Banks want power to freeze mule accounts to stop cyber fraud: Report

IANS April 13, 2025 273 views

Banks in India are urgently seeking new legal powers to combat rising cyber fraud by freezing suspicious accounts without lengthy approvals. The Indian Banks' Association has proposed using advanced technologies like AI and machine learning to detect and prevent money laundering through mule accounts. Their recommendations include verifying customer identities through official databases and implementing stricter transaction monitoring systems. These proposed measures aim to create a more robust and secure banking environment that can quickly respond to emerging digital financial threats.

"Investments in advanced technology, regular staff training, and policy changes would be key" - IBA Report
New Delhi, April 13: Banks have asked for the power to freeze bank accounts being used for cyber frauds without waiting for court or police approval, according to a report by a working group set up by the Indian Banks' Association (IBA).

Key Points

1

Banks want legal authority to freeze suspicious accounts instantly

2

Mule accounts exploit current regulatory gaps in financial system

3

AI and machine learning proposed to detect fraudulent transactions

4

Election Commission database recommended for customer verification

At present, banks can only block accounts based on internal alerts, but under the Prevention of Money Laundering Act (PMLA), they do not have the legal authority to freeze or block customer accounts without proper authorisation from a court or a law enforcement agency.

The IBA report said this delay often gives fraudsters enough time to escape or transfer the illegal money. "In light of this, we may propose this as a suggestion for further consideration by the RBI," the report stated.

Mule accounts -- those used by cybercriminals to move stolen or illegal money -- are at the centre of this concern.

Even though banks freeze thousands of such accounts every year, fraudsters quickly open new ones by exploiting system loopholes.

To tackle this, banks are now considering ways to identify and limit accounts that are more likely to be misused as mule accounts.

The report suggested that banks could use the Election Commission’s database to verify customers who open accounts using voter ID cards or Form 60 (in cases where PAN is not available).

It also proposed capping the number of transactions that such accounts can carry out.

The report further recommended that banks adopt a technology-driven approach to deal with cybercrime.

By using artificial intelligence (AI) and machine learning in their transaction monitoring systems, banks can better predict and prevent fraudulent activities.

It added that a strong fight against mule accounts would require collaboration between banks, regulators, law enforcement agencies, and technology providers.

"Investments in advanced technology, regular staff training, and policy changes would be key," the report mentioned.

The report said these steps could help create a safer banking system and protect customers from cyber fraud involving money mule accounts.

Reader Comments

R
Rahul K.
This is a much-needed step! My cousin lost ₹50,000 to a scammer last month because the bank couldn't act fast enough. If they had frozen the account immediately, the money might have been recovered. 👍
P
Priya M.
While I understand the need to stop fraud, giving banks unilateral power to freeze accounts worries me. What if they make mistakes? There should be proper safeguards and quick appeal processes.
A
Amit S.
The AI solution sounds promising! Banks need to stay ahead of these criminals who keep finding new loopholes. Technology + human oversight seems like the right approach.
N
Neha P.
Using Election Commission data is smart! More verification layers = fewer fake accounts. But banks must ensure data privacy isn't compromised in the process.
S
Sanjay R.
I work in fintech and can confirm mule accounts are a huge problem. The transaction capping idea is good, but fraudsters will just spread money across more accounts. Need better detection at account opening stage.
M
Meena K.
Hope they implement this carefully. Last year my account was wrongly flagged and frozen for 3 days - it was a nightmare! Banks need to be 100% sure before freezing accounts. 😐

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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Tags:
Cyber Fraud Banking Security Money Laundering Indian Banks Association Mule Accounts RBI Cybercrime Prevention
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