Financial Crimes Enforcement Hurts Innocent Bank Customers with Account Freezes

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Small Business Owners and Innocent Individuals Face Account Freezes as Mule Networks Expand

The Indian government’s efforts to combat cyber fraud have led to a surge in the number of people being flagged as potential mules, resulting in widespread account freezes for unsuspecting individuals and small businesses.

Over 2.73 million suspected “Layer 1” mule accounts were identified between September 2024 and January 2026.
Transactions worth over ₹9,518 crore were blocked due to these account freezes.

Causes of Account Freezes

The Ministry of Home Affairs has canceled more than 12 lakh suspicious SIM cards and blocked over 2.63 lakh mobile device identifiers linked to fraud networks.

Sophisticated Mule Networks

Experts warn that mule networks have become sophisticated, with fraudsters recruiting students, daily wagers, and unemployed youth through messaging apps, offering them small payments in exchange for the use of their bank accounts or UPI credentials.

According to experts, these accounts are then used to rapidly move stolen funds across several layers before the funds are withdrawn, converted to cryptocurrency, or sent offshore.

Burden on Innocent Account Holders

Banks and enforcement agencies are using tools such as suspect registries and MuleHunter.AI to detect mule behavior; however, the same transaction patterns that indicate fraud can also resemble legitimate business activity.

Faster freezes aimed at stopping fraud may inadvertently shift the burden onto innocent account holders, who must then navigate complex legal and procedural challenges to regain access to their own money.

In one instance, a Faridabad nursery owner found his account frozen after receiving a ₹150 UPI payment allegedly linked to a cyber fraud case. His account, holding over ₹1 lakh, remained frozen for months before a court order granted relief.