Explainer: What are Mule Accounts?

In India, these accounts are often opened by Indian nationals who allow their bank accounts to be used in exchange for money. This complicates detection during the onboarding process, but with proper controls and ongoing monitoring of account holder behavior, these accounts can be identified and stopped. In November of last year, at least six individuals were arrested in Bengaluru for allegedly operating 126 mule accounts.

In July, the Reserve Bank of India (RBI) expressed concerns about some banks having hundreds of thousands of such accounts being used for fraudulent transactions and loan evergreening. Recently, Governor Shaktikanta Das urged banks to take action against mule accounts and to intensify customer awareness and education efforts to combat digital fraud.

What are the different types of money mules?

Money mules are of different types based on their level of involvement in a money laundering scheme. The first type is the victim mule, who unknowingly has their account compromised and used by a fraudster to launder money, often due to a data breach.

The second type is the misled mule, who unknowingly sends and receives money for a fraudster, believing it to be legitimate. This often happens when someone responds to a job ad that involves handling transactions for an employer.

The third type is the deceiver mule, who deliberately opens new accounts using stolen or fabricated identities to transfer stolen money.

The fourth type is the peddler mule, who sells access to their genuine account to a fraudster, allowing it to be used for illegal transactions.

Lastly, the accomplice mule willingly opens a new account in their own name or uses an existing account to transfer money as directed by a fraudster.

How widespread is this in India?

At one partner bank in India, the digital fraud detection company BioCatch discovered that nine out of every ten mule accounts went undetected. The company reported that while 86% of the initial documented activity from mule accounts originated within India, this figure dropped to just 20% after a month, with 16% of those sessions using a VPN.

"Analysing the activity of the original reported mule accounts, we observed that the first connection typically takes place in India. We also see a low use of VPNs, suggesting that these are Indian nationals creating and using the accounts," the report stated.

Most mule account activity—15%—is concentrated in Bhubaneswar, while Lucknow and Navi Mumbai each account for 3.4%. In West Bengal, the cities of Bhagabatipur and Gobindapur recorded 1.7% and 2.6% of mule account activity, respectively, while Mumbai and Bengaluru reported 2.2% and 1.8%, respectively.

What is the RBI doing to address this issue?

In October 2023, the RBI strengthened customer due diligence (CDD) norms by requiring banks and regulated entities to adopt a risk-based approach. The updated Master Directions stated that, "REs (registered entities or lenders) shall adopt a risk-based approach for periodic update of KYC ensuring that the information or data collected under CDD is kept up-to-date and relevant, particularly where there is high-risk.”

The guidelines emphasized that banks and registered entities must strictly follow instructions on account opening and transaction monitoring to reduce the operations of money mules, which criminals use to launder money from fraud schemes like phishing and identity theft. The RBI directed banks to implement rigorous due diligence and careful monitoring to identify and take action against accounts being used as money mules, and to report any suspicious transactions to the Financial Intelligence Unit.