Signs of Business Check Cashing Fraud to Watch Out For

By Dave Oldenburg, fraud officer, Bank First, Watertown and member of the WBA Financial Crimes Committee

Business check cashing fraud, dubbed “operation homeless” by law enforcement, continues to impact our industry. Furthermore, it can negatively affect customer perception when fraudulent “on-us” checks are cashed at your bank.

Although there are many kinds of check fraud schemes, business check cashing fraud begins when a customer’s legitimate business checks are taken from commercial mailboxes. Often times, the compromise occurs when a customer’s outgoing mail or the recipient’s mailbox is breached. These mailboxes are often unsecured — making them an ideal target to steal checks. Once the checks are stolen, the ringleader produces quality counterfeit checks that closely resemble the features of legitimate checks. In this type of fraud, the intent is to cash as many checks as possible at numerous bank branches — sometimes pocketing tens of thousands in just one day.

The ringleader creates the checks, but recruits individuals (mules) to cash the checks if they have current and valid identification. In turn, the mules receive a small portion each time a check is paid out. In an organized fashion, these criminals travel around the state with counterfeit items, drawn on many accounts from different banks.

Fortunately, there are ways to stop fraud in its tracks. Here are some suggested “best practices” for front-line staff:

• Compare the check to recently cleared checks as well as the signature card on file.
• Looks for signs of traced, forged, or scanned signatures that appear irregular.
• The current check range on recently cleared items may be considered — however a counterfeit check is often in the current range.
• Look for recently issued identification (sometimes mules will obtain identification for the sole purpose of committing check fraud).
• Refuse to cash the check when presented with worn or damaged identification that omits information.
• Refuse identification that doesn’t appear to match the individual presenting the check.

Be aware of some common “red flags” that may be indicators of business check cashing fraud such as:

• The branch location is “out of the way” from the non-customer’s address listed on the check or listed on the identification presented.
• The person presenting the check came to the branch on foot or was dropped off.
• The person presenting the check appears anxious, rushed, or overly chatty or name drops.
• The person is in contact with someone on their mobile phone while the transaction is being performed.

To help mitigate your institution’s risk of loss, it is recommended that checks presented by non-customers be handled with additional scrutiny. Most importantly, if the maker of the check does not have positive pay services, consider adopting procedures where an authorized signer is contacted to validate checks over a certain dollar amount.