Scams & Scandals in Banking Sector
Sr. No.
1. 2. 3. 4. 5. 6. Bank Scams Fraud by Insiders Fraud by Others
Topics
Page No.s
03 04 06 11 14 15
Bank Computer Scams Bank Rules for Fraud Prevention Case Studies
Bank Scams:
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Scams & Scandals in Banking Sector
“Lapses in system make easy the job of offenders to dupe banks” ? Scam is any dishonest act and behaviour by which one person gains or intends to gain advantage over another person. ? Fraud (Scam) 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 today’s 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 1997 bank frauds in nationalised banks was of Rs.497.60 crore. ? This banking fraud can be classified as: 1) Fraud by Insiders 2) Fraud by Others
Fraud By Insiders: 2
Scams & Scandals in Banking Sector
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.
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
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Scams & Scandals in Banking Sector
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.
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 are 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: 4
Scams & Scandals in Banking Sector
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 nonsufficient funds.
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:
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Scams & Scandals in Banking Sector
? 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 the cheque is drawn until the cheque actually clears. ? Deposit 1000 in one bank, write a cheque on that amount and deposit it to your account in another bank; you now have 2000 until the cheque clears. In-transit or non-existent cash is briefly recorded in multiple accounts. ? A cheque is cashed and, before the bank receives any money by clearing the cheque, the money is deposited into some other account or withdrawn by writing more cheques. In many cases, the original deposited cheque turns out to be a forged cheque. ? Some perpetrators have swapped checks between various banks on a daily basis, using each to cover the shortfall for a previous cheque. ? What they were actually doing was check kiting; like a kite in the wind, it flies briefly but eventually has to come back down to the ground.
Credit card fraud:
? Credit card fraud is widespread as a means of stealing from banks, merchants and clients.
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Scams & Scandals in Banking Sector
? A credit card is made of three plastic sheet of polyvinyl chloride. The central sheet of the card is known as the core stock. These cards are of a particular size and many data are embossed over it. ? But credit cards fraud manifest in a number of ways. They are: 1) Genuine cards are manipulated 2) Genuine cards are altered 3) Counterfeit cards are created 4) Fraudulent telemarketing is done with credit cards. 5) Genuine cards are obtained on fraudulent applications in the names/addresses of other persons and used. ? It is feared that with the expansion of E-Commerce, M-Commerce and Internet facilities being available on massive scale the fraudulent fund freaking via credit cards will increase tremendously.
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 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
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Scams & Scandals in Banking Sector
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.
Impersonation and theft of identity:
? Theft of identity has become an increasing problem; the scam operates by obtaining information about a victim, then using the information to apply for identity cards, accounts and credit in that person's name. ? Often little more than name, parents' name, date and place of birth are sufficient to obtain a birth certificate; each document obtained then is used as identification in order to obtain more identity documents. ? Government-issued standard identification numbers such as "Social security numbers, PAN numbers" are also valuable to the identity thief. ? Unfortunately for the banks, identity thieves have been known to take out loans and disappear with the cash, quite content to see the wrong persons blamed when the debts go bad.
Fraudulent loan applications:
? These take a number of forms varying from individuals using false information to hide a credit history filled with financial problems and unpaid loans to corporations using accounting fraud to 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.
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Scams & Scandals in Banking Sector
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 forgery of currency notes could be done successfully then it could on one hand made the forger 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 it is very difficult to catch hold of such forgers as once such notes are circulated it is very difficult to track its origin.
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Scams & Scandals in Banking Sector
? But the latest fraud which is considered as the safest method of crime without making physical injury is the Computer Frauds in Banks. ? Computerization of banks had started since 1994 in India and till 2000 4000 banks were completely and 9000 branches have been partially computerized. ? About 1000 branches had the facilities for International bank Transaction. ? Reserve Bank of India has evolved working pattern for Local area Network and wide area Network by instituting different microwave stations so that money transactions could be carried out quickly and safely. ? The main banking tasks which computers perform are maintaining debitcredit records of accounts, operating automated teller machines, and carry out electronic fund transfer, print out statements of accounts create periodic balance sheets etc.
Bank Computer Scams:
? 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(attacks) have by some been classified as: 1) Computer frauds 2) Computer crimes ? Computer frauds are those involve embezzlement or defalcations achieved by tampering with computer data record or programme, 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 Men’s area can be: 1) Personal vendetta; 2) Black mail; 3) Ego; 4) Mental aberrations; 5) Mischief
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Scams & Scandals in Banking Sector
? 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. ? It is difficult to investigate for the following reasons:
Hi-tech crime:
? The information technology is changing very fast. The normal investigator does not have the proper background and knowledge. ? Special investigators have to be created to carry out the investigations. The FBI of USA have a cell, even in latest scenario there has been cells operating in the Maharashtra police department to counter cyber crimes. ? C.B.I also has been asked to create special team for fighting cyber crimes.
International crime:
? A computer crime may be committed in one country and the result can be in another country. ? There has been lot of jurisdictional problem a though the Interpol does help but it too has certain limitations. ? The different treaties and conventions have created obstructions in relation to tracking of cyber criminals hiding or operation in other nations
No-scene crime:
? The computer satellite computer link can be placed or located any where. The usual crime scene is the cyber space. ? The terminal may be anywhere and the criminal need not indicate the place. The only evidence a criminal leaves behind is the loss to the crime.
Faceless crime:
? The major advantage criminal has in instituting a computer crime is that there is no personal exposure, no written documents, no signatures, no fingerprints or voice recognition. ? The criminal is truly and in strict sense faceless.
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Scams & Scandals in Banking Sector
? There are certain spy software’s which is utilized to find out passwords and other vital entry information to a computer system. The entry is gained through a spam or bulk mail. ? The existing enacted laws of India are not at all adequate to counter cyber crimes. ? The Indian Penal code, evidence act, and criminal procedure code has no clue about computers when they were codified. It is highly required to frame and enact laws which would deal with those subjects which are new to the country specially cyber law; Intellectual property right etc. ? The Reserve Bank of India has come up with different proposals to make the way easier, they have enacted electronic fund transfer act and regulations, have amended, The Reserve Bank of India Act, Bankers Book Evidence Act etc., experience of India in relation to information and technology is limited and is in a very immature state. ? It is very much imperative that the state should seek the help of the experienced and developed nations.
Modus Operandi:
? The method of alterations of cheques drafts receipts and other fiduciary documents are comparatively simple both manually and with the help of technology. ? Illustration: A classic case is the recent loan racket busted by the Uppal police in State Bank of India (SBI)'s Chikkadpally branch. The modus operandi adopted by the racketeers was interesting. ? A gang of four members approached owner of a newly-constructed apartment building saying they were interested in buying the flats.The gang took xerox copies of the building documents after entering into an oral agreement of sale with the builder by paying Rs. 2 lakhs as an advance. ? Later, they created forged documents in the name of building's owner establishing that the latter had sold five flats to five defence employees. ? Incidentally, the salary slips and other documents submitted by the loan seekers were found to be genuine. ? "This was made possible because the gang paid money to the defence employees to utilise their documents," says an investigator. The gang hired an impostor who executed the sale deed posing as the original building owner. ? "We could not establish criminal negligence on the part of the bank manager and hence he was not arrested," say the detectives. The police learnt that the main lapse in the system is that the banks never asked for
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Scams & Scandals in Banking Sector
the original documents at any stage except for the sale deed for execution of which the offenders planted an impostor.
Bank rules for Fraud Prevention:
? After receiving xerox papers (which were actually forged by the offenders) of the property, the bank passed the same on to the legal section. ? After scrutiny, the legal consultant told the bank that the xerox documents were `perfect' and to release loan after execution of sale deed. ? The bank rules state that loan applications can be examined "even with xerox copies of documents. The alleged greediness of employees to give their salary slips and other documents on payment of some money made the job of the cheats easier. ? This is not an isolated case. With a similar modus operandi, a gang cheated three banks to the tune of Rs. 1 crore in Saroornagar police station area. The police opine that unless bankers evolve a foolproof system, the offenders continue to take advantage of the lapses ? Though computer based banking crimes are yet limited but it is increasing with a huge pace. Their investigation is highly intricate and daunting. Prevention is the best alternative. ? It is comparatively easier, though even with the best laws, efficient investigation team the successful conclusion of most cyber crimes will remain a remote possibility .There fore emphasis is more on prevention. ? In bank administration, one feels that not much attention is paid to preventive measures. Bank managements must direct their orientation towards preventive rather than detective or punitive measures. ? Preventive vigilance must be the prime agenda to bring down the occurrence of fraud in banks.
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Scams & Scandals in Banking Sector
Case Studies:
? Case 1: ATM Scam:
Bank ATMs converted to steal bank customer IDs
A team of organized criminals is installing equipment on legitimate bank ATMs in at least two regions to steal both the ATM card number and the PIN. The team sits nearby in a car receiving the information transmitted wirelessly over weekends and evenings from equipment they install on the front of the ATM (see photos). If you see an attachment like this, do not use the ATM and report it immediately to the bank using the 800 number or phone on the front of the ATM. The equipment used to capture your ATM card number and PIN is cleverly disguised to look like normal ATM equipment. A “skimmer” is mounted to the front of the normal ATM card slot that reads the ATM card number and transmits it to the criminals sitting in a nearby car. At the same time, a wireless camera is disguised to look like a leaflet holder and is mounted in a position to view ATM PIN entries. The thieves copy the cards and use the PIN numbers to withdraw thousands from many accounts in a very short time directly from the bank ATM.
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Scams & Scandals in Banking Sector
? Case 2: Forgery Documents:
Four arrested for cheating bank using fake documents
Hyderabad police on Saturday arrested a four-member gang on the charges of cheating banks with forged and fake documents. The four accused Chowdary Vijaya Kumar, 28, a resident of Madinaguda, Rajender Kumar, 27, of Bhagatsinghnagar in Kukatpally, Kallasheka Sampath Kumar, 48, of Dilsukhnagar and Dadda Srinivas, 27, of KPHB Colony formed a gang.
In a press meet Cyberabad police commissioner S Prabhakar Reddy told the four accused had created fake documents like salary certificates, ID cards of various companies to secure loans. Prabhakar Reddy said the accused had created documents of Satyam Computers and Birla Soft Ltd and fake driving licenses in different names. With these fake documents the four applied for credit cards and were able to get 14 credit cards from banks like HSBC, ICICI, CitiBank, SBI, Centurion Bank. With these credit cards, they made purchases and cheated banks to the tune of Rs 11 lakh. He said the gang had even bought a Ford Ikon car with these fabricated documents. Police had also arrested a businessman for purchasing stolen property. The police commissioner said the gang members also purchased gold ornaments, garments and cell phones with money apart from spending huge amounts in bars and restaurants. He told Sampath Kumar was arrested while disposing of gold ornaments to
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Scams & Scandals in Banking Sector
Shantilal Jain of Adinath Finance in Moosapet. Miyapur police has recovered Ford Icon car, six credit cards, four fake driving licenses, eight cell phones, a Tata walky, five sim cards, a cheque book, printer, scanner, monitor and Rs 50,000 cash from them. Prabhakar Reddy told Vijaya Kumar and Rajender Kumar studied B Sc computers, while Srinivas was a DTP operator. Vijay Kumar was reportedly involved in criminal cases, while Rajender Kumar is wanted in a dowry harassment case. While the businessman Shantilal Jain, 48, of Moosapet, was arrested for purchasing stolen property from the gang. Meanwhile, one Seelam Shetty Venkata Ramana alias Sreenu was arrested by the Saroornagar police when he was trying to dispose of stolen property near Konark theatre in Dilsukhnagar on Saturday. His friend Kondala Rami Reddy, 35, has also been arrested for assisting him. Venkata Ramana used to do robbery in the locked houses. He is involved in 13 burglaries in the city and five in Vijayawada and Guntur.
? Case 3: Demand Draft Fraud:
The problem of demand draft fraud, its effect on consumers, and its redressal measure
The Commission has and will use these tools in attacking demand draft fraud. It is important to note at the outset, however, that the Commission does not have jurisdiction over banks. Demand draft fraud, or the unauthorized debiting of a consumer’s account, is a growing problem.
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Scams & Scandals in Banking Sector
Currently, it is the favorite method of fraudulent actors for taking consumers’ money through fraudulent telemarketing and other scams.
The Commission believes that it is a growing problem because strong measures taken by the credit card associations over the last several years have made it increasingly difficult for fraudulent actors to obtain access to the credit card system.
As a result, these scurrilous operators have turned to other methods of stealing money, including demand drafts. How do these fraudulent actors steal consumers’ money through demand drafts? In a word, by lying.
Many fraudulent actors persuade consumers, either over the telephone or through the mail, to divulge their account numbers by telling them that their bank account numbers are needed to verify prizes or to deposit prize money directly into consumers’ bank accounts.
In other cases, fraudulent actors tell consumers that only a small amount will be withdrawn, but in fact withdraw huge amounts of money from the consumer’s account. As a further, the unauthorized demand draft may generate significant overdraft charges to the consumer if the consumer does not have the additional money in the first instance or has written subsequent cheques.
Little do consumers know that once they give fraudulent actors access to their bank account information, their money will disappear. Once a
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Scams & Scandals in Banking Sector
consumer provides his or her account number, a fraudulent actor can generate a document that looks exactly like the cheques in the consumer’s chequebook -- imprinted with the consumer’s name, address, phone number and, most importantly, the account numbers and the numbers necessary to route the draft through the banks’ cheques clearing system. The only difference is that in place of the consumer’s signature, there is a notation such as “pre-approved” or “signature on file.”
The fraudulent actor deposits this draft the same as any conventional cheque, and in most cases it clears in exactly the same way as a conventional cheque; the lack of a handwritten signature is not a problem in processing it. This form of fraud is a very lucrative business. Based on enforcement experience, the Commission estimates that at a minimum, demand draft fraud has already caused tens of millions of dollars in consumer injury.
Despite the potential for fraudulent misuse, demand drafts are a completely legitimate, though relatively unfamiliar, payment method. Consumers are generally aware that arrangements can be made for recurring payments, such as mortgage payments or car payments, to be withdrawn automatically from their accounts. The surprise for many consumers is that withdrawals from their accounts can happen on a onetime basis, with no prior written authorization.
The Commission’s initial conclusion was that demand drafts were just another tool in the fraud operator’s toolbox. The required sellers who use demand drafts to obtain express prior written authorization, which, in
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Scams & Scandals in Banking Sector
effect, would have eliminated demand drafts as an alternative payment method. In response to that initial proposal, the Commission received hundreds of comments from members of the automated payment industry and from legitimate merchants and businesses objecting to the elimination of demand drafts as a payment method.
These comments and oral presentations persuaded the Commission that there is nothing inherently unfair or deceptive about the use of demand drafts as a payment method; and, in fact, that demand drafts provide consumers the same convenience and opportunity to purchase goods or services that they could enjoy using credit cards. But like so many other innovative developments in the marketplace, demand drafts are susceptible to misuse by unscrupulous operators.
During the rulemaking, the Commission learned that millions of consumers use demand drafts in lieu of credit cards and those demand drafts are used by Fortune 500 companies, airlines, car rental companies, insurance companies, and mortgage companies. In fact, demand drafts are used by a variety of businesses that are characterized by quick turn-around transactions and as a payment alternative for consumers who do not have, or would rather not use, credit cards. Demand drafts are a large and growing payment mechanism. But it was that it was not the payment method itself that was the problem; rather, the problem was a lack of uniform industry standards, ineffective dispute resolution methods, and consumers’ lack of awareness that their bank accounts could be debited without their written authorization.
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Scams & Scandals in Banking Sector
In demand draft transactions, consumers are largely unprotected. In c the case of demand drafts, there is no legally mandated dispute mechanism, and no limit on liability. Disputes are governed by state law, specifically, state laws that follow the Uniform Commercial Code (“UCC”). The UCC requires that cheques or drafts be signed, but unbeknownst to many consumers, the signature need not take any particular form draft fraud.
When a consumer disputes an unauthorized demand draft to his or her account, banks often take the position that the mere fact that the consumer’s bank account number is on the draft shows that the consumer gave authority for the draft. Indeed, banks may hold consumers responsible for fraudulent demand drafts because of the consumers’ negligence in giving out their account numbers. Although some banks may refund consumers’ money in some instances, it is largely consumers who must bear monetary losses related to demand draft fraud, losses that many consumers cannot afford.
Well additionally, the Commission has taken the lead in establishing a broad consumer education campaign to help consumers learn about and therefore protect themselves against demand draft fraud.
? Case 4: Banking Scams to Watch Out For
Several banking scams are on the rise. We are providing the following information to help customers recognize these scams before becoming victims
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Scams & Scandals in Banking Sector
Credit Card Phone Scam – Be wary if you receive a telephone call from someone claiming to be calling from the Security and Fraud department at Visa or MasterCard, regardless of how official they may sound. The caller claims that your card has been flagged for an unusual purchase pattern, and that they are calling to verify if you made this purchase. When you say that you did not initiate the purchase, the caller will continue, reading off your address for you to verify so that they may send you a "credit" for the unauthorized purchase amount and giving you a control number to which to refer should you have any questions. The caller will then ask you to verify the three-digit security code from the back of your card. Although the caller never asks for (or tells you) the actual credit card number, the minimal amount of information you provide them is enough for the criminals to use your card to charge unauthorized purchases. Real Visa and MasterCard employees will never ask you to verify the card's security digits, or any other information on the card Overpayment Scam – Seller, beware! This crime occurs when someone is selling something, usually over the Internet, and is approached by a "buyer." “Buyer” is the one who convinces the seller to accept a check or money order for a larger amount than the item purchase price. In this scenario, the seller agrees to give the buyer the "change" between the item purchase price and the payment amount. Unfortunately, the check or money order is counterfeit and the "buyer" is usually long gone with the seller's cash before the check is returned. Law enforcement officials also caution consumers to be wary of sequentially numbered money orders, as they are usually counterfeit. Nigerian Advance Fee Scam – This fraud occurs when you receive an unsolicited fax, e-mail or letter asking for your help with a business proposal in Nigeria or another African country. The proposal may deal with a "bequest" left to you or may sometimes involve "over-invoiced contract funds". At some point, you are persuaded to pay an advance fee, extend credit, or provide "change" for a counterfeit money order produced by the perpetrators. Foreign Lottery Scam - Although it's illegal to participate in a foreign lottery, many consumers fall prey to scam operators enticing them to buy lottery tickets to "strike it rich," when in actuality the tickets are never bought. Or, a victim may be notified that he or she has won a prize. The "winner" is
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Scams & Scandals in Banking Sector
asked to divulge his or her bank account number so that the winnings can be deposited. Unfortunately, the thieves clean out the victim's account. Or, the victim may receive "winnings" via a counterfeit check or money order.
? Case 5: Credit Card Fraud:
Foreign cards, Local Fraud confuse cops
When a private banks investigation cell was monitoring credit card transactions made in malls earlier this month, it found a suspicious pattern. Two credit cards that were used to buy laptops at a Navi Mumbai mall had been issued by a local bank but the data on them belonged to a French banks credit card holder. In the next few days, the same cards were used to buy cell phones from a Gorgoan mall.
The transaction monitoring agency smelt a rat & contacted both the dealers. They unearthed an international credit card fraud & have now lodged separate complaints with the Gorgoan police station. “The fraudsters have been swiping international credit cards through an electronic card-reader which can store data from several cards at a time. This is known as skimming. The card-reader is then connected to the computer & the entire information is transferred,” a bank official said. "Later, it is copied on to cards issued by local banks, replacing the original data on them," he added.
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Scams & Scandals in Banking Sector
When such a card is swiped through a dealer’s data-capturing machine in order to buy a product, the international customer refuses to pay as the transaction is fraudulent.
On January 3, two cards, with the names Nelson Dorgas & Rakesh Shetty inscribed on them were used at the Raghuleela mall in Vashi for buying laptops valued at Rs.70,000. Two days later, the same cards were used to buy cell-phones worth Rs.41,000 from the Nokia priority dealer at the City Centre in Gorgoan.
"The bank tracked down the fraudulent transactions & alerted us," said Rajnikant Doshi, owner of the Nokia store. "When we looked through our records of January 5, we were shocked o find that identification documents like pan cads & driving license had also been prepared in the names of Dorgas & Shetty. We then decided to keep a watchful eye on future transactions."
On Wednesday, a youth came up to Doshi's store & a selected a Rs. 6000 cell phone for purchase. When he whipped out his credit cad, Doshi asked for his identification documents. Suddenly, the youth seemed unsure of making the purchase & began running away. Doshi & his staff then caught him & hauled him to the local police station.
"The police released the youth after making inquiries, stating that he hadn't actually swiped his card & thus no fraudulent transaction had taken place.
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Scams & Scandals in Banking Sector
We have since held meetings with the shop owners in the city centre to alert them of the fraud & the modus operandi," said Doshi, who is also the chairperson of the city centre premises co-operative society ltd.
? Case 6: Cheque Scams
Lately I (Editor) have been hooked onto Radio Talk Shows, and I heard some very interesting piece of news today.
There was this guy somewhere in Florida, who put up his couch for sale on craigslist for $200. Enquires started flowing in, and he got this email from some lady who said wanted the couch and would pay for the couch and the shipping charges for sending it to her. He did get a cheque from her by UPS overnight, a week later for $4500. On enquiry he was told that it was a mistake by the secretary, and he could cash the cheque and send the remaining money with the shipment. To cut a long story short, it is a scam, wherin the person sends stolen cheques to you and wants you to send them the money after you deposit the cheque and after a few days when the bank tries to clear it, you get caught for identity theft and they get the cashed amount. More such instances were people dating online, and having the other person (after they become comfortable) send them cheques to cash, and after that it works the same way. A dealer on ebay, had a customer send him a cheque for $7000 for buying some PS/2’s and requested the remaining money (around $2000) to be sent back along with the PS/2’s. He suspected something fishy, and went to his bank, and they called the toll – free number at the back of the cheque (it was a Chase Bank cheque) to verify the authenticity which was confirmed.
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Scams & Scandals in Banking Sector
A gut feeling with the dealer made him wait for a few more days before he sent the money and he later got a call from his bank saying the cheque was fraud and that the number at the back of the cheque was made up too and it went to the scammer who verified the authenticity of the cheque. A bank confirmed that on an average they get cheques like this once in 10 days. Be careful while dealing and doing any such business online, most of the cases you will find the other person communicating only by email.
? Case 7: Fraud Inspected on time
Bank checks fraud in nick of time
Quick thinking saved a multinational bank from being cheated to the tune of Rs9.87 lakh. Azad Maidan police have registered a case against unidentified persons for trying to cheat the Deutsche Bank.
Police officials said that a Rs561 cheque issued by Tata Teleservices Maharashtra Ltd's (TTML) was stolen by some fraudster and the amount was changed to a whopping Rs 9,87,500.
Senior inspector Prakash Shishupal, Azad Maidan police station, said that the matter came to light on September 30, when the cheque, which was in
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Scams & Scandals in Banking Sector
the name of one Mary Nelson D'Souza, was deposited in Deutsche Bank's Fort branch. The cheque was transferred from the Bank of India's Versova branch.
However, while verifying the cheque, the bank officer Mangesh Naik noticed that someone had tampered with the name and the amount. Suspecting foul play, Naik contacted TTLM officials. "They told Naik that the cheque dated September 12, 2008, was originally for Rs561 and in the name of one Sanjeet S Pathak. Naik then lodged a police complaint," said Shishupal.
He added, "Investigations revealed that D'Souza had an account in Bank of India and was a resident of Vashi. However, the address given to the bank was bogus."
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Scams & Scandals in Banking Sector
Weblography:
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doc_680276856.docx
Sr. No.
1. 2. 3. 4. 5. 6. Bank Scams Fraud by Insiders Fraud by Others
Topics
Page No.s
03 04 06 11 14 15
Bank Computer Scams Bank Rules for Fraud Prevention Case Studies
Bank Scams:
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Scams & Scandals in Banking Sector
“Lapses in system make easy the job of offenders to dupe banks” ? Scam is any dishonest act and behaviour by which one person gains or intends to gain advantage over another person. ? Fraud (Scam) 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 today’s 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 1997 bank frauds in nationalised banks was of Rs.497.60 crore. ? This banking fraud can be classified as: 1) Fraud by Insiders 2) Fraud by Others
Fraud By Insiders: 2
Scams & Scandals in Banking Sector
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.
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
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Scams & Scandals in Banking Sector
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.
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 are 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: 4
Scams & Scandals in Banking Sector
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 nonsufficient funds.
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:
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Scams & Scandals in Banking Sector
? 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 the cheque is drawn until the cheque actually clears. ? Deposit 1000 in one bank, write a cheque on that amount and deposit it to your account in another bank; you now have 2000 until the cheque clears. In-transit or non-existent cash is briefly recorded in multiple accounts. ? A cheque is cashed and, before the bank receives any money by clearing the cheque, the money is deposited into some other account or withdrawn by writing more cheques. In many cases, the original deposited cheque turns out to be a forged cheque. ? Some perpetrators have swapped checks between various banks on a daily basis, using each to cover the shortfall for a previous cheque. ? What they were actually doing was check kiting; like a kite in the wind, it flies briefly but eventually has to come back down to the ground.
Credit card fraud:
? Credit card fraud is widespread as a means of stealing from banks, merchants and clients.
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Scams & Scandals in Banking Sector
? A credit card is made of three plastic sheet of polyvinyl chloride. The central sheet of the card is known as the core stock. These cards are of a particular size and many data are embossed over it. ? But credit cards fraud manifest in a number of ways. They are: 1) Genuine cards are manipulated 2) Genuine cards are altered 3) Counterfeit cards are created 4) Fraudulent telemarketing is done with credit cards. 5) Genuine cards are obtained on fraudulent applications in the names/addresses of other persons and used. ? It is feared that with the expansion of E-Commerce, M-Commerce and Internet facilities being available on massive scale the fraudulent fund freaking via credit cards will increase tremendously.
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 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
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Scams & Scandals in Banking Sector
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.
Impersonation and theft of identity:
? Theft of identity has become an increasing problem; the scam operates by obtaining information about a victim, then using the information to apply for identity cards, accounts and credit in that person's name. ? Often little more than name, parents' name, date and place of birth are sufficient to obtain a birth certificate; each document obtained then is used as identification in order to obtain more identity documents. ? Government-issued standard identification numbers such as "Social security numbers, PAN numbers" are also valuable to the identity thief. ? Unfortunately for the banks, identity thieves have been known to take out loans and disappear with the cash, quite content to see the wrong persons blamed when the debts go bad.
Fraudulent loan applications:
? These take a number of forms varying from individuals using false information to hide a credit history filled with financial problems and unpaid loans to corporations using accounting fraud to 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.
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Scams & Scandals in Banking Sector
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 forgery of currency notes could be done successfully then it could on one hand made the forger 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 it is very difficult to catch hold of such forgers as once such notes are circulated it is very difficult to track its origin.
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Scams & Scandals in Banking Sector
? But the latest fraud which is considered as the safest method of crime without making physical injury is the Computer Frauds in Banks. ? Computerization of banks had started since 1994 in India and till 2000 4000 banks were completely and 9000 branches have been partially computerized. ? About 1000 branches had the facilities for International bank Transaction. ? Reserve Bank of India has evolved working pattern for Local area Network and wide area Network by instituting different microwave stations so that money transactions could be carried out quickly and safely. ? The main banking tasks which computers perform are maintaining debitcredit records of accounts, operating automated teller machines, and carry out electronic fund transfer, print out statements of accounts create periodic balance sheets etc.
Bank Computer Scams:
? 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(attacks) have by some been classified as: 1) Computer frauds 2) Computer crimes ? Computer frauds are those involve embezzlement or defalcations achieved by tampering with computer data record or programme, 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 Men’s area can be: 1) Personal vendetta; 2) Black mail; 3) Ego; 4) Mental aberrations; 5) Mischief
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Scams & Scandals in Banking Sector
? 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. ? It is difficult to investigate for the following reasons:
Hi-tech crime:
? The information technology is changing very fast. The normal investigator does not have the proper background and knowledge. ? Special investigators have to be created to carry out the investigations. The FBI of USA have a cell, even in latest scenario there has been cells operating in the Maharashtra police department to counter cyber crimes. ? C.B.I also has been asked to create special team for fighting cyber crimes.
International crime:
? A computer crime may be committed in one country and the result can be in another country. ? There has been lot of jurisdictional problem a though the Interpol does help but it too has certain limitations. ? The different treaties and conventions have created obstructions in relation to tracking of cyber criminals hiding or operation in other nations
No-scene crime:
? The computer satellite computer link can be placed or located any where. The usual crime scene is the cyber space. ? The terminal may be anywhere and the criminal need not indicate the place. The only evidence a criminal leaves behind is the loss to the crime.
Faceless crime:
? The major advantage criminal has in instituting a computer crime is that there is no personal exposure, no written documents, no signatures, no fingerprints or voice recognition. ? The criminal is truly and in strict sense faceless.
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Scams & Scandals in Banking Sector
? There are certain spy software’s which is utilized to find out passwords and other vital entry information to a computer system. The entry is gained through a spam or bulk mail. ? The existing enacted laws of India are not at all adequate to counter cyber crimes. ? The Indian Penal code, evidence act, and criminal procedure code has no clue about computers when they were codified. It is highly required to frame and enact laws which would deal with those subjects which are new to the country specially cyber law; Intellectual property right etc. ? The Reserve Bank of India has come up with different proposals to make the way easier, they have enacted electronic fund transfer act and regulations, have amended, The Reserve Bank of India Act, Bankers Book Evidence Act etc., experience of India in relation to information and technology is limited and is in a very immature state. ? It is very much imperative that the state should seek the help of the experienced and developed nations.
Modus Operandi:
? The method of alterations of cheques drafts receipts and other fiduciary documents are comparatively simple both manually and with the help of technology. ? Illustration: A classic case is the recent loan racket busted by the Uppal police in State Bank of India (SBI)'s Chikkadpally branch. The modus operandi adopted by the racketeers was interesting. ? A gang of four members approached owner of a newly-constructed apartment building saying they were interested in buying the flats.The gang took xerox copies of the building documents after entering into an oral agreement of sale with the builder by paying Rs. 2 lakhs as an advance. ? Later, they created forged documents in the name of building's owner establishing that the latter had sold five flats to five defence employees. ? Incidentally, the salary slips and other documents submitted by the loan seekers were found to be genuine. ? "This was made possible because the gang paid money to the defence employees to utilise their documents," says an investigator. The gang hired an impostor who executed the sale deed posing as the original building owner. ? "We could not establish criminal negligence on the part of the bank manager and hence he was not arrested," say the detectives. The police learnt that the main lapse in the system is that the banks never asked for
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Scams & Scandals in Banking Sector
the original documents at any stage except for the sale deed for execution of which the offenders planted an impostor.
Bank rules for Fraud Prevention:
? After receiving xerox papers (which were actually forged by the offenders) of the property, the bank passed the same on to the legal section. ? After scrutiny, the legal consultant told the bank that the xerox documents were `perfect' and to release loan after execution of sale deed. ? The bank rules state that loan applications can be examined "even with xerox copies of documents. The alleged greediness of employees to give their salary slips and other documents on payment of some money made the job of the cheats easier. ? This is not an isolated case. With a similar modus operandi, a gang cheated three banks to the tune of Rs. 1 crore in Saroornagar police station area. The police opine that unless bankers evolve a foolproof system, the offenders continue to take advantage of the lapses ? Though computer based banking crimes are yet limited but it is increasing with a huge pace. Their investigation is highly intricate and daunting. Prevention is the best alternative. ? It is comparatively easier, though even with the best laws, efficient investigation team the successful conclusion of most cyber crimes will remain a remote possibility .There fore emphasis is more on prevention. ? In bank administration, one feels that not much attention is paid to preventive measures. Bank managements must direct their orientation towards preventive rather than detective or punitive measures. ? Preventive vigilance must be the prime agenda to bring down the occurrence of fraud in banks.
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Scams & Scandals in Banking Sector
Case Studies:
? Case 1: ATM Scam:
Bank ATMs converted to steal bank customer IDs
A team of organized criminals is installing equipment on legitimate bank ATMs in at least two regions to steal both the ATM card number and the PIN. The team sits nearby in a car receiving the information transmitted wirelessly over weekends and evenings from equipment they install on the front of the ATM (see photos). If you see an attachment like this, do not use the ATM and report it immediately to the bank using the 800 number or phone on the front of the ATM. The equipment used to capture your ATM card number and PIN is cleverly disguised to look like normal ATM equipment. A “skimmer” is mounted to the front of the normal ATM card slot that reads the ATM card number and transmits it to the criminals sitting in a nearby car. At the same time, a wireless camera is disguised to look like a leaflet holder and is mounted in a position to view ATM PIN entries. The thieves copy the cards and use the PIN numbers to withdraw thousands from many accounts in a very short time directly from the bank ATM.
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Scams & Scandals in Banking Sector
? Case 2: Forgery Documents:
Four arrested for cheating bank using fake documents
Hyderabad police on Saturday arrested a four-member gang on the charges of cheating banks with forged and fake documents. The four accused Chowdary Vijaya Kumar, 28, a resident of Madinaguda, Rajender Kumar, 27, of Bhagatsinghnagar in Kukatpally, Kallasheka Sampath Kumar, 48, of Dilsukhnagar and Dadda Srinivas, 27, of KPHB Colony formed a gang.
In a press meet Cyberabad police commissioner S Prabhakar Reddy told the four accused had created fake documents like salary certificates, ID cards of various companies to secure loans. Prabhakar Reddy said the accused had created documents of Satyam Computers and Birla Soft Ltd and fake driving licenses in different names. With these fake documents the four applied for credit cards and were able to get 14 credit cards from banks like HSBC, ICICI, CitiBank, SBI, Centurion Bank. With these credit cards, they made purchases and cheated banks to the tune of Rs 11 lakh. He said the gang had even bought a Ford Ikon car with these fabricated documents. Police had also arrested a businessman for purchasing stolen property. The police commissioner said the gang members also purchased gold ornaments, garments and cell phones with money apart from spending huge amounts in bars and restaurants. He told Sampath Kumar was arrested while disposing of gold ornaments to
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Scams & Scandals in Banking Sector
Shantilal Jain of Adinath Finance in Moosapet. Miyapur police has recovered Ford Icon car, six credit cards, four fake driving licenses, eight cell phones, a Tata walky, five sim cards, a cheque book, printer, scanner, monitor and Rs 50,000 cash from them. Prabhakar Reddy told Vijaya Kumar and Rajender Kumar studied B Sc computers, while Srinivas was a DTP operator. Vijay Kumar was reportedly involved in criminal cases, while Rajender Kumar is wanted in a dowry harassment case. While the businessman Shantilal Jain, 48, of Moosapet, was arrested for purchasing stolen property from the gang. Meanwhile, one Seelam Shetty Venkata Ramana alias Sreenu was arrested by the Saroornagar police when he was trying to dispose of stolen property near Konark theatre in Dilsukhnagar on Saturday. His friend Kondala Rami Reddy, 35, has also been arrested for assisting him. Venkata Ramana used to do robbery in the locked houses. He is involved in 13 burglaries in the city and five in Vijayawada and Guntur.
? Case 3: Demand Draft Fraud:
The problem of demand draft fraud, its effect on consumers, and its redressal measure
The Commission has and will use these tools in attacking demand draft fraud. It is important to note at the outset, however, that the Commission does not have jurisdiction over banks. Demand draft fraud, or the unauthorized debiting of a consumer’s account, is a growing problem.
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Scams & Scandals in Banking Sector
Currently, it is the favorite method of fraudulent actors for taking consumers’ money through fraudulent telemarketing and other scams.
The Commission believes that it is a growing problem because strong measures taken by the credit card associations over the last several years have made it increasingly difficult for fraudulent actors to obtain access to the credit card system.
As a result, these scurrilous operators have turned to other methods of stealing money, including demand drafts. How do these fraudulent actors steal consumers’ money through demand drafts? In a word, by lying.
Many fraudulent actors persuade consumers, either over the telephone or through the mail, to divulge their account numbers by telling them that their bank account numbers are needed to verify prizes or to deposit prize money directly into consumers’ bank accounts.
In other cases, fraudulent actors tell consumers that only a small amount will be withdrawn, but in fact withdraw huge amounts of money from the consumer’s account. As a further, the unauthorized demand draft may generate significant overdraft charges to the consumer if the consumer does not have the additional money in the first instance or has written subsequent cheques.
Little do consumers know that once they give fraudulent actors access to their bank account information, their money will disappear. Once a
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Scams & Scandals in Banking Sector
consumer provides his or her account number, a fraudulent actor can generate a document that looks exactly like the cheques in the consumer’s chequebook -- imprinted with the consumer’s name, address, phone number and, most importantly, the account numbers and the numbers necessary to route the draft through the banks’ cheques clearing system. The only difference is that in place of the consumer’s signature, there is a notation such as “pre-approved” or “signature on file.”
The fraudulent actor deposits this draft the same as any conventional cheque, and in most cases it clears in exactly the same way as a conventional cheque; the lack of a handwritten signature is not a problem in processing it. This form of fraud is a very lucrative business. Based on enforcement experience, the Commission estimates that at a minimum, demand draft fraud has already caused tens of millions of dollars in consumer injury.
Despite the potential for fraudulent misuse, demand drafts are a completely legitimate, though relatively unfamiliar, payment method. Consumers are generally aware that arrangements can be made for recurring payments, such as mortgage payments or car payments, to be withdrawn automatically from their accounts. The surprise for many consumers is that withdrawals from their accounts can happen on a onetime basis, with no prior written authorization.
The Commission’s initial conclusion was that demand drafts were just another tool in the fraud operator’s toolbox. The required sellers who use demand drafts to obtain express prior written authorization, which, in
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Scams & Scandals in Banking Sector
effect, would have eliminated demand drafts as an alternative payment method. In response to that initial proposal, the Commission received hundreds of comments from members of the automated payment industry and from legitimate merchants and businesses objecting to the elimination of demand drafts as a payment method.
These comments and oral presentations persuaded the Commission that there is nothing inherently unfair or deceptive about the use of demand drafts as a payment method; and, in fact, that demand drafts provide consumers the same convenience and opportunity to purchase goods or services that they could enjoy using credit cards. But like so many other innovative developments in the marketplace, demand drafts are susceptible to misuse by unscrupulous operators.
During the rulemaking, the Commission learned that millions of consumers use demand drafts in lieu of credit cards and those demand drafts are used by Fortune 500 companies, airlines, car rental companies, insurance companies, and mortgage companies. In fact, demand drafts are used by a variety of businesses that are characterized by quick turn-around transactions and as a payment alternative for consumers who do not have, or would rather not use, credit cards. Demand drafts are a large and growing payment mechanism. But it was that it was not the payment method itself that was the problem; rather, the problem was a lack of uniform industry standards, ineffective dispute resolution methods, and consumers’ lack of awareness that their bank accounts could be debited without their written authorization.
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Scams & Scandals in Banking Sector
In demand draft transactions, consumers are largely unprotected. In c the case of demand drafts, there is no legally mandated dispute mechanism, and no limit on liability. Disputes are governed by state law, specifically, state laws that follow the Uniform Commercial Code (“UCC”). The UCC requires that cheques or drafts be signed, but unbeknownst to many consumers, the signature need not take any particular form draft fraud.
When a consumer disputes an unauthorized demand draft to his or her account, banks often take the position that the mere fact that the consumer’s bank account number is on the draft shows that the consumer gave authority for the draft. Indeed, banks may hold consumers responsible for fraudulent demand drafts because of the consumers’ negligence in giving out their account numbers. Although some banks may refund consumers’ money in some instances, it is largely consumers who must bear monetary losses related to demand draft fraud, losses that many consumers cannot afford.
Well additionally, the Commission has taken the lead in establishing a broad consumer education campaign to help consumers learn about and therefore protect themselves against demand draft fraud.
? Case 4: Banking Scams to Watch Out For
Several banking scams are on the rise. We are providing the following information to help customers recognize these scams before becoming victims
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Scams & Scandals in Banking Sector
Credit Card Phone Scam – Be wary if you receive a telephone call from someone claiming to be calling from the Security and Fraud department at Visa or MasterCard, regardless of how official they may sound. The caller claims that your card has been flagged for an unusual purchase pattern, and that they are calling to verify if you made this purchase. When you say that you did not initiate the purchase, the caller will continue, reading off your address for you to verify so that they may send you a "credit" for the unauthorized purchase amount and giving you a control number to which to refer should you have any questions. The caller will then ask you to verify the three-digit security code from the back of your card. Although the caller never asks for (or tells you) the actual credit card number, the minimal amount of information you provide them is enough for the criminals to use your card to charge unauthorized purchases. Real Visa and MasterCard employees will never ask you to verify the card's security digits, or any other information on the card Overpayment Scam – Seller, beware! This crime occurs when someone is selling something, usually over the Internet, and is approached by a "buyer." “Buyer” is the one who convinces the seller to accept a check or money order for a larger amount than the item purchase price. In this scenario, the seller agrees to give the buyer the "change" between the item purchase price and the payment amount. Unfortunately, the check or money order is counterfeit and the "buyer" is usually long gone with the seller's cash before the check is returned. Law enforcement officials also caution consumers to be wary of sequentially numbered money orders, as they are usually counterfeit. Nigerian Advance Fee Scam – This fraud occurs when you receive an unsolicited fax, e-mail or letter asking for your help with a business proposal in Nigeria or another African country. The proposal may deal with a "bequest" left to you or may sometimes involve "over-invoiced contract funds". At some point, you are persuaded to pay an advance fee, extend credit, or provide "change" for a counterfeit money order produced by the perpetrators. Foreign Lottery Scam - Although it's illegal to participate in a foreign lottery, many consumers fall prey to scam operators enticing them to buy lottery tickets to "strike it rich," when in actuality the tickets are never bought. Or, a victim may be notified that he or she has won a prize. The "winner" is
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Scams & Scandals in Banking Sector
asked to divulge his or her bank account number so that the winnings can be deposited. Unfortunately, the thieves clean out the victim's account. Or, the victim may receive "winnings" via a counterfeit check or money order.
? Case 5: Credit Card Fraud:
Foreign cards, Local Fraud confuse cops
When a private banks investigation cell was monitoring credit card transactions made in malls earlier this month, it found a suspicious pattern. Two credit cards that were used to buy laptops at a Navi Mumbai mall had been issued by a local bank but the data on them belonged to a French banks credit card holder. In the next few days, the same cards were used to buy cell phones from a Gorgoan mall.
The transaction monitoring agency smelt a rat & contacted both the dealers. They unearthed an international credit card fraud & have now lodged separate complaints with the Gorgoan police station. “The fraudsters have been swiping international credit cards through an electronic card-reader which can store data from several cards at a time. This is known as skimming. The card-reader is then connected to the computer & the entire information is transferred,” a bank official said. "Later, it is copied on to cards issued by local banks, replacing the original data on them," he added.
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Scams & Scandals in Banking Sector
When such a card is swiped through a dealer’s data-capturing machine in order to buy a product, the international customer refuses to pay as the transaction is fraudulent.
On January 3, two cards, with the names Nelson Dorgas & Rakesh Shetty inscribed on them were used at the Raghuleela mall in Vashi for buying laptops valued at Rs.70,000. Two days later, the same cards were used to buy cell-phones worth Rs.41,000 from the Nokia priority dealer at the City Centre in Gorgoan.
"The bank tracked down the fraudulent transactions & alerted us," said Rajnikant Doshi, owner of the Nokia store. "When we looked through our records of January 5, we were shocked o find that identification documents like pan cads & driving license had also been prepared in the names of Dorgas & Shetty. We then decided to keep a watchful eye on future transactions."
On Wednesday, a youth came up to Doshi's store & a selected a Rs. 6000 cell phone for purchase. When he whipped out his credit cad, Doshi asked for his identification documents. Suddenly, the youth seemed unsure of making the purchase & began running away. Doshi & his staff then caught him & hauled him to the local police station.
"The police released the youth after making inquiries, stating that he hadn't actually swiped his card & thus no fraudulent transaction had taken place.
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Scams & Scandals in Banking Sector
We have since held meetings with the shop owners in the city centre to alert them of the fraud & the modus operandi," said Doshi, who is also the chairperson of the city centre premises co-operative society ltd.
? Case 6: Cheque Scams
Lately I (Editor) have been hooked onto Radio Talk Shows, and I heard some very interesting piece of news today.
There was this guy somewhere in Florida, who put up his couch for sale on craigslist for $200. Enquires started flowing in, and he got this email from some lady who said wanted the couch and would pay for the couch and the shipping charges for sending it to her. He did get a cheque from her by UPS overnight, a week later for $4500. On enquiry he was told that it was a mistake by the secretary, and he could cash the cheque and send the remaining money with the shipment. To cut a long story short, it is a scam, wherin the person sends stolen cheques to you and wants you to send them the money after you deposit the cheque and after a few days when the bank tries to clear it, you get caught for identity theft and they get the cashed amount. More such instances were people dating online, and having the other person (after they become comfortable) send them cheques to cash, and after that it works the same way. A dealer on ebay, had a customer send him a cheque for $7000 for buying some PS/2’s and requested the remaining money (around $2000) to be sent back along with the PS/2’s. He suspected something fishy, and went to his bank, and they called the toll – free number at the back of the cheque (it was a Chase Bank cheque) to verify the authenticity which was confirmed.
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Scams & Scandals in Banking Sector
A gut feeling with the dealer made him wait for a few more days before he sent the money and he later got a call from his bank saying the cheque was fraud and that the number at the back of the cheque was made up too and it went to the scammer who verified the authenticity of the cheque. A bank confirmed that on an average they get cheques like this once in 10 days. Be careful while dealing and doing any such business online, most of the cases you will find the other person communicating only by email.
? Case 7: Fraud Inspected on time
Bank checks fraud in nick of time
Quick thinking saved a multinational bank from being cheated to the tune of Rs9.87 lakh. Azad Maidan police have registered a case against unidentified persons for trying to cheat the Deutsche Bank.
Police officials said that a Rs561 cheque issued by Tata Teleservices Maharashtra Ltd's (TTML) was stolen by some fraudster and the amount was changed to a whopping Rs 9,87,500.
Senior inspector Prakash Shishupal, Azad Maidan police station, said that the matter came to light on September 30, when the cheque, which was in
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Scams & Scandals in Banking Sector
the name of one Mary Nelson D'Souza, was deposited in Deutsche Bank's Fort branch. The cheque was transferred from the Bank of India's Versova branch.
However, while verifying the cheque, the bank officer Mangesh Naik noticed that someone had tampered with the name and the amount. Suspecting foul play, Naik contacted TTLM officials. "They told Naik that the cheque dated September 12, 2008, was originally for Rs561 and in the name of one Sanjeet S Pathak. Naik then lodged a police complaint," said Shishupal.
He added, "Investigations revealed that D'Souza had an account in Bank of India and was a resident of Vashi. However, the address given to the bank was bogus."
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Scams & Scandals in Banking Sector
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