How Blockchain could have prevented the 'Great Indian 11000 Crore PNB Bank Fraud' ?

Blockchain is a distributed digital ledger that enables and records the secure transfer of data and documents through a public or private peer-to-peer network. Blockchain allows secure management of a shared ledger & transactions are verified & stored on a network without any governing authority.  Blockchain configuration can be on a public open-source network or a private Blockchain network that required explicit permissions to read/write.

The best example of how #Blockchain can prevent fraud is the 14th Feb 2018 news report about The Great Indian INR 11000 Crore PNB Bank Fraud.

1. A businessman #NiravModi allegedly bribed couple or more bank officials of PNB (Punjab National Bank) and managed to get a fake letter of Undertaking or LOU from PNB Bank, without providing any collateral to the bank (providing collateral is the standard practice).
2. Then #NiravModi allegedly used the FAKE  LOU to fool few more banks and businesses ( which basically means that PNB bank is his guarantor as per the fake LOU and if Nirav is not able to pay his creditors then PNB Bank would be responsible for paying his creditors, to an amount of INR 11000 Crore or more. Holy Flying Cow!)
3. The Fraud was not detected for years because the fraudster issued a fake LOU but did not record it in the bank account so bank was not even aware of the LOU (apart from the people who were involved in the fraud)
4. Whats also  surprising is that none of the business associates or banks cross checked with Punjab National Bank for 7 years to verify that the LOU was authentic.

Core issue of PNB Fraud is poor implementation of BPM process :

Before we discuss blockchain lets make one thing clear that the main issue in the PNB Scam is poor definition and implementation of business process regarding LOU. If the business process management software does not implement tasks of review and approval for critical process like LOU then this calls for a immediate review of the BPM system of PNB Bank (and other public sector banks) as there could be other issues in implementation of other critical processes. The other issues is banking process defined by RBI does not seem to have a task of crosschecking with issuing bank to verify the authenticity of LOU or similar  documents issued by a bank.  As a matter of fact if on bank official can forge a document and the banking does not have process to validate the authenticity of the document then tomorrow some outsider can also forge the document and bank would not be able to identify the fraud! Some serious software process audit is immediately required by PNB and would be ideal if other banks also audit the software implementation of their business process management and seek expert guidance on how to fix/improve the BPM implementation and have an audit trail which can help trace any anomaly or attempt at fraud .


So how could blockchain prevent a similar fraud? Before we begin discussing blockchain let me remind you to not confuse blockchain with Bitcoin or any other cryptocurrency Bitcoin is one implementation uses cases of blockchain technology. The following image shows typical steps in working of  #blockchain.

                                       
                                                                        
The Great Indian 11000 Crore PNB Bank Fraud is in-reality is a very basic type of fraud!  This kind of fraud is so basic that it needs brain of a 5th grade school kid who hides his mark sheet from his parents when he gets poor grades! The bank officer who gave the forged LOU to #NiravModi did not document in bank record that he had issued a LOU. As there was no record of issues LOU in the bank computers, no one in the  bank was able to detect the fraud for years. The LOU was allegedly used by  #NiravModi to commit more frauds of which details are not available in media as of today. Its a huge scam because if #NiravModi (assuming the fraud is proved) did not honor the creditors then PNB bank would end holding the sack worth INR 11000 Crore! This fraud was successful  because in the banking process there was no process to restrict a corrupt employee to issue a LOU and neither did the bank define a process for other banks to validate the authenticity of LOU issued by the bank.
                                                          At at business process level one would call this a very poor implementation of a business process. Any letter of credit issues by any bank should not be valid unless it is cross verified by the bank with PNB but here the letter was used for many years without any creditor ever bothering to check the authenticity of the LOU with the provider bank! Frankly I can't believe this fraud actually happened but I guess there are many fools in the business world who don't even bother to check a bank guarantee is authentic or not! So how could we have a software system than can prevent such fraud irrespective of how many foolish bankers are involved in the process!

How blockchain could have prevented the PNB Bank 11000Cr Fraud?

1. In a blockchain world , all the steps in the 'Letter Of Credit' process would have been recorded in a blockchain ledger database
2. Notification of each step in the process of  'Letter Of Credit' process would have gone to all approving bank officials and it would be impossible for any employee junior or senior to issue a letter of credit without knowledge of the bank officials.
3. Even after 'Letter Of Credit' is issued when the customer shares the 'Letter Of Credit' with any bank or business entity, they would be able to view the process trail of the blockchain which is fool proof because blockchain ledger database it is like a database which only allows insert and does not allow update or delete
4. Since 'Letter Of Credit' entry in database cannot be deleted from a transaction ledger in blockchain it is not possible for anyone to HIDE any information or UPDATE any information without knowledge of the approving bank authorities.This means the LOU could not have been issued at all if a system similar to blockchain was implemented.
5. When the LOU is shared with another bank or business entity the guarantor bank (PNB in this case) would get notified when the blockchain transaction gets updated. This would ensure that same LOU is not shared with multiple banks or business entities to commit fraud.
6. The following figure shows transactions in a sample business process flow

 


1. A bank officer initiated a LOU , thus creating a transaction in the blockchain
2. How approving authorities are automatically notified by the blockchain system
3. How the approval transaction is inserted in the same block and becomes an immutable entry in the database
4. How the issuing bank keeps getting informed when the LOU is submitted to another bank to get credit or to a business associate to ensure there is a immutable chain of life-cycle of the LOU that is only accessible to authorized personals
5. For the life-cycle of the LOU the entire chain of transaction are attached to the LOU and all concerned people would be able to see the history and authenticate the LOU  

• In summary, blockchain or a similar software design that creates an immutable log of a bank process flow foe ex. LOU ensures that a ''log' of all activities or transactions is maintained in a secure ledger database  and is through the life of the document and even after the document validity expires. The immutable log helps build a trust relationship between partner entities and and it also helps speed the business process as all entities get copy of entire transaction log' as updates in real time this facilitating transference. 
• For those who did not understand the above example of business process, imagine a tamper proof paper register (from which pages cannot be removed!) in which all banking transactions have to be recorded in sequential order, using a permanent marker pen (so entries cannot be erased). A copy of the paper register is sent to each supervising  bank official (sounds redundant but this is just an example) Since a copy of register goes to every official within seconds of transaction being done, there is no way a official will not know about a transaction. Now when borrower submits this LOU document to another bank, a copy of register is again sent to the issuing bank officials and also to the receiving bank officials  - so all authorities get a copy of updated register every time a new update happens ( This is only an example in reality an entry is made in a 'Write only database" for every transaction, from which data cannot be deleted nor updated) . 
• The rule of the game is to build trust of participating parties, each transaction is recorded in a 'write only immutable database' and participating parties get a copy of transaction log every time a new transaction happens. So at any point of time every participant has the latest  transaction ledger. There is some amount of redundancy in the process because the ledger gets sent to all participants every time there is a transaction but it helps to ensure absolute trust since there is no one person managing the central database and there is no change of manipulation of data without knowledge of other concerned parties and as mentioned earlier all participants have their own copy of database which is immutable and tamper proof.

How could Sensors, Social Media, Call data, Intellegence Data & Big Data help prevent terror attacks on Indian Borders?

As we hear the news of another terror attack in Jammu & Kashmir in India, I wonder what kind of software driven intelligence is used by Indian Army to predict and prevent terror attacks. I was in discussion with an army officer from intelligence department and we discussed how these technologies are being used by telecom, bank & insurance companies to prevent frauds, by power and oil companies to predict and prevent power outages and the army gentleman was amazed at the use of big data, sensor, predictive analytics, artificial intelligence technologies by industry verticals.

Software architects are trained to identify scope for innovation by using existing infrastructure coupled with latest technologies. We can sit with a bottle of beer or a cup of coffee and tell you a incredible story that may seems fantastic and surreal but quite easy to implement. The army men promised me that he would discuss the case studies with his boss and hopefully set a meeting with him! What could be better than being invited to share ideas with the guys from army intelligence and do my bit for the country. I am going to post some usecases that can be used to build a Border Security solution using Sensors, Predictive Intelligence & historical data. I am not familiar with the technologies in use by border security forces so I am going to assume certain facts.


What I think can be achieved in a short time is a Multi Dimensional Intelligence Dashboard (we love buzz words!) that can give various insights into potential security breaches on border and real time alerts.

Intelligence Dashboard can give intelligent insights for example :


1) What are the locations around the border where enemy may try to sneak in on a particular time on a particular day?

2) What is probability of an intrusion at various locations on border based on human movements on both sides of the border

3) What is probability of intrusion based on weather condition and day/time of the year

4) What kind of intrusion strategy can be expected on next D-day

5) What are the support groups that could be working within the border to support the enemy  intrusion and how to track their movement

6) What is the synergy between social media, telecommunication and messaging application and enemy activity

7) How to auto detect events that indicate potential enemy activity in near future

The following sample illustration shows different data sets being collected, processed in real time and predictive analytics being performed on data at rest. Data sets are collated and analysed to derive insight into potential incidents and displayed on user friendly dashboard

Aadhar Data - Aadhar Data is worth more than most expensive substance in the world (Part-5)

Did you know the most expensive material in the world is Antimatter and it valued at $62.5 trillion per gram.approximately.

A software engineer mind is devils workshop. Every time we see a new software we start reviewing the software for quality, usability, scalability, availability, security & performance without even getting access to the software code.Over the time as we came to know about different implementation of Aadhar services,for example Aadhar being used to log daily attendance of Mumbai BMC (Bombay Municipal Corporation) employees, my concern was how many hits would the Aadhar server withstand if we use #Aadhar authentication for 'services that don't really need Aadhar validation'  If every Municipal Corporation across #India starts accessing #Aadhar Server every time employees enters and leaves office, I wonder how many servers would be required ?
                                     It also made me wonder if  we ares misusing the Aadhar services for everything sundry just because we have a new gadget in hand! Using Aadhar for services that don't really require identity verification is bad design and we need to be concerned about it. BMC employer attendance is an example of misuse of Aadhar verify the identity of an employee everyday in fact 2 times a day? is the next step tp use Aadhar to take attendance of school children from kg to post-graduation? What purpose is Aadhar identity verification serving? Would it not be simpler to continue with a local automated attendance service (most companies already have had it)  instead of hitting the Aadhar server? I won't repeat the 'Misuse of Aadhar for BMC attendance' example as I have explained the issue in another post on my blog (Whats is wrong with Aadhar Software System ? (Part-1))
            The other point we should worry about is hackers, simply because no internet based service is safe from hackers. The alleged data leaks are concern for most Indians because UIDAI has not been able to arrest the guilty and since they have not arrested the Tribune reporter as of 6th Feb 2018 there is reason to believe that the data leak incident was REAL. From the facts reported by media I have done an Virtual-Technical-Analysis ( no there is no such term as VTA, I just coined it myself and I am laying claim to the IP rights) of what could be wrong with Aadhar System and I would be more than happy if someone can prove my analysis wrong. Assuming a data leak has happened or can happen if a expert hacker group decides to target Aadhar database. After all if hackers could breach the security of Pentagon intranet, what in TODAYS AADHAR IMPLEMENTATION makes us so confident that Aadhar security cannot be breached? We have honest gentleman politicians in India so I will not go into the use-case where a political party decides to access financial data about certain individual or group of individuals because that would be an illegal activity yet its a potential risk we need to consider. What if a future government decides to use the Aadhar data to target a group of people?
        For a commoner like me the worry is that if my data is leaked, the personal data can be sold to marketing companies and I will lose my privacy. Some entity with access to my Aadhar data can easily associate the Aadhar data with my financial data (banks, stock, insurance, credit card purchases etc) and I could be subject of blackmail or kidnapping or even corrupt government officials - Tribune report exposes that it was corrupt officials who breached the data and UIDAI was not even aware till Tribune published the news report. So enough reasons for a civilian/commoner to worry. Right?

Take a use case of a enemy country that buys the leaked data thought multiple intermediaries so the Corrupt Patriot who sells the data to a marketing company would actually be selling it to an enemy like Pakistan. Now why would Pakistan buy Aadhar data? Well soon #Aadhar number will be linked to
1) SIM number
2) Bank Account
3) Credit card
4) Land purchase records
5) Children School and other services

So from Aadhar data and Credit card company data I can write a book on an army officers daily routine.
Where does he live?
What did he study? What is his skill set? Is he a fighter pilot or a grenadier?
What toothpaste does he use? What flavor of corn-flex does he like ( his wife's credit-card is also linked to Aadhar and card is linked to man's bank account - Damit! Everything financial is linked!)
Does the person take a bus or car to office (from credit card used at tolls)?
Where is the address of the person's office? What time does he return home? (time from toll plaza where you used credit-card to pay toll, his mobile tower data)
How many hours does he speak on cellphone? Who are the ppl on his mobile call list?
If he is an army officer is he on leave or at work? What is his current posting? (credit-card usage location)
What brand of clothes does he wear? Which restaurant does he  usually eat at? Can he afford the clothes? Does he have expensive taste and is he in debt and hence easy target for honey-trap?

Imagine if enemy gets the #Aadhar data of a security personal they will have all details about each army personnel  including

1) Count of service men in armed forces
2) The current posting of each service men
3) How many men are deployed at a given post?
4) What is age of each service man.
5) What is his credit history
6) What are his vices if any
So practically everything that is linked by Aadhar and everything required to profile and lay a honey-trap, can be pulled out if you get access to a persons Aadhar data. Now that could be a big risk for the armed services. By linking Aadhar to financial transactions we are creating a rich data-bank that is bloody valuable and magnet to hackers and enemy and services should introspect if they need to raise their concern with the government. I am sure armed forces cannot be excused from Aadhar but if the government understands the risk it can revisit its Aadhar Vision and use Aadhar for extending social benefits as was the original plan and not make it a Hop On Hop Off Bus.Other examples of using Aadhar for school admissions and hospital admission are glaring lapses in the Aadhar vision. These are basic services that citizen has right to and you cannot force people to use Aadhar to get heath care, especially when they are not using government sponsored health care. The aim of government in making Aadhar mandatory for getting health seems to be to keep a tab on the expenses which is unfair and invades privacy and recently a woman lost her life when hospital refused admission as she could not produce Aadhar card.
                                    So how do the progressive nations protect this data-bank? They don''t have to protect any bio-metrics data bank. Every nation that has some kind of UID never use it to link financial data of a citizen and they do not capture bio-metrics because of the huge responsibility to protect the identity of a citizen. USA thought of using bio-metrics in early 40s and the parliament ruled against it. There are couple of countries that use blockchain for e-governance but even these countries   (eg Estonia) do not have Aadhar like system. Instead they have a chip ID that holds UID of the person and if you lose the chip-id you can block it within seconds (something like losing a credit card.) Chip is used to verify that you are you and no data is shared with service providers . The Estonia chip-id is not used to validate your personal details like Aadhar uses to verify the address and other details when you buy a cell sim card. Since the chip id is a card that is not linked to internet, it can be used to validate your identity but cannot provide access to other financial transactions of the citizen. India should have thought on these lines before hurrying to extend Aadhar to sundry services.

Some will say you are scaring the common man with you examples of what could happen but do you know whats wrong and do you have a solution? Yes as a software professional I do know whats wrong or at least I think I know what is wrong with Aadhar. I know why we have faced certain issues that were reported and by reasoning I can tell you what are the potential issues of the future that Aadhar 'seems' to have overlooked and how to build a robust UID.

As I posted in my earlier blog post,  'Open Letter to decision makers', the first thing to do is to accept that Aadhar is a revolutionary system that needs to onboard all political parties. We cannot have new
Aadhar vision every 5 years as & when there is political changes at the center and we cannot have political parties fighting on Aadhar Vision. Once you have a documented Aadhar Vision then hand it to the IT guys to finetune the Aadhar Vision (what is doable) and then define a Aadhar Roadmap (What to implement 1st and so on) and then create a solution that takes care of 1.3 billion Indian and growing.  Once the vision is decided there should a a well defined change management process to do any change to the vision, one smart pants should not be able to change the vision without approval of change control board. Change control is how we maintain sanity in the software development world or else we would never stop accepting changes from the business that gets ambitious bright new ideas every week!
                 Final words of advise, like a civil architecture, well designed foundation is the most critical element for the success of a software. If you have laid a foundation to build Taj Mahal and after a year you decide to erect a Burj Khalifa instead of Taj Mahal then you need to start from zero and design and build a new foundation or else the Burj Khalifa will collapse even before the 10th floor is laid down. When we build software for fortune 100 companies they have best domain experts and software architects working for them to advise them and ensure that the IT service provider has designed a good system. Change in governments usually changes the entire setup of governance and I think that's why governments miss the services of IT experts with huge experience of architecting large complex software using proven Software Development Methodology (Whats that!). When you are embarking Digital Journey make sure you hire experienced architects who have developed software for Fortune 100 companies and have burnt their hands few times. Let the architects drive the vision or else when you go in production the lack of vision will drive everybody crazy. Before implementing anything new make sure you know the risks and have a risk mitigation plan. When I read about Aadhar glitches and see  UIDAI get into a huddle, I wonder why it was not documented as a risk and why there was no risk mitigation plan to counter the risk! Purpose of this post was to share some thoughts with personals from services and then let them as questions. My worst fear is Aadhar data of our armed forces in the hands of a enemy country and we should not let that happen just because some ambitious politicians ranting Digital Mantra and with no understanding of Software Development Methodology (process followed to build software) implements some crazy Aadhar services to earn some browny points with the voters.

If Estonia can have a blockchain based e-governance why can't India have it too?

When Estonia started building their information society in 1999, there did not have any citizens digital data. The general population did not have the internet or even devices. It took great vision and foresight to invest in IT solutions and take the information technology route to reach a stage in 2008 where they implemented blockchain to provide solutions like egovernance ,eHealth, eResidency, eTax, eVoting, eID and ePolice.

eGovernance - 99% public services are available on line

eHealth          -  95% medical records are online

eResidency   - transnational digital identity

eDatabase     - all state data is stored on open source distributed database

eTax              - 95% tax filling is done electronically

eVoting         - 1st country to offer internet based voting

eID                - chip based id, 2048 bit public key encryption, unlike Aadhar it stores personal ID

ePolice          - helped reduce crime & accidental deaths by 50%

eSecurity       - blockchain technology to ensure data and systems integrity and combat insider risk

eReporting    - cut-down on business reporting by intelligent automated reports 

Do visit https://e-estonia.com/ to read more about their vision and implementation. What a country can do with right experts on the job! I salute their vision, planning and implementation.