FinMin, RBI ask banks and financial institutions to use MuleHunterAI and other advanced technology tools to curb digital financial fraud

The Reserve Bank of India (RBI) has developed an innovative artificial intelligence model (AI), MuleHunter, in order to help mitigate growing financial fraud in the country.

The Finance Ministry on Friday, December 6, asked banks and other financial institutions to use AI tools, including MuleHunter.AI by the RBI, as security measures to protect themselves against digital financial fraud. MuleHunterAI can help banks deal with mule bank accounts to mitigate fraud cases.

A mule account is one that is used to facilitate illegal financial transactions such as money laundering. These accounts are often set up by individuals with low chances of getting suspected who are often coerced into participating in these practices by money promises. These accounts are difficult to be traced and recovering the funds becomes harder with their highly interconnected network.

Financial Services Secretary M Nagaraju chaired a meeting in which banks were directed to adopt advanced technology and leverage cutting-edge tools as well as work on strengthening inter-bank collaboration to address the issue of mule accounts effectively.

Secretary Nagaraju stated that proactive measures need to be taken to protect the hard-earned money of Indian citizens.

"Protecting citizens' wealth is our shared responsibility," the Department of Financial Services (DFS) said in a series of posts on the social media platform X.

Banks are directed to adopt advanced technologies including artificial intelligence and machine learning solutions for real-time detection of mule accounts, the post said.

The RBI also asked the banks to collaborate and make use of MuleHunter.AI to detect and weed out mule accounts used in financial fraud.

"Use of money mule accounts is a common method adopted by fraudsters to channel proceeds of frauds," Reserve Bank of India (RBI) Governor Shaktikanta Das said.

In the press release on Friday, while announcing the monetary policy committee (MPC) outcome, RBI Governor Shaktikanta Das stated that the central bank is currently running a hackathon on the theme 'Zero Financial Frauds' which includes a specific problem statement on mule accounts to encourage the development of innovative solutions to contain the use of mule accounts.

The AI/ML-based model MuleHunter.AI is another one of RBI’s initiatives to counter mule account fraud. The model is piloted by the Reserve Bank Innovation Hub (RBIH), a subsidiary of the Reserve Bank, which enables the detection of mule accounts. The model has been tested by two large public sector banks and yielded encouraging results.

The DFS Secretary emphasised the need for financial institutions and regulators to work together in mitigating digital financial fraud.

At a press conference after the MPC, Deputy Governor Rabi Sankar said that banks are free to use their own AI engines to prevent fraud. MuleHunter.AI was developed to provide financial institutions with infrastructure-level facilities, especially for small banks that are unable to fund these AI tools on their own.

Rise of mule accounts in India

As per a report by the international cybersecurity company BioCatch named ‘2024 Digital Banking Fraud Trends in India', there has been a significant increase in mule accounts in India, becoming a major concern for financial institutions.

"A mule account refers to an account that is used to receive and transfer funds acquired illegally on behalf of others," an Economic Times report quoted Vikram Gidwani, BioCatch South Asia Business Head and Fraud Risk-Management Expert at BioCatch.

Bank frauds in the country have reached a troubling figure of 32,363, costing ₹2,714.64 crore in FY24, according to data provided by Minister of State (MoS) Finance, Pankaj Chaudhary while responding to a query in the Lok Sabha, as per a report by Business Standard. The number was much lower in FY22, when 8,752 frauds were reported, amounting to ₹9,298.4 crore. The data is based on frauds with amounts involved ₹1 lakh or more in each case.