Financial Crime Detection Techniques in India: A Growing Concern
The Rise of Digital Financial Frauds in India
As cybercrime continues to rise in India, the country’s financial sector is facing a significant threat from digital financial frauds. Recent reports reveal that cybercrimes in India resulted in a staggering loss of ₹66.66 crore in 2023, with over 4,850 reported cases. The Indian Cybercrime Coordination Centre (I4C) has also revealed that digital financial frauds accounted for a staggering ₹1.25 lakh crore over the last three years.
How Digital Frauds Work
Fraudsters use various methods to deceive victims, including:
- Impersonation on social media platforms
- Fake WhatsApp or Facebook profiles
- Convinning victims to send money by giving false promises of greater returns
- Taking credentials such as Unified Payments Interface ID (UPI), Personal Identification Number (PIN), One-Time Password (OTP) or Internet banking ID/password from the victim and using it to transfer money without their knowledge
The Money Trail: A Challenging Task for Law Enforcement Agencies
After a fraudster empties a victim’s bank account, the money undergoes a series of circulations in three stages:
- Temporary Account: Fraudsters transfer victims’ money into a temporary account.
- Middlemen Accounts: The money is then transferred into a group of accounts among which money is circulated by middlemen who receive a nominal cut.
- Sink Account: Finally, the money is transferred into a third stage account, known as the sink account, where the total defrauded amount from a group of victims is re-collected.
Preventing Digital Frauds: A Technological Approach
Most frauds can be prevented with basic technological interventions. Financial institutions must be mandated to:
- Replicate the feature of Google accounts, which do not allow logging in from a new device unless permission is granted by the former.
- Disable screen-sharing facilities to run on top of banking and financial apps.
- Provide comprehensible data in their bank statements, including the receiver’s account/mobile number or any other identifying number.
Speeding Up Information Access: A Crucial Step for Investigation
Law enforcement agencies face difficulties in conducting investigations due to delays in accessing information. Banks/NBFCs/SEs must be mandated to provide data in a predetermined format with all terms explained. The data must be given in a CSV or XLSX file, making it easier for investigating officers to analyze.
The Road Ahead: A Need for a Collective Effort
Digital financial frauds are very much covered under the definition of “organised crime” in the Bharatiya Nagarik Suraksha Sanhita 2023. Law enforcement agencies face difficulties in conducting interstate raids and arrests, which requires a large team and coordinated effort. Interstate digital financial fraud networks must be recognised as a serious crime, and bail may be restricted by the Courts.
In conclusion, cybercrime is a growing concern in India’s financial sector, and it can be dealt with like conventional offences using different tools. If the fintech and telecom industries are mandated to take certain preventive steps in their technology and provide data in a manner that enables speedier investigation, prevention, detection, recovery, and conviction will be more effective.