How RBI's New AI Model Will Track Mule Bank Accounts, Prevent Online Frauds | Explained

“Banks are encouraged to collaborate with RBIH to further develop the MuleHunter.AI initiative to deal with the issue of mule bank accounts being used for committing financial frauds," former RBI Governor Shaktikanta Das said on Friday.

Let us first understand what are mule accounts, RBI’s warnings against them and how the new AI model can prevent online frauds.

What Are Mule Accounts?

Mule accounts are bank accounts that facilitate illegal transactions by receiving and transferring funds from unlawful activities. In India, these accounts are often opened by individuals who offer their bank accounts for a fee, making tracking them difficult.

They are usually bought by individuals over by criminals from their original users, individuals who are often from lower income groups, or have low levels of technical literacy.

How The AI Model Prevents Frauds

MuleHunter AI uses machine learning to accurately identify suspicious accounts by tracking illicit funds. Advanced ML algorithms can analyse transaction and account detail related datasets to predict mule accounts with higher accuracy and greater speed than typical rule-based systems. This machine learning based approach has enabled the detection of more mule accounts within a bank’s system, the RBI said.

“The Reserve Bank has been taking various measures in coordination with banks and other stakeholders to prevent and mitigate digital frauds in the financial sector. These include RBI guidelines to regulated entities for strengthening cybersecurity, cyber fraud prevention and transaction monitoring. Use of money mule accounts is a common method adopted by fraudsters to channel proceeds of frauds," the RBI said in a press release.

Around 19 distinct patterns of mule account activity were analysed before creating this model, said the RBI.

The RBI said MuleHunter.AI “enables detection of mule bank accounts in an efficient manner". The MuleHunter AI model will provide smaller banks with necessary infrastructure to detect fraud, aiming to protect customers and enhance trust in the financial system.

How Are Mule Accounts A Big Problem In India?

Recent reports have indicated the existence of mule accounts in certain banks, which are being used for fraudulent transactions and loan evergreening.

Money mules are divided into five categories, according to an Economic Times report. First is the victim mule who is unaware that their account has been compromised through a data breach. The second is the mislead party, who unknowingly sends and receives money for a fraudster, typically responding to a job advertisement. The third category is when the fraudster opens new accounts with stolen identities to handle the stolen money. The fourth type of money mule sells their genuine account to a fraudster for illicit transactions. The last one willingly opens a new account under a fraudster’s direction.

Most of the incidence of illicit transactions have been reported from cities like Bhubaneswar, Lucknow, and Navi Mumbai, along with regions in West Bengal.

According to an Indian Express report, the Centre had frozen around 4.5 lakh such bank accounts, which were typically used for laundering proceeds of cyber crime last month. Of these 4.5 lakh mule accounts, around 40,000 were detected in various branches of SBI; 10,000 in Punjab National Bank (including Oriental Bank of Commerce and United Bank of India); 7,000 in Canara Bank (including Syndicate Bank); 6,000 in Kotak Mahindra Bank; and 5,000 in Airtel Payments Bank.

Former DFS Secretary Vivek Joshi had said in November 2023 that there should be some restrictions on withdrawing money from bank accounts which may have suddenly become active after having lain dormant for some time.

Meanwhile, bank frauds have more than trebled to 32,363, amounting to Rs 2,714.64 crore in FY24 compared to FY22, when 8,752 frauds were reported, amounting to Rs 9,298.4 crore, according to data given by Minister of State (MoS) Finance Pankaj Chaudhary in the Lok Sabha. These are frauds in commercial banks and All India Financial Institutions (AIFIs) with amounts involved Rs 1 lakh and above in each case.

According to the National Crime Records Bureau (NCRB), online financial frauds account for 67.8% of cybercrime complaints. Mule account cases have been on the rise, and around 53% of the total fraud threats to financial institutions were caused by money mules in 2023.