Why banks must curb ATM fraud

Tuesday November 24 2015

By Ismail Musa Ladu

Victoria Nakibuuka learnt her lesson the hard way. Like many other Ugandans, she is a victim of bank fraud.
About a month ago, she was not only left shell-shocked but also penniless after getting an Automated Teller Machine (ATM) notification indicating her account balance was at the bare minimum.

It did not immediately occur to her that she could have been a victim of fraud as it later turned out.
Many times, she confesses, she allows strangers found at the ATM points to help her withdraw her money from the machine because she cannot do it herself since she doesn’t understand the prompts.
About the same time last month, in a move to avert fraud, clients of Centenary Bank were required to register for new Personal Identification Numbers (PIN) if they were to withdraw any money using their ATMs.
The bank’s manager for corporate affairs, Allen Ayebare, in an e-mail told this newspaper that all PINs for customers had been de-activated and that those who wished to withdraw any money should do so from the counter until they get new PINs.

Speaking earlier on phone in response to the same matter, Centenary Bank managing director Fabian Kasi said the measure was precautionary after the bank received alerts that five clients had had transactions carried out using their respective PINs without their notice.
It is, however, now understood that the bank has controlled the situation.
Two years ago, four Bulgarians attempted to defraud Stanbic Bank using fake ATM cards. The arrested were identified as Ivan Ganchev Emilov, Anton Ivanov, Milen Katsarski and Adrian Dimitov.
According to Annual Crime and Traffic Police report, 2013, the Bulgarians were found with 38 ATM cards, a list of 45 ATM PIN numbers, a charger for their improvised ATM machine and other gadgets.

The suspects were promptly prosecuted and convicted to 20 years each but one got 10 years.
But in August 2013, they reappeared in court challenging their conviction and sentence handed down to them.
Last year in January, High Court in Kampala lessened the 20- year jail term for the Bulgarians to nine years on grounds that they were first-time offenders who deserved lenience.
Anton Ivanov was acquitted and subsequently deported.

The Annual Crime and Traffic Road Safety Report, 2013, describes cybercrimes, as well as financial crimes, let alone related frauds, as serious emerging challenges.
A total of 45 cyber-crime cases were reported in 2013 compared to 62 cases in 2012 resulting into loss of about Shs18billion.
The crimes included electronic fraud, phishing, email hacking, pornography/defamation, offensive communication, mobile money and ATM/VISA/bank fraud, among others.

Challenges in handling such cases, according to the report, are due to the lengthy period spent during investigation and trial processes. The report indicates that most of such crimes take between two and three years, making it difficult to realise convictions in court within the shortest time possible.
The other reason is the increase in the number of conmen locally known as bafere and, importantly, lack of adequate legislation on such crimes.
In an email, the Bank of Uganda director for research, Adam Mugume, said fraud is a day-to-day issue in banking, not only in Uganda but also globally.
He said this has unfortunately been enhanced by technological innovations in addition to (fraud) taking the form of bank staff falsifying information and defrauding the bank or members of the public presenting forged documents including cards or cheques.


It is for this that the regulator then becomes useful. “The work of a bank management is to ensure that risks to fraud are as minimal as possible. The work of a regulator is to look at the measures the banks put in place to curtail fraud and whether these measures are adequately followed,” he said.
“Once a fraud has occurred, it reduces the profitability of the bank and if it makes a bank’s profitability negative, which means eating into the core capital of the bank, then the law requires the bank to increase its capital to cover the loss. Therefore, fraud means that the bank’s shareholders suffer the loss,” he added.

Who pays the price?
However, this does not directly impact on the customers for they suffer the loss when the bank has to put a mark-up of such losses on bank charges or interest rates charged on loans.
When interviewed for this article recently, the managing director of Finance Trust Bank, Annet Nakawunde Mulindwa said the banking industry has a duty to protect itself and the customers against any form of fraud.

She said it is not about how big the nature of fraud is in the industry but how the financial industry protects itself and deals with any impending risk.
“Whether big or small, it [fraud] must be dealt with because it is a risk that could grow into a monster,” she says.
She adds: “We must ensure the security of our systems especially around the area of the ATMs. They should be done face open and we (banks) should monitor real transactions, let alone changing the PINs after a while.”

“As banks, we discuss this issue of security because it is an industry concern. And we also have an obligation to deal with the fraud both as individually and collectively,” she explained.
Speaking in an interview recently shortly after talking to private sector industry leaders, the deputy governor Bank of Uganda, Louis Kasekende, said: “As the regulator, we are concerned about what is happening in the industry.”
“Each time we meet, (the banking industry players) we discuss all these things including fraud. And we want banks to take more precautionary measures just like it was the case recently with Centenary Bank,” he said.

He said more public awareness is needed to stem out fraud and collaboration with security agencies such as the police is critical, considering that fraud activities are criminal in nature.
The Private Sector Foundation Uganda executive director, Gideon Badagawa, said in an interview recently that more stringent legislation should be introduced to deal with fraud.
He said should the fraud scare persist, the losers will be both the customers and the industry. The sooner the banks and the security agencies up their game to counter the fraud, the better for everybody, especially the key stakeholders - the customers and shareholders.

Cases handled
In the year 2013, a total of 9,998 cases of economic crimes were investigated, compared to 11,006 cases investigated in 2012 giving a decrease of 10 per cent.
These refer to cases of corruption in the private sector which include corporate bodies such as banks, public service providers, NGOs (national, international and community based organisations), religious organisations and the Public.