After recent large bank fraud cases in India, the government passed new laws and amended existing ones to strengthen fraud prevention and management. The Fugitive Economic Offenders Act allows courts to confiscate property of individuals who flee the country to avoid prosecution for economic crimes over 100 crore rupees. The Reserve Bank of India also implemented new identification requirements and databases to help detect fraud earlier and monitor suspicious individuals and companies. Banks and financial institutions must also improve internal controls, auditing, and staff training to prevent, detect, and manage fraud cases effectively.

1. 3.2 PREVENTIVE MEASURES TO CONTROL BANK FRAUDS
Frauds involve tremendous amounts of money not just influences the specific bank or financial
institution yet will immensely affect the improvement of society. The funds will go underutilized
which thusly will hamper the improvement of the country. The fraudsters are continually
contriving new plans, up to date with their strategies and evaluating new procedures of bypassing
these electronic frameworks intended to guarantee high security of banking activities. Banks in
many economies are the foremost safes of the public's money related investment funds, the
operational hub of the installment framework, the vessel blessed with the capacity of money
creation and assignment of monetary assets and channel through which financial and credit
strategies are carried out. In this way, proper measures must be taken for the controlling of bank
frauds though it is not possible to eliminate it completely but preventives measures can be taken.
Following are the different measures that have to be adopted by:
(a) The Banks and Financial Institutions;
(b) The Government and
(c) The Reserve Bank of India(RBI).
Measures to be adopted by Bank1
It is the essential obligation of the banks to control its internal matters and function in a way
which isn't biased to the interest of its stakeholder. It should ensure guarantee appropriate
organization and address the issues at whatever point they crop up.
Identification of frauds
Each bank ought to know about and recognize the types of frauds common in the general public,
including the global society, the causes and modalities of the frauds and the possibilities and
potential of some of them happening in the bank. This will be a component of volume, types and
concentration of the banks activities and the administration control systems. There are internal as
well as external management controls. Internal management are completed inside the
organization while outer controls are done outside. Internal management are classified into two
major groups:
i. Internal Checks
Internal checks are the operational controls, which are incorporated into the banking system to
work on the handling of processing of entries on order to secure prompt services, to help in
minimizing clerical errors and to act as insurance against collusion.
1 http://ir.csuc.edu.gh:8080/xmlui/bitstream/handle/123456789/209/FRAUD.pdf?sequence=1 last accessed on
16/03/2021.

2. i. Internal Audit
Internal Audit on the other side includes the review of operations and records undertaken within
a business by explicitly allocated staff, which is typically the Internal Auditor. There are
individuals called external auditors too who look at the books of the bank to decide its fact and
reasonableness. This sort of review is for the most part legal in nature, which is called for by the
law
4.1.2 FRAUD PREVENTION AND DETECTION:
Having identified the process of fraud, the next stage is to evolve measures to prevent the
occurrence of such frauds. The control systems can be classified into two, those aimed at
prevention and those aimed at detection. Ekechi (1990) stated that measures aimed at fraud
prevention include dual control, operational manual, establishment of inspectorate units,
referencing on presentation of document of value, segregation of duties, verification of
signatures, controls of dormant accounts, detection of passport sized photos, close watch on the
lifestyle of staff and coding/decoding and testing of telex messages.
Measures aimed at fraud detection include checking of cashiers, call-over, reconciliation and
balancing of accounts at branches, interbank at head office levels, periodical submission of
statement of accounts, stock taking of security items and cash in the vaults and inspection by
bank inspectors (Ojeigbede, 2000).
4.1.3 FRAUD MANAGEMENT:
In a report by the Bank of Ghana annual reports and statement of accounts, it was said that most
frauds are committed by insiders usually in collusion with outside third parties, and mostly are
discovered by accident or tip offs rather than internal and external auditors. The policies should
stress the cardinal principles of segregation of duties to ensure that one person does not originate
and complete an assignment or entry. The policy should also emphasize dual control of sensitive
areas such as strong rooms and locks to security documents and account, the need for daily
balancing of account and the various precautions which include necessary references for opening
of accounts. Also employees should be made aware of the risks of attempting to defraud the bank
and the action expected if caught. The policy should incorporate and emphasize investigation and
possible prosecution of suspected frauds.
Thus to curb the instances of fraud banks should keep the 3 steps in mind i.e.,
(1) Detect
(2) Defend
(3) Evolve

3. 4.2 STEPS TAKEN BY THE GOVERNMENT:8
With the potential to become the fifth largest banking industry in the world by 2020 and third
largest by 2025, India‘s banking and financial sector is expanding rapidly. The Indian Banking
industry is currently worth Rs.81 trillion (US $ 1.31 trillion). Roughly, the Contribution of the
banking sector to GDP is about 7.7% of GDP. Banking sector has generated employment in the
economy for about 1.5 million people. It is evident from the figures that banking sector plays a
crucial role in development of Indian economy and thus, it is the duty of government to protect
the banks. The government has introduced many statutes, made amendments to the existing ones,
has ordered proper investigation of instances of fraud, has extradited the fugitives who flew to
other country, etc.
4.2.1 THE FUGITIVE ECONOMIC OFFENDERS ACT, 2018:
After the recent fraud by diamantaire Nirav Modi and Mehul Choksi to the tune of INR 13,000
Cr came into spot light and they fled the country, it became apparent that the existing provisions
are not adequate to deal with the severity of the problem. This is however not the very first
instance of the kind. Various fugitives flew to other countries to escape from the investigation
and the trial proceedings. Thus, in order to control this recent trend, the Government initiated the
bill, which was passed in the House of people on July 19, 2018 and by the council of states on
July 25, 2018.
A fugitive economic offender is any individual against whom warrants for arrest are issued for
the involvement in select economic offences involving amount of at least INR100 Cr or more
and has left India so as to avoid criminal prosecution. The new law allows designated special
court to declare a person as fugitive economic offender and to confiscate his property, including
‘benami’ ones. “All the rights and title in the confiscated property shall, from the date of the
confiscation order, vest in the central government, free from all the encumbrances”, the Act say
Justifying the financial limit of Rs.100 crore for invoking the provisions of this new law, Finance
Minister Piyush Goyal had recently said in Parliament that it was being done to “catch the big
offenders and not to clog the courts”.

4. 4.2.1 THE FUGITIVE ECONOMIC OFFENDERS ACT, 2018:
After the new misrepresentation by diamantaire Nirav Modi and Mehul Choksi to the tune of
INR 13,000 Cr came into spot light and they escaped the country, it became evident that the
current provisions are not satisfactory to manage the seriousness of the issue. Various fugitive
flew to other countries to escape from the investigation and the trial proceedings. Subsequently,
to control this new pattern, the Act was passed.
An outlaw monetary guilty party is any person against whom warrants for capture are given for
the contribution in select financial offenses including measure of at any rate INR100 Cr or more
and has left India to stay away from criminal indictment. The new law permits assigned
extraordinary court to announce an individual as outlaw monetary guilty party and to take his
property, including 'benami' ones. "Every one of the rights and title in the seized property will,
from the date of the seizure request, vest in the focal government, liberated from every one of the
encumbrances", the Act say
Supporting the monetary furthest reaches of Rs.100 crore for conjuring the arrangements of this
new law, Finance Minister Piyush Goyal had as of late said in Parliament that it was being done
to "get the enormous guilty parties and not to obstruct the courts".
After the recent fraud by diamantaire Nirav Modi and Mehul Choksi to the tune of INR 13,000
Cr came into spot light and they fled the country, it became apparent that the existing provisions
are not adequate to deal with the severity of the problem. This is however not the very first
instance of the kind. Various fugitives flew to other countries to escape from the investigation
and the trial proceedings. Thus, in order to control this recent trend, the Government initiated the
bill, which was passed in the House of people on July 19, 2018 and by the council of states on
July 25, 2018.
A fugitive economic offender is any individual against whom warrants for arrest are issued for
the involvement in select economic offences involving amount of at least INR100 Cr or more
and has left India so as to avoid criminal prosecution. The new law allows designated special
court to declare a person as fugitive economic offender and to confiscate his property, including
‘benami’ ones. “All the rights and title in the confiscated property shall, from the date of the
confiscation order, vest in the central government, free from all the encumbrances”, the Act say
Justifying the financial limit of Rs.100 crore for invoking the provisions of this new law, Finance
Minister Piyush Goyal had recently said in Parliament that it was being done to “catch the big
offenders and not to clog the courts”.

5. 4.2.2 AMENDMENT IN OTHER STATUTES:
The President has also given nod to other laws - the Negotiable Instruments (Amendment) Act,
2018, the State Banks (Repeal and Amendment) Act, 2018 and the Specific Relief (Amendment)
Act, 2018. The Negotiable Instruments (Amendment) Act is aimed at allowing a court to try
offences related to cheque bounce expeditiously and direct the drawee to pay a minimum of 20%
of the cheque amount as interim compensation. The State Banks (Repeal and Amendment) Act is
to repeal two other laws - The State Bank of India (Subsidiary Banks) Act, 1959 and the State
Bank of Hyderabad Act, 1956 - and to further amend the State Bank of India Act of 1955. The
Specific Relief (Amendment) Act, 2018 grants a party the right to seek damages from the other
side in case of a breach of a business contract and to reduce discretion of courts in such matters.
Bills in these regards were approved by Parliament recently.
4.2.3 VIGIL MECHANISM:9
The Indian Companies Act, 2013 introduced the concept of vigil mechanism. It is mandatory for
• All the listed companies and
• Companies which accept deposits from the public. Companies which have borrowed money
from Banks and PFI in excess of Rs.50 crores under section 177(9) read with Companies
(Meetings of Board and its Powers) Rules, 2014.
4.3 MEASURES TAKEN BY RBI:
The Reserve Bank of India (RBI) has introduced Legal Entity Identifier or LEI. Its primary
objective is to check and prevent banking frauds. In fact, RBI has made mandatory for a phase-
wise implementation of LEI for all borrowers of banks in India. Entities without an LEI code
will not be granted enhancement of credit facilities after a specified date.
4.3.1 LEI:

6. LEI is a 20 digit global reference number which uniquely identifies a company. Across the world
LEI is conceived as a key measure to improve the quality and accuracy of financial data through
improved risk management.
Global Legal Entity Identifier Foundation (GLEIF) is the regulator of LEI. The foundation is
backed and overseen by the LEI Regulatory Oversight Committee, represented by public
authorities from around the globe that have come together to jointly drive forward transparency
within the global financial markets.10
RBI on November 2, 2017 mandate has specified introducing LEI in a phased manner for large
corporate borrowers having fund and nonfund exposure of Rs.5 crore and above. Apart from
LEI, the RBI has issued several guidelines which are mentioned below.
4.3.2 RBI GUIDELINES
According to RBI it has taken many steps to prevent fraud in banking system. Some of those
steps are:
i. A framework for dealing with loan frauds of INR 50 Cr and above, under which
banks classify potential fraud accounts as red flagged accounts based on observation
of early warning signals, and take time bound action;
ii. An online searchable database of frauds reported by banks, in the form of Central
Fraud Registry, as a tool of timely identification, control and mitigation of fraud risk
and for caring out due diligence during credit sanction process;
iii. Issuance of cautions, advices by RBI, detailing names of fraudsters and their modus
operandi;
iv. Re-verification of title deeds in respect of all credit exposers of INR 5Cr and above
by banks, as mandated by RBI;
v. Issuances of various master circulars to banks, with a view to restricting imprudent
practices and at the same time ensuring sound procedure for conduct of business;
vi. Requiring banks to put in place adequate audit and compliance mechanisms with
board-level reporting through the Audit Committee of the Board; and
vii. Subjecting the systems and procedures in banks to supervisory review by RBI as part
of the Risk Based Supervisory framework for banks.