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Check Fraud is a Growing Problem – Financial Institutions Need a Solution

June 12, 2023 by Nasdaq Verafin

“In 2022, banks saw an 84% increase in check fraud, costing consumers an estimated $815 million.”
Senate Committee on Banking, Housing, and Urban Affairs, 2023

Even though check use is declining in the U.S., incidents of check fraud and the value associated with check fraud is increasing. So much so that financial institutions have identified check fraud as a priority in their anti-financial crime response.

A 2023 survey from the Association for Financial Professionals shows that personal and business checks continue to be more vulnerable to fraud than other payments, with 63% of respondents reporting their organizations faced fraud activity via checks.

What’s Driving Check Fraud

A surge in mail theft-related check fraud schemes is partly driving the rise in fraud. FinCEN issued an alert in early 2023 stating there was a nationwide surge in mail theft-related check fraud schemes.

Checks are stolen in various ways — criminals steal checks from the U.S. mail system by:

  • Targeting USPS collection and residential mailboxes
  • Creating makeshift mailbox fishing devices
  • Using stolen or counterfeit USPS master keys

Once stolen, criminals use sophisticated techniques such as check washing to change the payee name and dollar amounts on checks. These checks can then be fraudulently deposited, often without detection, via ATM remote deposit into accounts they control. The checks may also be fraudulently endorsed.

How Stolen Checks Facilitate Money Laundering

  • Criminals use money mules to deposit fraudulent checks into legitimate accounts and then transfer the funds to criminal-held accounts.
  • Stolen or altered checks can be sold on the dark web to criminal organizations.
  • Fraudsters will use personal information obtained from mail theft to steal the identity of a person to further facilitate fraud, posing an added risk for individuals.
  • Easily accessible technology, such as copiers or scanners, can be used to print fake checks which may be sold or deposited.

Meanwhile checks are still a preferred method of B2B payment, making them a preferred target for fraudsters. Business checks may be more valuable because business accounts are often well-funded and it can take longer for businesses or financial institutions to notice the fraud.

Every Check Fraud is a Deposit Fraud

“Fraud, including check fraud, is the largest source of illicit proceeds in the United States and represents one of the most significant money laundering threats to the United States, as highlighted in the U.S. Department of the Treasury’s most recent National Money Laundering Risk Assessment and National Strategy for Combatting Terrorist and other Illicit Financing.”
– FinCEN Alert on Nationwide Surge in Mail Theft-Related Check Fraud Schemes Targeting the U.S. Mail, 2023

Checks that are altered or forged can go undetected by traditional fraud detection methods like MICR and image analysis. These checks can appear to be legitimate and authorized, even though the names and dollar amounts have been altered, making it difficult to detect deposit fraud risk.

Financial institutions need to identify in-clearing check fraud by linking the check withdrawal to the deposit, for a complete picture of risk.

Verafin’s Innovative Solution

Effectively responding to fraudulent checks, including stolen and altered check fraud scams, requires collaboration between financial institutions on both the depository and in-clearing sides of a transaction. By leveraging the power of our consortium of 2400 financial institutions Verafin is able to connect deposit side risk with the in-clearing risk, and effectively prevent check fraud.

With Consortium Analytics, Verafin provides the complete picture of in-clearing check risk to investigators, resulting in minimal loss for financial institutions.

 

Nasdaq Verafin provides cloud-based Financial Crime Management Technology solutions for Fraud Detection, AML/CFT Compliance, High-Risk Customer Management, Sanctions Screening and Management, and Information Sharing. More than 2,500 financial institutions globally, representing more than $8T in collective assets, use Nasdaq Verafin to prevent fraud and strengthen AML/CFT efforts. Leveraging our unique consortium data approach in targeted analytics with artificial intelligence and machine learning, Nasdaq Verafin significantly reduces false positive alerts and delivers context-rich insights to fight financial crime more efficiently and effectively. To learn how Nasdaq Verafin can help your institution fight fraud and money laundering, call 1-877-368-9986.