Bureau Live: Money Mules - The Underbelly of Financial Fraud

Bureau Live: Money Mules - The Underbelly of Financial Fraud

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Bureau Team
Bureau Team

June 7, 2024

Bureau Team
Bureau Team

June 7, 2024

Bureau recently hosted an enigmatic private fireside chat between a RegTech industry leader - Ranjan Reddy, and an expert in India’s BFSI sector - Ram Rastogi. 

These industry stalwarts shed much-needed light on the rampant financial damages caused by money mules and the urgent need for a sustainable and scalable solution for banks and fintech in the country.  

Ram Rastogi, the Chairman of the Governance Council at the Fintech Association for Consumer Empowerment (FACE), is a digital payments strategist with over 43 years of experience in banking, payments, and financial inclusion. His work also spans developing and launching several real-time payment systems in India, such as the IMPS, UPI, AEPS, and BBPS and his contribution to the creation of RuPay and Aadhar-based biometric payments. 

Ram Rastogi’s integral role in India becoming a global digital payments leader has also equipped him with a deep understanding of how certain loopholes have directly or indirectly contributed to the rise of financial fraud and the crucial role of money mules as cogs that are running this wheel.  

Money mules represent a critical yet often overlooked element in the ecosystem of financial fraud. While high-profile fraud cases capture headlines, the true engine of illicit financial activity lies in exploiting unsuspecting individuals who unknowingly help transfer smaller amounts of illicit funds. 

These mules, whether witting or unwitting, facilitate the movement of money in ways that mask its illegal origins, making it difficult to trace and dismantle criminal networks. 

Read our deep dive on “Who are money mules?” here.  

Here are the core ideas that Ram Rastogi presented to show us the impact that money mules have had on banks and other fintech: 

  1. Regulatory Challenges: While regulators are aware of the money mule issue, they struggle to keep up with the sheer volume and increasing sophistication of fraud attacks. Even though there have been rapid technological advancements, inadequate support has often left them hesitant to invest and integrate these new digital security infrastructures.
  2. Exploited Loopholes: The current Indian financial ecosystem has multiple vulnerabilities that money launderers exploit to mask their activities. By keeping transactions below certain scrutiny thresholds set by the RBI, they can launder money without raising alarms. This strategy involves using numerous victims (in this case - money mules) to extract small amounts, cumulatively causing significant financial damage. Recent reports have also shown fraudsters extracting extremely low amounts, like ₹1,600, which the banks unfortunately have to absorb. 
  3. Compliance Pressures: Banks and fintech companies face immense pressure to comply with increasingly stringent regulations. The RBI recently imposed hefty fines on major banks, like a ₹1 crore fine on ICICI Bank and ₹91 Lakh on Yes Bank,  for non-compliance, highlighting the sector's struggle. Limited manpower and expertise make it challenging to consistently meet the demands of laws like DPDP and PMLA. This is why banks and financial institutions desperately need end-to-end support from RegTech companies. 

Ranjan R. Reddy, the Founder and CEO of Bureau, is a leading expert in payments and identity verification with 17+ years of industry experience. His profound knowledge of mobile wallets, payment gateways, and strategic leadership has driven Bureau to the forefront of combating online fraud. 

In response to Ram Rastogi, Ranjan shared a personal anecdote about nearly falling victim to phishing, emphasising that fraud does not discriminate. Everyday scams, such as romance scams, fake job offers, emergency requests, and fake parcel scams, aim to target vulnerable individuals and “recruit” them as mules of money laundering. These funds eventually accumulate in one account, where they are siphoned off. The pervasive nature of money mule schemes has also been magnified by new-age threats like Generative AI. 

Here is how Ranjan Reddy believes AI-powered identity verification platforms will be the only permanent solution: 

  1. Identity at the root core:  The root of the money mule problem lies in identity verification. Fraudsters frequently use synthetic or stolen identities to create mule accounts, taking advantage of frequent data breaches that have made getting data of those dead or with dormant accounts easy. This makes traditional KYC processes that look at verifying PII against government data repositories insufficient for preventing fraud. 
  2. Be proactive instead of reactive: To effectively combat money mule operations, it is crucial to prevent these accounts from being onboarded in the first place. Ranjan Reddy emphasised that at Bureau, the goal is to add an additional screening layer before the KYC stage. Using AI-powered mechanisms, Bureau assesses new users within 100 milliseconds to identify potential bad actors, preventing them from entering the financial system.
How, you ask? 

Bureau's approach involves detecting anomalous digital behaviour and implementing proactive measures. By analysing other contextual data of the user, such as SIM card activation times, the presence of multiple app clones on a device, and a lack of digital footprint, Bureau identifies high-risk behaviours that are indicative of mule accounts. 

Our technology uses 160+ alternate data points to assign risk scores, allowing banks and fintech companies to increase authentication friction for high-risk users strategically. See how our Money Mule Solution works here. 

At the end of the chat, the viewers were left with a nugget to chew on. Both leaders had a unanimous agreement on the need to democratise security. Money mule recruitment intensifies at the lower levels of society, where inclusion into the formal financial ecosystem has just begun. 

While initiatives like Aadhaar, UPI, and FastTag have democratised access to digital financial services, similar efforts with a similar impetus are needed to democratise security and protection so that the integrity of our financial ecosystems is upheld.

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