Frauds by bank employees: Take these steps to ensure branch manager or any other employee does not run away with your money

In recent times, there have been numerous reports of bank branch managers and their accomplices absconding with depositors’ funds held at the bank. Most of these cases involve bank employees committing fraud against both customers and the bank itself. Hence if you have a significant amount of assets held at a bank, it’s natural to be concerned about the safety of your assets as most of these incidents have occurred in well-known and top banks of India.

Are banks legally liable for fraud done by their employees on customers?

The Supreme Court of India, in a recent case (April 2024), upheld a bank’s liability for the acts of its employees in a case where the employee fraudulently withheld the amount from depositing in the customer‘s FD account.

“As per the Apex Court, such acts (frauds) of employees, when done during their course of employment, are binding on the bank and will give customers a right to legally proceed against the bank for loss or damage. In most cases, it would be the only effective remedy available to the customers. However, the bank’s liability may be limited in cases where the customer has shared his password, PIN, OTP, etc., with the bank employee,” says Suma R V, Partner, King Stubb & Kasiva, Advocates and Attorneys.

As per the RBI Master Direction on Fraud – Classification and Reporting, banks must take up the matter with the concerned authorities like CBI or the police if a customer raises a complaint of fraud allegedly perpetrated by the bank’s employee(s). “The customer also has the option of filing proceedings against the Bank before the Consumer Commissions. Simultaneously, a criminal action can be taken against the Bank and its employee(s) for the alleged fraud,” says Soumen Mohanty, Associate Partner, AQUILAW, a law firm.

“In my experience spanning over several decades, I have seen several cases where bank employees colluded with third parties like hospital staff, loan aggregators, and others to defraud customers of their hard-earned money. In some cases, the bank co-operated without us passing any order, but in other cases we had to pass an order and then only the bank complied with it. We urge consumers to come forward to the commission and file a complaint if they think any bank provided a deficient service or its employees defrauded them,” says Vijay Kumar Makyam, Member- District Consumer Disputes Redressal Commission, Medak at Sangareddy, Telangana.

When can you get the money back if a bank employee has defrauded you?

Banking and fraud experts say that since these are not ordinary cases (bank employees defrauding customers), banks need to deeply investigate the claim.

“If the bank sees that their employee did the fraud, they may punish the employee, suspend them, and work with the police for more inquiry. Regarding whether or not the customer will get money back, it depends on what the inquiry finds, and the respective bank’s rules say. Some banks may pay or fix the damage for the customers, while others may wait for the police inquiry to finish before doing anything else. Banks usually insure themselves against employee fraud,” says Sheetal R Bhardwaj, executive board member of the Association of Certified Financial Crime Specialists (ACFCS) in Dubai, UAE. She is also the head of compliance for a UAE based bank.

Mohanty from AQUILAW shares insights about which type of insurance banks take out and when customers can expect to get paid in the event of fraud done by the bank’s employees.

“Banks generally enter into Banker’s Indemnity Policy Insurance to safeguard against internal fraud by its employee(s) or external frauds caused due to dishonesty of employee(s) in connivance with customers or third parties. The timeline for realising the loss incurred is policy specific and depends on the terms and conditions of the insurance policy as agreed to by the parties concerned,” he says.

How can you protect yourself from bank employees who want to defraud you?

In a fraud case involving a bank employee covered by ET Wealth Online, the customer maintained detailed records of all interactions, which played a crucial role in proving the fraud.

“It is vital to have proof of your dealings with bank employees for your own safety and to settle any conflicts that may arise. Remember that timely documentation is critical. Waiting too long may lead to memory gaps or lost records,” says Bhardwaj.

Bhardwaj shares some other tips that you can follow so that bank employees don’t defraud you:

• Take notes: Note any odd actions, dealings, or messages with the bank employee. Keep and print out any relevant emails, messages, or account statements. If dealing with online transactions or communication, capture screenshots or save electronic records as proof.
• Monitor your bank transactions regularly: If you notice transactions you didn’t make, tell the bank to freeze the affected accounts. Also, monitor other accounts closely for anything unusual.
• Stop communicating with the employee if suspicious: Avoid any more contact with the employee under doubt and document all communications about the case.
• Frequently change passwords: Change your password, PIN, and other login details for your online and mobile banking frequently.
• Avoid communicating through calls: Whenever you can, communicate with bank employees through written channels like emails or letters. This creates a paper trail and provides proof of the interactions. Request written confirmation or documentation for any agreements, changes to account details, or transactions conducted with the bank.
• Don’t consider personal communication as final proof: In some instances, in the past banks’ officials shared fake FD receipts and account statements through personal emails and WhatsApp messages. Therefore, you should be cautious and verify it with your passbook, ATM enquiry, bank’s official statement or net-banking.

However, in practical situations, it is necessary to communicate verbally with bank employees.

Anis Ahmed, chair of MENA Chapter for ACFCS and host of ‘The Fraud Fellas’ anti-fraud forum, shares some tips. He says whenever you discuss important matters with a bank employee, follow up with an email summarising the conversation and any agreements reached. Additionally, gather evidence of suspected fraud, like transaction records and communication logs with the bank or employee, for potential future actions.

What are some of the steps taken by banks to protect customers from possible fraud by its own employees?
Various steps have been taken by banks in recent years to protect customers from becoming victims of fraud by bank employees.

Ahmed shares insights about security measures taken by Indian banks:

• Quoting of ID for both in-house and outsourced bank employees: Many banks in India have a policy wherein the customer correspondence requires the identification of the employee, such as employee ID number/code along with their signatures. When availing credit cards, finance or account facilities from banks, the employee ID/code is often captured in the application form and customer documents. “This is applicable for both inhouse and outsourced employees,” he says.
• Bank employee monitoring: This involves monitoring staff account transactions and behaviours, and electronic data surveillance, such as emails and system access, for suspicious patterns or anomalies that could indicate fraudulent activity. Background checks are also conducted during the hiring process to identify any red flags or previous instances of fraud.
• Whistleblower Hotlines: Banks often provide anonymous reporting channels for employees, vendors and customers to report suspicious behaviour or fraud without fear of retaliation.
• Other Controls: Additional measures such as segregation of duties, job rotation, mandatory leave policies, system access control, fraud awareness training, and regular internal and external audits are also implemented.
• Compulsory block leave as per RBI direction: As per Pradeep Janardanan, director a foreign bank in India, “Banks do ask their core employees to go on compulsory block leave (continuous two weeks or more). During this period the staff cannot access their systems or are not allowed to visit their branch/office, and their work is assigned to others, which may help the bank to identify any fraud or irregularities. This helps the banks to manage operational risks within the Banking system. The Reserve Bank of India has issued a circular in July 2021, in this regard making it compulsory for banks to implement this policy.”