Banks seek power to freeze accounts in case of illicit transactions

To check cyber fraud through mule accounts, banks are seeking authority to freeze accounts involved in channelling illicit transactions without wasting precious time in seeking permission from authorities.

Banks freeze/block accounts based on internal triggers, however, as per the Prevention of Money Laundering Act (PMLA), they do not have the authority to freeze or block customer accounts without proper authorisation from a court or law enforcement agencies (LEAs).

"In light of this, we may propose this as a suggestion for further consideration by the RBI," a working group constituted by the Indian Banks' Association said in a report.

Mule accounts are used by fraudsters to move illegal funds through the banking system. Although banks freeze thousands of these accounts every year, fraudsters quickly create new accounts using loopholes in the system.

Besides, it said, banks may look to verify and restrict accounts most vulnerable to misuse as "mule" accounts for channelling illicit money.

Banks have proposed using the Election Commission database to verify individuals who open accounts using voter identification cards and Form 60 -- in the absence of a permanent account number, or PAN -- and capping the number of transactions on such accounts.

The fight against mule accounts demands a dynamic, technology-driven approach. By integrating Artificial Intelligence (AI) and Machine Learning (ML) into transaction monitoring systems, banks can address existing gaps, anticipate criminal strategies, and protect the integrity of the financial ecosystem, it suggested.

A concerted effort involving investment in technology, staff training, and collaboration among stakeholders will ensure a more secure financial landscape.

The report represented a blueprint for curbing money mule activities, it said, adding that implementing these measures will require dedication and cooperation from financial institutions, regulators, law enforcement agencies and technology providers.

Together, it said, banks can safeguard the financial system against evolving threats and the menace of money mule accounts.