Blockchain Technology in Banking Crime Investigations: The potential of blockchain technology to completely transform the way we handle data and perform transactions has attracted a lot of interest in recent years. Investigating financial fraud is one the areas where blockchain technology is being studied more deeply and thoroughly. In response to an increase in financial offences in Delhi, India, several institutions have begun utilising blockchain technology to strengthen their investigative capacities.
Blockchain technology is the perfect tool for solving financial crime cases because it enables secure, open, and tamper-proof record-keeping. Banks in Delhi are able to monitor and follow financial transactions in real-time, spot suspect activity, and stop theft by using blockchain technology. This technology has the potential to revolutionise how institutions conduct their investigations into financial offences by making it possible to identify offenders and bring them to justice more quickly and effectively.
In light of this, this article examines how blockchain technology is used by institutions in Delhi to fight financial crimes, how it functions, and possible effects on the banking sector. The implications for the future of banking security are also examined.
What is Blockchain Technology?
Blockchain technology is a cutting-edge database system that enables open information exchange within a company network. Data is stored in blocks that are chained together in a blockchain database. (Read More about What is a Blockchain & How Does It Work)
How Blockchain Technology is being Used in Banking Crime Investigations in Delhi?
As the first metropolis in the nation to use blockchain technology in criminal investigations, Delhi has made history. The Delhi government has implemented blockchain technology in the Forensic Science Laboratory to ensure that crucial evidence gathered from a crime scene and sent to the forensic lab for analysis and its report are not tampered.
According to officials, blockchain would guarantee records’ preservation, give credibility to digital proof, and offer efficient audit trail capabilities. Blockchain, also known as distributed ledger technology, uses decentralisation and cryptographic hashing to make any digital asset’s history visible and unchangeable. Officials noted that the new method will shield the FSL data from hacking.
Using new technology is essential to improve investigative science. In this situation, the implementation of a blockchain system will help in preventing potential proof manipulation, a previously identified weakness in the system. The technology must be used as quickly as possible. Other governments’ forensic laboratories should do the same.
Officials from the IT department stated that the technology would soon be used to secure the data on a variety of credentials, including caste, domicile, and character records given by the tax department and records of afforestation.
According to officials, other states’ examining agencies could update the Crime and Criminal Tracking Network and System (CCTNS) and use it as well. According to authorities, typically the artefacts are sent from the police station to FSL after the data of the evidence gathered by the investigating agency from the crime site is posted to CCTNS. The case information and a physical seal are put on top of a package that contains the evidence. The case is given to a reporting officer by the section chief at FSL, who then orders tests and produces a report.
There are several opportunities to tamper the proof. Blockchain interventions have been applied throughout the chain of custody at four points: the receipt of the samples, a duplicate of the FIR, and the questions; the assignment of the case to an FSL detective; the completion and dispatch of the report.
To make a modification at any point, one cannot modify the current record; instead, a new block and new QR code must be made. All authorised individuals will receive instant warnings if there is any effort to tamper with the record, according to another official.
Approximately 1,500 samples are sent to the Delhi FSL each month. According to officials, all police officers up to the deputy commissioner level and FSL detectives have received training in the use of the new technology.
The use of technology for efficient enforcement and strengthening the criminal justice system was emphasised by Union home minister Amit Shah at the All India Police Science Congress in Bhopal in April of last year, according to IT officials. In September, the IT division began developing the technology for the e-FSL system. Naresh Kumar, the chief secretary of Delhi, stated that technology “will serve as reinforcements to bring speed and guarantee openness and impartiality in the working of the agency.”
According to officials, police, FSL, and courts previously ran their individual IT-based systems in silos, which restricted their ability to exchange data with one another and made it challenging to monitor and trace the cases. The data sharing has been made simpler by the advent of the Interoperable Criminal Justice System and the integration of CCTNS with e-Court, e-Prison, e-Forensics, and e-Prosecution. The official continued, Timestamps and encrypted data in blockchain will guarantee that each block is put consecutively to a chain.
Past Banking Crimes in Delhi
Fraudulent loan of 34,615 crores by DHFL
According to the charge document the Central Bureau of Investigation (CBI) filed in the Rs 34,615 crore DHFL loan scam case, the accused set up 87 front businesses and 2,60,000 fictitious customers in order to launder money. In the second week of October 2022, the charge document was submitted.
The federal investigation agency also alleged that the accused established a virtual office to launder money in its charge document.The charge document against 75 defendants, including private firms, was presented to the Rouse Avenue court in Delhi by the CBI on October 15.
It has been claimed that Kapil and Dheeraj Wadhawan bought 24 artworks for Rs. 63 crore by laundering money. According to the accusation document, the money that was laundered was used to pay for credit cards, international travel, and private flights.
The CBI claims that Wadhwas were employing specially created software that produced fictitious data. The software was also displaying a number of fictitious submissions from people who had applied for house loans.
In addition, the accused made a virtual branch with the code 001 and the moniker “Bandra branch,” even though this branch does not actually exist. Loans were made to fictitious businesses from this fictional office.
The charge sheet has been filed against the former chief executive officers of DHFL, Kapil Wadhawan and Dheeraj Wadhawan, as well as Ajay Vazirani, Jayesh Khona, an attorney, Dinesh Bansal, who served as vice president of accounting at the time, Sunny Bathija, Ajay Navandar, and Jignesh Mehta, a certified public accountant with Chaturvedi & Shah LLP, as well as other individuals.
Avinash Bhosale, one of the suspects, was arrested in July after the CBI discovered a helicopter stored in a hangar at his Baner Road, Pune, home.
It was discovered that RKW Developers Pvt. Ltd., a Wadhawan family-owned company, reportedly holds shares in Varva Aviation, an association of people, which is the owner of an AW109SP Grand New Helicopter (AgustaWestland Helicopter) that was allegedly purchased in 2011. In 2017, RKW Developers Pvt. Ltd. became a member of the group of people who contribute to the expense and upkeep of the aforementioned aircraft.
Avinash Bhosale’s firm, ABIL Infraprojects Ltd, is said to own a share in the aforementioned helicopter. We have confiscated the aircraft that was stored in a hanger at the Bhosale grounds on Baner Road in Pune because it was reportedly suspected that the money used to pay for the share in Association of Persons came from loans approved by various banks, the CBI had stated.
Two artworks by F.N. Souza from 1964 and another by S.H. Raza from 1956, both valued at Rs 5.50 crore, as well as two watches by Jacob & Co. and Frank Muller Geneve worth Rs 5 crore and jewellery worth Rs 2 crore, had previously been confiscated by the federal investigation agency.
According to the CBI, the promoters used the money that had been moved to buy pricey goods. The agency transported Kapil and Dheeraj Wadhwan, directors of DHFL, from Lucknow to Delhi where they were taken into custody.
The CBI had earlier on July 8 seized statues and artworks worth Rs 40 crore. On June 20, 2022, a lawsuit was filed. A police report was filed in this regard by Vipin Kumar Shukla, DGM and Office Manager of Union Bank of India in Nariman Point, Bombay.
A criminal plot to defraud the Consortium of 17 banks, headed by Union Bank of India, was allegedly formed by Dewan Housing Finance Corporation Ltd. (DHFL), Kapil Wadhawan, Dheeraj Wadhawan, the ex-Directors, and other defendants, according to the lawsuit.
“Wadhawan and others falsely altered the books of the DHFL in order to syphon off and misappropriate a sizable part of the aforementioned funds. They also dishonestly failed to make good on the valid debts owed by the said consortium banks. The group financiers suffered an unjustified loss of Rs 34,615.00 crore as a result, according to the CBI.
The case was filed by the CBI under sections 120-B read with 409, 420, and 477-A of the IPC and section 13(2) read with section 13(1)(d) of the Prevention of Corruption Act following an investigation.
The FIR was filed against DHFL, its former CMD Wadhwan, MD Dheeraj Rajeshkurrar Wadhwan, current Director Sudhkar Shetty, Amaryllis Realtors LLP (ARLLP), Gulmarg Realtors LLP (GRLLP), Skylark Buildcon Pvt. Ltd, Darshan Developers Pvt. Ltd, Sigtia Constructions Pvt. Ltd, Creator Builders Pvt. Ltd, Township
According to the official, it was discovered that the marketers had reportedly moved the funds and invested in a number of different companies.Additionally, it was claimed that the founders used the rerouted funds to buy pricey artwork totaling about Rs 55 crore.Incriminating papers were found during earlier searches on June 22 at 12 sites in Mumbai at the accused’s residences.
Corporate Power Limited Case
The Kolkata-based Corporate Power Limited and 12 other people, including the promoters, have been named in a case filed by the Central Bureau of Investigation (CBI) for reportedly defrauding a group of 20 institutions out of $4,037.87 billion.
The agency has searched 16 locations, including those in Nagpur, Bombay, Ranchi, Kolkata, Durgapur, Ghaziabad, and Visakhapatnam.
The CBI claims that between 2009 and 2013, the firm filed false project cost statements and misappropriated bank funds. Additionally, it was claimed that the trade debts, primarily those involving connected parties and funds, were transferred to a network of different companies that were dummy accounts.
The account was classified as a non-performing asset by the consortium’s other lenders after the main lender, the Union Bank of India, did so in September 2013. In October 2019, it was determined that the loan company’s accounts were fraudulent.
The business had initially planned to construct a 540-megawatt coal-based power facility (MW). The project’s projected total cost was 2,900 crore, which would be covered by a 3:1 debt-to-equity ratio, 725 crores in equity, 2,030 crores in senior debt, and 145 crores in junior debt.
The business initially selected SEPCO-I to serve as the project’s Engineering, Procurement, and Construction (EPC) provider. The business chose to terminate the contract and give the contract to Abhijeet Infra Limited due to the lack of visas for Chinese labourers. BHEL received the contract for the boiler turbine and generator project.
According to the First Information Report, the coal sections assigned to Corporate Ispat Alloys Limited were revoked in 2014, which prevented Corporate Power Limited from receiving raw materials. It was originally planned to buy 768.45 acres of property, but only 327.55 acres were actually bought. Actual costs were 9.35 crore per MW compared to the standard cost of 5.09 crore per MW for a green field undertaking of 500 Megawatts.
The firm had awarded Abhijeet Projects Limited, which later changed its name to Pathbreaking Projects Limited and is currently in bankruptcy, three significant EPC contracts.
How the Traditional Methods of Investigation have been Insufficient?
For a variety of reasons, including limited access to data, criminals’ ability to hide their activities, and the need for time-consuming manual data analysis, traditional methods of investigating banking crimes have frequently been inadequate. However, blockchain technology has the ability to correct many of these issues and improve the efficacy of banking crime investigations.
The difficulty of accessing and analysing big volumes of data from various sources is a major drawback of traditional systems. Massive amounts of transaction data are produced by banks and other financial organisations, but traditional approaches to accessing and analysing this data can be challenging. This can make it more difficult for investigators to spot suspicious behaviour or follow the path of money as it moves between different accounts.
Blockchain technology can solve this issue by building a shared, impenetrable ledger of all network activities. As a result, investigators no longer need to depend on manual data analysis or outside data providers to access and analyse transaction data in real-time. This can make it easier for investigators to spot suspicious behavior and track the movement of money between various accounts.
The capability of criminals to hide their activities using intricate financial structures and offshore accounts represents another restriction of conventional investigation techniques. Criminals frequently hide their activities and avoid discovery by using shell companies and other murky financial structures. Investigators may find it challenging to follow the money and pinpoint the people responsible due to this.
By establishing an open and unchangeable record of all network transactions, blockchain technology can offer a solution to this issue. This may make it more challenging for offenders to conceal their actions and avoid capture. Blockchain technology can make it simpler for investigators to spot suspicious behaviour and track the flow of money by offering a clear and transparent record of all transactions.
Last but not least, conventional investigation techniques may be labour- and time-consuming, necessitating significant manual data analysis and collaboration between numerous agencies and jurisdictions. Delays and gaps in investigations may result from this, giving criminals the opportunity to carry on with their operations undetected.
By automating many parts of the investigation process and enabling real-time collaboration between investigators and law enforcement organisations, blockchain technology can offer a solution to this issue. Blockchain technology enables detectives to quickly spot suspicious activity and coordinate their efforts across numerous countries by creating a shared, tamper-proof ledger of all network transactions.
Due to limited access to data, criminals’ ability to conceal their activities, and the necessity of labour-intensive manual data analysis, conventional methods of investigating banking crimes have frequently been insufficient. However, blockchain technology has the ability to correct many of these issues and improve the efficacy of banking crime investigations. Blockchain technology enables detectives to quickly spot suspicious activity and track the flow of money across various accounts by creating a transparent and unchangeable record of all network transactions. Furthermore, blockchain technology can help to accelerate and enhance the efficacy of investigations into banking crimes by automating many aspects of the investigation process and enabling real-time cooperation between investigators and law enforcement agencies.
How Blockchain Technology is being Used in Banking Crime Investigations?
Investigations into bank fraud use blockchain technology in a number of methods, including:
Financial Transaction Tracking
Using cryptocurrencies like Bitcoin, criminals can conduct financial activities that can be tracked using blockchain technology. It is challenging for criminals to conceal their activities because transactions made using the blockchain are documented on a public ledger that is available to everyone.
Detecting Money Laundering
By examining financial transaction trends that deviate from expected behaviour, blockchain technology can be used to detect money laundering. For instance, it might be a sign of money laundering if a sizable amount of money is moved quickly through several different accounts.
Digital Identity Verification
Blockchain technology can be used to confirm the digital identities of those conducting deals. Banks are able to verify that customers are who they claim to be and stop fraudulent transactions by developing a digital identification that is connected to the blockchain.
Secure Data Storage
Blockchain technology can be used to securely keep sensitive data, making it more difficult for hackers to steal data. This can be especially helpful in banking crime cases where sensitive data may be needed as proof.
The use of blockchain technology is being made to increase the security and transparency of financial operations as well as to support the investigation of banking crimes.
Can Blockchain Technology Provide an Immutable and Transparent Record of Transactions?
Blockchain technology’s distinct structure and consensus process can offer an unchangeable and transparent record of transactions.
Transactions are kept track of in segments that are connected chronologically in a blockchain. It is very challenging to alter the data in the chain because each block includes an encryption hash of the one before it. It is impossible to change a block after it has been added to the chain without altering the hash of that block and all succeeding blocks, which would take a lot of computational power and collusion.
Furthermore, the proof-of-work or proof-of-stake consensus mechanisms employed by blockchain networks make sure that everyone on the network concurs that the transactions being added to the blockchain are legitimate. Malicious actors find it very challenging to manipulate the data on the blockchain thanks to this consensus process.
Additionally, due to the blockchain’s transparency, all users have access to the complete transaction records of the network. This offers a degree of accountability and transparency that is not feasible with conventional, centralised systems.
Overall, the immutability and transparency of the transaction record are ensured by the blockchain technology’s mix of cryptographic hashing, consensus mechanisms, and transparency. This makes blockchain a hopeful technology for applications like financial transactions, supply chain management, and identification verification where secure and transparent record-keeping is crucial.
Future Implications of Blockchain Technology in Banking Crime Investigations
For the future of banking crime investigations, blockchain technology has important implications, including:
By giving a safe and transparent record of transactions, blockchain technology can speed up investigations. This can free up detectives to concentrate on more complicated cases while using less time and resources to look into banking crimes.
Due to the blockchain’s immutability and transparency, it is challenging for thieves to alter transaction records or conceal their activities. This can aid in the detection and prevention of fraud for institutions and law enforcement.
Cross-border investigations are made easier by blockchain technology, which offers a safe and open platform for information sharing between banks and law enforcement organisations operating in various countries.
Digital Identity Verification
Using blockchain technology, people can establish a safe and unchangeable digital identity that can be used to confirm their identify and thwart identity theft.
With smart contracts, the conditions of the agreement between the buyer and seller are directly written into lines of code, allowing the contract to self-execute. This technology might automate some financial operations and require less human involvement, making it more challenging for fraudsters to defraud or game the system.
While blockchain technology’s transparency helps with financial crime investigations, it can also cause privacy issues. To safeguard personal information, it’s critical to find a balance between transparency and privacy. Overall, blockchain technology has significant future implications for banking crime investigations, and it is probable that this technology will continue to be essential for stopping and uncovering financial crimes.
Possibility of Other Industries Adopting Blockchain Technology for Security and Transparency Purposes
As blockchain has a number of distinctive features that can offer significant benefits in terms of data security and transparency, there is a high likelihood that other industries will adopt it for security and transparency reasons.
Blockchain technology, for instance, is already being used in the supply chain management industry to monitor goods more transparently and securely from production to delivery. Businesses can use blockchain to document every step of the supply chain in an unchangeable manner, preventing fraud and counterfeiting while also increasing customer transparency.
Another sector that could profit from the adoption of blockchain technology is healthcare, as it can help allay worries about data protection and security. Healthcare providers can use blockchain to build a secure, decentralised platform for storing and exchanging medical documents while also guaranteeing the privacy and confidentiality of patient data.
Another sector that could profit from blockchain technology is real estate because it can make the process of purchasing and selling properties more efficient. Real estate transactions can be carried out more swiftly, effectively, transparently, and securely by using blockchain.
Finance, energy, and logistics are just a few of the sectors that could profit from the adoption of blockchain technology. Blockchain technology can make managing and tracking data, transactions, and assets more safe, transparent, and effective in each of these scenarios.
Overall, blockchain technology has a substantial potential to increase security and transparency, and in the years to come, it is likely that blockchain-based solutions will continue to be adopted and developed across a variety of industries.
Delhi banks’ use of blockchain technology in banking crime investigations is a hopeful development that has the potential to completely change how financial crimes are discovered and avoided. Blockchain technology can help improve the effectiveness and security of banking crime investigations by providing an immutable and transparent record of transactions. It can also enable cross-border collaboration and boost the precision of digital identity verification.
The potential advantages of blockchain technology in banking crime investigations are significant, and even though there are still issues that need to be resolved, such as privacy concerns and regulatory uncertainty, it is likely that we will continue to see the adoption and development of blockchain-based solutions in this field. We can anticipate advancements in the prevention, detection, and prosecution of banking crimes as Delhi banks and other financial organisations continue to investigate the potential of blockchain technology. This will help improve the general stability and security of the financial system.