Frauds In Banks

Frauds In Banks

SR.NOTITLEPAGE.NO

1EXECUTIVE SUMMARY2

2INTRODUCTION3

3CLASSIFICATION OF FRAUDS4

4FRAUD BY INSIDERS5

5FRAUD BY OTHERS7

6TOP BANKING FRAUDS OFF ALL TIME26

7SOME STATISTICS OF FRAUDS IN THE BANKING SECTOR29

8LEGAL REGIME TO CONTROL BANK FRAUDS32

9GUIDELINES ISSUED BY RBI33

10CONCLUSION36

11BIBILOGRAPHY38

EXECUTIVE SUMMARYOver the time, Banking customers have developed a preference for transacting through newer channels like payments cards and online banking over traditional banking channels. While these payment channels have the advantages of ease and speed of transacting, on the flip side, these very advantages make banks customers vulnerable to the ploys of fraudsters. This paper looks at the common weaknesses to which banking customers using cards and online banking for executing transactions are exposed to. It focuses mainly on skimming and online frauds, probes the nature of these frauds and reveals the newer trends within these fraud types. Further, this paper explains how banks have been trying to control these frauds by improving their systems and processes. It is evident that it requires considerable investment in systems/processes to improve the fraud monitoring and detecting capabilities. Small and medium banks, with limited IT budgets or fund constraints, have not been able to keep pace with the newer techniques developed by fraudsters. Their ability to adopt newer /better technology for prevention, detection & early warning of fraud being low , they are losing millions of dollars in addition to customer confidence.

INTRODUCTIONFraud is any dishonest act and behavior by which one person gains or intends to gain advantage over another person. Fraud 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 Fraudsconstitute 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 todays 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 2009 bank frauds in nationalised banks was of Rs.1497.60 crore.

CLASSIFICATION OF FRAUDSBanking fraud can be classified as: Fraud by insiders Rogue traders Fradulant loans Wire fraud Forged and fradulant documents Uninsured deposits Theft of identity Demand draft fraudFraud by others Forgery and altered cheques Stolen cheques Accounting fraud Bill discounting fraud Cheque kiting Credit card fraud Booster cheques Stolen payment card Duplication or skimming of card information Impersonation Fradulant loan application Pishing Money laundering Prime bank fraud The fictitious bank inspectorFRAUD BY INSIDERSRogue tradersA 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 loansOne 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 fraudWire 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 documentsForged 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 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 depositsThere 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 identityDishonest 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 fraudDD fraud is usually done by one or more dishonest bank employees that is 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 OTHERSForgery and altered chequesThieves 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 non-sufficient funds.Stolen chequesSome 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 fraudIn 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 fraudEssentially 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 kitingCheque 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.Credit card fraudCredit card fraud is widespread as a means of stealing from banks, merchants and clients. 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: Genuine cards are manipulated Genuine cards are altered Counterfeit cards are created Fraudulent telemarketing is done with credit cards. 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. Counterfeit credit cards are known as white plasticsCredit Card Fraud PenaltiesVery strict credit card fraud penalties are imposed to prevent credit card misuse. Many of us fall victim to credit card frauds. Here is some information about credit card fraud penalties and the relief you can get in case you have been a victim of such a fraud.Have you ever got a credit card bill that listed buying from places you have never been, listing such a huge credit card debt, which could easily give you a heart attack? Then you have been a victim of credit card fraud and you know how frustrating it is! Credit card fraud is any theft or fraud committed by using a stolen credit card forpayment. It is classified as theft of identity. It is taken as a serious crime by the federal law and involves serious penalties. The degree of these credit card fraud penalties are decided according to the degree of fraud committed by the person or persons. You will be surprised to know, that credit card frauds, every year, cost from millions to billions of dollars to credit card companies and merchants combined.In the United States of America, the merchants from whom the items were purchased using a false credit card, have to pay for cost of the fraud. In fact a merchant has to pay an extra chargeback fee too in some cases. In many other countries, the credit card companies take responsibility and pay the cost of fraud. In very few countries, the true card holder himself has to face the brunt and pay the cost.Famous credit fraud attacksBetween July 2005 and mid-January 2007, a breach of systems atTJX Companiesexposed data from more than 45.6 million credit cards.Albert Gonzalezis accused of being the ringleader of the group responsible for the thefts. In August 2009 Gonzalez was also indicted for the biggest known credit card theft to date information from more than 130 million credit and debit cards was stolen atHeartland Payment Systems, retailers7-ElevenandHannaford Brothers, and two unidentified companies. Booster chequesA 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 cardsOften, 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 informationThis 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 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 identityTheft 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 applicationsThese 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.Phishing and Internet fraudPhishing 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 launderingThe 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 notesPaper 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 forery 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 its very difficult to catch hold of such forgers as once such notes are circulated its very difficult to track its origin.Prime bank fraud The "prime bank" operation which claims to offer an urgent, exclusive opportunity to cash in on the best-kept secret in the banking industry, guaranteed deposits in "prime banks", "constitutional banks", "bank notes and bank-issued debentures from top 500 world banks", "bank guarantees and standby letters of credit" which generate spectacular returns at no risk and are "endorsed by the World Bank" or various national governments and central bankers. However, these official-sounding phrases and more are the hallmark of the so-called "prime bank" fraud; they may sound great on paper, but the guaranteed offshore investment with the vague claims of an easy 100% monthly return are all fictitious financial instruments intended to defraud individuals.The fictitious 'bank inspectorThis is an old scam with a number of variants; the original scheme involved claiming to be a bank inspector, claiming that the bank suspects that one of its employees is stealing money and that to help catch the culprit the "bank inspector" needs the depositor to withdraw all of his or her money. At this point, the victim would be carrying a large amount of cash and can be targeted for the theft of these funds. Other variants included claiming to be a prospective business partner with "the opportunity of a lifetime" then asking for access to cash "to prove that you trust me" or even claiming to be a new immigrant who carries all their money in cash for fear that the banks will steal it from them - if told by others that they keep their money in banks, they then ask the depositor to withdraw it to prove the bank hasn't stolen it. Impersonation of officials has more recently become a way of stealing personal information for use in theft of identity frauds.

INTERNET BANKING FRAUDSInternet Banking Fraud is a fraud or theft committed using online technology toillegally remove money from a bank account and/or transfer money to an accountin a different bank. Internet Banking Fraud is a form of identity theft and isusually made possible through techniques such as phishing. Now internet banking is widely used to check account details, make purchases, pay bills, transfer funds, print statements etc. Generally, the user identity is the customer identity number and password is provided to seure transactions.But due to some ignorance or silly mistakes you can easily fall into the trap of cyber criminals. Here are some simple tips to prevent you from falling into the trap of cyber criminals. Remember, a simple ignorance or oversight can make a huge dent in your hard- earned savings.Internet Banking fraud is a growing challenge, with 2005 seeing an 88% increase in the number of online fraud incidents across the globe. Recent studies in the U.S. and the U.K. indicate that the increased prevalence of online fraud is deterring many customers from migrating to online banking, with security-conscious customers preferring to transact via less cost-effective channels, such as branch networks. Titan is a fraud detection system designed specifically for the Internet Banking channel. It was developed as a solution that significantly mitigates risk, is cost effective whilst also ensuring that your online banking customers are not adversely affected or inconvenienced in any way.TYPES OF INTERNET BANKING FRAUDPhishingPhishing is a way of attempting to acquire information such as usernames, passwords, and credit card details by masquerading as a trustworthy entity in an electronic communication. Communications purporting to be from popular social web sites, auction sites, online payment processors or IT administrators are commonly used to lure the unsuspecting public. Phishing is typically carried out by e-mail spoofing or instant messaging, and it often directs users to enter details at a fake website whose look and feel are almost identical to the legitimate one. Phishing is an example of social engineering techniques used to deceive users and exploits the poor usability of current web security technologies. Attempts to deal with the growing number of reported phishing incidents include legislation, user training, public awareness, and technical security measures. A phishing technique was described in detail in 1987, and the first recorded use of the term "phishing" was made in 1996. The term is a variant of fishing, probably influenced by phreaking, and alludes to "baits" used in hopes that the potential victim will "bite" by clicking a malicious link or opening a malicious attachment, in which case their financial information and passwords may then be stolen.Prevention: The best way to avoid this type of internet banking fraud is to never provide personal banking information over the internet when it is requested through email. If you believe that you may have provided information over the internet to an illegitimate source, immediately contact your financial institution to have your password changed. It should be noted that, because of same reason banks never request your personal information through email. If you receive a mail claiming to be from your bank, it would probably be from a fraudster.Spam Spam is an electronic 'junk mail' or unwanted messages sent to your email account or mobile phone. These messages vary, but are essentially commercial and often annoying in their sheer volume. They may try to persuade you to buy a product or service, or visit a website where you can make purchases; or they may attempt to trick you into divulging your bank account or credit card details.

Nigerian ScamNiegerian or Frauds 409 or 419 are basically the lottery scam in which some overseas persons are involved to cheat innocent persons or organizations by promising to give a good amount of money at nominal fee charges. Their intentionis to steal money in the form of fee against the lottery prize.

SpywareSpyware such as Trojan Horse is generally considered to be software that is secretly installed on a computer and takes things from it without the permission or knowledge of the user. Spyware may take personal information, business information, bandwidth; or processing capacity and secretly gives it to someone else."Trojan Horse" scheme unfolds when malicious software (malware) embeds to a consumer's computer without the consumer being aware of it. Trojans often come in links or as attachments from unknown email senders. After installation the software detects when a person accesses online banking sites and records the username andpassword to transmit to the offender. People using public computers, in places like Internet cafes, are often susceptible to Trojans like malware or spyware.Un-Protected Online TransactionsInternet banking fraud can also occur when consumers make online purchases over an unprotected website. If your privacy remains un-protected, criminals can use the stolen data to commit banking frauds.Prevention: This can be prevented by using new generation browsers like FireFox 8, IE 9 & Google Chrome. These browsers will warn you if you are visiting an un-protected website. If the digital certificates are not from a reliable authority, you can be sure that the website you are visiting is an un-secured website. This type of fraud is becoming rare nowadays.Identity TheftFinancial identity theft occurs when someone uses another consumers personal information (name, social security number, etc.) with the intent of conducting multiple transactions to commit fraud that results in substantial harm or inconvenience to the victim. This fraudulent activity may include opening deposit accounts with counterfeit checks, establishing credit card accounts, establishing lines of credit, or gaining access to the victims accounts with the intent of depleting the balances. This differs from check fraud (forged signature or forged endorsement) or an unauthorized ATM or Debit Card transaction in that it involves more than an isolated single act of fraud. Some examples of Identity Theft include:Account takeoverAccount take over is one of the more prevalent forms of Identity Theft. It occurs when a fraudster obtains an individuals personal information (account number and social security number is usually all it takes), and changes the official mailing address with that individuals bank. Once accomplished, the fraudster has established a window of opportunity in which several transactions are conducted without the victims knowledge using the victims personal information. Notice, this involved the intent to take over the victims identity as well as more than one isolated transaction. It can also occur when the fraudster pays employees of various companies and banks to steal account information from the checks that are remitted for payment. The employees will provide the name, address, bank routing number and bank account number. The fraudster will then order checks from a third party check vendor, and begin writing checks on the victims account.

Credit Take OverCredit take over is another form of Identity Theft that is becoming more prevalent. It occurs when a fraudster obtains an individuals personal information (social security number is usually all it takes) and establishes credit using that social security number. This may include opening credit card accounts or taking out loans without the victims knowledge. Again, this involves the intent to take over the victims identity as well as more than an isolated transaction. Prevention: You can be safe from this type of fraud by periodically checking your computer for spywares, trojans and viruses. It is also suggested to use a personal firewall to prevent any un-wanted program from accessing internet.STEPS TO PREVENT INTERNET BANKING FRAUD

Check sites URLAlways check the URL of your bank's web site. Fraudsters can lure you to enter your user ID and password at a fake website that resembles your bank. If you see anything other than the bank's genuine URL, it has to be fake.Never enter your user ID or password or such sensitive information without ascertaining that you are on the right website. Always type the Web address of your bank into the browser address space. Never click on the link in the email.Fool-proof passwordChange your online banking password at regular intervals. Also, avoid easy-to-guess passwords, like first names, birthdays, kid's or spouse's name and telephone numbers. Try to have an alpha-numeric password, one that combines alphabets and numbers. If you have several bank accounts, never use the same online banking password for all. Never select the option on browser that stores or retains user name and password. As it can easily be cracked by cyber criminals. Also, never paste your password, always type it in. This little amount of `finger exercise' will go a long way in safety.Always check 'last logged'Most banks have a 'last logged in' panel on their websites. If your bank has it, check the panel whenever you log in. If you notice irregularities (like you are logging in after two days, but the panel says you logged in that morning!), report the matter immediately to your bank and change your passwordright away.Always log out when you exit the online banking portal. Close the browser to ensure that your secure session is terminated. Never exit simply by closing the browser.

Keep your system up to dateRegularly check for security updates for your computer operating system. Most security updates are aimed at reducing risks to your computer, these may be data-related or otherwise. Make sure that your operating system and browser have the latest security patches installed. And, always install these only from trusted websites.Install a personal firewall to prevent hackers from gaining unauthorised access to your computer, especially if you connect to the Internet through a cable or a DSL modem.Public access can be injuriousDon't leave the PC unattended after keying in information while transacting on the website. Avoid accessing your bank online at cyber cafes or on a share or public computer. Also, avoid locations that offer online connections through wireless networks (Wi-Fi), where privacy and security are minimal.Follow Bank instructionsBanks say that appropriate upgradations are carried out from time to time by their IT departments for risk mitigation. They issue instructions to the customers to manage their accounts through virtual keyboards by way of which the characters typed by them are not identified by hackers. SMS alerts are also an important tool since any transaction carried out on account is reported to the account holder through an SMS.Protection Learn the ways to protect yourself from online banking fraud schemes. Detect Trojans that appear on your PC in the form of viruses, spyware or malware through Antivirus Software, anti Spyware, and Adware. Also, learn to keep your cards, documents and passwords safe, and monitor your accounts to safeguard yourself from bank fraud committed through identity theft.Securing your accountAvoid online banking on unsecured wifi systems and operate only from PCs at home. Never reveal password to anyone. Do not even write it on a piece of paper on diary. Just memories it.COMPUTER FRAUDS IN BANKSThe 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 computerised. 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 debit-credit records of accounts, operating automated teller machines, and carry out electronic fund transfer, print out statements of accounts create periodic balance sheets etc.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 have by some been classified as: Computer frauds Computer crimes

COMPUTER FRAUDSComputer frauds are those involve embezzlement or defalcations achieved by tampering with computer data record or proggramme, 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 Mens area can be: Personal vendetta; Black mail; Ego; Mental aberrations; Mischief COMPUTER CRIMESBank 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.COMPUTER FRAUD PREVENTION IN BANKSA major challenge for banks is the prevention of computer frauds. For banks, the breach of e-security can result in the siphoning off of large sums of money by fraudsters, often from remote locations. Banks need to suitably guard against such attacks, especially since a large number of transactions are being put through electronically, via the Internet. Broadly, there are three key safeguards, as described below, that must be observed by banks so that they do not unwittingly fall prey to computer fraud and crime. Implementing controls: The first and most important safeguard is to implement controls. Controls in a computerized environment can act as a check against frauds. Controls are broadly of five types: Management controls, organisational controls, operational controls, environmental controls and application controls.

AUTOMATED TELLER MACHINE (ATM) CARD FRAUDIn an attempt to prevent criminals from shoulder surfing the customer's PINs, some banks draw privacy areas on the floor. For a low-tech form of fraud, the easiest is to simply steal a customer's card. A later variant of this approach is to trap the card inside of the ATM's card reader with a device often referred to as a Lebanese loop. When the customer gets frustrated by not getting the card back and walks away from the machine, the criminal is able to remove the card and withdraw cash from the customer's account. Another simple form of fraud involves attempting to get the customer's bank to issue a new card and stealing it from their mail. Some ATMs may put up warning messages to customers to not use them when it detects possible tampering. The concept and various methods of copying the contents of an ATM card's magnetic stripe on to a duplicate card to access other people's financial information was well known in the hacking communities by late 1990. In 1996 Andrew Stone, a computer security consultant from Hampshire in the UK, was convicted of stealing more than 1million by pointing high definition video cameras at ATMs from a considerable distance, and by recording the card numbers, expiry dates, etc. from the embossed detail on the ATM cards along with video footage of the PINs being entered. After getting all the information from the videotapes, he was able to produce clone cards which not only allowed him to withdraw the full daily limit for each account, but also allowed him to sidestep withdrawal limits by using multiple copied cards. In court, it was shown that he could withdraw as much as 10,000 per hour by using this method. Card cloning and skimming can be detected by the implementation of magnetic card reader heads and firmware that can read a signature embedded in all magnetic stripes during the card production process. This signature known as a "MagnePrint" or "BluPrint" can be used in conjunction with common two factor authentication schemes utilized in ATM, debit/retail point-of-sale and prepaid card applications. Another ATM fraud issue is ATM card theft which includes credit card trapping and debit card trapping at ATMs. Originating in South America this type of ATM fraud has spread globally. Although somewhat replaced in terms of volume by ATM skimming incidents, a re-emergence of card trapping has been noticed in regions such as Europe where EMV Chip and PIN cards have increased in circulation. ATM Fraud PreventionMost ATM frauds happen due to the negligence of customers in using, and more importantly, negligence of banks in educating their customers about the matters that should be taken care of while at an ATM. The number of ATM frauds in India is more in regard to negligence of the Personal Identification Number (PIN), than by sophisticated crimes like skimming. Banks need to develop a fraud policy the policy should be written and distributed to all employees, borrowers and depositors.The most important aspect for reducing ATM related fraud is to educate the customer. Here is a compiled list of guidelines to help your customer from being an ATM fraud victim:Look for suspicious attachments: Criminals often capture information through ATM skimming using devices that steal magnetic strip information. At a glance, the skimmer looks just like a regular ATM slot, but its an attachment that captures ATM card numbers. To spot one, the attachment slightly protrudes from the machine and may not be parallel with the inherent grooves. Sometimes, the equipment will even cut off the printed labels on the ATM. The skimmer will not obtain PIN numbers, however. To get that, fraudsters place hidden cameras facing the ATM screen. Theres also the helpful bystander (the criminal) who may be standing by to kindly inform you the machine has had problems and offer to help. If you do not feel safe at any time, press the ATM cancel button, remove your card and leave the area immediately.Minimize your time at the ATM: The more time you spend at the ATM, the more vulnerable you are. If you need to update your records after a transaction, one is advised do it at home or office, but not while at the ATM. Even when depositing a cheque at the ATM, on should not make/sign the cheque at the ATM. After the transaction, if you think you are being followed, go to an area with a lot of people and call the police.Make smart deposits: Some ATMs allow you to directly deposit checks and cash into your accounts without stuffing envelopes. As for the envelope-based deposits, make sure they go through if it gets jammed and it doesnt fully go into the machine, the next person can walk up and take it out. After having made the ATM deposit, compare your records with the account statements or online banking records.Avoid using ATMs at night: While robberies are less prevalent than fraud at ATMs, theres still risk, especially at night. And if you have to use an ATM late at night, use one at a bank itself. Financial institutions have to follow certain guidelines and regulations as far as lighting is concerned. They also have cameras on all the ATMs.Be aware of your surroundings: Before you slide your card into the machine, look around if the area appears safe or if there is anybody who can see the PIN pad. Having the card ready before entering is ATM premises is better than searching for it though the purse at the machine. While you are fumbling with a wallet or purse, you are easy prey for a thief. A good rule of thumb is to always shield your card, no matter how comfortable you are with the place. If your card is stuck inside an ATM, be suspicious of anyone offering help. Immediately report the incident to the bank.Keep your receipts and card before leaving the place: Before you leave the machine, make sure you have your card. Also, do not leave your receipt behind at the ATM. Keep copies of your receipts and compare them with your monthly statement. As much as 83 percent of all ATM and debit fraud results from stolen cards and discarded receipts bearing card/account numbers. Memorize your PIN. Many cardholders walk up to an ATM and pull out a piece of paper containing four numbers. If you are not sure, make it a point that you dont keep the PIN and ATM card together in your wallet If someone comes up and hits you over the head, theyre going to have all your information right there. But ideally, one should never write down the PIN number it should be memorised.Never disclose your PIN to anyone: Even bank officials do not require an ATM PIN neither to process an issue involving ATMs, nor to remove a card stuck in the machine. Always change the PIN as soon as you receive it. Preferably, change it every quarter. This habit will also help remind you of changing the PIN if you find a suspicious activity.Never provide information via e-mail: About 3.5 percent of ATM and point-of-sale debit fraud originates from phishing e-mails. Phishers attempt to obtain information about your bank account by asking for your PIN, account number and personal information. Much like ATM skimming equipment, these e-mails appear legitimate. If you click on a link, you will be sent to a Web site that looks exactly like the one the phishers are imitating. Reputable companies do not ask for information through e-mail. If you receive one of these e-mails, inform the organization. And if you believe your accounts have been compromised, inform your financial institution and cancel the account.

TOP BANKING FRAUDS OFF ALL TIME

Jerome KervielJerome Kerviel is a French trader who was convicted in 2008 for causing trading loss, breach of trust, forgery and unauthorized use of bankSociete Generale's computers, resulting in losses valued at 4.9 billion pounds. The bank said Kerviel was a rogue trader and claimed he worked these trades alone, and without its authorization, assertions that have been met with skepticism from expert commentators and analysts alike.Kerviel had told investigators that such practices are widespread and that getting a profit makes the hierarchy turn a blind eye. Kerviel published a book in May 2010, in which he alleges that his superiors knew of his trading activities, and that the practice was very common.

Vatican's God BankersRoberto Calvi was the chairman of Italy's second largest private bank, Banco Ambrosiano when it went bankrupt in 1982. A financial advisor to the Vatican, Calvi headed the Banco Ambrosiano, which collapsed in one of Italy's largest fraud cases following the disappearance of $1.3 billion in loans the bank had made to dummy companies in Latin America. The Vatican had provided letters of credit for the loan. After the collapse in 1982, Calvi suddenly disappeared from Italy. He was found a short time later hanging from scaffolding on Blackfriar's Bridge, his suit pockets loaded with 11 pounds of bricks and $11,700 in various currencies stuffed in his pocket. London investigators first ruled that Calvi committed suicide, but his family pressed for further investigation. Eventually murder charges were filed against five people, including a major Mafia figure, but they were all acquitted after a trial in 2007. While denying any wrongdoing, the Vatican bank agreed to pay $250 million to Ambrosiano's creditors. In past decades, two Vatican financial advisers died in the strangest of circumstances. The scandals blackened the bank's reputation, raised suspicions of ties with the Mafia, and cost the Vatican hundreds of millions of dollars in legal clashes with Italian authorities. Now the bank is back under harsh scrutiny - in a case involving money laundering allegations that caused police to seize $30 million in Vatican assets.

Nordea Bank FraudInternet fraudsters stole around ($1.1m; 576,000) from account holders at Swedish bank Nordea. The theft, described by Swedish media as the world's biggest online fraud, took place over three months. The criminals siphoned money from customers' accounts after obtaining login details using a malicious program that claimed to be anti-spam software. Nordea said it had now refunded the lost money to all 250 customers affected by the scam. Police have said they suspect organised criminals from Russia used a Trojan (a programme that installs malware on computers), affecting more than 250 customers, leaving a log of information sent to servers in Russia. The attack started when the trojan sent in the name of the bank to the banks clients. The sender encouraged clients to download a spam fighting application. Users who downloaded the attached file raking.zip or raking.exe were infected by the trojan haxdoor.ki.

Citibank GurgaonA banking fraud which could run into a whopping Rs 400 crore was unearthed at Citibank's Gurgaon (Haryana) branch. Funds amounting to Rs 400 crore of 20 high networth customers was allegedly siphoned off by bank executive Shivraj Puri. Puri is accused of selling investment products to high networth clients claiming that they would generate unusually high returns. It is also alleged that Puri, who is named in the FIR, showed a forged notification of market regulator Securities and Exchange Board of India for obtaining funds from customers. He is also accused of claiming that these products were authorised by the bank's investment product committee.

Zoom DevelopersTermed as one of the largest banking scams in India, the CBI is investigating the disbursement by 27 banks to Zoom Developers. The ministry of finance has questioned Punjab National Bank, who is the lead banker to Zoom Developers. Nearly 27 Indian banks, with a majority of public sector banks have lent close to Rs 2,700 crore to Zoom Developers. This debt has been admitted in the corporate debt restructuring cell.

China Construction BankChina executed bankers Wang Liming and Miao Ping for fraudulent activity in 2004. Wang Liming, a former accounting officer with the China Construction Bank in Henan, stole 20 million yuan ($ 2.4 million) from the bank using fraudulent papers. Miao Ping was an accomplice in the same case.

John RusnakJohn Rusnak was a former currency trader at Allfirst bank, then part of AIB Group, in Baltimore, MD, United States. In 2003 he was sentenced to seven and half years in prison for hiding USD 691 million in losses at the bank, after bad bets snowballed in one of the largest ever cases of bank fraud. He was transferred from prison to a halfway house in June 2008, to home confinement in September 2008, and ultimately released from home confinement on January 5, 2009, serving just under 6 years.

SOME STATISTICS OF FRAUDS IN THE BANKING SECTORThough RBI had not given a specific definition of the term, it has, for quite some time now, been monitoring the nature, volume and magnitude of frauds in certain sections of the financial sector that fall under its jurisdiction. The reporting of fraud cases by banks was prescribed by RBI way back in July 1970. In 2005-06, the prescription of reporting of fraud cases was extended to urban cooperative banks and deposit taking NBFCs registered with RBI. In March 2012, NBFC-ND-SIs (systemically important, non-deposit taking NBFCs) having asset base of Rs. 100 crore and above were also brought under the reporting requirements. While online reporting and monitoring of fraud cases by the banks has been in place since May 2004, the reporting by UCBs and NBFCs is still in manual format.A comparative picture Table 1 of total number of fraud cases and amount involved as on March 31, 2013 for scheduled commercial banks, NBFCs, Urban Cooperative banks, and Financial Institutions is as under:Table 1: No. of frauds cases reported by RBI regulated entities

(No. of cases in absolute terms and amount involved in Rs. crore)

CategoryNo. of CasesAmount Involved

Commercial Banks16919029910.12

NBFCs935154.78

UCBs63451057.03

FIs77279.08

17654731401.01

As is evident from the above table, the cumulative number of frauds reported by the banking sector and the total amount involved in these fraud cases have a major share in the frauds reported by all entities under RBIs supervisory jurisdiction. A year-wise break up of fraud cases reported by the banking sector together with the amount involved is given inTable 2below:Table 2: Year-wise no. and amount of fraud cases in the banking sector

(No. of cases in absolute terms and amount involved in Rs. crore)

YearNo. of casesTotal Amount

2009-10247912037.81

2010-11198273832.08

2011-12147354491.54

2012-13132938646.00

Total frauds reported as of March 201316919029910.12

It may be observed that while the number of fraud cases has shown a decreasing trend from 24791 cases in 2009-10 to 13293 cases in 2012-13 i.e. a decline of 46.37%, the amount involved has increased substantially from Rs 2037.81 crore to Rs. 8646.00 crore i.e. an increase of 324.27%. A granular analysis reveals that nearly 80% of all fraud cases involved amounts less than Rs. one lakh while on an aggregated basis, the amount involved in such cases was only around 2% of the total amount involved. Similarly, the large value fraud cases involving amount of Rs.50 crore and above, has also increased more than tenfold from 3 cases in FY 2009-10 (involving an amount of Rs 404.13 crore) to 45 cases in FY 2013 (involving an amount of Rs 5334.75 crore). Further, a bank group wise analysis of frauds reveals that while the private sector and the foreign bank groups accounted for a majority of frauds by number (82.5%), the public sector banks (including SBI Group) accounted for nearly 83% of total amount involved in all reported frauds Table 3below.

Table 3: Bank Group wise fraud cases

(No. of cases in absolute terms and amount involved in Rs. Crore)

Bank GroupNo. of cases% to Total CasesAmount Involved% to Total Amount

Nationalised Banks including SBI Group2965317.5324828.0183.01

Old Pvt. Sector Banks22711.341707.715.71

New Pvt. Sector Banks9106053.822140.487.16

Sub Total (Private Banks)9333155.163848.1912.87

Foreign Banks4620627.311233.924.12

Total16919010029910.12100

LEGAL REGIME TO CONTROL BANK FRAUDSFrauds constitute white-collar crime, committed by unscrupulous persons deftly advantage of loopholes existing in systems/procedures. The ideal situation is one there is no fraud, but taking ground realities of the nation's environment and human nature's fragility, an institution should always like to keep the overreach of frauds at the minimum occurrence level.Following are the relevant sections relating to Bank Frauds:Indian Penal Code (45 of 1860)(a) Section 23 Wrongful gain: Wrongful gain is gain by unlawful means of property to which the person gaining is not legally entitled.(b) Wrongful loss: Wrongful loss is the loss by unlawful means of property to which the person losing it is legally entitled.(c) Gaining wrongfully: Losing wrongfully-A person is said to gain wrongfully when such person retains wrongfully, as well as when such person acquires wrongfully. A person is said to lose wrongfully when such person is wrongfully kept out of any property, as well as when such person is wrongfully deprived of property.(d) Section 24. Dishonestly: Whoever does anything with the intention of causing wrongful gain to one person or wrongful loss to another person, is said to do that thing dishonestly.(e) Section 28. Counterfeit: A person is said to "counterfeit" who causes one thing to resemble another thing, intending by means of that resemblance to practice deception, or knowing it to be likely that deception will thereby be practiced.

GUIDELINES ISSUED BY RBITimely reporting of frauds to RBI and updating quarterly and annually RBI and the Board of the Bank about the Fraud Outstanding is must for all prescribed financial institutions. The Banks must report in the standardized format within the time frame. Know Your Customer (KYC) guidelines On August 16, 2002, Know Your Customer (KYC) guidelines relating to identification of depositors were issued.Software package A software package on Frauds Reporting and Monitoring System was supplied to banks in June 2003 and subsequent revisions carried out in the above package were advised to banks. Classification of Bank Frauds and procedure for reporting The latest circulars dated 25 July 2006 and dated 27 July 2006 have been issued for all Commercial Banks (excluding RRBs), and Financial Institutions; and for Primary (Urban) Co-operative Banks respectively.Sharing of information about customers The Banks must share information about account-holders who have committed frauds and try to trace them with help of each other. Internal oversight framework On 16th September, 2009, the banks have been directed to immediately put in place an adequately enabled and efficient internal oversight framework that can prevent the wrongdoings and take the punitive measures against the wrongdoers.From the operational point of view, banks may take certain measures as: The operating unit should own specialized fraud monitoring, investigation and follow up function for large value frauds or frauds which occur across the bank. The function will have to be, therefore, discharged in a centralized manner instead of leaving it to the Regional Office where such specialization may not be available.Fraud investigation requires competence in forensic audit and also technical / transactional expertise. In this regard, banks may take immediate steps to identify staff with proper aptitude and provide necessary training to them in forensic audit so that only such skilled staff is deployed for investigation of large value frauds. The banks may build up a data / information pool of large value frauds and analyze them periodically which may act as knowledge repository for policy responses.Detection of serious irregularities with systemic and system-wide implications, as also post facto Fraud Investigation, gathering of information / data / evidences and creation of credible records that are useful for internal management action or legal prosecution against the wrong doers require typical skills.RETURNS REQUIRED TO BE FILEDQuarterly ReturnsBanks should submit a copy each of the Quarterly Report on Frauds Outstanding in the format given in FMR - 2 to the Central Office and the Regional Office of the Reserve Bank under whose jurisdiction the Head Office of the bank falls within 15 days of the end of the quarter to which it relates. Fraud cases closed during the quarter are required to be reported in quarterly return FMR 3 and cross checked with relevant column in FMR-2 return before sending to RBI.Case-wise quarterly progress reports Banks should furnish case-wise quarterly progress reports on frauds involving Rs. 1.00 lakh and above in the format given in FMR - 3 to the Central Office of RBI, Department of Banking Supervision as well as the concerned Regional Office of the Department of Banking Supervision under whose jurisdiction the banks Head Office is situated, within 15 days of the end of the quarter to which they relate.Reports to the BoardBanks should ensure that all frauds of Rs. 1.00 lakh and above are reported to their Boards promptly on their detection. Quarterly Review of Frauds Information relating to frauds for the quarters ending March, June and September may be placed before the Audit Committee of the Board of Directors during the month following the quarter to which it pertains, irrespective of whether or not these are required to be placed before the Board/Management Committee in terms of the Calendar of Reviews prescribed by RBI.Annual Review of FraudsBanks should conduct an annual review of the frauds and place a note before the Board of Directors/Local Advisory Board for information. The reviews for the year-ended December may be put up to the Board before the end of March the following year. Such reviews need not be sent to RBI. These may be preserved for verification by the Reserve Banks inspecting officers.

CONCLUSIONThe Indian Banking Industry has undergone tremendous growth since nationalization of 14 banks in the year 1969. There has an almost eight times increase in the bank branches from about 8000 during 1969 to more than 60,000 belonging to 289 commercial banks, of which 66 banks are in private sector.It was the result of two successive Committees on Computerization (Rangarajan Committee) that set the tone for computerization in India. While the first committee drew the blue print in 1983-84 for the mechanization and computerization in banking industry, the second committee set up in 1989 paved the way for integrated use of telecommunications and computers for applying technogical breakthroughs in banking sector.However, with the spread of banking and banks, frauds have been on a constant increase. It could be a natural corollary to increase in the number of customers who are using banks these days. In the year 2000 alone we have lost Rs 673 crores in as many as 3,072 number of fraud cases. These are only reported figures. Though, this is 0.075% of Rs 8,96,696 crores of total deposits and 0.15% of Rs 4,44,125 crores of loans & advances, there are any numbers of cases that are not reported. There were nearly 65,800 bank branches of a total of 295 commercial banks in India as on June 30, 2001 reporting a total of nearly 3,072 bank fraud cases. This makes nearly 10.4 frauds per bank and roughly 0.47 frauds per branch.An Expert Committee on Bank Frauds (Chairman: Dr.N.L.Mitra) submitted its Report to RBI in September 2001. The Committee examined and suggested both the preventive and curative aspects of bank frauds.The important recommendations of the Committee include: A need for including financial fraud as a criminal offence; Amendments to the IPC by including a new chapter on financial fraud; Amendments to the Evidence Act to shift the burden of proof on the accused person; Special provision in the Cr. PC for properties involved in the Financial Fraud. Confiscating unlawful gains; and preventive measures including the development of Best Code Procedures by banks and financial institutions.Thus it can be concluded that following measures should necessarily be adopted by the Ministry of Finance in order to reduce cases of Fraud. There must be a Special Court to try financial fraud cases of serious nature. The law should provide separate structural and recovery procedure. Every bank must have a domestic enquiry officer to enquire about the civil dimension of fraud. A fraud involving an amount of ten crore of rupees and above may be considered serious and be tried in the Special Court.The Twenty-ninth Report of the Law Commission had dealt some categories of crimes one of which is "offences calculated to prevent and obstruct the economic development of the country and endanger its economic health." Offences relating to Banking Fraud will fall under this category. The most important feature of such offences is that ordinarily they do not involve an individual direct victim. They are punishable because they harm the whole society. It is clear that money involved in Bank belongs to public. They deposit there whole life' security in Banks and in case of Dacoity or Robbery in banks the public will be al lost. Thus it is important that sufficient efforts should be taken in this regard.There exists a new kind of threat in cyber world. Writers are referring it as "Salami Attack" under this a special software is used for transferring the amount from the account of the individual. Hence the culprits of such crimes should be found quickly and should be given strict punishment. Moreover there is requirement of more number of IT professionals who will help in finding a solution against all these security threats.

BIBILOGRAPHY SEARCH ENGINE: www.wikipedia.com

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