery shopper scams
Dating and Bogus friend scams
Online purchasing scams
Direct debit scams
Lottery scams
18

FRAUDS IN BANKING

Genealogy scams

Job scams
Be wary of various job scams advertised via the Internet. Bogus overseas
companies have been targeting Australian consumers to act as money transfer
agents in the sale of goods and services via methods such as fake job
advertisements, unsolicited emails and online chat rooms.
Employees are asked to use their own bank accounts to transfer money overseas
made from sales in Australia. In fact, they will be transferring stolen money. In
most cases, employees are instructed to send these funds to Eastern European
countries. Employees are promised a percentage of the transfer as their
commission.
The fake job advertisement websites look very professional and convincing. Some
job advertisements contain malicious software that allow the job advertiser to
access the persons computer and collect their personal details, including bank
account details. Exercise extreme caution if you receive an email from any person
or company asking for your personal and banking details.
Finally, if it sounds too good to be true it probably is.
Mystery shopper scams
You might apply for a job as a mystery shopper and are sent some money to
purchase a few small goods. Then you are asked to mystery shop the services of
money transfer companies like Western Union and send money overseas. This
money is from Internet Banking Fraud, counterfeit Travelers cheques or business
cheques.
Dating and bogus friend scams

19

FRAUDS IN BANKING

Dating and Bogus Friend scams aim to appeal to your romantic or compassionate
nature. It may start as a friend request on Facebook from someone you dont know
or via Internet dating sites.
Scammers will attempt to build your trust over what could be a number of months,
revealing personal information to you, sending you gifts or promising to visit you.
Once theyve gained your trust, theyll ask you for money either directly or subtly
by telling you of an ill relative that needs the funds for medical treatment or how
theyre enduring financial hardship and need some funds. You could lose your
money doing this, and many Australians have.
In other cases they may ask you for your banking/credit card details because they
need to get some money out of the country or want to share some with you. This
may be money laundering.
Online Purchasing Scams
There are a range of online purchasing scams for buyers and sellers alike. Some
include:
Direct debit scam
Direct debit fraud happens when you receive a couple or even just one small credit
to your account as small as 1 cent. The credit is made with a six digit code, which
once confirmed by the bank allows direct debits to come from that account.
Scammers use your compromised Internet Banking to get this code and go about
direct debiting your account of funds.
Lottery scams
This is when you get a phone call, email or letter letting you know youve won an
online lottery or a lottery draw overseas. But before you can get your prize money
you are asked to send them money to claim your prize. There is no prize money
and the money you send is lost.
Genealogy site scams
20

FRAUDS IN BANKING

These happen when you are contacted by someone letting you know that you are
the last living relative of a wealthy person who has passed away. For you to inherit
their fortune you need to pay some legal fees. Again there isnt any inheritance and
the money you send goes to the scammers.

SECURITY

Arm yourself with the knowledge to avoid bank fraud----the below information
will guide you in keeping your money safe.
Identity Theft
Be careful with your personal identification information. People who steal
identities use a variety of methods:
Dumpster Diving-rummaging through trash searching for personal information.
Skimming-stealing credit/debit card numbers by using a special storage device
when processing your card. (Sometimes found on ATMs.)
Phishing-pretending to be financial institutions in an attempt to scam a customer
into surrendering personal information that will be used for identity theft.
Changing Your Address-Diverting billing statements to another location by
completing a change of address form.
Old-Fashioned Stealing-stealing wallets and purses; mail, including bank and
credit card statements; pre-approved credit offers; and new checks or tax
information.
Pretexting-using false pretenses to obtain your personal information from
financial institutions, telephone companies, and other sources.
Best Practices for Online Banking

21

FRAUDS IN BANKING

How to use different means to help make sure the financial institution is
legitimate and it's safe to transact:

Banks should not solicit you for passwords, account numbers, or other
personal informationif you receive an email requesting such; call your
financial institution using the number on your statement or credit card, not the
one in the email.
Access the online banking website by typing the URL
(www.wsfsbank.com) into the address bar, rather than any link embedded in
an email.
Always check the browser for a "lock" icon. It is important to understand
that the lock signifies a secure communication channel to a website, however
it does not indicate a legitimate website.
When logging into the Online Banking system be sure to check for your
personalized image. This image indicates that you are performing Online
Banking on a legitimate website which has confirmed your identity.
Check for anything that looks unfamiliar, unprofessional, or out of place to
you.

Securing your PC for online transacts:

Maintain active and up-to-date antivirus, spyware, and firewall

protection.

Keep your operating system (for example, Windows XP), browser (for
example, Internet Explorer), and other applications (such as RealPlayer or
iTunes) updated with the latest security patches.

Avoid transactions at wireless hot spots, Internet cafs and public Internet
access points.
Password protection:

Use a strong passwordat least eight characters, with a combination of

numbers, letters, and punctuation symbols.
22

FRAUDS IN BANKING

DO NOT use the same password for banking that you use for other online
accounts.

Keep your password safeDO NOT leave your password stored in a file
your computer or written on paper.

Change your password periodically.

Checking your statements:
Online banking can actually help you protect your identitylog in and check your
financial statements regularly. Report any unauthorized transactions immediately.
Check your free annual credit report to spot accounts that may have been opened
without your knowledge.
Check Fraud
Check fraud is one of the largest scams in the United States. It occurs when
someone steals checks from your home, office or mailbox and forges your
signature. Check fraud can also occur when thieves alter the amount or name on a
checks that you have previously written. Always be aware of who you write check
to as well as how many checks you have.
Credit Card Fraud
There are many ways that a person can be a victim of credit card fraud. If you card
is stolen or you receive a credit card statement from a card you did not request
these are warning signs of possible credit card fraud. A few ways to protect
yourself include, protecting your credit cards and card numbers, dont keep PIN
numbers near your cards, properly destroy all credit card receipts and statements
when no longer needed, limit the number of credit cards by canceling those you
dont use and cut up old cards after they expire.
The Phony Investigator
In this scam, a consumer is approached by someone claiming to be a bank
examiner, bank security officer, police officer, Internal Revenue Service (IRS)
auditor or some other agent involved in an official review or investigation. The
successful thief walks away with the cash or the confidential information that can
be used to raid the consumers bank account. Be wary of anyone who approaches
you claiming to be a government employee investigating a bank, a bank employee,
23

FRAUDS IN BANKING

or otherwise asking for access to your cash or bank records. Government agencies
do not turn to bank customers to withdraw personal funds or give account
information as part of an investigation. Also, in cases such as IRS audits, youll be
notified in advance by mail.
Telemarketing Fraud
With this type of fraud, people receive unsolicited phone calls or mailings with an
offer of prizes, merchandise or other opportunities. People agree over the phone to
give cash or bank account information up-front to take care of a supposedly minor
fee or tax. Only later do people discover that the thief has taken their money. Be
wary of high-pressure sales people offering prizes, goods or services that can only
be delivered upon receipt of cash, a credit card number or checking account
number. To avoid telemarketing fraud, buy only from a reputable telemarketing
firm. Never pay a fee to receive something free. If you have doubts about a
particular firm, contact the Better Business Bureau and/or the Federal Trade
Commission to identify if any complaints have been registered against the
firm. Also be aware that no one at WSFS Bank will ever call you asking you
for your credit card or account information.

SOME REAL LIFE

UDS:-ILLUSTRATION:

EXAMPLES

OF

BANK

FRA

A classic case is the recent loan racket busted by the Uppal police
inS t a t e B a n k o f I n d i a ( S B I ) ' s C h i k k a d p a l l y b r a n c h . T h e m o d u s o p
erandia d o p t e d b y t h e r a c k e t e e r s w a s i n t e r e s t i n g . A g a n g o f f
o u r m e m b e r s approached owner of a newly-constructed apartment building
saying theywere interested in buying the flats. The gang took xerox copies of the building
documents after entering into anoral agreement of sale with the builder by paying Rs. 2 lakhs as
an
advance.L a t e r, t h ey c r e a t e d f o r ge d d o c u me n t s i n t h e n a m e o f b u i l d i n
g ' s o w n e r establishing that the latter had sold five flats to five defence
employees.Incidentally, the salary slips and other documents submitted by
the loanseekers were found to be genuine. "This was made possible
because thegang paid money to the defence employees to utilize their documents," saysan
24

FRAUDS IN BANKING

investigator. The gang hired an impostor who executed the sale

deed posing
as
the
original
building
owner." W e c o u l d n o t e s t a b l i s h c r i m i n a l n e g l i g e n c e o n t h e p a r t
o f t h e b a n k manager and hence he was not arrested," say the
detectives. The policelearnt that the main lapse in the system is that the banks
never asked for theoriginal documents at any stage except for the sale deed
for execution of which the offenders planted an impostor.
ILLUSTRATION:
October 2009:The special CBI court of Bela Trivedi convicted three people
in
a
bank f r a u d c a s e . T h ey w e r e g i v e n f i v e y e ar s o f r i g or o u s i mp r i s o n
m e n t . T h e convicted were identified as Minesh Dave, agriculture officer
and bank manager Edar branch Bank of Baroda, Natwar Lal Patel and Jasu
Patel.Prosecution lawyer, JN Parmar said, "The three submitted fake chequeso f S t a t e
bank of India, Manekchowk branch and withdrew mone
y amounting to Rs22.45 lakhs from Bank of Baroda (Edar branch) from 1982to
1986." NRI lost Rs4.62 lakhs in ICICI bank fraud - There is a reported
case of multiple fraudulent transaction on the ICICI account of Mr. Govind Mishra.The
incident happened when Mr. was on a 2 weeks leave in Australia withhis family.
Some people by some means busted into the account (mobile phone
transactions) and drained out about Rs 4.62 lakhs. Mr. Mishra has b e e n
in contact with the bank authorities but the response is not
v e r y encouraging. The Bank is citing answering to fraudulent e-mail which
Mr.Mishra denied.

Mumbai is number one for banking fraud in country

Mumbai has lost Rs1,882 crore in fraud cases in 5 years. The amount recovered is
Rs63 crore.
Mumbai tops the list of cities with the highest number of frauds reported by banks,
with the money involved totalling Rs400 crore per year for the past five years.
While for the financial year 2010-11, banks in Mumbai reported 787 fraud cases
involving Rs1,049 crore, the tally for the national capital was 335 cases, with the
net amount lost being Rs269 crore, according to the documents obtained under the
Right to Information (RTI) Act from the Reserve Bank of India (RBI).
25

FRAUDS IN BANKING

Interestingly, the total number of banking frauds reported in Mumbai every year is
more than those of Delhi, Chennai, Kolkata and Bangalore taken together. While a
five year average figure for Mumbai is about 800 cases, the number for other cities
is approximately 200.
As per the report, of the 4,099 cases registered in Mumbai since 2006, only 564
cases (those where the amount involved is above Rs1 lakh) have been closed.
The city lost Rs1,882 crore over these five years, of which only Rs63 crore has
been recovered, reveals the RTI response. Experts blame the low recovery rate on
the
lack
of
know-how
in
detecting and preventing frauds in the era of internet and mobile banking.
Firstly, the banks do not even seem to have the required classification of internetrelated frauds. According to the RBI, there is no distinct category of Phishing
Complaints, and as such no separate data/information is classified/compiled in
this regard. But phishing is a common method of online identity theft where
information such as usernames, password and other bank details are acquired.
According to the internet banking guidelines issued by the RBI in 2001, banks
need to assess the risks arising out of phishing, consider them as operational risk
and cover it with insurance.
Either they are ignoring the RBI mandate or are hiding the information, said Na
Vijayashankar,
cyber
law
expert.
Banks evade responsibility
DNA also has found out that bank managements reluctance to own up to such
frauds is also a factor causing a pile-up of banking fraud cases, and consequently, a
low recovery rate. Sources in the banking industry confirm that banks do not
follow up fraud cases and pass the buck to the customers despite RBI guidelines
directing banks to take complete responsibility.
A former top official of Indian Overseas Bank said that banks avoid owning up to
such cases out of fear that it will damage their reputation, with a resultant loss of
customer base. Most of the time banks pass the responsibility of recovering the
money to the customers themselves, he said.
There are several cases where banks have refused to take any responsibility for
banking fraud. Gujarat Petrosynthese Ltd, a Mumbai-based company lost Rs.39,
00,550/ from its account with Axis Bank, Bangalore, on 20th June 2011 to hackers.
26

FRAUDS IN BANKING

The police are investigating. But the banking sector has not been sympathetic,
said Urmi N Prasad, executive director with Gujarat Petrosynthese Ltd.
Similarly, Pramod B Bauskar from Mumbai lost Rs 1,97,000 from ICICI bank to
an internet fraud in mid-2011. Bank officials rejected my plea outright, saying it
was my fault and the bank will not do anything about it, said Bauskar.Some Cases
Not Registered . Apart from the registered cases where the recovery rate has been
pathetic, many fraud cases are not even registered. Several bankers told DNA that
most internet banking frauds cases at the customer level itself, as banks bully the
customers into believing that they themselves are responsible.
RBI
guidelines
for
fraud
cases
The RBI requires banks to pursue fraud cases vigorously with the CBI or police
authorities, and in court. In the case of public sector banks, all fraud cases below
Rs1 crore should be reported to the local police, except when the CVO and CMD
consider it serious, and when the cases cannot be classified in monetary terms. In
those cases, the frauds are referred to the CBI. Cases above Rs 1 crore must be
referred to a different wing of the CBI depending on the category it falls into.
In the case of private sector banks, frauds of Rs1 lakh and above committed by an
outsider in connivance with a bank official should be referred to the local police.
So should cases of fraud committed by a bank employee involving funds of
Rs10,000/- and above. DNA found that in many of the cases the banks do not
follow the RBI guidelines.
Man held in bank fraud case

HYDERABAD: Cyberabad police have arrested a former ICICI Bank employee

for siphoning off Rs 32 lakh from a Canadian national's bank account in a
fraudulent manner.
Police arrested B Raghu Kishore Reddy, an ex-employee of ICICI Bank's
international banking group call centre located at its Gachibowli office. According
to the Cyber Crime sleuths of the Cyberabad police, Pierre Courtot, a Canadian
national who has an account (A/C No.101252291) with the ICICI Bank, on
January 24 called up the bank's call centre to reactivate his account which had
become inactive.

27

FRAUDS IN BANKING

Raghu attended Pierre's call. As per the customer's request, he reactivated his
account after following the necessary guidelines. However, while reactivating the
account, Raghu noticed that there was an amount equivalent to Rs 32, 09,819 lying
in Pierre's account since a long time and decided to steal it.
To steal the money, Raghu first reactivated the inactive internet banking account of
Pierre using the personal details given by him during the previous transaction.
Raghu then added a bank account of a dead private college employee from
Bangalore as a beneficiary account to the Pierre's internet banking account.
"Unlike Indian customers, ICICI Bank's international customers do not get an SMS
alert when a beneficiary account is added to their net banking account. The culprit
knew this and used to loophole to execute his plan," sub-inspector (SI) Srinivas
said.
After adding the beneficiary, Raghu transferred the entire amount in Pierre's
account into that and withdrew it from various ATMs.
Based on a complaint lodged by Pierre on May 17, Roopesh Trivedi, AGM, phone
banking division at ICICI Bank's Head Office in Hyderabad, lodged a complaint
with the Cyberabad police and a case was registered under sections 409, 419,420
of the IPC & sections 66 (C& D) of the IT Act, 2000.
After a quick probe, police zeroed in on Raghu at his house in Maseedbanda near
Kondapur on Tuesday and recovered Rs 2.47 lakh cash and Rs 33,000
worth gold from his possession. Police have launched a man-hunt to apprehend
Srinivas Chimili, an employee of Narayana educational group who had assisted
Raghu in opening the beneficiary account.

One held in Mumbai's Rs.1 crore e-banking fraud

One accused was arrested Saturday and a hunt launched for 11 others in connection
with a Rs.1 crore illegal transfer from a businessman's bank account here, police
said.
"We have arrested one person in this connection and are on the lookout for another
11 who are suspected to be involved in this fraud," Additional Police
Commissioner
(East)
Quaiser
Khalid
told
IANS.
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FRAUDS IN BANKING

The financial crime - considered to be among the biggest online banking and
business fruads - took place Thursday in Mulund in north Mumbai.
Ankur Korane, 29, a director in a cosmetic company, suspected something amiss
that morning when he received 12 SMSes informing him of debits of Rs.12
lakh, Rs.5 lakh, Rs.15 lakh and other amounts totalling Rs.1 crore.
After the first two messages, Korane asked his bank to freeze his account but was
told
to
furnish
a
police
complaint.
Korane went to Mulund police station and lodged his complaint of cheating, fraud
and
impersonation.
Police said that the Rs.1 crore siphoned off from his account was transferred to 12
different
bank
accounts
all
over
India.
Investigators suspect that Korane's e-banking details may have been stolen to
perpetrate the fraud

Fraudulent bank loans hit Rs. 6,000 cr in 2011, CBI probe on

Indian banks are headed for more trouble after the bank fraud cell at the Central
Bureau of Investigation registered cases worth Rs. 6000 crore in calendar year
2011, sources told NDTV Profit. The Mumbai division of the unit alone registered
cases
involving Rs.2,000
crore.

Sources said most of these loans could turn into non-performing assets (NPAs), or
bad loans. The numbers will hurt the balance sheets of Indian banks, most of whom
are
already
struggling
with
rising
NPAs.

29

FRAUDS IN BANKING

In fiscal 2012, Indian banks sought to restructure $12 billion (aboutRs. 65,000
crore), up 156 percent from a year earlier. In In April 2012, at least 18 cases,
accounting for more than Rs7,300 crore were referred to the Reserve Bank of
Indias
corporate
debt
restructuring
(CDR)
cell.

All of these cases involve fraudulent loans taken out by companies that, in most
cases, have no assets or businesses to back it up. The CBI has registered cases
against the promoter of such companies and some bank officials could also be held,
the sources said. In many of these cases, the banks failed to check and implement
their Know Your Customer (KYC) norms that are meant to protect against such
fraud.

Since January 2012, cases worth Rs. 150 crore have already been registered by the
CBI.

The deception has hit both state-owned and private sector banks, but 80 per cent of
the
loans
involve
public
sector
banks.

In wake of the large amount involved, the CBI is also planning to write to the
Reserve Bank of India, asking it to direct banks to implement KYC norms more
strictly.

Increasingly, banks are approaching t CBI cell to investigate suspected cases of

bogus
companies
taking
out
loans
and
then
defaulting.

However, it is not just customers that are defrauding banks in some cases, the
banks
are
doing
it
to
themselves.
30

FRAUDS IN BANKING

In a major scandal last year, the CBI found that four nationalised banks -- Bank of
Maharashtra, Central Bank, Oriental Bank of Commerice and IDBI had
themselves opened about 10,000 fictitious accounts and transferred various loans
worth Rs. 1,500
crore
into
them.

The single largest instance was of a non-existent firm based in Gujarat Biotor
Industries that was given loans of Rs. 500 crore, allegedly in the names of
farmers.

OBC & Central Bank of India had the maximum exposure of Rs. 120 crore each,
while IDBI had Rs. 115 crore and Bank of Maharashtra, Rs.50 crore.

The CBI is investigating that case, and has also questioned senior management on
how KYC norms were flouted on such a large scale.

Bank employees swipe Rs. 17 lakh from model Anupama Verma's

account
These crooks had really long-term plans. Borivli police have arrested two bank
employees after they applied for a debit card in the name of model/actress
Anupama Verma and withdrew more than Rs. 17 lakh from her account. Verma
realised her account was empty when a cheque that she had issued bounced.
According to the police, the two culprits identified as Rakesh Vishwakarma and
Nitin Sharma were working for ICICI Bank's Nariman Point branch in 2010 when
Verma had opened the account and deposited the money. In June last year, the
actress had gone abroad and so had not been able to check her account for many
months, which was observed by the two accused. Police officers investigating the
case said the duo was also aware of the fact that Verma had received a debit card
but
hadn't
activated
it.

31

FRAUDS IN BANKING

Cashing
in
Cops added that the crooks then applied for a debit card in Verma's name, claiming
the previous one had gone missing. After they had quit their jobs they accessed
various ATMs in Borivli more than 170 times during which they withdrew Rs. 17.3
lakh (Rs. 13.3 lakh from her savings account and Rs. 4 lakh from a fixed deposit).
After the withdrawal, the two started working for other banks.
"When I gave a cheque of Rs. 7,500 to someone and it bounced, I was shocked.
However, I approached the bank and lodged a complaint. When I contacted the
relationship manager I was told that the next cheque would not bounce. However,
the cheque bounced twice more before being passed in July, when some interest
from my FD had been transferred to the savings account. It was only in December
last year when I realised that my account was completely empty," said Verma.
"I had also issued a cheque of Rs. 700 for another transaction. When that cheque
bounced, that's when I learnt about the theft," added Verma who later approached
the bank's head office, after which the institution paid her the full amount and
reported the matter to the police. However, the actress says she is not done.
'Don't
bank
on
anyone'
"I will also file a case against the bank. It was due to their negligence that I had to
face so many problems and harassment. If my money isn't safe in a bank, then
where else do I go? How can two bank employees create a debit card in my name
with false documents and then use it to withdraw such a large sum and the bank
doesn't
realise
something
is
amiss,"
she
said.
Police officers investigating the case said that they had traced the ATM centre from
where the withdrawals had been made. CCTV recordings revealed the two culprits
making
cash
withdrawals.
"We then tracked down the duo and arrested them on Wednesday for forgery and
theft. We are also trying to find out if any other present or former bank officials are
involved in the matter," said an officer from the Borivli police station.
The

two

will

be

presented
32

in

court

on

Friday.

FRAUDS IN BANKING

"First her money goes missing. Then the bank puts the blame on her and makes her
wait four months to recover her own money. This is totally preposterous. We'll be
sending a legal notice to the bank on Thursday," said advocate Hitesh Jain, who is
advising
Anupama
Verma.
Bank
says
"A fraud was detected in the account of a customer. ICICI Bank filed a police
complaint based on which the main accused and his accomplice have been
arrested. Bank has taken all steps to ensure customers financial interest is
safeguarded," said an ICICI Bank spokesperson in response to a detailed email
from MiD DAY

Four bank employees jailed for Rs. 1.7 crore fraud

Four former Central Bank of India officials have been sentenced to imprisonment
with terms ranging from five to six years by a Mumbai CBI Special Court for
cheating the bank of approximately Rs. 1.7 crore, an official said here on Monday.
Central Bureau of Investigation (CBI) Special Judge RG Asmar found four of the
six accused guilty of fraud and convicted them to jail terms along with fines.
Between 1993 and 2000, the six accused used forged documents and bank accounts
misusing their official positions to cheat the bank of the huge amount, a CBI
official said. They were booked in 2001 by the CBI and a charge sheet was filed
against
them
in
2003.
Those booked by the CBI were: Vijay Dattatray Deshpande was assistant branch
manager at Central Bank of India, Worli; Vaishali Vijay Desphande was assistant
manager at Santacruz branch; Sanjay Hari Velingkar, telephone operator-cum-clerk
at the Lamington Road branch; Jyoti Sanjay Velingkar who was clerk in the same
branch; and Sopan Anand Tiwari and Ratna Shetty, both clerks, at the Grant Road
33

FRAUDS IN BANKING

branch

of

the

bank.

Vijay Dattatray Deshpande, Vaishali Vijay Desphande and Jyoti Sanjay Velingkar
were awarded five years' rigorous imprisonment and fine of Rs. 1,20,000 each, and
Sanjay Hari Velingkar was sentenced to six years' jail term and fine of Rs. 100,000.
ATM fraud case: Mumbai Police zero in on 2 Bulgarians
The Mumbai Police, who are probing a recent ATM skimming fraud here, have
established the identity of two foreign nationals involved in the case.
The duo was identified from the CCTV footage of the Axis Bank's ATM located
outside the Maharashtra police headquarters in south Mumbai, a senior police
officer
said.
Sources said the two suspects were Bulgarians and they had installed a 'skimmer'
in
the
ATM
machine.

Earlier this month, a case was registered against unknown persons at Colaba police
station under IT Act and IPC after 37 people, including 15 policemen, fell victim to
card-cloning fraud to the tune of Rs 15.47 lakh, in which their money was
withdrawn in Greece.
e-Banking fraud- Navi Mumbai firm robbed of Rs 22 lakhs
In a latest case of e-banking fraud, a Navi Mumbai based firm was robbed of Rs 22
lakhs via 14 transactions. However in this case the suspect used forged documents
to get a duplicate SIM in the name of the CEO of Rheno International Agencies,
then the suspect who obviously had gained access to the firms bank account
password used the SIM card to receive OTP (One Time Password) being sent over
by Kotak Mahindra Bank 9the firms banker) to transfer funds. Upon realising that
the CEOs SIM card had stopped working, the CEO approached his Mobile Service
Provider, who informed him of the Duplicate SIM card issuance. The Navi
Mumbai police have filed a case under IPC and the IT act.

34

FRAUDS IN BANKING

In this case however the Mobile company should have been more vigilant;
normally a Mobile Service Provider should not accept any application for issuance
of Duplicate SIM card without a copy of Police complaint from the subscriber and
should not have issued a SIM card without a Authority letter coupled with
verification over phone.
We sincerely appeal our readers to be safe and do not click on any unauthorised
mails. Also, please force your bankers to move to three step authentication just like
some banks do where a transaction password with mobile validation code is
required.

Lessons from Citi Bank fraud

Fraud is defined as Deceit, trickery or breach of confidence, perpetrated for profit

or to gain some unfair or dishonest advantage. Whereas mis-selling is defined as
Ethically questionable practice of a salesperson misrepresenting or misleading an
investor about the characteristics of a product or service. In an effort to make a sale
to a potential customer, a financial products salesperson could leave out certain
information or describe a financial product as something the investor urgently
35

FRAUDS IN BANKING

needs, even though sound financial judgment would come to the opposite
conclusion. Indian Financial Services sector are replete with instances of fraud
and misselling which occur time and again.
CITI Bank Case
The modus operandi of recent frauds on wealth management at CITI Bank,
Gurgaon has unraveled how combinations of greed and promise of higher returns
has facilitated the relationship manager to manipulate the system and expose the
NRIs and Corporates to the risk of losing their money. The customers were
promised high returns by misrepresenting a nonexistent SEBI circular. The
investors were driven by greed of higher return and therefore easily influenced by
the relationship manager to act according to his direction. The funds were diverted
to the security market and used for derivative transactions without hedging the
downside risk. Once the market moved against the leveraged positions, the margin
calls were triggered which resulted in the inevitable.
Lessons from Bank Fraud

Firstly, the back ground and professional qualifications of the sales person or the
relationship managers should be verified before trusting them to manage or take
decisions on the customers money. Secondly customers should not get carried
36

FRAUDS IN BANKING

away by big names or large size of wealth management entities. Thirdly customers
should be clear on their own financial goals and should not be driven by
greed . Fourthly the sales person and the relationship managers should undertake a
due diligence on the risk bearing capacity of the customers. Fifthly the customers
should not be promised high returns and the risk appetite of the customer should be
factored in deploying their funds in various asset classes. Sixthly the internal
controls and systems of the wealth management entities should be clearly
defined. The last but not the least; the customers should not lend their signature to
any document without understanding the implications of the document.
What should the customers do?
Firstly, the customers should depend on trusted financial planners and advisers
who are professionally qualified and governed by a sound code of professional
conduct. For example, the CERTIFIED FINANCIAL PLANNERS of the FPSB
India are governed by the code of ethics like integrity, objectivity, Competence,
Fairness, Confidentiality, Professionalism, Diligence and Compliance and fifty
eight rules of code of conduct under these code of ethics.
Secondly the customers should share the financial goals and the time frame by
which the funds are required to meet these goals.
Thirdly the customers should decide and share the risk bearing capacity. The risk
appetite will depend on the life stage needs. At the beginning of the career, one
may take high risk. If someone is approaching retirement or already retired, the
risk appetite will be low since he/she cannot afford to lose money. Further the
customers should keep in mind that the higher the return they expect, the higher the
risk. In case of equities, the return may be higher but the capital invested may be
eroded if the market crashes. Similarly in case of derivatives, the leveraged
position gives scope for high profit if the market moves with the expectation of the
customer and vice versa. In case of fixed income securities, the benefit comes out
of coupon income and capital appreciation/depreciation. When the interest rate
goes up, the value of securities comes down and when the interest rate goes down,
the value of securities goes up. The simple formula for equity exposure is 100
minus the age. Asset allocation amongst various asset classes e.g equities, fixed

37

FRAUDS IN BANKING

income securities, Mutual Funds, Real estate, Gold etc will ensure diversification
amongst various asset classes and mitigate the concentration risk.
Fourthly the customer should enquire what can go wrong in investing and what
can be done about it. Volatility is a way of life in the market and periodical and
long term investing through SIPs are recommended strategy to overcome volatility.
It is also advisable to go for periodical rebalancing of the portfolio to bring the
asset allocation to its recommended proportion.
Fifthly the customer should inquire about the portfolio periodically and what has
happened to his/her money. In case the portfolio has not delivered as per the
expectation, the customer should ask what has gone wrong and if any corrective
actions are required. It also may happen that the needs undergo change during the
various life stages and it also requires a review of the portfolio.
Lastly the customer should enquire about the fees to be paid directly to
the planner/adviser and the commission to be earned indirectly. It has to be
remembered that it is always advisable to pay to get reliable and trusted advice
rather than expecting to get it free.

38

FRAUDS IN BANKING

Biblogarphy
http://en.wikipedia.org/wiki/Bank_fraud
http://www.anz.com/personal/ways-bank/security/online-security/threats-bankingsafety/fraud-types/
http://www.dnaindia.com/mumbai/1634788/report-mumbai-is-number-one-forbanking-fraud-in-country
http://www.ndtv.com/article/cities/one-held-in-mumbai-s-rs-1-crore-e-bankingfraud-325768
http://profit.ndtv.com/news/banking-finance/article-fraudulent-bank-loans-hit-rs-6000-cr-in-2011-cbi-probe-on-305708
http://www.ndtv.com/article/cities/bank-employees-swipe-rs-17-lakh-from-modelanupama-verma-s-account-172659
http://www.ndtv.com/article/cities/four-bank-employees-jailed-for-rs-1-7-crorefraud-160963
http://zeenews.india.com/news/maharashtra/atm-fraud-case-mumbai-police-zeroin-on-2-bulgarians_857251.html

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