Banking Frauds New

P. R.
KULKARNI - Consultant Banking, Law and

Banking Technology and Author, Pune.
1
Banking Frauds
Prevention and Investigation
Lecture and Presentation by
P. R. Kulkarni
P. R. KULKARNI - Consultant Banking, Law and
2
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.
3
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
4
Fraud
Contributory factors
Incompetence
Lethargy
Negligence
Connivance
Ignorance
Things permitted by situational
pressures and permissive attitude

5
Fraud
Definition 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. ..
6
Fraud
Definition 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 fact
3. a promise made without any intention of
performing it
4. any other act fitted to deceive
5. any such act or omission as the law
specially declares to be fraudulent
7
Fraud
in 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)
8
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.
9
Life has become too fast and busy. Banker do
not have enough time to scrutinize the
documents.
The fraudster can easily loose his identity in
the crowd of millions discarding his
connections 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. .
10
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 moves
away 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
prosecutors job difficult.
Contd.
11
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 200910 Rs. 2,017 Crore.

Year 201011 Rs. 3,799 Crore.

Year 201112 Rs. 4,448 Crore.
12
13
Bunko Banker
(Bank Employee committing fraud)
He is efficient
He is obliging
He is know all
He is indispensable
He seldom takes leave
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 / validity
date / beneficiary / character
Cheque is issued against non-existent accounts
Counterfeit seals and stamps are used
Forged fingerprints are used on instruments of
illiterate 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 book
by 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
/ godown
Contd. .

19
Unfinished goods are shown as finished
goods
Hypothecating same stock to different
banks
Inflated stock statements are submitted
for availing loans
Un-marketable / scrap type goods are
kept 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 Bankers Fraud
Manipulation of cash by those who handle
cash.
Misappropriation at customers deposit
account.
Bogus mail / telegraphic transfers.
Clearing forged cheque and other instrument
while working at clearing department.
Utilizing sundry account to withdraw money.

Contd. ..
22
Bunko Bankers Fraud
Debiting central accounting of the bank.
Accepting counterfeit currency for consideration.
Helping the outsider fraudsters / robbers etc.
Forging signature of the customer on banks
document/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
Bunko Bankers Fraud
Fraudulently becoming a joint account holder
with account holder of the bank, particularly
illiterate or senior persons, and embezzling
money.
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
Signatures
where banker comes across
Account opening forms / specimen signature cards.
Deposit receipts
Cheques
Withdrawal forms saving / transfer.
Pay-orders / Demand Drafts / Bankers 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 normal
literate person.
Flying start and finish.
Graduated pressure that varies with the
movement of the pen and line strokes which
are free of defects created by natural
movement of pen.
Contain natural variations without attempt to
hide them or correct them.

Contd.
27
Signatures
Written with rhythm with flow of pen
automatically showing unhindered flow of
writing lines and smoothness in loops,
curves, bulbs and other writings and pen lifts.
Contains personal sub-conscious emphasis
on certain letter, stroke and construction. It
appears as enlarged sizes, ornamentations
etc. Ordinarily, it appears at the start of the
signature, end stokes, capitals or in the
under-scoring lines.
Contd. ..
28
Signatures
Directional movements of the pen to form
letters, combinations of letters or connectives
is often highly individual characteristic of the
writer.
Spaces required for writing letters, sizes of
letters and words or their abbreviations and
simplifications are highly characteristic.
Placement of dots, cross bars, full stops,
under scoring / top scoring lines, etc. are
details adopted inconspicuously.
29
Forged Signatures
some 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. Also
known as copy forgery, imitation forgery or
free hand forgery.
Signature is carefully copied from model
genuine signature of the victim.
Success of forger depend upon skill and
practice put by him and type of victims
signature. It also depends on vigilance of the
person who examines the signature for
acceptance.
Contd.
31
Simulated Signature
The forged signature has mixed characters of
forgers own styles and adopted styles of
victims signature.
Forger has to imitate the signature stroke by
stroke so that slants, curvatures, heights and
width all match to the original signature. This
process makes the forger to write slowly but it
looses the naturalness, smoothness and
rhythmic flow of the original writing.
Forged signature is more a picture than
writing.
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, tracing
paper 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 the
stamp as well as sometimes color of the stamp also
gets changed.
34
Disguised Signature
These are original signatures made by the person
himself with prior intention and plan to deny their
authorship later on.
This forgery is common on bank loan documents.
The person changes his usual signature in aspects
such 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 person
though changes pictorial appearance of his signature
he can not change his natural flow, curves, pressure
etc. When more than one signatures are forged they
differ 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 to
the fraudster.
Signature is obtained on the document other than the
one the victim believes to be.
Blank space is kept between text of document and
signature and then in that space additional text in
inserted.

36
Non-altered Signature
Signature of the victim is written by the forger
in his normal handwriting.
Dishonest or careless banker accepts such
signed document as genuine. This may be on
cheque, loan document etc.
In teller system payments are often made
without verification of signature. Fraudsters
take advantage of this.
If loan documents are given outside the bank
for signature this fraud is easily possible.
37
Signature Checking Guidelines
Line 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 with
genuine 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 start
strokes show abruptness and pen lifts vary.
38
Check 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
Check 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
Check the Alignment
Alignment is the spacing arrangement of the
writing reference to paper, baseline, other
writing, underscoring line, positioning, of date
etc.
Most persons can not write in straight line.
Their writing line goes either downwards,
upwards or creates a curve with reference to
the baseline. The signature also goes in tune
with such peculiarity. The forger many times
does not notice this.
Contd. .
41
Check 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
Check Pen Lifts
Forger has to see the model signature time and again
to check and compare the size, slant, inter-distance
of letters, next peculiarity of the signature etc. At
each 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, ink
deposit, thick line appearance when cover up is
made.
If unwanted pen lift occurs in genuine signature the
cover up is careless but forger does this with care
and sheds some marks that can be identified.
43
Check 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 pictorial
appearance and,
1. ignore the embellishment strokes and eye catching
formations,
2. concentrate on inconspicuous characteristics,
3. study the connections,
4. examine the simplifications of certain letters in the
signature and
5. observe above stated identification characteristics.
44
Practice Examination of Signatures
First 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
Second 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 every
ones signature.
46
Third 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 concentration
required.
While acquiring the skill you will develop analytical
mind and sharp sense to catch forgery
As a banker / investigating officer continue
sharpening 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 .have
legible 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 for
correspondence, another for personal
correspondence 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, health
and other factors. So all specimen signatures
be replaced after every five years. This
eliminates old features and always a
signature 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 is
random and highly intricate.
Digital signatures are unique to the individual
and can not be imitated.
It has no visual identification and, therefore, it
is 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. If
need 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 feet
have friction ridges. The ridges are raised
skin 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. It
spreads 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 and
chemical methods.
53
Material Alteration
Changes character of the instrument.
Changes liabilities.
Changes beneficiaries.
Changes field of operation.
Changes period of operation.
Alterations are made by additions / deletions /
substitution / obliteration (masking).
Material alteration in banking is found on
cheques / DD / loan documents / records etc.
54
Bank Fraud
first consideration
Minimum loss.
Minimal adverse publicity.
Protection of evidence.
Proper legal process.
55
Bank Fraud
Immediate Actions
When fraud comes to notice you are first
person in charge of the situation to start
actions.
Take into possession all the involved
documents for safe keeping.
Inform your superior officers and take
guidance.
Inform vigilance and inspection / audit depts.

Contd.
56
Bank Fraud
Immediate 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 lines
of action.
57

Thanks
kingbankers@rediffmail.com

9850812443

www.prkulkarni.com

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KULKARNI - Consultant Banking, Law and

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