India Focus - FincrimeTrends and Case Studies

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G.Jagan MohanGeneral Manager – Reserve Bank Of India

India’s Banking Frauds

India Country Facts

GDP

USD 2.87 Trillion (2019)

FDI

USD 50.60 Billion (2019)

Population

1.37 Billion (2nd Largest) (2019)

Foreign Exchange Reserves

USD 522.63 Billion (Jul 2020)

Inflation Rate

6.09% (Jul 2020)

GDP Growth Rate

5.02% (2019)

Imports

USD 473.99 Billion (2019-20)

Remittances

USD 83.13 Billion (2019)

Banks & FIs

95,946 (Dec 2017)

GDP (PPP)

USD 9.06 Trillion (2018)

Exports

USD 313.22 Billion (2019-20)

India Regulatory Overview

Central Board of

Indirect Taxes and

Customs

Telecom

Regulatory

Authority of India

Central Drugs

Standard Control

Organisation

Ministry of

Housing and

Urban Affairs / RERA

Medical

Council of

India

Department f or

Promotion of

Industry and Internal

Trade

Securities and

Exchange Board of

India

Major Risk & Financial Crimes Regulations

❑ BlackMoney (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

❑ The Benami Transactions(Prohibition) Amendment Act, 2016

❑ CompaniesAct, 2013

❑ The Banking Regulation Act, 1949

❑ The Foreign Exchange ManagementAct, 1999

❑ Narcotic Drugs and Psychotropic SubstancesAct, 1985

❑ Foreign Contribution Regulation Act, 2010

❑ The Prevention of Corruption Act, 1988

❑ Prevention of Money Laundering (Amendment) Act, 2012

❑ Indian ContractsAct, 1872

❑ The Payment and Settlement SystemsAct, 2007

❑ The Telecom Regulatory Authority of India (Amendment) Act, 2014

❑ The Consumer Protection Act, 1986

❑ DepositoriesAct, 1996

❑ The Life Insurance Corporation (Amendment) Act, 1957

❑ The CompetitionsAct, 2002

❑ The Lotteries(Regulation) Act, 1998

❑ Real Estate (Regulation and Development) Act, 2016

Insurance Regulatory

and Dev elopment

Authority

Reserve Bank

of India

Pension Fund

Regulatory &

Development Authority

Central Pollution

Control Board

0

5000

10000

15000

20000

25000

30000

# of Reports Amt in $m

Banking Frauds Reported(Amounts involved >USD 1,500)

Break up by Value and Volume(Cases >USD 1,500)

# of Reports

$1500-150000 $150000-750000 >$750000

Amt Involved $m

$1500-150000 $150000-750000 >$750000

*Amounts reported do not translate into losses incurred as there would be recoveries made subsequent to reporting

Operational Areas of Banking(>USD 1,500; Outstanding frauds reported until March 2020)

88%

0%1%

2%

9%

Loans Card & Internet Deposits Forex transactions Others

Tell-tale Signs of Frauds

❑ Banking outside lenders consortium

❑ Non-cooperate with stock/forensic inspections

❑ Large write-offs of Sundry Debtors

❑ Related firms with common addresses, Directors, etc.

❑ Dodgy documents – Lorry Receipts, Freight bills etc.

❑ Bank funds used to repay loans from related people

❑ Over/under insurance – Rejections of claims

Framework for Loan Frauds(since May 2015)

➢ Indicative list of Early Warning Signals (EWS) for red flagging (RFA)

➢ Consortium leader to convene meeting and declare fraud in time-

bound manner

➢ Forensic audit to be concluded within 3 months

➢ Overall timeline of 6 months for fraud to be declared by all

➢ Deficiencies in implementation of EWS - RFA Mechanism by banks

➢ Non-integration of the mechanism into banks’ credit monitoring software

➢ Not concluding investigation after RFA within the stipulated 6 months

➢ Inconclusive forensic audits due to non-cooperationby the borrowers

RBI’s Current Framework (2)

➢ For addressing information asymmetry at banks

➢ CFR – Online search-based portal on perpetrators

➢ CRILC – Large Credit Exposure database

➢ Third Party Entities (TPEs) reporting platform

➢ Advocate, Chartered Accountants, Valuers, Architects etc. covered

➢ Caution Advices on SWIFT, Malware attacks, Mobile app vulnerabilities

etc

➢ Special investigations carried out in large value accounts

➢ Penalties being levied on banks for violation of instructions

Proposed Framework

➢ Revision of Instructions

➢ Strengthening staff accountability

➢ Creation of Market Intelligence Units in banks

➢ Dedicated cells for monitoring large-value credit exposures

➢ Strengthening the governance and audit framework in banks

➢ Integrating Registry of frauds of banks and NBFCs

➢ Legal authority for forensic auditors appointed by banks

➢ Separate investigation bureau and

➢ Special Courts for banking frauds

Abhishek BaliCEO, ZIGRAM

India Risk Overview

India and Global Indices

BASEL AML Index Ranked 70 out of 142

Corruption Perception Index

Ranked 80 out of 180

Global Terrorism Index Ranked 7 out of 163

Global Peace Index Ranked 139 out of 163

Fragile States Index Ranked 68 out of 178

Cyber Security Index Ranked 47 out of 189

Global Competitiveness

IndexRanked 68 out of 141

Human Development

IndexRanked 129 out of 189

Global Innovation Index Ranked 52 out of 129

Human Capital Index Ranked 115 out of 157

Global Manufacturing

Risk IndexRanked 3 out of 48

Ease of Doing Business Index

Ranked 63 out of 190

Data, Fraud and Technology

Frauds & Scams In India

13,993 Cases E-commerce fraud cases since Aug 2016

21,041 casesBank fraud cases reported in Q4 2019

Identity theft is the

largest contributor

to fraud

475% increased in

E-commerce Fraud

Cases

USD 2.1 Billion Biggest Bank Scam in 2018

USD 6.25 Billion Insurance Companies lost to frauds

USD 28 Billion Telecom sector fraud losses as per CFCA

3,000 casesHealthcare fraud cases detected in 2019

Scheduled banks

reported six cases

every minute

Financial services

Most vulnerable

sector for fraud

USD 17 BillionBank fraud in 18 PSBs in Apr-Dec 2019

Corporate Fraud

have increased

over the years

41% firms affected Firms affected by data theft in 2019

48% Indians hitIndians hit by Online Retail fraud as per a 2017 survey report

51% people paid bribes As per India Corruption Survey 2019 report

USD 5.5 BillionTax Fraud detected in 2018-19

43% rise in cases Fraud cases related to Import increased in FY2017-18

Cybersecurity and

digital payment

fraud cases are a critical concern

Prev ention of Money Laundering Act

Fugitiv e Economic Of f enders Act

Benami Transactions (Prohibition) Act

Foreign Exchange Management Act

Black Money and Imposition of Tax Act

Narcotics, Drugs and Psy chotropic

Substances Act

Income Tax Act and Regulations Banking Regulation Act

Reserv e Bank of IndiaFinancial Intelligence

Unit - India Enf orcement DirectorateSecurities and Exchange

Board of IndiaEconomic Of f ences

Wing Narcotics Control Bureau Income Tax DepartmentInsurance Regulatory

and Dev elopment Authority

Anti-Money Laundering Laws

Major Regulating Agencies

ICICI Bank was f ined USD 9 Million in March 2018, f or non-compliance of directions issued by RBI

ABW Inf rastructure Limited was f ined USD 6 Million in December 2018, f or real estate laundering

Punjab National Bank was f ined USD 2.3 Million in July 2019, f or f ailure to f ile STRs

Bank of Baroda was f ined USD 1.3 Million in March 2019, f or f ailure to f ully implement CDD

Mani Anbazhagan was sentenced to 7 y ears in prison and f ined USD 0.14 Million in March 2019, f or money laundering

Top 5 Penalties in India

583

Total Events

AML In India

1,476 Months

Total Imprisonments

360

Total Entities Fined

31

Total Individuals Implicated

$0 $0 $0 $0 $0 $22 $283 $37 $0 $0 $119$845

$306

$11,825

$1,094

$2,388

$4,821

$1,306

$20,734

$26,246

$2

0 0 0 0 0 2 27

0 07

90

23

52

34

78

52

27

47

154

3 0

20

40

60

80

100

120

140

160

180

0

5000

10000

15000

20000

25000

30000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Penalties (Thousand USD) Events

Actions & Penalties

2016 2017 2018 2019

USD 92,703 USD 48,366 USD 441,153 USD 170,428

India has the third highest number of AML actions in the world… but one of the lowest

fines/penalties per action

❖ Lots of laws & regulations

❖ Limited… But Increasing Actions

❖ Cybercrime and Money laundering are major growth areas

❖ Data Protection Issues / Thefts etc. have seen explosive growth

❖ Insolvency Laws and reporting norms have led to enhanced focus on Corporate

Fraud

❖ Lead in deploying technology & processes at scale

❖ Enhancement in sharing information with other countries and extradition for

financial crimes

❖ India is one of the fastest growing markets for Financial Crimes compliance,

solutions and service

Panel Discussion

Panelists

Dhruv ChawlaPartner & Financial Crimes

Compliance Leader, PWC India

Pradeep KocharGlobal Head AML KYC Quality

Execution & Strategy at Citi

Induvant TomarAssociate Director, PWC India

G Jagan MohanGeneral Manager, Reserve

Bank Of India

Sunil KumarConsulting Partner - Financial

Crime Risk Management, Tata Consultancy Services

Anti-Money Laundering

Fraud Technology

THANK YOU!