Indian police have arrested 16 people in an investigation into the fraudulent transfer of more than $400,000 from Citibank (search) customer accounts in the United States to bogus accounts in India, officials said on Thursday.

Investigators said employees of a business process outsourcing company (search) (BPO) persuaded Citibank customers to disclose information that would make their accounts accessible.

"During our investigations, we found that the BPO company's employees sweet talked the customers to give them their PIN (personal identification numbers)," Sanjay Jadhav, assistant commissioner of police of the crime branch in the western Indian city of Pune, told Reuters.

Jadhav said 16 people have been arrested so far and investigators looking for $350,000 in funds missing from four customers in the United States have discovered a separate $76,000 transferred illegally.

The money was transferred to accounts opened by the accused in Pune, he said.

The incident comes as several foreign companies are stepping up the outsourcing of backoffice functions to Indian companies who offer them tremendous cost savings by employing low-cost staff.

Jadhav declined to name the BPO involved but a spokesman of software services company MphasiS BFL Ltd said the fraud involved three of its former employees, who had left the company at the end of December, and a current employee.

"The initial investigations reveal that MphasiS' security procedures appear to have worked and the fraud may not have been prevented as unfortunately some customers provided their passwords," MphasiS said in a statement posted on its Web site.

"The accused individuals had no prior criminal record and passed all reference checks," it said, adding that it was working closely with Citibank and the police to support the investigation.