Explained: RBI is using an AI tool MuleHunter.ai to cut down digital frauds

The Reserve Bank of India (RBI) has developed an AI/ML-based model called MuleHunter.ai to tackle the issue of mule accounts, which are used for financial fraud. These accounts help criminals launder money from cybercrimes. The model will use data from banks to identify fraud patterns more effectively. 

 

Developed by the Reserve Bank Innovation Hub, the new initiative is piloted with two public sector banks.

 

Bank frauds have more than trebled to 32,363, amounting to Rs 2,714.64 crore in FY24 compared to FY22, when 8,752 frauds were reported, amounting to Rs 9,298.4 crore, according to data given by Minister of State (MoS) Finance, Pankaj Chaudhary in a response to a query in the Lok Sabha. These are frauds in commercial banks and AIFIs with amounts involved Rs 1 lakh and above in each case.  Sanjay Malhotra new governor of RBI

 

 

A mule account is a bank account used by criminals to launder illicit funds, often set up by unsuspecting individuals lured by promises of easy money or coerced into participation. The transfer of funds through these highly interconnected accounts makes it difficult to trace and recover the funds.

 

According to the National Crime Records Bureau (NCRB), online financial frauds account for 67.8 per cent of cybercrime complaints, highlighting the critical need for effective AI-based fraud prevention solutions.Mule account cases have been on the rise, and a whopping 53% of the total fraud threats to financial institutions were caused by money mules in 2023. Despite government and regulatory bodies actively working to fight this, cybercriminals continue to come up with innovative ways to circumvent the law and pursue money laundering activities. 

 

In line with this growing challenge, the Reserve Bank of India Innovation Hub (RBIH) has introduced MuleHunter AI, an advanced AI/ML model designed to help banks and financial institutions detect and mitigate mule accounts.

 

 Unlike traditional systems that often produce false alarms, MuleHunter.AI uses machine learning to quickly and accurately identify suspicious accounts by tracking illicit fund flows. This innovative approach helps banks detect fraud more effectively and efficiently, enhancing the security of India's financial ecosystem. Early results show it significantly improves detection rates, marking a major step in the fight against financial crime.

 

"RBIH has developed an in-house AI/ML-based solution which is better suited than a rule-based system to identify suspected mule accounts. Advanced ML algorithms can analyse transaction and account detail related datasets to predict mule accounts with higher accuracy and greater speed than typical rule-based systems. This machine learning based approach has enabled the detection of more mule accounts within a bank’s system," RBI said in a statement.

 

The system was developed after 19 distinct patterns of mule account activity were analysed in collaboration with multiple banks. Results from a trial initiative involving two significant public sector banks have been promising. 

"Initiatives like MuleHunter.AITM demonstrate how AI can effectively address challenges like fraud detection and prevention, including use cases like mule accounts. By encouraging collaboration between regulators, banks, and fintechs, these steps lay the groundwork for a more secure, inclusive, and tech-driven financial ecosystem," said Rajesh Mirjankar Co-Founder MD and CEO of KiyaAi.

 

The RBI has also been running a hackathon to encourage innovation in fraud detection. While banks can use their own systems, MuleHunter.ai will provide smaller banks with the necessary infrastructure to detect fraud, aiming to protect customers and enhance trust in the financial system.

 

RBI has also asked banks to collaborate with its initiative MuleHunter.AI to weed out mule accounts which are used to commit financial fraud.

 

"Banks are encouraged to collaborate with RBIH to further develop the MuleHunter.AI initiative to deal with the issue of mule bank accounts being used for committing financial frauds," the RBI Governor said on Friday.

 

He also said the RBI has been taking various measures in coordination with banks and other stakeholders to prevent and mitigate digital fraud in the financial sector.

 

These include RBI guidelines for regulated entities to strengthen cybersecurity, cyber fraud prevention and transaction monitoring.