Академический Документы
Профессиональный Документы
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EXECUTIVE SUMMARY
INTRODUCTION
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CLASSIFICATION OF FRAUDS
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FRAUD BY INSIDERS
FRAUD BY OTHERS
TOP BANKING FRAUDS OFF ALL TIME
SOME STATISTICS OF FRAUDS IN THE BANKING
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SECTOR
LEGAL REGIME TO CONTROL BANK FRAUDS
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CONCLUSION
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BIBILOGRAPHY
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EXECUTIVE SUMMARY
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Frauds In Banks
Over the time, Banking customers have developed a preference for transacting through newer
channels like payments cards and online banking over traditional banking channels. While these
payment channels have the advantages of ease and speed of transacting, on the flip side, these
very advantages make banks customers vulnerable to the ploys of fraudsters. This paper looks at
the common weaknesses to which banking customers using cards and online banking for
executing transactions are exposed to. It focuses mainly on skimming and online frauds, probes
the nature of these frauds and reveals the newer trends within these fraud types. Further, this
paper explains how banks have been trying to control these frauds by improving their systems
and processes. It is evident that it requires considerable investment in systems/processes to
improve the fraud monitoring and detecting capabilities. Small and medium banks, with limited
IT budgets or fund constraints, have not been able to keep pace with the newer techniques
developed by fraudsters. Their ability to adopt newer /better technology for prevention, detection
& early warning of fraud being low , they are losing millions of dollars in addition to customer
confidence.
INTRODUCTION
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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 counterfeiting and breach of trust has been discusses which leads to the act
of fraud.
In Contractual term as described in the Indian Contract Act, Sec 17 suggests that a fraud means
and includes 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.
Banking Frauds constitute a considerable percentage of white-collar offences being probed by
the police. Unlike ordinary thefts and robberies, the amount misappropriated in these crimes runs
into lakhs and crores of rupees. Bank fraud is a federal crime in many countries, defined as
planning to obtain property or money from any federally insured financial institution. It is
sometimes considered a white collar crime.
The number of bank frauds in India is substantial. It in increasing with the passage of time. All
the major operational areas in banking represent a good opportunity for fraudsters with growing
incidence being reported under deposit, loan and inter-branch accounting transactions, including
remittances.
Bank fraud is a big business in todays world. With more educational qualifications, banking
becoming impersonal and increase in banking sector have gave rise to this white collar crime. In
a survey made till 2009 bank frauds in nationalised banks was of Rs.1497.60 crore.
CLASSIFICATION OF FRAUDS
Banking fraud can be classified as:
Fraud by insiders
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Frauds In Banks
Rogue traders
Fradulant loans
Wire fraud
Forged and fradulant documents
Uninsured deposits
Theft of identity
Demand draft fraud
Fraud by others
FRAUD BY INSIDERS
Rogue traders
A rogue trader is a highly placed insider nominally authorized to invest sizeable funds on behalf
of the bank; this trader secretly makes progressively more aggressive and risky investments
using the bank'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.
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Frauds In Banks
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 non-existent entity and the loan merely an
artifice to conceal a theft of a large sum of money from the bank.
Wire fraud
Wire transfer networks such as the international, interbank fund transfer system are tempting as
targets as a transfer, once made, is difficult or impossible to reverse. As these networks are used
by banks to settle 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.
Forged or fraudulent documents
Forged documents are often used to conceal other thefts; banks tend to count their money
meticulously so every penny must be accounted for. A document claiming that a sum of money
has been borrowed as a loan, withdrawn by an individual depositor or transferred or invested can
therefore be valuable to a thief who wishes to conceal the minor detail that the bank's money has
in fact been stolen and is now gone.
Uninsured deposits
There are a number of cases each year where the bank itself turns out to be uninsured or not
licensed to operate at all. The objective is usually to solicit for deposits to this uninsured "bank",
although some may also sell stock representing ownership of the "bank". Sometimes the names
appear very official or very similar to those of legitimate banks. For instance, the "Chase Trust
Bank" of Washington DC appeared in 2002 with no license and no affiliation to its seemingly
apparent namesake; the real Chase Manhattan bank, New York. There is a very high risk of fraud
when dealing with unknown or uninsured institutions.
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Theft of identity
Dishonest bank personnel have been known to disclose depositors' personal information for use
in theft of identity frauds. The perpetrators then use the information to obtain identity cards and
credit cards using the victim's name and personal information.
Demand draft fraud
DD fraud is usually done by one or more dishonest bank employees that is the Bunko Banker.
They remove few DD leaves or DD books from stock and write them like a regular DD. Since
they are insiders, they know the coding, punching of a demand draft. These Demand drafts will
be issued payable at distant town/city without debiting an account. Then it will be cashed at the
payable branch. For the paying branch it is just another DD. This kind of fraud will be
discovered only when the head office does the branch-wise reconciliation, which normally will
take 6 months. By that time the money is unrecoverable.
FRAUD BY OTHERS
Forgery and altered cheques
Thieves have altered cheques to change the name (in order to deposit 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 100,000.00, although such a large figure may raise some eyebrows). Instead
of tampering with a real cheque, some fraudsters will attempt to forge a depositor's signature on
a blank cheque or even print their own cheques drawn on accounts owned by others, non-existent
accounts or even alleged accounts owned by non-existent depositors. The cheque will then be
deposited to another bank and the money withdrawn before the cheque can be returned as invalid
or for non-sufficient funds.
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Frauds In Banks
Stolen cheques
Some fraudsters obtain access to facilities handling large amounts of 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;
accounts are then opened under assumed names and the cheques (often tampered or altered in
some way) deposited so that the money can then be withdrawn by thieves. 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
investment in the company's bond or security issues or to make fraudulent loan 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 disposal to gain confidence
with a bank, by appearing as a genuine, profitable 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 its customers. These payments are always made, as the customers in question are part
of the fraud, 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 is not removed from the account on which
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Frauds In Banks
which could easily give you a heart attack? Then you have been a victim of credit card fraud and
you know how frustrating it is! Credit card fraud is any theft or fraud committed by using a
stolen credit card forpayment. It is classified as theft of identity. It is taken as a serious crime by
the federal law and involves serious penalties. The degree of these credit card fraud penalties are
decided according to the degree of fraud committed by the person or persons. You will be
surprised to know, that credit card frauds, every year, cost from millions to billions of dollars to
credit card companies and merchants combined.In the United States of America, the merchants
from whom the items were purchased using a false credit card, have to pay for cost of the fraud.
In fact a merchant has to pay an extra chargeback fee too in some cases. In many other countries,
the credit card companies take responsibility and pay the cost of fraud. In very few countries, the
true card holder himself has to face the brunt and pay the cost.
Famous credit fraud attacks
Between July 2005 and mid-January 2007, a breach of systems at TJX Companies exposed data
from more than 45.6 million credit cards. Albert Gonzalez is accused of being the ringleader of
the group responsible for the thefts. In August 2009 Gonzalez was also indicted for the biggest
known credit card theft to date information from more than 130 million credit and debit cards
was stolen at Heartland Payment Systems, retailers 7-Eleven and Hannaford Brothers, and two
unidentified companies.
Booster cheques
A booster cheque is a fraudulent or bad cheque used to make a payment to a credit card account
in order to "bust out" or raise the amount of available credit on otherwise-legitimate credit cards.
The amount of the cheque is credited to the card account by the bank as soon as the payment is
made, even though the cheque has not yet cleared. Before the bad cheque is discovered, the
perpetrator goes on a spending spree or obtains cash advances until the newly-"raised" available
limit on the card is reached. The original 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 'phone call from a credit card
issuer asking if the person has gone on a spending spree; the simplest form of this theft involves
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stealing the card itself and charging 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 drawing attention by stealing the card itself) in order to use the numbers in online
frauds.
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.
Frauds In Banks
overstate profits in order to make a risky loan appear to be a sound investment for the bank.
Some corporations have engaged in over-expansion, using borrowed money to finance costly
mergers and acquisitions and overstating assets, sales or income to appear solvent even after
becoming seriously financially overextended. The resulting debt load has ruined entire large
companies, such as Italian dairy conglomerate Parmalat, leaving banks exposed to 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 site which is designed to look like the login to the
legitimate site but which claims that the user must update personal info. The information thus
stolen is 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 to snoop on Internet users while
online, capturing keystrokes or confidential data in order to send it to outside sites.
Money laundering
The term "money laundering" dates back to the days of Al Capone Money laundering has since
been used to describe any scheme by which the true origin of funds is hidden or concealed. The
operations work in various forms. One variant involved buying 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 a loan at another bank. The borrower would then default on the loan. The
securities, however, would still be worth their full amount. The transaction served only to
disguise the original source of the funds.
Forged currency notes
Paper currency is the usual mode of exchange of money at the personal level, though in business,
cheques and drafts are also used considerably. Bank note has been defined in Section 489A.If
forery of currency notes could be done successfully then it could on one hand made the forger
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millionaire and the other hand destroy the economy of the nation. A currency note is made out of
a special paper with a coating of plastic laminated on both sides of each note to protect the ink
and the anti forgery device 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 catch hold of such forgers as once such notes are
circulated its very difficult to track its origin.
Prime bank fraud
The "prime bank" operation which claims to offer an urgent, exclusive opportunity to cash in on
the best-kept secret in the banking industry, guaranteed deposits in "prime banks", "constitutional
banks", "bank notes and bank-issued debentures from top 500 world banks", "bank guarantees
and standby letters of credit" which generate spectacular returns at no risk and are "endorsed by
the World Bank" or various national governments and central bankers. However, these officialsounding phrases and more are the hallmark of the so-called "prime bank" fraud; they may sound
great on paper, but the guaranteed offshore investment with the vague claims of an easy 100%
monthly return are all fictitious financial instruments intended to defraud individuals.
The fictitious 'bank inspector
This is an old scam with a number of variants; the original scheme involved claiming to be a
bank inspector, claiming that the bank suspects that one of its employees is stealing money and
that to help catch the culprit the "bank inspector" needs the depositor to withdraw all of his or her
money. At this point, the victim would be carrying a large amount of cash and can be targeted for
the theft of these funds. Other variants included claiming to be a prospective business partner
with "the opportunity of a lifetime" then asking for access to cash "to prove that you trust me" or
even claiming to be a new immigrant who carries all their money in cash for fear that the banks
will steal it from them - if told by others that they keep their money in banks, they then ask the
depositor to withdraw it to prove the bank hasn't stolen it. Impersonation of officials has more
recently become a way of stealing personal information for use in theft of identity frauds.
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Frauds In Banks
the increased prevalence of online fraud is deterring many customers from migrating to online
banking, with security-conscious customers preferring to transact via less cost-effective
channels, such as branch networks.
Titan is a fraud detection system designed specifically for the Internet Banking channel. It was
developed as a solution that significantly mitigates risk, is cost effective whilst also ensuring that
your online banking customers are not adversely affected or inconvenienced in any way.
TYPES OF INTERNET BANKING FRAUD
Phishing
Phishing is a way of attempting to acquire information such as usernames, passwords, and credit
card details by masquerading as a trustworthy entity in an electronic communication.
Communications purporting to be from popular social web sites, auction sites, online payment
processors or IT administrators are commonly used to lure the unsuspecting public. Phishing is
typically carried out by e-mail spoofing or instant messaging, and it often directs users to enter
details at a fake website whose look and feel are almost identical to the legitimate one. Phishing
is an example of social engineering techniques used to deceive users and exploits the poor
usability of current web security technologies. Attempts to deal with the growing number of
reported phishing incidents include legislation, user training, public awareness, and technical
security measures. A phishing technique was described in detail in 1987, and the first recorded
use of the term "phishing" was made in 1996. The term is a variant of fishing, probably
influenced by phreaking, and alludes to "baits" used in hopes that the potential victim will "bite"
by clicking a malicious link or opening a malicious attachment, in which case their financial
information and passwords may then be stolen.
Prevention: The best way to avoid this type of internet banking fraud is to never provide
personal banking information over the internet when it is requested through email. If you believe
that you may have provided information over the internet to an illegitimate source, immediately
contact your financial institution to have your password changed. It should be noted that, because
of same reason banks never request your personal information through email. If you receive a
mail claiming to be from your bank, it would probably be from a fraudster.
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Spam
Spam is an electronic 'junk mail' or unwanted messages sent to your email account or mobile
phone. These messages vary, but are essentially commercial and often annoying in their sheer
volume. They may try to persuade you to buy a product or service, or visit a website where you
can make purchases; or they may attempt to trick you into divulging your bank account or credit
card details.
Nigerian Scam
Niegerian or Frauds 409 or 419 are basically the lottery scam in which some overseas persons
are involved to cheat innocent persons or organizations by promising to give a good amount of
money at nominal fee charges. Their intention is to steal money in the form of fee against the
lottery prize.
Spyware
Spyware such as Trojan Horse is generally considered to be software that is secretly installed on
a computer and takes things from it without the permission or knowledge of the user. Spyware
may take personal information, business information, bandwidth; or processing capacity and
secretly gives it to someone else."Trojan Horse" scheme unfolds when malicious software
(malware) embeds to a consumer's computer without the consumer being aware of it. Trojans
often come in links or as attachments from unknown email senders. After installation the
software detects when a person accesses online banking sites and records the username and
password to transmit to the offender. People using public computers, in places like Internet cafes,
are often susceptible to Trojans like malware or spyware.
Un-Protected Online Transactions
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Internet banking fraud can also occur when consumers make online purchases over an
unprotected website. If your privacy remains un-protected, criminals can use the stolen data to
commit banking frauds.
Prevention: This can be prevented by using new generation browsers like FireFox 8, IE 9 &
Google Chrome. These browsers will warn you if you are visiting an un-protected website. If the
digital certificates are not from a reliable authority, you can be sure that the website you are
visiting is an un-secured website. This type of fraud is becoming rare nowadays.
Identity Theft
Financial identity theft occurs when someone uses another consumers personal information
(name, social security number, etc.) with the intent of conducting multiple transactions to
commit fraud that results in substantial harm or inconvenience to the victim. This fraudulent
activity may include opening deposit accounts with counterfeit checks, establishing credit card
accounts, establishing lines of credit, or gaining access to the victims accounts with the intent of
depleting the balances. This differs from check fraud (forged signature or forged endorsement) or
an unauthorized ATM or Debit Card transaction in that it involves more than an isolated single
act of fraud.
Some examples of Identity Theft include:
Account takeover
Account take over is one of the more prevalent forms of Identity Theft. It
occurs when a fraudster obtains an individuals personal information
(account number and social security number is usually all it takes), and
changes the official mailing address with that individuals bank. Once
accomplished, the fraudster has established a window of opportunity in
which several transactions are conducted without the victims knowledge
using the victims personal information. Notice, this involved the intent to
take over the victims identity as well as more than one isolated
transaction. It can also occur when the fraudster pays employees of
various companies and banks to steal account information from the
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checks that are remitted for payment. The employees will provide the
name, address, bank routing number and bank account number. The
fraudster will then order checks from a third party check vendor, and
begin writing checks on the victims account.
Frauds In Banks
never use the same online banking password for all. Never select the option on browser that
stores or retains user name and password. As it can easily be cracked by cyber criminals. Also,
never paste your password, always type it in. This little amount of `finger exercise' will go a long
way in safety.
Always check 'last logged'
Most banks have a 'last logged in' panel on their websites. If your bank has it, check the panel
whenever you log in. If you notice irregularities (like you are logging in after two days, but the
panel says you logged in that morning!), report the matter immediately to your bank and change
your password right away. Always log out when you exit the online banking portal. Close the
browser to ensure that your secure session is terminated. Never exit simply by closing the
browser.
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Internet facilities of computer have revolutionized international banking for fund transfer and for
exchanging data of interest relating to banking and to carry out other banking functions and
provides certain security to the customers by assigning different pin numbers and passwords.
Computer depredations have by some been classified as:
Computer frauds
Computer crimes
COMPUTER FRAUDS
Computer frauds are those involve embezzlement or defalcations achieved by tampering with
computer data record or proggramme, etc.Where as computer crimes are those committed with a
computer that is where a computer acts as a medium. The difference is however academic only.
Bank computer crimes are committed mainly for money, however other motive or The Mens area
can be:
Personal vendetta;
Black mail;
Ego;
Mental aberrations;
Mischief
COMPUTER CRIMES
Bank computer crimes have a typical feature, the evidence relating to crime is intangible. The
evidences can be easily erased, tampered or secreted. More over it is not easily detectable. More
over the evidence connecting the criminal with the crime is often not available. Computer crimes
are different from the usual crimes mainly because of the mode of investigation. There are no
eyewitness, no usual evidentiary clues and no documentary evidences.
COMPUTER FRAUD PREVENTION IN BANKS
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A major challenge for banks is the prevention of computer frauds. For banks, the breach of esecurity can result in the siphoning off of large sums of money by fraudsters, often from remote
locations. Banks need to suitably guard against such attacks, especially since a large number of
transactions are being put through electronically, via the Internet. Broadly, there are three key
safeguards, as described below, that must be observed by banks so that they do not unwittingly
fall prey to computer fraud and crime.
Implementing controls: The first and most important safeguard is to implement controls.
Controls in a computerized environment can act as a check against frauds. Controls are broadly
of five types: Management controls, organisational controls, operational controls, environmental
controls and application controls.
Frauds In Banks
Hampshire in the UK, was convicted of stealing more than 1 million by pointing high definition
video cameras at ATMs from a considerable distance, and by recording the card numbers, expiry
dates, etc. from the embossed detail on the ATM cards along with video footage of the PINs
being entered. After getting all the information from the videotapes, he was able to produce clone
cards which not only allowed him to withdraw the full daily limit for each account, but also
allowed him to sidestep withdrawal limits by using multiple copied cards. In court, it was shown
that he could withdraw as much as 10,000 per hour by using this method. Card cloning and
skimming can be detected by the implementation of magnetic card reader heads and firmware
that can read a signature embedded in all magnetic stripes during the card production process.
This signature known as a "MagnePrint" or "BluPrint" can be used in conjunction with common
two factor authentication schemes utilized in ATM, debit/retail point-of-sale and prepaid card
applications.
Another ATM fraud issue is ATM card theft which includes credit card trapping and debit card
trapping at ATMs. Originating in South America this type of ATM fraud has spread globally.
Although somewhat replaced in terms of volume by ATM skimming incidents, a re-emergence of
card trapping has been noticed in regions such as Europe where EMV Chip and PIN cards have
increased in circulation.
ATM Fraud Prevention
Most ATM frauds happen due to the negligence of customers in using, and more importantly,
negligence of banks in educating their customers about the matters that should be taken care of
while at an ATM. The number of ATM frauds in India is more in regard to negligence of the
Personal Identification Number (PIN), than by sophisticated crimes like skimming. Banks
need to develop a fraud policy the policy should be written and distributed to all employees,
borrowers and depositors.
The most important aspect for reducing ATM related fraud is to educate the customer. Here is a
compiled list of guidelines to help your customer from being an ATM fraud victim:
Look for suspicious attachments: Criminals often capture information through ATM skimming
using devices that steal magnetic strip information. At a glance, the skimmer looks just like a
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regular ATM slot, but its an attachment that captures ATM card numbers. To spot one, the
attachment slightly protrudes from the machine and may not be parallel with the inherent
grooves. Sometimes, the equipment will even cut off the printed labels on the ATM. The
skimmer will not obtain PIN numbers, however. To get that, fraudsters place hidden cameras
facing the ATM screen. Theres also the helpful bystander (the criminal) who may be standing by
to kindly inform you the machine has had problems and offer to help. If you do not feel safe at
any time, press the ATM cancel button, remove your card and leave the area immediately.
Minimize your time at the ATM: The more time you spend at the ATM, the more vulnerable
you are. If you need to update your records after a transaction, one is advised do it at home or
office, but not while at the ATM. Even when depositing a cheque at the ATM, on should not
make/sign the cheque at the ATM. After the transaction, if you think you are being followed, go
to an area with a lot of people and call the police.
Make smart deposits: Some ATMs allow you to directly deposit checks and cash into your
accounts without stuffing envelopes. As for the envelope-based deposits, make sure they go
through if it gets jammed and it doesnt fully go into the machine, the next person can walk up
and take it out. After having made the ATM deposit, compare your records with the account
statements or online banking records.
Avoid using ATMs at night: While robberies are less prevalent than fraud at ATMs, theres still
risk, especially at night. And if you have to use an ATM late at night, use one at a bank itself.
Financial institutions have to follow certain guidelines and regulations as far as lighting is
concerned. They also have cameras on all the ATMs.
Be aware of your surroundings: Before you slide your card into the machine, look around if
the area appears safe or if there is anybody who can see the PIN pad. Having the card ready
before entering is ATM premises is better than searching for it though the purse at the machine.
While you are fumbling with a wallet or purse, you are easy prey for a thief. A good rule of
thumb is to always shield your card, no matter how comfortable you are with the place. If your
card is stuck inside an ATM, be suspicious of anyone offering help. Immediately report the
incident to the bank.
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Keep your receipts and card before leaving the place: Before you leave the machine, make
sure you have your card. Also, do not leave your receipt behind at the ATM. Keep copies of your
receipts and compare them with your monthly statement. As much as 83 percent of all ATM and
debit fraud results from stolen cards and discarded receipts bearing card/account numbers.
Memorize your PIN. Many cardholders walk up to an ATM and pull out a piece of paper
containing four numbers. If you are not sure, make it a point that you dont keep the PIN and
ATM card together in your wallet If someone comes up and hits you over the head, theyre
going to have all your information right there. But ideally, one should never write down the PIN
number it should be memorised.
Never disclose your PIN to anyone: Even bank officials do not require an ATM PIN neither
to process an issue involving ATMs, nor to remove a card stuck in the machine. Always change
the PIN as soon as you receive it. Preferably, change it every quarter. This habit will also help
remind you of changing the PIN if you find a suspicious activity.
Never provide information via e-mail: About 3.5 percent of ATM and point-of-sale debit fraud
originates from phishing e-mails. Phishers attempt to obtain information about your bank
account by asking for your PIN, account number and personal information. Much like ATM
skimming equipment, these e-mails appear legitimate. If you click on a link, you will be sent to a
Web site that looks exactly like the one the phishers are imitating. Reputable companies do not
ask for information through e-mail. If you receive one of these e-mails, inform the organization.
And if you believe your accounts have been compromised, inform your financial institution and
cancel the account.
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Jerome Kerviel
Jerome Kerviel is a French trader who was convicted in 2008 for causing trading loss, breach of
trust, forgery and unauthorized use of bank Societe Generale's computers, resulting in losses
valued at 4.9 billion pounds. The bank said Kerviel was a rogue trader and claimed he worked
these trades alone, and without its authorization, assertions that have been met with skepticism
from expert commentators and analysts alike.
Kerviel had told investigators that such practices are widespread and that getting a profit makes
the hierarchy turn a blind eye. Kerviel published a book in May 2010, in which he alleges that
his superiors knew of his trading activities, and that the practice was very common.
Frauds In Banks
Citibank Gurgaon
A banking fraud which could run into a whopping Rs 400 crore was unearthed at Citibank's
Gurgaon (Haryana) branch. Funds amounting to Rs 400 crore of 20 high networth customers was
allegedly siphoned off by bank executive Shivraj Puri. Puri is accused of selling investment
products to high networth clients claiming that they would generate unusually high returns. It is
also alleged that Puri, who is named in the FIR, showed a forged notification of market regulator
Securities and Exchange Board of India for obtaining funds from customers. He is also accused
of claiming that these products were authorised by the bank's investment product committee.
Zoom Developers
Termed as one of the largest banking scams in India, the CBI is investigating the disbursement
by 27 banks to Zoom Developers. The ministry of finance has questioned Punjab National Bank,
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Frauds In Banks
who is the lead banker to Zoom Developers. Nearly 27 Indian banks, with a majority of public
sector banks have lent close to Rs 2,700 crore to Zoom Developers. This debt has been admitted
in the corporate debt restructuring cell.
John Rusnak
John Rusnak was a former currency trader at Allfirst bank, then part of AIB Group, in Baltimore,
MD, United States. In 2003 he was sentenced to seven and half years in prison for hiding USD
691 million in losses at the bank, after bad bets snowballed in one of the largest ever cases of
bank fraud. He was transferred from prison to a halfway house in June 2008, to home
confinement in September 2008, and ultimately released from home confinement on January 5,
2009, serving just under 6 years.
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Frauds In Banks
crore)
No. of Cases
Amount Involved
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Frauds In Banks
Commercial Banks
NBFCs
UCBs
FIs
169190
29910.12
935
154.78
6345
1057.03
77
279.08
176547
31401.01
As is evident from the above table, the cumulative number of frauds reported by the banking
sector and the total amount involved in these fraud cases have a major share in the frauds
reported by all entities under RBIs supervisory jurisdiction. A year-wise break up of fraud cases
reported by the banking sector together with the amount involved is given in Table 2 below:
Table 2: Year-wise no. and amount of fraud cases in the banking sector
(No. of cases in absolute terms and amount involved in Rs. crore)
Year
No. of cases
Total Amount
2009-10
24791
2037.81
2010-11
19827
3832.08
2011-12
14735
4491.54
2012-13
13293
8646.00
Total frauds reported as of March
169190
29910.12
2013
It may be observed that while the number of fraud cases has shown a decreasing trend from
24791 cases in 2009-10 to 13293 cases in 2012-13 i.e. a decline of 46.37%, the amount involved
has increased substantially from Rs 2037.81 crore to Rs. 8646.00 crore i.e. an increase of
324.27%. A granular analysis reveals that nearly 80% of all fraud cases involved amounts less
than Rs. one lakh while on an aggregated basis, the amount involved in such cases was only
around 2% of the total amount involved. Similarly, the large value fraud cases involving amount
of Rs.50 crore and above, has also increased more than tenfold from 3 cases in FY 2009-10
(involving an amount of Rs 404.13 crore) to 45 cases in FY 2013 (involving an amount of Rs
5334.75 crore). Further, a bank group wise analysis of frauds reveals that while the private sector
and the foreign bank groups accounted for a majority of frauds by number (82.5%), the public
sector banks (including SBI Group) accounted for nearly 83% of total amount involved in all
reported frauds Table 3 below.
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Frauds In Banks
29653
2271
91060
93331
46206
169190
Cases
17.53
1.34
53.82
55.16
27.31
100
Involved
24828.01
1707.71
2140.48
3848.19
1233.92
29910.12
% to
Total
Amount
83.01
5.71
7.16
12.87
4.12
100
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Frauds In Banks
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Frauds In Banks
Frauds In Banks
and provide necessary training to them in forensic audit so that only such skilled staff is
deployed for investigation of large value frauds. The banks may build up a data / information
pool of large value frauds and analyze them periodically which may act as knowledge repository
for policy responses.
Detection of serious irregularities with systemic and system-wide implications, as also post facto
Fraud Investigation, gathering of information / data / evidences and creation of credible
records that are useful for internal management action or legal prosecution against the wrong
doers require typical skills.
RETURNS REQUIRED TO BE FILED
Quarterly Returns
Banks should submit a copy each of the Quarterly Report on Frauds Outstanding in the format
given in FMR - 2 to the Central Office and the Regional Office of the Reserve Bank under whose
jurisdiction the Head Office of the bank falls within 15 days of the end of the quarter to which it
relates. Fraud cases closed during the quarter are required to be reported in quarterly return FMR
3 and cross checked with relevant column in FMR-2 return before sending to RBI.
Case-wise quarterly progress reports Banks should furnish case-wise quarterly progress reports
on frauds involving Rs. 1.00 lakh and above in the format given in FMR - 3 to the Central Office
of RBI, Department of Banking Supervision as well as the concerned Regional Office of the
Department of Banking Supervision under whose jurisdiction the banks Head Office is situated,
within 15 days of the end of the quarter to which they relate.
Reports to the Board
Banks should ensure that all frauds of Rs. 1.00 lakh and above are reported to their Boards
promptly on their detection. Quarterly Review of Frauds Information relating to frauds for the
quarters ending March, June and September may be placed before the Audit Committee of the
Board of Directors during the month following the quarter to which it pertains, irrespective of
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Frauds In Banks
whether or not these are required to be placed before the Board/Management Committee in terms
of the Calendar of Reviews prescribed by RBI.
Annual Review of Frauds
Banks should conduct an annual review of the frauds and place a note before the Board of
Directors/Local Advisory Board for information. The reviews for the year-ended December may
be put up to the Board before the end of March the following year. Such reviews need not be sent
to RBI. These may be preserved for verification by the Reserve Banks inspecting officers.
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Frauds In Banks
CONCLUSION
The Indian Banking Industry has undergone tremendous growth since nationalization of 14
banks in the year 1969. There has an almost eight times increase in the bank branches from about
8000 during 1969 to more than 60,000 belonging to 289 commercial banks, of which 66 banks
are in private sector.
It was the result of two successive Committees on Computerization (Rangarajan Committee) that
set the tone for computerization in India. While the first committee drew the blue print in 198384 for the mechanization and computerization in banking industry, the second committee set up
in 1989 paved the way for integrated use of telecommunications and computers for applying
technogical breakthroughs in banking sector.
However, with the spread of banking and banks, frauds have been on a constant increase. It could
be a natural corollary to increase in the number of customers who are using banks these days. In
the year 2000 alone we have lost Rs 673 crores in as many as 3,072 number of fraud cases. These
are only reported figures. Though, this is 0.075% of Rs 8,96,696 crores of total deposits and
0.15% of Rs 4,44,125 crores of loans & advances, there are any numbers of cases that are not
reported. There were nearly 65,800 bank branches of a total of 295 commercial banks in India as
on June 30, 2001 reporting a total of nearly 3,072 bank fraud cases. This makes nearly 10.4
frauds per bank and roughly 0.47 frauds per branch.
An Expert Committee on Bank Frauds (Chairman: Dr.N.L.Mitra) submitted its Report to RBI in
September 2001. The Committee examined and suggested both the preventive and curative
aspects of bank frauds.
The important recommendations of the Committee include:
Frauds In Banks
Thus it can be concluded that following measures should necessarily be adopted by the Ministry
of Finance in order to reduce cases of Fraud.
There must be a Special Court to try financial fraud cases of serious nature.
The law should provide separate structural and recovery procedure. Every bank must
have a domestic enquiry officer to enquire about the civil dimension of fraud.
A fraud involving an amount of ten crore of rupees and above may be considered serious
and be tried in the Special Court.
The Twenty-ninth Report of the Law Commission had dealt some categories of crimes one of
which is "offences calculated to prevent and obstruct the economic development of the country
and endanger its economic health." Offences relating to Banking Fraud will fall under this
category. The most important feature of such offences is that ordinarily they do not involve an
individual direct victim. They are punishable because they harm the whole society. It is clear that
money involved in Bank belongs to public. They deposit there whole life' security in Banks and
in case of Dacoity or Robbery in banks the public will be al lost. Thus it is important that
sufficient efforts should be taken in this regard.
There exists a new kind of threat in cyber world. Writers are referring it as "Salami Attack" under
this a special software is used for transferring the amount from the account of the individual.
Hence the culprits of such crimes should be found quickly and should be given strict punishment.
Moreover there is requirement of more number of IT professionals who will help in finding a
solution against all these security threats.
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BIBILOGRAPHY
SEARCH ENGINE:
www.wikipedia.com
WEBSITE:
http://www.worldjute.com
http://www.bankfraudinfo.com
http://www.rbi.org.in
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