In the first six months of 2020 despite a countrywide lockdown due to Covid-19 pandemic, the Central Bureau of Investigation has registered 40 cases of bank frauds and is probing bad loans worth over 14,400 crore. In all 40 cases, the complainant is the bank and CBI has relied on forensic audit reports provided to it. The investigation revolves around forensic audit report.
During lockdown in March, 2020, the biggest and most high profile bank fraud of 2020 so far has been the Yes Bank scam. In March, CBI registered two cases against Rana Kapoor and his family members. Others who have booked in the scam include Wadhawans and Gautam Thappar. Kapoor is accused of giving loans to companies with weak finances and taking kickbacks. Though the Enforcement Directorate has filed a charge sheet of money laundering against Rana Kapoor, the CBI probe is still going on.
In another case, during January, the CBI carried out raids and searches across India, after Mumbai based Frost International was accused of defrauding a consortium of 14 banks to the tune of 3592 crores. Lookout circular have been issued against its directors Uday Desai and Sujay Desai.
In February, CBI accused Educomp and it’s managing director Shantanu Prakash of defrauding a consortium of 13 banks of over 1950 crores. “Forged tri-partite agreements with schools were submitted as genuine and loan was taken,” said the CBI FIR.
The CBI booked the directors of Delhi based food export firm Radikal Foods Limited in a bank fraud case worth 819.48 crores. An FIR was filed by CBI when a bank fraud case was detected involving an export firm Shree Bankey Bihari Limited. A consortium of seven banks suffered a loss of 604.81 crores.
Asking citizens to be cautious while being online, National Security Adviser (NSA) Ajit Doval said that financial frauds have seen exponential increase due to greater dependence on digital payment platforms following the pandemic. He also said the Centre was coming up with the National Cyber Security Strategy 2020 which envisions safe, secured, trusted, resilient and vibrant cyberspace for India’s prosperity. Doval made the comment while delivering a lecture on cyber security virtually at the COCONXIII-2020, a data privacy and hacking conference hosted by Kerala Police and the Society for Policing of Cyberspace and Information Security Research Association.
According to Doval, there is a change in the work environment that has been brought upon by the pandemic. There is a greater dependence on digital payment platform due to reduced cash handling and greater data sharing platform due to reduced cash handling and greater data sharing is happening online and presence on social media has also increased. While we are able to manage our affairs online to a certain extent, malicious actors also found in it, a new opportunity. Doval said there was an increase of 500 percent in cyber crimes due to limited awareness and cyber hygiene.
“Financial frauds have seen exponential increase due to greater dependence on digital payment platforms. The adversaries are tempted to exploit the crisis situation through various misinformation, fake news, etc. The huge cyber data floating in the cyber space is a gold mine for extracting information that can undermine the privacy of our citizens,” Doval said.
KPMG advisory
The Covid-19 pandemic has given rise to a new pernicious threat: fraudsters, who prey on vulnerable individuals and organisations and seek to exploit this dreadful humanitarian crisis for their own benefit. Musttaga Surka, partner, Forensic Sezrvices, KPMG India said, “Even as the consumer markets sector has been facing major operational challenges, it has triggered more opportunities for organised criminals to defraud consumers and organisations.
Organisations and consumers need to be on their guard about various kinds of fraud and other wrongdoings that could emerge as a result of the pandemic.
Sales and distribution — the misuse of schemes, undue price inflation due to hoarding of essential products, and the sale of damaged, expired or counterfeit products owing to perceived shortages of essential products during the lockdown.
Fake online websites/social media accounts may attract consumers to pay upfront for the products. After receiving the payment, fraudsters pocket this money without delivering the products.
Kickbacks, bribes and conflict of interest scenarios relating to the procurement of material and services due to restrictions on import and transport.
Cyber frauds due to increased remote working and augmented digital transactions following the lockdown of brick-and-mortar outlets.
Reduced focus on compliance that triggers contravention of laws and regulations, on account of the increase in operational challenges and remote working.
Rise in financial disputes resulting from cash flow challenges and other business disruptions. These will be seen between organisations and lessors, service providers, channel partners and retailers.
Rising cases of Covid-19-related fraud, in turn, could impact the overall governance and transparency, distort markets and shake the trust of the investment community. Organisations, therefore, should consider both reactive and preventive measures, as highlighted below to shield themselves from losses.
Root cause investigation into any indications, complaints or suspicions pertaining to potential fraud and wrongdoings. This activity will enable the management of organisations to take timely corrective action and prevent financial and reputational loss.
Proactive reviews of the processes to assist the organisation to avoid or mitigate fraud losses while also helping cost optimisation. These reviews also help to enhance the reputation of an organisation, which would be seen as a brand that proactively seeks to prevent fraud and criminal activities by identifying and eliminating the loopholes and gaps in the implemented processes and tools.
Diagnostic risk review on adherence to the defined Anti-Bribery and Corruption (ABC) framework. Additionally, during the review, the organisation could identify transactions, if any, incurred by either the organisation or third parties associated with it during the lockdown period that contravene ABC laws and regulations.
Root cause investigation of cyber incidents. In case of a cyberattack, the organisation should not dismiss any breaches or incidents, and should promptly and diligently investigate the root cause, as well as take steps to secure itself and guard against further attacks.
Awareness sessions for employees on fraud prevention and detection; risks and prevention of cyberattacks; bribery and corruption risks and importance of compliance with ABC laws and regulations.
Due diligence of new business partners appointed by the organisation to ensure that they conduct business only with business partners who work ethically and do not impact the organisation adversely from the viewpoints of business continuity, legal and government actions, reputational damage or any other regulatory issues.
The KPMG strategy is that Covid-19 crisis presents an opportunity to build a strong security architecture and minimize the risk of fraud in consumer markets. Authorities, consumers and organizations will need to take decisive actions and follow the best practices to stay ahead of this new scourge.
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