Banking Frauds New

8/12/2019 Banking Frauds New

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P. R. KULKARNI - Consultant Banking, Law andBanking Technology and Author, Pune. 1

Banking Frauds Prevention and Investigation

Lecture and Presentation by

P. R. Kulkarni




Fraud

Fraud is a dishonest act and behavior

by which one person gains or intends to

gain from other person.

Fraud results, actual or likely, gain to

one person and loss to other person.

Fraud may give gain to the person

himself doing it or to someone else.




Fraud

intention to deceive through

1. Fraudulent acts

2. False statements

3. Active concealment of facts

4. False promises

5. Material silence

6. Misleading suggestions / assertions

7. Impersonation

8. Anything declared as fraud by the Court




FraudContributory factors

Incompetence

Lethargy

NegligenceConnivance

Ignorance

Things permitted by situationalpressures and permissive attitude




FraudDefinition – Indian Contract Act, Section 17

‘Fraud’ means and includes any of the

following acts

committed by a party to a contract, or

with his connivance, or by his agent

with intent to deceive another party

thereto or his agent, or

to induce him to enter into the contract;

Contd. ……..




FraudDefinition – Indian Contract Act, Section 17

1. the suggestion as a fact, by one who does

not believe it to be true

2. the active concealment of a fact by one

having knowledge or belief of the fact3. a promise made without any intention of

performing it

4. any other act fitted to deceive5. any such act or omission as the law

specially declares to be fraudulent




Fraudin other enactments

Fraud is not defined in Indian Penal Code

However, in IPC following sections cover its

ingredients adequately

Cheating (Sec. 415 to 420),

Concealment (Sec. 421 to 424),

Forgery (Sec. 463 to 477A),

Counterfeiting (Sec. 489A to 489E), Misappropriation (Sec. 403 to 404),

and Breach of Trust (Sec. 405 to 409)




Why frauds take place

With education, more and more persons are

becoming aware of the possibilities of gains

through bank frauds.

Banking business is becoming impersonal.Often banker does not know the customer.

He knows him through his signature only.

There is sudden and tremendous spurt in

banking business. As such, there is vacuum

of properly trained and/or experienced staff. Contd. ……





Life has become too fast and busy. Banker donot have enough time to scrutinize thedocuments.

The fraudster can easily loose his identity inthe crowd of millions discarding hisconnections with a particular fraud.

Increased population and unemployment

have made people desperate. Moral values are down and ‘quick buck’ is

desire of the day.Contd. ….





Form punishment point of view bank fraud is

safe as there is no risk of life.

Banks frauds are very often detected late. By

the time fraud is detected the culprit movesaway from the place and evidence.

Inadequate legal frame in India makes it

difficult to prove the things in Courts.

Slow moving judicial systems make the

prosecutor’s job difficult. Contd. …





Many frauds do not come to light as banks

take a surrender view due to fear of so called

‘reputation of the bank’. This encourages the

culprit as he gets automatic clean chit.



Amounts lost by Banks in India

Year 2009 –10 – Rs. 2,017 Crore.

Year 2010 –11 – Rs. 3,799 Crore.

Year 2011 –12 – Rs. 4,448 Crore.





Bunko Banker(Bank Employee committing fraud)

He is efficient

He is obliging

He is know all

He is indispensable

He seldom takes leave



P. R. KULKARNI - Consultant Banking, Law and

Banking Technology and Author, Pune.

14

Cheque / Demand Draft Frauds

Counterfeit instruments are cashed

Impersonation is adopted to cash stolen instruments

Signatures are forged on the instruments

Instruments are materially altered for value / validitydate / beneficiary / character

Cheque is issued against non-existent accounts

Counterfeit seals and stamps are used

Forged fingerprints are used on instruments ofilliterate persons





15

Deposit Account Frauds

By impersonation account is opened and

stolen cheques / drafts are cashed

Dormant account is operated by forger

forging the signature of others Joint accounts are opened and one of them

forges the signature of other

Manipulation of deposit account / pass bookby bank employee

Contd. …….





16

Deposit Account Frauds

Bank employee temporarily adds or

shows as joint account holder and

operates the account but under fictitious

name / forged signature

Mini-deposit collector collects the

money but do not credit the collected

amount in the bank





17

Bill Purchase Accounts Frauds

Bogus / stolen railway / motor transport receipts

accompanied by bogus bills are discounted

Spurious bills with inflated value / drawn on sister

concern are discounted

Genuine bills accompanied by railway / motor

transport receipts are discounted from the bank but

impersonated party gets the goods released on

indemnity under the guise of lost receipts

False bills for worthless goods are got discounted





18

Frauds – Hypothecation Account

Stocks, or part thereof, are removed

unauthorized

In large godowns inferior quality material is

mixed Containers such as barrels / tins do not

contain the material as it should be

Hollow cavities / places are made in container/ godownContd. ….





19


Unfinished goods are shown as finishedgoods

Hypothecating same stock to different

banks Inflated stock statements are submitted

for availing loans

Un-marketable / scrap type goods arekept in the godown

Contd. ….





20


Stocks are removed and then godown is

put on fire and insurance claimed

Banker is bribed and stocks are

removed

Counterfeit bonds, securities, shares

are given as security





21

Bunko Banker’s Fraud

Manipulation of cash by those who handlecash.

Misappropriation at customer’s deposit

account. Bogus mail / telegraphic transfers.

Clearing forged cheque and other instrumentwhile working at clearing department.

Utilizing sundry account to withdraw money.

Contd. …..





22


Debiting central accounting of the bank.

Accepting counterfeit currency for consideration.

Helping the outsider fraudsters / robbers etc.

Forging signature of the customer on bank’sdocument/s, with or without fraudulent purpose.

Stealing blank demand drafts, cheques, inter-branch

advices and such other stationery of the bank that

can be used to siphon out money from bank.

Contd. ….





23


Fraudulently becoming a joint account holderwith account holder of the bank, particularlyilliterate or senior persons, and embezzlingmoney.

Misusing pass-book of customer left for up-dating.

Operating as a lender within the bank.

Allowing irregular credit facilities. Allowing encashment of fraudulent

documents knowing them to be so.





24

Protection from Bunko

Proper recruitment and post appointment training.

Rotation of counters of the staff, periodic as well as

surprise.

Signature scrutiny to be made carefully

Specimen signature cards of dormant accounts be

kept carefully in proper custody.

Watch and care for accounts of illiterate persons.

Surprise cash checking at different timings.

Checking of all accounts randomly.





25

Signatureswhere banker comes across

Account opening forms / specimen signature cards.

Deposit receipts

Cheques

Withdrawal forms – saving / transfer.

Pay-orders / Demand Drafts / Banker’s Cheques

Endorsement on bills for collection / discount.

Different registers maintained by the bank.

Credit / Debit Cards

Loan Documents

Introduction / confirmation / confidential report letters.





26

Some Characteristics of Genuine

Signatures

Written with speed and abandon by normalliterate person.

Flying start and finish.

Graduated pressure that varies with themovement of the pen and line strokes whichare free of defects created by naturalmovement of pen.

Contain natural variations without attempt tohide them or correct them.

Contd. ……





27


Signatures

Written with rhythm with flow of penautomatically showing unhindered flow ofwriting lines and smoothness in loops,curves, bulbs and other writings and pen lifts.

Contains personal sub-conscious emphasison certain letter, stroke and construction. Itappears as enlarged sizes, ornamentationsetc. Ordinarily, it appears at the start of thesignature, end stokes, capitals or in theunder-scoring lines.

Contd. ..…





28


Signatures

Directional movements of the pen to formletters, combinations of letters or connectivesis often highly individual characteristic of thewriter.

Spaces required for writing letters, sizes ofletters and words or their abbreviations andsimplifications are highly characteristic.

Placement of dots, cross bars, full stops,under scoring / top scoring lines, etc. aredetails adopted inconspicuously.





29

Forged Signaturessome varieties

1. Simulated signature.

2. Traced signature.

3. Transplanted signature.

4. Disguised signature.

5. Forgery over genuine signature / Trickery.

6. Non altered names of other persons, in

normal hands





30

Simulated Signature

Common method of forged signature. Alsoknown as copy forgery, imitation forgery orfree hand forgery.

Signature is carefully copied from modelgenuine signature of the victim.

Success of forger depend upon skill andpractice put by him and type of victim’s

signature. It also depends on vigilance of theperson who examines the signature foracceptance.

Contd. …





31

Simulated Signature

The forged signature has mixed characters offorger’s own styles and adopted styles ofvictim’s signature.

Forger has to imitate the signature stroke bystroke so that slants, curvatures, heights andwidth all match to the original signature. Thisprocess makes the forger to write slowly but itlooses the naturalness, smoothness andrhythmic flow of the original writing.

Forged signature is more a picture thanwriting.





32

Traced Signature

By using different techniques the genuine signature is

traced. It gives better results than simulated signature

and many times the victim itself get confused

claiming to be his own signature.

Different techniques are – indented tracing, tracingpaper tracing, carbon paper tracing, transmitted light

tracing, projected image tracing.

The tracing process is slow and, therefore, looses the

natural flow While tracing if the pen, pencil or stylus moves from

the line it creates kinks, discontinuations etc.





33

Transplanted Signature

Revenue stamp containing total or part signature is

physically lifted from original paper to desired paper.

This type has limited scope as the use is where

stamp is required. So general use is restricted.

Remaining part of the signature out side the stamp

needs to be completed. But it shows visible

difference in ink.

While removing stamp water / moisture / vapor is

used that gives smudged effect on the ink on thestamp as well as sometimes color of the stamp also

gets changed.





34

Disguised Signature

These are original signatures made by the personhimself with prior intention and plan to deny theirauthorship later on.

This forgery is common on bank loan documents.

The person changes his usual signature in aspectssuch as slant, size, alignment, legibility, stokes,capital letters, flow etc.

The person tries to imitate writing of another person.

Success of this forgery is limited as the personthough changes pictorial appearance of his signaturehe can not change his natural flow, curves, pressureetc. When more than one signatures are forged theydiffer and more natural flow creeps in.





35

Forgery over genuine signature /

Trickery

Here signature on the document is that of victim

himself. Hence, there is no question about

genuineness of signature.

Signature of the victim is obtained on blank paper

and then document is prepared as may be suitable tothe fraudster.

Signature is obtained on the document other than the

one the victim believes to be.

Blank space is kept between text of document andsignature and then in that space additional text in

inserted.





36

Non-altered Signature

Signature of the victim is written by the forgerin his normal handwriting.

Dishonest or careless banker accepts suchsigned document as genuine. This may be oncheque, loan document etc.

In teller system payments are often madewithout verification of signature. Fraudsterstake advantage of this.

If loan documents are given outside the bankfor signature this fraud is easily possible.





37

Signature Checking GuidelinesLine Quality

It is the line quality of the inked line in which

signature is executed. The genuine signature has

natural flow.

In forged signature the forger has to be slow and has

to take pauses at places to verify resemblances withgenuine signature. Therefore, line is not natural, it

has kinks, ink deposits, re-touching, curves either

lack pressure or bear more pressure, shades and

curves vary, slanting gets changed, end and startstrokes show abruptness and pen lifts vary.





38

Signature Checking GuidelinesCheck the Placing

Each writer has his own style for many alphabets.Mark for any variation in such alphabets.

Crossing the vertical line in ‘t’ and ‘f’ and taking half

curves therein.

Placing dot on ‘i’

Taking top curves of ‘m’

Taking base angles of ‘w’

Taking starting full circle of ‘e’ Contd. …





39

Signature Checking GuidelinesCheck the Placing

Starting point and strokes of vertical lines in

‘m’, ‘b’, ‘d’, ‘f’, ‘h’, ‘j’, ‘l’ ‘p’, and

‘q’ Putting the angular or curved portion next to

vertical line in ‘k’

Putting the half mixed curves but faced in

opposite direction in ‘s’

Writing ‘g’





40

Signature Checking GuidelinesCheck the Alignment

Alignment is the spacing arrangement of thewriting reference to paper, baseline, otherwriting, underscoring line, positioning, of dateetc.

Most persons can not write in straight line.Their writing line goes either downwards,upwards or creates a curve with reference tothe baseline. The signature also goes in tune

with such peculiarity. The forger many timesdoes not notice this.

Contd. ….





41

Signature Checking GuidelinesCheck the Alignment

Alignment of capital letter with small letters in

signature has very distinctive alignment mix.

In forgery this alignment mix many times does

not match. Positioning of underscoring line many times

in forgery when compared with genuine

signature.





42

Signature Checking GuidelinesCheck Pen Lifts

Forger has to see the model signature time and againto check and compare the size, slant, inter-distanceof letters, next peculiarity of the signature etc. Ateach observation pause pen lift occurs. Therefore,compared with original signatures pen lifts are more

and at different places. There are attempts to cover pen lifts.

The signature line, therefore, has uneven stops, inkdeposit, thick line appearance when cover up ismade.

If unwanted pen lift occurs in genuine signature thecover up is careless but forger does this with careand sheds some marks that can be identified.





43

Signature Checking GuidelinesCheck Pictorial Effect

It is general appearance of the signature. The forger has to create a good appearance

resembling to the genuine signature.

Banker and investigator should go beyond pictorialappearance and,

1. ignore the embellishment strokes and eye catchingformations,

2. concentrate on inconspicuous characteristics,

3. study the connections,

4. examine the simplifications of certain letters in thesignature and

5. observe above stated identification characteristics.





44

Practice Examination of SignaturesFirst Stage

Examine your own signature on above stated

features / characteristics.

Compare your signature with that of your

parents, brothers and sisters. Ask your friends to write a common name and

observe differences, characteristics etc.





45

Practice Examination of SignaturesSecond Stage

Ask your friends to forge your signature.

Examine these forged signatures to locate

the differences, deviations etc. from the

genuine signature. Analyze the points on which your group

identifies the forged signature and list out

such points.

Repeat the exercise with your group for everyones signature.





46

Practice Examination of SignaturesThird Stage

Try yourself forging others signatures by different six

types of forgery stated above including your own

disguised signature.

While forging others signature you will find how

difficult the task is and level of concentrationrequired.

While acquiring the skill you will develop analytical

mind and sharp sense to catch forgery

As a banker / investigating officer continuesharpening your brain but always remember to use

the acquired skill for your true honest duty.





47

Forgery Preventive Measures

Short signatures are easy to forge. So try to

have lengthy signature.

Illegible signatures are more easy to forge.

They give more pictorial appearance .havelegible signature with clear alphabets. That

also gives enough material for comparison to

the hand writing expert.

Contd. …..





48

Forgery Preventive Measures

It is desirable to have 3-4 different signatures.One can be used for bank purposes, other forcorrespondence, another for personalcorrespondence etc. This prevents the fraud

from one area to another area. Handwriting of every individual gets changed

with the passage of time due to age, healthand other factors. So all specimen signatures

be replaced after every five years. Thiseliminates old features and always asignature for five years only exists.





49

Digital Signature

Digital signature is created by asymmetrically

encrypting digitized data from selected

signature of the person. The process is done

electronically by the computer and it israndom and highly intricate.

Digital signatures are unique to the individual

and can not be imitated.

It has no visual identification and, therefore, itis free from usual forging.

Contd. ….





50

Digital Signature

Digital signature is required to be recorded in

a digital signature certificate and has to be

certified by the Certifying Authority created by

the statute. To protect the digital signature from its

fraudulent use the author of it has to take

precaution to protect the password carefully

and not to disclose the same to any one. Ifneed be, he should change the password.





51

Fingerprints

They are unique

They are permanent

They can not be forged

Palm surfaces of hands and soles of feethave friction ridges. The ridges are raisedskin surfaces. They give marks /impressions.

Up till now no identical fingerprints are

identified. In banking affixing fingerprint by fraudster is

common modus operandi.





52

Fingerprint

Visible Prints – Finger is smeared with ink and

impression is taken.

Latent Print – There are small pores on the friction

ridges of hand and feet which exude perspiration. Itspreads all over the palm surface. Evaporation of the

perspiration leaves behind the concentration of non-

volatile constituents on the ridges. This colorless

material leaves marks on the surface that comes into

contact. They are made visible by physical andchemical methods.



B k F d





54

Bank Fraudfirst consideration

Minimum loss.

Minimal adverse publicity.

Protection of evidence.Proper legal process.

k d





55

Bank FraudImmediate Actions

When fraud comes to notice you are first

person in charge of the situation to start

actions.

Take into possession all the involveddocuments for safe keeping.

Inform your superior officers and take

guidance.

Inform vigilance and inspection / audit depts.

Contd. …

k d





56

Bank FraudImmediate Actions

If outsider is involved, after consulting

your superiors, inform police.

Try to understand modus operandi and

collect details.

When your superiors / police arrive on

the scene follow their instructions and

give them freedom to pursue their linesof action.



P R KULKARNI Consultant Banking Law and 57

Thanks

[email protected]

9850812443

www.prkulkarni.com

mailto:[email protected]

http://www.prkulkarni.com/





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