SC Orders RBI To Draft Mule Account SOP

Synopsis

The Supreme Court has instructed the Reserve Bank of India to come out with a standard operating procedure for dealing with mule accounts for cyber fraud and money laundering within four weeks. The order comes as part of broader nationwide instructions to beef up institutional initiatives against digital arrest scams in India.

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Court Directs RBI On Fraud-Linked Accounts

The Supreme Court had directed the Reserve Bank of India (RBI) to develop and issue a Standard Operating Procedure (SOP) for handling mule accounts within four weeks of the matter and that mule accounts are bank accounts that are used by banks, mostly by unwitting account holders, to launder illegal funds and the account holder is acting as an unwitting facilitator.

In the order, a Bench comprising Chief Justice Surya Kant and Justices Joymalya Bagchi and V. Mohana directed the RBI to prepare and circulate, within four weeks, of a “Standard Operating Procedure” for “mule accounts/accounts used for money laundering” activities.

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The bench noted that efforts to combat cyber fraud had been underway, but the existing system needed to be "widely adopted, rapidly implemented and followed up on. The court stipulated that the SOP be issued to all banks within four weeks and handed over a copy to the Registrars General at all High Courts.

Origins In a Digital Arrest Case

The proceedings were initiated by the court Suo-motu after a senior citizen couple reported to the apex court that they had been deceived, through a fraud called “digital arrest,” of their life savings by paying money under duress.

The bench received the fourth status report filed by Indian Cyber Crime Coordination Centre (I4C) under the Ministry of Home Affairs, which outlined the action taken by various ministries, regulators, investigators, telecom operators and platform and service providers following the earlier court orders and received the report with its acceptance.

The bench, in its earlier orders, traced the case as the CBI had started investigating, intermediaries had helped the complainant, mule accounts had been used and grievance had been redressed by the SIM cards and SIM boxes.

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Directions On Redressal and Data Wider

The court also sought state-wise and bank-wise data of complaints received and disposed of, information on the number of restoration orders issued and the amount restored to the victims, and only 18 states have set up State Cyber Crime Coordination Centers so far. It also instructed the Inter-Departmental Committee to review a plan to share liability and compensation for victims.

Registrars General of High Courts have been directed to pass on information to the courts and adjudicating authorities about grievance redressal mechanism, which would enable dispute over freezing of fraud-linked accounts to be settled faster without prejudice to other legal action by the victim — adding that that such action would not exclude the use of the grievance redressal mechanism.

Why This Matters

In a country where financial fraud can be easily executed via mule accounts, it is one of the fastest growing types of economic crime in India and gaps in banking regulation and law enforcement allow it to flourish.

A binding SOP would standardise the procedures that banks need to follow when identifying, blocking and reporting a problem account – eliminating loopholes that allow fraudsters to deposit money into dozens of accounts before being discovered.

Whether the directions get implemented and to what degree will see whether victims can be recovered faster in a number of states, a number of which have failed to set up cyber coordination centers.