Introduction
Cooperative banks, which were established to address the capital needs of communities and are regarded as the bedrock of financial stability, now face severe scrutiny for security and risk management limitations. Recently, cooperatives have been in the news for regulatory violations, mismanagement of funds, and other governance-related issues. These repeated setbacks paint a clear picture of why cooperatives are the fraudsters’ go-to target for committing fraud, particularly for money muling and laundering.
This blog serves as an essential guide to understanding why cooperatives have become the prime conduits for money muling. By outlining the vulnerability gaps, citing real-world examples, and presenting best practices to combat money muling, the blog highlights the need for advanced mule prevention solutions.
Vulnerability Factors Leading to Money Muling in Cooperative Banks
To combat financial crimes like money muling, cooperatives need to first understand the security gaps that their channel presents. From customer onboarding to regular transaction operations, these vulnerabilities can create opportunities for exploitation. Let’s briefly explore its susceptibility factors and understand its relation to money muling:
Weaker Oversight & Regulatory Scrutiny
Due to their innate nature and functionality, cooperative banks often have less oversight on risk management and compliance than national and commercial banks. This lack of control makes them prone to money laundering and other types of financial fraud. With limited monitoring resources and weaker security infrastructure for money mule fraud prevention, cooperative banks are an ideal channel to launder illicit funds, making them easier for criminals to exploit.
Limited KYC & AML Control
Another grave vulnerability that tops the list is the inability of cooperatives to conduct proper screening while onboarding. Since cooperative banks operate with a smaller staff and have a limited budget to spend on screening tools; they often rely on manual processes for due diligence. This overreliance on legacy systems and outdated KYC screening methodologies allows criminals to infiltrate and conduct money laundering. Additionally, cooperative banks also have no proper transaction monitoring and fraud reporting capabilities, which opens the door for money mule operations and illegal flow of money.
Outdated Security Measures
In the wake of online banking, cooperatives are now catching up to digitisation. This late adoption has resulted in affecting their ability to tackle new-age frauds like money muling. With the rise of AI-powered fraud attacks, cooperatives lack the defence capabilities, such as money mule detection and prevention, that are required to counter mule activity and money laundering. In line with this operational gap, fraudsters choose cooperative banks as a medium due to their laxity in oversight and defence.
Easy & Quick Account Creation
Cooperative banks, being community-based and closely-knit, foster customer relationships built on trust and familiarity. This relationship-focused approach can sometimes override strict security protocols, leading to potential misuse and manipulation. As a result, there has been a significant rise in mule account creation and usage in cooperatives compared to commercial banks. With their simpler onboarding process and ease of account creation and operations, cooperatives become the choice of target for fraudsters involved in money muling.
Real-world Scenarios
Now that we have looked into the security gaps in cooperative banks. Let’s delve deep to see some real-world examples:
A cooperative bank based out of Nasik was the target of an organised money laundering attack where a staggering amount of 100 crores was funnelled through money mule accounts. Due to the bank’s inability to conduct real-time transaction monitoring, these risks slipped through the cracks and resulted in a major breach. Upon the ED’s audit for irregularities, 13.5 crore was seized, and the bank was kept under strict vigilance.
A Mumbai-based cooperative bank lost nearly 122 crore for money laundering. One of the prevalent methods used for laundering included transfers through mule accounts. After a thorough investigation, the RBI, the Central Bank of India, has initiated a 6-month ban on this bank. This is one of the major money mule scams of 2025 that has raised eyebrows and put cooperative banks under dire scrutiny.
How Can Cooperative Banks Prevent and Manage Money Mule Risks?
To strengthen the fight against money muling and money laundering, it is essential for cooperative banks to implement strict security and risk management strategies. This will not only defend institutions from money muling but will also help in building credibility in the age of digital payments. Here’s a quick rundown on BANKiQ’s recommended strategies for securing operations:
Enhancing Security & Control:
To augment the security posture, cooperative banks need to adapt to a multi-layered protection approach. By equipping the internal teams with tools and frameworks to identify mule accounts, conduct risk assessments, and actively flag threats, the financial institution can have full control over its operations. Additionally, by inculcating frameworks to continuously monitor transactions, analyze customer behavior, and notify deviations from the regulators, cooperative banks can secure operations from the growing threat of money mule scams.
Technology-Investment:
Cooperative banks should invest in an intelligent money mule detection and prevention solution that offers capabilities to detect and prevent mule accounts, screen high-risk accounts, and ensure compliance. Solutions like BANKiQ – Money Mule Detect & Control are embedded with key features like real-time transaction monitoring, transaction risk scoring, onboarding risk scoring, and more, which are instrumental in safeguarding payment operations from an array of money mule frauds.
Workforce Training:
As money muling tactics evolve, the staff must stay ahead of the curve to protect their operations and their customers. Therefore, financial institutions should implement robust employee training to curb emerging threats. With upskilling on customer due diligence, vigilance, and fraud reporting, financial institutions are in a better position to tackle sophisticated money mule frauds.
Awareness Program:
By collectively raising awareness about money laundering and money mule scams, regulators & banks can inform the public about the evolving techniques used for fraudulent activities. Implementing comprehensive awareness programs about money mule recruitment tactics and other typical scam scenarios will help prevent individuals from becoming unwitting participants and will also reduce the overall incidence of such fraudulent activities.
BANKiQ – Protecting Payment Operations with Intelligent Money Mule Prevention Solution
BANKiQ is a pioneering force in Fraud Risk Compliance Management for digital payment operations. With its suite of solutions designed to tackle an array of financial crimes, BANKiQ offers reliable and transformative capabilities for fraud detection and prevention.
Designed to empower financial institutions, including cooperative banks in combating money mule frauds, BANKiQ Money Mule Detect & Control solution features out-of-the-box capabilities, such as:
- True Real-Time Transaction Monitoring
- Transaction Risk Scoring
- Onboarding Risk Scoring
- Automated Regulatory Reporting
- Behavioural Profiling
- Case Management
- End-to-End Fraud Management, and more
Furthermore, as a broader discovery exercise, the BANKiQ solution can be complemented alongside RBI’s MuleHunter.AI, which offers extended capabilities for money mule prevention.
Conclusion
Cooperative banks in India have faced significant setbacks, especially due to their inability to prevent frauds like money laundering and money muling. With increased scrutiny and rising regulatory pressure, cooperative banks need to proactively enhance their security and risk management strategies. BANKiQ – Money Mule Detect & Control is a much-needed addition to strengthen defenses against money mule frauds. With its advanced detection capabilities, real-time monitoring, and comprehensive risk assessment tools, the BANKiQ solution empowers banks to identify and mitigate money mule activities effectively.
If you are interested in deploying BANKiQ – Money Mule Detect & Control or want to know more about the BANKiQ solution, contact us today.
