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India's ₹1.5 Lakh Crore Digital Fraud Epidemic: Prevention Strategies

· 4 min read
Isabella Martinez
Financial Intelligence Officer

For Representational Purposes

Alarming Rise in Cybercrime and Financial Frauds in India​

New Delhi - The increasing threat of cybercrime in India reached an unprecedented level in 2023, affecting over 6.94 lakh individuals and organizations and resulting in massive financial losses amounting to over ₹2,791 crore, according to various reports 1. Although the National Crime Records Bureau (NCRB) reported a loss of ₹66.66 crore from cybercrimes in 2023, the Indian Cybercrime Coordination Centre (I4C) highlighted a more significant concern - digital financial frauds. The I4C reported a shocking ₹1.25 lakh crore in losses for the past three years.

The Indian Cybercrime economy has grown rapidly, and it's crucial that our financial institutions and law enforcement agencies are equipped to deal with this threat. - Rakesh Asthana, Director, I4C

Digital Fraudsters' Methods​

Cybercriminals in India typically employ one of the following tactics to commit financial fraud 2:

  1. Impersonation: Cybercriminals create fake profiles on WhatsApp, Facebook, Instagram, or other social media platforms to deceive unsuspecting victims into sending money or disclosing sensitive information such as UPI ID, Personal Identification Number (PIN), One-Time Password (OTP), or Internet banking ID and password.

  2. False Promises: Fraudsters lure victims with the promise of greater returns on investments, cryptocurrency opportunities, or even held-up custom packages 3.

  3. Access to Banking Details: Once the fraudster gains access to a victim's banking credentials, they can then transfer funds from their account by convincing victims to install a screen-sharing app or providing a fake link resembling the official UPI app or banking website.

Stages of Money Movement in Digital Fraud Cases​

After emptying a victim's bank account, the proceeds of crime undergo a series of circulations:

  1. First Stage: The fraudsters transfer the victims’ money into temporary accounts they control 4. These accounts serve as collection points for money from other victims.

  2. Second Stage: The stolen funds are then transferred to a group of accounts where the criminal networks distribute and mix the money to complicate the tracing process 5.

  3. Third Stage: The total defrauded amount is eventually accumulated in a sink account 6, which could be a bank account, e-wallet, or payments bank. The funds are then withdrawn either through ATMs, cheques, or e-wallet cash outlets.

Combating Digital Frauds: Preventive Measures and Data Access​

Preventing digital financial fraud requires a combination of technological interventions, improved data access, and regulatory actions 7:

  1. Technological Interventions: Financial institutions and banking organizations should adopt security measures similar to those used by Google accounts, such as denying access to funds if a UPI ID, password, or OTP is entered from an unauthorized device. Furthermore, they must disable screen-sharing to prevent cybercriminals from accessing sensitive information.

  2. Transparent Bank Statements: Providing comprehensive and easily understandable transaction details in bank statements can aid law enforcement agencies in following the money trail more effectively 8.

  3. Speed Up Data Access: Banks and financial institutions should make data available in a usable format, like CSV or XLSX files, to ensure efficient investigations 9.

  4. Record IMEI Details: Mandating the recording of International Mobile Equipment Identity (IMEI) numbers in financial transactions can help law enforcement agencies identify devices associated with fraudulent activities 10.

  5. Recognize Digital Fraud Networks as Organized Crime: Strengthening laws, such as the Bharatiya Nagarik Suraksha Sanhita 2023, to recognize interstate digital financial fraud networks as serious crimes may enable stricter bail conditions for suspects and facilitate more effective prosecution.

As the world undergoes digital transformations, the importance of combating digital financial frauds cannot be overstated. The collective efforts of all stakeholders, including the government and the fintech industry, will be essential to create an environment where digital transactions are safe and an efficient means of day-to-day transactions.

Footnotes​

  1. https://example.com/ncrb-report-2023 ↩

  2. https://example.com/types-of-digital-financial-frauds ↩

  3. https://example.com/false-promise-frauds ↩

  4. https://example.com/temporary-accounts-digital-fraud-cases ↩

  5. https://example.com/money-circulation-in-digital-fraud-cases ↩

  6. https://example.com/sink-accounts-digital-fraud-cases ↩

  7. https://example.com/combating-digital-financial-frauds ↩

  8. https://example.com/transparent-bank-statements ↩

  9. https://example.com/data-access-for-investigating-digital-frauds ↩

  10. https://example.com/recording-imei-numbers-in-financial-transactions ↩