Treliant Takeaway…FinCEN and U.S. Postal Inspection Service Issue Warnings Related to Increased Check Fraud

FinCEN and U.S. Postal Inspection Service Issue Warnings Related to Increased Check Fraud

• Source: fincen.gov

Treliant Takeaway:

In the wake of the COVID-19 Pandemic and the vast number of government relief payments sent to affected Americans, fraudsters have continued to increase their efforts in committing check fraud. Financial institutions must not only react quickly to reports of stolen checks but should employ new methods to ensure their customers are not victims of check fraud. Treliant’s Financial Crime and Fraud Services (FCFS) team can help financial institutions of all sizes in using innovative technology, developing effective fraud programs, and issuing customer best practices to protect customer assets and institutional reputation. At Treliant, we have assembled a team of seasoned industry leaders and subject matter experts, including former law enforcement officers, fraud investigators, and regulatory examiners. This diverse team brings a wealth of experience and specialized knowledge to the table, ensuring that our clients receive comprehensive and effective solutions tailored to their specific needs.

Highlights:

The COVID-19 Pandemic offered fraudsters an opportunity to use the U.S. Mail system to commit check fraud. With the increased amount of government aid programs issuing billions of dollars of aid to impacted Americans, fraudsters began intercepting and negotiating stolen checks. The U.S. Postal Inspection Service (USPIS) reported 350,000 instances of mail theft in 2021. Unfortunately, there have been no signs to suggest that this trend will soon fade. According to a Financial Crimes Enforcement Network (FinCEN) press release, financial institutions filed 350,000 Suspicious Activity Reports (SARs) related to suspected check fraud in 2021. This total nearly doubled in 2022, with over 680,000 SARs filed.

The increase of stolen mail and checks has become so prevalent that both the USPIS and FinCEN are urging American to avoid sending check through the mail or if it is necessary, dropping their checks at a physical U.S. Post Office instead of in their own mailbox. Not only can fraudsters steal a customer’s money, but they are also using the personal information on a check or associated piece(s) of mail to create fictitious entities or open new lines of credit.

Red Flags

Along with their warnings, FinCEN also published a list of potential red flags financial institutions should look for when trying to identify check fraud. These include, but are not limited to:

• Non-characteristic withdrawals on a customer’s account via check for large amounts
• Customer complains of a check(s) stolen from the mail and then deposited into an unknown account
• Customer complains of a check(s) they mailed that was never received by intended recipient
• Checks used to withdraw funds appear to be of a noticeably different check stock used by the issuing bank
• Examination of suspect checks reveals faded handwriting underneath darker handwriting

Proactive Measures

Financial institutions should strive to design and maintain a robust compliance program that proactively addresses financial crimes, including check fraud, before a customer’s money ends up in the wrong hands. The FinCEN’s red flags are a useful tool and starting point, but Bank’s need to educate and train their employees in how to identify check fraud in physical branch locations or using mobile deposit services. By simply reviewing a check for signs of tampering (washed handwriting), check number jumps or larger-than-normal amounts can be crucial in stopping a fraudulent check from being negotiated.

FinCEN also recommends that banks supply and market a “positive pay” service that their customers can opt-in to fight fraud. The system allows a customer to pre-authorize checks for a certain amount and input the corresponding check number so that a check cannot be tampered with by a fraudster.

Education, training, and the provision of preventive services like positive pay not only enhance a bank’s ability to prevent check fraud but also foster a culture of vigilance and customer protection. By prioritizing these proactive measures, financial institutions can bolster their defenses against check fraud and uphold the trust placed in them by their customers.

Additional Resource: Check fraud is back in a big way | Fortune