RBI warns banks on fictitious fund offers and lottery scams
Current · Source: Reserve Bank of India · RBI/2009-10/474 · issued 26 May 2010 · ~2 min read
Quick answerRBI reiterates that remittances for lottery, money circulation, or fictitious cheap fund offers are banned under FEMA. Banks must exercise extra vigilance when opening or transacting accounts linked to such schemes, as fraudsters use fake RBI letterheads and multiple accounts to collect fees.
Fraudsters send fake RBI letters, emails or SMS asking people to pay processing or conversion fees; they open many bank accounts to collect these fees and then withdraw the money immediately.
Banks should tighten KYC/AML checks on accounts that receive many small credits followed by quick withdrawals, especially if the account is opened in an individual or company name for fee collection.
If a resident sends money for such schemes, they can be prosecuted under FEMA and for violating KYC/AML rules.
Branch staff must be trained to spot red flags, warn customers about fake offers, and report suspicious accounts to the authorities.
How it plays out — a real example
A gold‑loan officer in Indore receives a call from a customer who says a friend sent a fake RBI letter offering a cheap fund. The officer checks the letter, sees it is fake, and tells the customer that sending money for such offers is illegal under FEMA. He then reports the suspicious transaction to the bank’s compliance team.
What changed
RBI observed a surge in fictitious cheap fund offers via letters, emails, and SMS, including fake RBI communications. It noted fraudsters collect processing fees through multiple bank accounts in India, then immediately withdraw funds. The circular reinforces existing prohibitions and directs AD Category-I banks to be extra cautious with such accounts.
What it means for you
Banks must tighten KYC/AML checks on accounts that may be used to collect fees for these scams. Any resident collecting or remitting payments for such schemes faces FEMA contravention proceedings. This increases compliance risk for lenders if they fail to detect and report suspicious transactions.
What you must do
Review and strengthen KYC/AML procedures for accounts with unusual transaction patterns, especially multiple small credits followed by immediate withdrawals.
Train branch staff to identify red flags like accounts opened in individual/proprietary names for collecting processing fees.
Alert customers and constituents about fictitious offers and the prohibition on remittances for lotteries or money circulation schemes.
Report any suspicious accounts or transactions to the appropriate authorities under FEMA and AML guidelines.
Who it affects
Authorised Dealer Category-I banks, Bank branches handling remittances and account openings, Compliance and AML teams, Customers and residents receiving such offers
❓ Common questions
What types of remittances are prohibited under this circular?
Remittances for participation in lotteries, money circulation schemes, or any fictitious offers of cheap funds, including fees like processing, transaction, or tax clearance charges, are prohibited under FEMA.
What should banks do if they suspect an account is being used for such scams?
Banks should exercise extra vigilance, apply enhanced KYC/AML checks, and report suspicious transactions to authorities. They must also avoid processing remittances linked to these schemes.
Are customers liable if they participate in these schemes?
Yes, any resident collecting or remitting payments for such schemes directly or indirectly outside India is liable for FEMA contravention and violation of KYC/AML norms.
📜 Read the original circular — full text as issued by RBI
RBI/2009-10/474
A.P. (DIR Series) Circular No.54
May 26, 2010
To
All Authorised Dealer Category – I Banks
Madam / Sir,
Remittance towards participation in lottery, money circulation schemes,
other fictitious offers of cheap funds, etc.
Attention of Authorized Dealer Category - I (AD Category - I) banks is invited to the A.P. (DIR Series) Circular No. 22 dated December 7, 2000, A.P. (DIR Series) Circular No. 02 dated July 27, 2001 and A.P. (DIR Series) Circular No. 49 dated June 4, 2002 in terms of which it was advised that remittance in any form towards participation in lottery schemes are prohibited under the Foreign Exchange Management Act, 1999. Further, these restrictions are also applicable to remittances for participation in lottery like schemes existing under different names like money circulation scheme or remittances for the purpose of securing prize money/awards, etc.
2. It is observed that there has been a spate of fictitious offers of cheap funds in recent times from the fraudsters through letters, e-mails, mobile phones, SMS, etc. Communications on fake letterheads of the Reserve Bank and purportedly signed by its top executives / senior officials are also being sent to targetted people. Many residents have been victims of such teasing offers and lost huge money in the process. The Reserve Bank has already alerted the public on several occasions about such fictitious schemes/ offers, through the print and the electronic media and more such public education campaigns are being planned.
3. It has been brought to the notice of the Reserve Bank that fraudsters are seeking money from the gullible people, under different heads, such as, processing fees/ transaction fees/tax clearance charges/conversion charges, clearing fees, etc. The victims of the fraud have also been persuaded to deposit the amount in accounts with banks in India, and such amounts have been withdrawn immediately. It is also observed that multiple accounts are being opened in the name of individuals or proprietary concerns, at different bank branches for collecting the transaction charges, etc. AD Category - I banks are, therefore, advised to exercise due caution and to be extra vigilant while opening or allowing transactions in such accounts. It is clarified that any person resident in India collecting and effecting / remitting such payments directly /indirectly outside India would make himself/ herself liable to be proceeded against with, for contravention of the Foreign Exchange Management Act, 1999 besides being liable for violation of regulations relating to Know Your Customer (KYC) norms / Anti Money Laundering (AML) standards.
4. AD Category-I banks may also bring the contents of this circular to the notice of their constituents and customers concerned. Authorised Dealers may also give wide publicity to the instructions contained in the A.P. (DIR Series) Circulars referred to above and the Press Releases issued by the Reserve Bank of India dated December 07, 2007 and July 30, 2009 on Fictitious Offers/Lottery Winnings/Cheap Fund Offers (copies enclosed).
5. The directions contained in this circular have been issued under sections 10(4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999). Yours faithfully,
(Salim Gangadharan)
Chief General Manager-in-Charge
Related Press Releases
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2009-10/474 · issued 26 May 2010. The plain-English explanation above is BankPulse’s own independent summary.
Train branch staff to identify red flags like accounts opened in individual/proprietary names for collecting processing fees.
📜 Compliance
Review and strengthen KYC/AML procedures for accounts with unusual transaction patterns, especially multiple small credits followed by immediate withdrawals.
Alert customers and constituents about fictitious offers and the prohibition on remittances for lotteries or money circulation schemes.
Report any suspicious accounts or transactions to the appropriate authorities under FEMA and AML guidelines.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (Authorised Dealer Category-I banks, Bank branches handling remittances and account openings, Compliance and AML teams, Customers and residents receiving such offers), your first concrete step on “RBI warns banks on fictitious fund offers and lottery scams” is: “Review and strengthen KYC/AML procedures for accounts with unusual transaction patterns, especially multiple small credits followed by immediate withdrawals.” (RBI issued this 26 May 2010).
Circular: RBI/2009-10/474 -- RBI warns banks on fictitious fund offers and lottery scams
Issued: 26 May 2010
Action required: Review and strengthen KYC/AML procedures for accounts with unusual transaction patterns, especially multiple small credits followed by immediate withdrawals.
Action required: Train branch staff to identify red flags like accounts opened in individual/proprietary names for collecting processing fees.
Action required: Alert customers and constituents about fictitious offers and the prohibition on remittances for lotteries or money circulation schemes.
Action required: Report any suspicious accounts or transactions to the appropriate authorities under FEMA and AML guidelines.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=5694&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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