Financial frauds in India : all you need to know

blog.ipleaders.in/financial-frauds-in-india-all-you-need-to-know/

March 10, 2022

This article is authored by Nidhi Bajaj, of Guru Nanak Dev University, Punjab. The article
deals with the important aspects relating to financial frauds in India including its meaning,
types, punishment, and the ‘Top 10 biggest financial frauds in India’.

It has been published by Rachit Garg.

Introduction
Financial fraud is a white-collar crime that affects the general public and has a negative
impact on the whole economy. Often, these frauds involve misuse or manipulation of
public funds by the fraudsters to make huge profits for themselves. With the advancement
in space of technology, cases of financial fraud are on the rise. We have witnessed big
financial frauds perpetrated by fraudsters like Vijay Mallya, Harshad Mehta, and Nirav
Modi. The cases of financial fraud committed in cyberspace are no less daunting.
Fraudsters use the anonymity offered by the internet to commit online scams such as
KYC frauds, identity fraud etc. Of late, technology has become the weapon of choice for
fraudsters. This article deals with the crucial aspects relating to financial fraud including
its meaning, types, punishment, and the 10 biggest financial frauds in India. Towards the
end of the article, you will also find some tips to protect yourself from these types of fraud.

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What is fraud
Fraud is the wrongful or criminal deception intended to result in financial or personal gain.
It can also be defined as deceit, trickery, intentional perversion of truth aimed at inducing
another person to part with something of value or to surrender a legal right.

What is financial fraud

It is difficult to give one exhaustive definition of financial fraud. One may define financial
fraud as an illegal act intended to deprive you of your money for personal gains. Financial
fraud means:

The intentional act of deception involving financial transactions for personal gains.
Taking money/other assets from someone through deception.
Illegal and unethical management of financial resources.
Manipulation, falsification alteration of accounting records.
Misrepresentation or intentional omission of amounts, misapplication of accounting
principles, and marking misleading or false disclosures.

Typically, there exists an element of deceit, subterfuge, or abuse of a position of trust in

cases of financial fraud.

Common types of financial frauds

Ponzi schemes
A Ponzi scheme is an investment fraud that generates returns for earlier investors with
money taken from later investors. In this type of fraud, the clients are promised huge
profits with little to no risk. The focus of the fraudster companies is on attracting new
clients whose investments are then used to pay off earlier investors. Once the flow of
money by way of investments from new clients stops, the whole scheme falls apart.

For instance, in 1920, Charles Ponzi made approximately $15 million in about 8 months
by convincing lenders that he could make them rich with investments in international
postal reply coupons.

Pyramid schemes
Also known as a chain referral scheme, a pyramid scheme is a fraudulent business model
wherein members are recruited with their payments tied to their ability to enrol new
members. As the membership expands, there comes a point where further recruitment
becomes impossible which consequently makes the whole thing unsustainable. A
pyramid scheme might appear as legitimate multi-level marketing (MLM) practice. But the
scheme involves no legitimate sales as the earlier investors are paid from the funds
received from new investors. There is no product sold and there are no true profits.

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The SpeakAsia Scam is one example of the fraud committed through a pyramid scheme.
A Singapore based company SpeakAsia Online Ltd. asked investors to pay Rs. 11,000
and fill up online surveys to earn Rs. 52,000 a year. The company promised additional
rewards for those who enrolled other people into the scheme. The fraudsters made away
with Rs. 2,276 crores from 24 lakh investors.

Identity theft and identity fraud

In simple terms, identity theft is the use of someone’s identifying information without their
permission. Identity theft occurs when someone steals your personal financial information
such as your bank account number by way of deception and uses that information for
economic gain. This can happen in a number of ways, say in a public place via shoulder-
surfing wherein a fraudster catches you typing your CVV code into your phone, etc., or
when you opt to reply to a spam email that promises you a reward but first asks for
identifying information and personal details. Identity theft can be committed simply by
guessing your passwords or accessing your details from your social media or it might
involve complex methods such as installing malware, etc. Your personal data such as
bank account number or credit card number is then used to make fraudulent withdrawals
from your account. Fraudsters might use your information to open a credit account in your
name leaving you liable for the charges. Identity theft leads to identity fraud when the
fraudster impersonates you using your stolen information in order to access accounts and
obtain financial services.

Examples of identity theft include theft of ATM card, stealing your bank information and
example of identity fraud includes making fake ID, passport, false credit card etc. and
using it for personal unlawful gains.

Embezzlement
Embezzlement refers to the act of stealing, misappropriation, or retention of funds by a
person who has been entrusted with those funds by an employer or an organisation.
Typically, the person who embezzles money is the one who has legal access to another
person’s money or funds such as an employee. This white-collar crime is seen as a form
of property theft. Examples of embezzlement can be overbilling of customers, forging of
cheques, refusal of the conductor to issue tickets to customers after collecting the fare
etc.

Tax fraud
Tax fraud refers to the falsification of tax returns in order to evade the payment of tax to
the government. For example, claiming false deductions by classifying personal
expenditure as business expenditure or non-disclosure of income. When you pay less tax
than what is due by hiding or understating or false reporting of your income, you are
committing tax fraud.

Credit card fraud

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Credit card fraud is the unauthorised use of someone’s credit card. Credit card numbers
can be obtained through credit card theft or unsecured internet connections or by hacking
into your system etc. It is advised that in case you lose your credit card or debit card, you
should get your card cancelled immediately. Examples of credit card fraud include
counterfeit and skimming frauds, card not received frauds, lost and stolen credit card
fraud and incorrect card application fraud etc.

Insurance fraud
Insurance fraud occurs when a claimant wrongfully tries to obtain a claim from the
insurance company that he is not entitled to or when the insurance company deliberately
denies the claim legally due to the claimant. Insurance fraud can also occur in other forms
such as selling policies from fake insurance companies, falsifying the medical history,
impersonating other people for claims, cause of death being changed for accidental
claims, etc.

KYC fraud
In this type of fraud, fraudsters usually send you an unsolicited SMS saying that your card
or account will be blocked. The customer in a state of panic ends up responding to the
message without considering its legitimacy. Now when you/customer calls that number
given in the message, the fraudster pretends to be speaking from your bank and entices
you to give your personal details such as debit card information, bank account details,
OTP, etc. under the pretext of KYC verification. Sometimes, the fraudster might ask you to
install some app on your phone which will give him full access to your phone. Before you
know, withdrawals are made from your account and you will get a message that such and
such amount has been debited from your account.

Phishing
This is an online scam wherein the users/customers receive tricky emails or pop-ups that
appear to be from a legitimate source, say a bank or an insurance company or an internet
service provider, etc. The fraudster will ask for your personal information through these
emails and thereafter use that information for their unlawful gains. Phishing attacks
include phishing emails, link manipulation, session hijacking, smishing, vishing, installing
malware etc.

Advance fee scams

In advance fee scams, the fraudster will ask you to make an advance payment or upfront
payment for goods and services that do not materialise. This includes career opportunity
fraud, loan scams, lottery scams, work-from-home opportunity scams, etc.

Mortgage fraud

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Mortgage fraud is any sort of material misstatement, misrepresentation, or omission
relating to the property or potential mortgage relied on by an underwriter or lender to fund,
purchase, or insure a loan. For example, intentionally falsifying the particulars on
mortgage applications.

Mass marketing fraud

In this, mass mailing, calls, spam emails are resorted to for stealing the personal financial
information of the target. This type of fraud targets multiple victims from different
jurisdictions. Mass marketing fraud schemes typically fall into two classes, schemes that
defraud numerous victims out of comparatively small amounts, and schemes that defraud
comparatively less numerous victims out of large amounts. One example of mass
marketing fraud can be ‘too good to be true payment schemes’.

Bank fraud
Banking fraud is an attempt to syphon or take funds or other assets from a financial
institution. RBI defines fraud as, “A deliberate act of omission or commission by any
person, carried out in the course of a banking transaction or the books of accounts
maintained manually or under computer system in banks, resulting into wrongful gain to
any person for a temporary period or otherwise, with or without any monetary loss to the
bank”. Some of the famous bank fraud cases are the PNB-Nirav Modi Scam, ABG
Shipyard Fraud, Vijay Mallya scam etc.

UPI-related frauds
About 80,000 UPI frauds occur in India, every month. Fraudsters send you a ‘request
money’ link and once you click on it and authorise the transaction, money gets deducted
from your account. Also, sometimes the fraudsters will send you a fake URL and once
you click on it, it infects your phone with malware designed to steal all your financial
information. UPI-related frauds can occur in forms of phishing attacks, screen mirroring
tools and through deceptive UPI handles.

SIM swap fraud

Sim swapping is when you make a request to your service provider to swap your sim,
who deactivates your old sim and gives you a new one. For example, when you want to
upgrade your 3G sim card to a 4G one. This is a legitimate sim swap transaction.

However, in the case of sim swap frauds, the fraudster makes a sim swap request to the
service provider using fake papers and pretends to be a genuine cardholder. The service
provider deactivates your old sim and the fraudster gets a new sim card. He is then able
to access all your financial information such as OTPS, card alerts, etc., and can
manipulate the same in innumerable ways. For instance, in August 2021, a man lost Rs.
84 lakhs due to SIM swap fraud committed by some unidentified cyber criminals who
cloned the victim’s sim card to get his bank details.

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Corporate fraud
Corporate fraud involves falsification or misrepresentation or hiding of a company’s
financial information and accounts to make profits illegally and to mislead the public. For
example, insider trading, falsification of accounts to show a healthy picture in order to
attract lenders and investors, misappropriation of assets, etc.

As per Section 447 of the Companies Act, 2013, fraud, in relation to affairs to a company
includes any act, omission, concealment of any fact or abuse of position committed by
any person or any other person with the connivance in any manner, with intent to deceive,
to gain undue advantage from, or to injure the interests of, the company or its
shareholders or its creditors or any other person, whether or not there is any wrongful
gain or wrongful loss.

Legal provisions relating to financial fraud under various laws and

punishment prescribed for such frauds

Indian Penal Code, 1860

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Section 405: Section 405 defines criminal breach of trust as, “Whoever, being in
Criminal any manner entrusted with property, or with any dominion over
breach of trust property, dishonestly misappropriates or converts to his own use that
property, or dishonestly uses or disposes of that property in violation
of any direction of law prescribing the mode in which such trust is to
be discharged, or of any legal contract, express or implied, which he
has made touching the discharge of such trust, or wilfully suffers any
other person so to do, commits “criminal breach of trust”.

Section 406: Imprisonment of either description for a term which may extend to 3
Punishment for years or with fine or with both.
criminal
breach of trust

Section 409: Section 409 provides that the criminal breach of trust committed by
Criminal banker, merchant, factor, broker, attorney or agent shall be punished
breach of trust with imprisonment for life, or with imprisonment of either description
by public for a term which may extend to ten years, and shall also be liable to
servant or by fine.
banker,
merchant or
agent.

Section 415: Section 415 defines the offence of Cheating as, “Whoever, by
Cheating deceiving any person, fraudulently or dishonestly induces the person
so deceived to deliver any property to any person, or to consent that
any person shall retain any property, or intentionally induces the
person so deceived to do or omit to do anything which he would not
do or omit if he were not so deceived, and which act or omission
causes or is likely to cause damage or harm to that person in body,
mind, reputation or property, is said to “cheat”.”

Section 416: Section 416 defines Cheating by personation in the following terms:
Cheating by “A person is said to “cheat by personation” if he cheats by pretending
personation to be some other person, or by knowingly substituting one person for
or another, or representing that he or any other person is a person
other than he or such other person really is.”

Section 417: Section 417 provides punishment for the commission of offence of
Punishment for Cheating under Section 415 to be imprisonment of either description
Cheating for a term which may extend to one year, or with fine, or with both.

Section 418: Section 418 provides that, “Whoever cheats with the knowledge that
Cheating with he is likely thereby to cause wrongful loss to a person whose interest
knowledge that in the transaction to which the cheating relates, he was bound, either
wrongful loss by law, or by a legal contract, to protect, shall be punished with
may ensue to imprisonment of either description for a term which may extend to
a person three years, or with fine, or with both.”
whose interest
the offender is
bound to
protect.

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 Section 420: Imprisonment of either description for a term which may extend to 7
Cheating and years and shall also be liable to fine.
dishonestly
inducing
delivery of
property

Section 467: Imprisonment for life, or with imprisonment of either description for a
Forgery of term which may extend to 10 years and shall also be liable to fine.
valuable
security, will,
etc.

Section 468: Imprisonment of either description for a term which may extend to 7
Forgery for years, and shall also be liable to fine.
purpose of
cheating

Section 471: Punishable in the same manner as if the person had forged such a
Using as document or electronic record.
genuine a
forged
document or
electronic
document

Companies Act, 2013

The Companies Act, 2013 contains provisions dealing with corporate frauds, which are
provided as follows:

Punishment for fraud (Section 447)

Section 447 of the Companies Act, 2013 provides that any person who is found guilty of
fraud, involving an amount of at least 10 lakh rupees or 1% of the turnover of the
company, whichever is lower shall be punishable with:

Imprisonment for a term which shall not be less than 6 months but which may
extend to 10 years, and
Fine which shall not be less than the amount involved in the fraud, but which may
extend to three times the amount involved in the fraud.

The first proviso to the Section lays down that in case the fraud in question involves
public interest, then the term of imprisonment shall not be less than 3 years.

The second proviso to the Section states that where the fraud involves an amount less
than 10 lakh rupees or 1% of the company’s turnover, whichever is lower, and does not
involve public interest, then the maximum punishment that can be awarded to the person
found guilty of such fraud shall be 5 years imprisonment or a fine which may extend to 50
lakh rupees or both.

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It is pertinent to note that the Companies Act, 2013 empowers the Serious Fraud
Investigation Office (SFIO) with powers to probe companies suspected of fraud. Also, the
Act authorises the auditor to report fraud to the central government.

Other Sections under the Companies Act dealing with fraud

Section 36 Punishment for fraudulently inducing persons to invest money.

Section 38 Punishment for personation for acquisition, etc., of securities.

Section Penalty for furnishing false statements, mutilation, destruction of

229 documents.

Section Fraudulent application for removal of name.

251

Section Punishment for false statements.

448

Punishment for money laundering

Section 4 of the Prevention of Money Laundering Act, 2002 provides for a punishment of
rigorous imprisonment which shall not be less than 3 years but which may extend to 7
years, and a fine for the offence of money laundering.

Information Technology Act, 2000

The Information Technology Act, 2000 contains provisions dealing with cyber fraud and
financial frauds committed using computer resource.

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 Section 43A: This section makes a body corporate liable for wrongful loss caused to
Compensation a person due to the negligence of such authority in maintaining
for failure to reasonable security practices. It provides that, “ Where a body
protect data corporate, possessing, dealing or handling any sensitive personal data
or information in a computer resource which it owns, controls or
operates, is negligent in implementing and maintaining reasonable
security practices and procedures and thereby causes wrongful loss
or wrongful gain to any person, such body corporate shall be liable to
pay damages by way of compensation to the person so affected.”

Section 66C: This section provides for punishment for identity theft. It states that
Punishment any person who fraudulently or dishonestly makes use of the
for identity electronic signature, password, or any other unique identification
theft feature of any other person, shall be punished with imprisonment of
either description for a term which may extend to three years and shall
also be liable to fine which may extend to rupees one lakh.

Section 66D: This section states that, “Whoever, by means of any communication
Punishment device or computer resource cheats by personation, shall be punished
for cheating with imprisonment of either description for a term which may extend to
by three years and shall also be liable to fine which may extend to one
personation lakh rupees.”
by using
computer
resource

Tips to protect yourself from financial frauds

Beware of shoulder surfing

Shoulder surfing refers to watching over someone’s shoulder while they are using an ATM
or filling in personal details in the phone etc. to steal their data. It is the most common
danger associated with using ATMs. While you are using the ATM, ensure that no one is
trying to shoulder surf you by standing too close to you. The fraudsters attempt to see
your identification number(PIN) and once that PIN reaches into the hands of a fraudster,
they can use it in numerous illegal ways. So the next time, you go to an ATM, make sure
to cover your hand while punching your PIN.

Robust passwords, safe clicking

The most basic thing that you must do to avoid being a victim of financial fraud is to use a
strong password with multi-factor authentication. Also, do not click on every pop-up or
link. Practice safe clicking.

Other simple tips to keep yourself safe

Avail of the facility of setting and modifying your transaction limits on your cards and
account.

Create a separate user account when you are using a personal laptop for work.

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 Keep your systems and software updated.
Do Not respond to calls that ask for sensitive information. Don’t give them your
details.
Keep your PINs secret.
Don’t give your account details to a person or fill them on some website unless their
identity can be verified.
Place your money in an authorised financial institution. Don’t give your money to
someone who offers to place it in the bank on your behalf in return for a higher rate
of interest.
Be vigilant. Read about the newer and most common types of fraud happening
around you.
If you noticed some suspicious activity in your bank account or while using your
card, report it.
Check your monthly credit card statements carefully.
Be careful while you make payments on the internet. Enter your Card Verification
Value(CVV) only on secure payment websites.
Be careful when signing any financial contract and always read the small print
carefully.
Do not reply to spam or unsolicited emails that promise you some reward.
Don’t fall into the trap of fake lotteries scams. No one can win a lottery in which they
have not participated.
Install a trusted antivirus on all your devices.
Do Not share your OTP with anyone. Make sure that the OTP generated is for the
transaction initiated by you.

Top 10 biggest financial frauds in India

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Satyam Satyam Computer Services Ltd. was founded in the year 1987 by
Computers Ramalinga Raju and his brother Rama Raju and soon the company
Scam (2006- became a significant IT player.Also called the mother of all scams,
2008) Satyam Computers Scam broke in the year 2009 when the founder and
CEO of Satyam Computers, Ramalinga Raju confessed that the
company has been falsifying its accounts and overstating its revenues
for years. On January 7, 2009, Ramalinga Raju sent a 5-page letter to
the SEBI and stock exchanges admitting a fraud of Rs. 7000 crores.The
company committed fraud by overstating its revenues, forging bank
statements, and manipulating the books by non-inclusion of certain
receipts.Over the period of 5-6 years, the company’s revenue was
overstated by Rs. 4783 crores and as per the SEBI’s probe,
misstatements to the tune of Rs. 12,320 crores were found.On April 9,
2015, the CBI Special Court sentenced Ramalinga Raju and 9 others to
imprisonment for 7 years. A fine of Rs. 5.5 crores was imposed on the
Raju brothers.

Harshad The man behind the massive Securities Scam in 1992 was the well-
Mehta known and experienced stockbroker, Mr. Harshad Shantilal
Scam/ Mehta.Being a skilled broker, Harshad Mehta misused his knowledge of
Securities the stock market to cause manipulations and made huge profits. The
Scam 1992 scam involved the diversion of bank funds worth Rs 3,500 crore to a
group of stockbrokers, led by none other than Harshad Mehta. These
funds were then put into the stock market selectively, causing it to surge
to over 4,500 points. The scam was first exposed by journalist Sucheta
Dalal in April 1992.Thereafter, the banks realised that they were holding
on to worthless bank receipts and the stock market too came crashing
down.Harshad Mehta was charged with about 72 criminal offences
including cheating, bribery, forgery, criminal conspiracy, falsification of
accounts, etc., and over 600 civil suits were initiated against him.In
September 1999, the Bombay High Court convicted Harshad Mehta and
three others in an Rs. 380.97 million MUL fraud case (one of the many
cases within the larger scam) and they were sentenced to rigorous
imprisonment of 5 years.Harshad Mehta was out on bail in all cases
including his conviction in the MUL case. But later, he was again
arrested in 2001 for misappropriating Rs 2.5 billion from 2.7 million
“missing shares” of 90 blue-chip companies. This time bail was denied
to him.On 31st December 2001, Harshad Mehta passed away in Tihar
Jail. His appeal against conviction in the MUL case was dismissed in
2003 and the rest of the criminal cases against him abated on his death.

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Kingfisher Kingfisher Airlines was launched by Vijay Mallya in 2005. Soon, the
Airlines/Vijay airline became the 2nd largest airline after Jet Airways. Mallya wanted
Mallya case to expand his company and hence he acquired ‘Air Deccan’.Mallya
resorted to borrowings by over-valuation of his brand value. The
mounting debts kept on increasing and eventually the company shut
down. Even the government cancelled the licence of Kingfisher Airlines
in December 2012.Mallya took huge loans from various PSU banks.
The SBI issued a 1600 crore loan to Kingfisher airlines. He had taken
similar loans from 17 different banks.He defaulted on the payment of
loans worth Rs. 9000 crores from more than a dozen Indian banks
around the year 2013.On March 2, 2016, Vijay Mallya left the country
and in January 2019 he was declared a fugitive offender under the
Fugitive Economic Offenders Act, 2018. Since then, efforts are being
made to extradite him from the UK to India.In January 2017, the Debt
Recovery Tribunal held Kingfisher Airlines, UB Group, and Vijay Mallya
jointly and severally liable for Rs. 6,963 crores and interest at the rate of
11.5%.Offences with which Mallya was charged include Section 120B
read with Section 420 I.P.C., Section 13(2) read with Section 13(1)(d) of
the Prevention of Corruption Act, 1988.

PNB Bank PNB Scam is dubbed as the biggest fraud in the Indian Banking
scam (2018) Industry. The main accused in the Punjab National Bank Scam was
Nirav Modi(Indian businessman in the business of luxury diamond
jewellery), his uncle Mehul Chowksi and other relatives, and some
employees of the Punjab National Bank.Fraudulent letters of
undertaking(LoUs) worth 11,000 crores(approx.) were issued by the
Brady House branch of PNB, Mumbai in connivance with Nirav Modi,
his relatives, and some PNB employees.The aforesaid LoUs were
apparently issued for overseas payments by firms linked to Nirav Modi
and Mehul Chowksi.Some employees of the PNB bypassed the bank’s
core system to issue LoUs to the overseas branches of Indian banks,
using the international financial communication system, SWIFT.The
accused in the case were charged with the offence of criminal
conspiracy, criminal breach of trust, cheating, corruption, money
laundering, fraud, embezzlement, and breach of contract.In January
2018, PNB filed a complaint against the accused for commission for
fraud and the CBI started an investigation into the matter.Both Nirav
Modi and Mehul Chowksi fled India before the news of the scandal
broke in public. Presently, the Indian government is attempting to
extradite Nirav Modi from the UK who is currently lodged in UK prison
and his extradition request was allowed by a UK Court on 25 February
2021.

Ketan Ketan Parekh, a CA by profession, managed his family’s brokerage

Parekh and business.Like Harshad Mehta, Ketan Parekh also manipulated the stock
the Stock market through unlawful means. He syphoned off public funds to the
Market tune of Rs.1200 crores.The fraud unravelled when the Bank of India
Scam of alleged that Ketan Parekh had defrauded them to the tune of Rs.137
2001 crores.CBI arrested Parekh and he was accused of insider trading. He
was sentenced to rigorous imprisonment of 1 year and was prohibited
from trading in the Bombay Stock Exchange for 15 years.

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ICICI- Loans worth Rs. 1875 crores were given by the ICICI Bank to the
Videocon Videocon group(controlled by industrialist Venugopal Dhoot). Ms.
Scam Chanda Kochhar was the CEO and MD of the bank at that
time. Videocon group had made 258 proposals to the bank and 8 of
them were accepted by the bank. In 4 such proposals, Chanda Kochhar
was part of the sanctioning and recommending committee.The bank
had granted loan to the Videocon group and its associated companies
from 2009 to 2011 and most of these loans were granted in gross
violations of the banking regulations and the policies of the ICICI
bank.Within months of the sanctioning of the loan, Dhoot’s Supreme
Energy granted a loan of Rs. 64 crores to NuPower Renewables, in
which a 50% stake is held by Deepak Kocchar(Chanda Kocchar’s
husband). There were allegations that the loan given was a part of a
quid pro quo deal.The Enforcement Directorate investigated this multi-
crore scam and Chanda Kochhar had to step down as the CEO.

Telgi Stamp A fruit seller who later became a travel agent, Abdul Karim Telgi was
paper scam arrested by police for forging immigration certificates. In jail, Telgi met
Ratan Soni, and they became partners in coning the world by selling
fake stamp papers.Telgi committed fraud worth crores by counterfeiting
stamp papers, judicial court fee stamps, revenue stamps, foreign bills,
brokers notes, share transfer certificates, etc.It was alleged that Telgi
bribed a few officials of the Indian Security Press so that he could do his
business on a large scale.The estimated value of the scam was
Rs.20000 crores. Telgi was convicted for printing counterfeit stamp
paper and was sentenced to imprisonment for 30 years and a fine of
Rs.202 crores was imposed on him.

Saradha An umbrella company named Saradha Group in West Bengal defrauded

Scam(2013) millions of investors by running Ponzi schemes.The scam worth
Rs.10000 crores came to light in 2013. Chairman and MD of the
company Sudipta Sen and others were arrested on April 23, 2013.Sen
wrote to CBI and confessed to the fraud and money laundering and also
alleged that several prominent personalities including MPs and MLAs
were involved in the scam.Since many investors belonged to the low
income strata, the state government set up a relief fund to prevent the
small investors from getting bankrupt.

ABG ABG Shipyard is perhaps the biggest known bank fraud case. In early
Shipyard February, the top officials of ABG Shipyard were charged with causing
Fraud wrongful losses worth Rs.22,842 crores to an ICICI bank-led consortium
of banks that included SBI.The fraud was unravelled after the
submission of an audit report in January 2019. As per the report, the top
officials of ABG committed illegal activities including diversion of funds,
criminal misappropriation of funds, and criminal breach of trust.

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 SBI-Canara CBI had registered cases filed by Canara Bank and the State Bank of
bank fraud India regarding fraud to the extent of Rs.7,926.01 crore and Rs.313.79
crores respectively.The first case was filed against a Hyderabad-based
private firm and some unknown public servants. There were allegations
that the firm had availed multiple credit facilities from Canara Bank and
has committed various financial crimes including falsification of
accounts, tampering with balance sheets, misappropriation of funds,
diversion of the loan amount, etc. The account became NPA and was
declared a fraud.The second case was registered against a private
company based in Chennai on the complaint filed by SBI. It was alleged
that the said company availed a credit limit of Rs. 310 crores from the
bank and diverted the funds to related parties. The account became
NPA and was declared a fraud.

Top global trends to watch in 2022 in the fraud landscape

Digital transformation
Digital transactions have increased to an unprecedented extent due to the impact of the
COVID-19 pandemic. Now the customers have become more comfortable and confident
in consuming digital services and are rather preferring the digital mode over the traditional
one. It is true that even before the pandemic, the consumers were already moving
towards digital but the pandemic has brought an upsurge in the number of
new/inexperienced digital consumers that have become the target of the fraudsters.
Globally, the average share of digital customer interactions has increased by 22%.

Increased automation
Automation is a double-edged sword. Automation streamlines customer experience by
offering multiple conveniences such as auto-fill etc. However, this all comes at a price.
Automation makes it easier for the fraudsters to launch attacks and in high volumes. A
whopping 1.2 billion bot attacks occurred in the first half of 2021 and volume of bot
attacks in financial services increased by 28%.

Adoption of new digital payments and methods

As we move forward in the digital age, new payment options have developed and are
developing that allow the consumer to create accounts effortlessly and also gives them
quick access to credit options. We all love the thought of ‘Buy Now, Pay later’ but these
effortless and convenient options have also opened another door for fraudsters. The
largest BNPL platforms have reported a significant increase in fraud, primarily from new
account creation, account takeovers and repayments with stolen credit cards.

Increasing risk of payment frauds

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The number and scale of digital transaction activity is increasing day by day but the data
security awareness is not increasing at a similar pace. Globally, the digital payment
market is projected to reach more than US $236 billion by 2028, a CAGR of 19.4%. The
lack of security awareness is attracting more and more fraudsters and it is not so difficult
for them to dupe naive, inexperienced users

Risk of synthetic identities

In the U.S., the creation of synthetic identities is one of the fastest growing online crimes.
In synthetic Identity fraud, the fraudsters take legitimate data and combine it with fictitious
and false information to create a new identity. It is one of the hardest types of identity
theft to detect because there is no real person to report the fraud.

Escalating cost of fraud

Due to the increase in digital transactions, the global cost of fraud has also escalated to
$5.4 trillion. In APAC, fraudulent transactions cost up to 3.87 times the value of the lost
transaction, up from 3.40 in 2019.

Need for multi-layered fraud assessment

Fraudsters use complex methods and are continually coming up with new strategies to
dupe people, manipulate the control systems and frameworks put in place for fraud
prevention. In such circumstances, a multi-layered approach that includes physical
identity, digital identity intelligence and behavioural biometrics is the best bet to mitigate
the risk of fraud. Behavioural biometrics works in the following ways:

It looks at how a user-

1. Types on keyboard
2. Moves the mouse
3. Holds a phone
4. Taps on screen
5. Swipes in an app

The behavioural biometrics can be used to identify the good customer profiles, recognise
unusual transactions and strengthen consumer trust.

Conclusion
The identification, prevention and minimisation of the incidents of financial frauds is the
collective responsibility of all, including citizens, government and other key regulators
(such as RBI) and investigating agencies as well. Financial institutions are working
towards stringent implementation of their fraud control policies and reporting frameworks
to generate information in a way that the level of fraud identified, prevented and actual
losses incurred are identified. The focus is on enhancing the processes, controls, fraud

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risk management frameworks in order to minimise the opportunities for fraud and also
reduce the time that goes by in detection of frauds. The RBI had also set up a Central
Fraud Registry Portal which is a searchable database to help banks detect instances of
fraud by borrowers early on. The portal can be accessed by all Indian banks.

The Hon’ble Supreme Court in its judgment State of Maharashtra Through CBI v. Vikram
Anantrai Doshi and Others (2014),has held that the cases of financial frauds shall not be
quashed on the ground of compromise as it is a social wrong and has immense societal
impact.

Lastly, it is worth mentioning that the Central Government has launched a national
helpline no. 155260 which is operated by the concerned state police. Victims of cyber
fraud can call this number to report financial fraud.

References

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