Fraud against Financial Institutions

 

Bank Fraud is a billion dollar a year Industry in North America that affects every Financial Institution and you, because the fraud costs are passed on to the Consumer as they are in every other Industry.


Bank Fraud is a way of life for some people and a means to a short-term loan for others. In either case it is a criminal offence and aside from having to face the Judge when charged criminally; it will also result in a bad credit history as most Financial Institutions report illegal bank activity to the major Credit Bureaux. There are many Individuals who never consider the consequences when obtaining a short-term loan without the bank's authorization and often it can put a damper on an otherwise bright future. Others, however, for whom fraud has become a way of life, don't care what happens to them or their credit rating. Following are some examples of criminal fraud.

Empty Envelope Deposits.... are illegal.

Many young people who require cash for the weekend and can't borrow it from a parent or a friend will make a deposit to their account via the automated bank machine which allows them to immediately obtain cash up to a set limit or the amount of the deposit. Now there would be nothing wrong with this if it wasn't for the fact that the envelope is empty.

This is criminal fraud as in the fraud definition on the home page ,and although this may not result in criminal charges, there are consequences of which one should be aware. Most Financial Institutions report this activity to the major Credit Bureaux when it becomes part of an Offender's credit history. The Bank that you deal with may not tolerate this and may no longer want your business, resulting in the closure of your account. This kind of activity may have far-reaching effects if one has aspirations to succeed in life. i.e. employment may be denied when credit history is required, tenancy may be denied when credit history is required, that bank loan you applied for will probably be denied when credit history is required, credit card applications, etc. etc.

Everyone should be aware of the consequences before they attempt this kind of activity. In general, Offenders think that nothing will happen other than the possibility that the bank may call, or in the worst case scenario the closure of the account.

Cheque Kiting.... is illegal.

There are some Individuals who use Financial Institutions as a revolving line of credit without fear of consequence, because it is a criminal offence for which the Criminal Justice System in many jurisdictions in North America does not provide a sufficient deterrent.

Cheque Kiters will open several chequing accounts at different banks and deposit minimal funds in each one. They then start the kiting process by writing cheques for large amounts on each of these accounts, all the while withdrawing funds after each false deposit, and they continue to write NSF cheques to cover the withdrawals which are made. The kite can go on for weeks before one of the accounts goes into overdraft when the cheques are returned NSF. Unfortunately, by then the fraudster has made off with thousands of dollars or more and the Financial Institutions are left holding the bag, literally.

In most jurisdictions there is Police involvement which will result in criminal charges and a court appearance.

Cheque Kiters come in various categories.

There is the Kiter who doesn't have a job, never will have a job and believes that this is the easiest way to make money, and continues to do it. Then you have the Kiter who is an "Entrepreneur" and runs into financial difficulty; and to get out of one jam they quite often get themselves into another by robbing Peter to pay Paul, but it's actually robbing the bank by kiting cheques to pay someone else in an attempt to keep the business afloat or to fund another deal. In some instances the "Entrepreneur" Kiter will make an attempt to pay the money back because ...he "only needed the money for a short time and was going to pay it back, but now those other deals didn't come through." In many instances however, the Kite becomes so large that repayment is not possible, resulting in a write-off for the Financial Institution and problems for the Kiter.

Believe it or not there are Individuals and self proclaimed "Entrepreneurs" that do not believe cheque kiting is a criminal offence. Some actually believe that if they pay the money back, nothing will happen and/or if they can't pay it back it will be a debt that will just be written off.

Most Financial Institutions now place holds on funds for at least five days, thus allowing enough time for the cheques to complete the clearing process. However, due to employee error and a variety of other factors that will not be disclosed, cheque kiting continues to be a problem with most Financial Institutions.

As noted above, there are some Individuals who believe that kiting is not a criminal offence and resort to this when in financial trouble. Ignorance of the law is not an excuse and it is doubtful that a Judge will accept a plea of ignorance after the bank has been defrauded of funds which are not repaid.

Kiting will also result in the activity and debt being added to one's credit history, aside from the repercussions of the criminal proceedings.

Counterfeit Cheques.... a Criminal Offence.

Counterfeit cheques are becoming a huge problem for the Banking Industry because of the sheer numbers that are deposited into accounts and because of the naiveté and greed of Individuals who are account holders.
Many counterfeit cheques are made to look like authentic Company cheques and are drawn on accounts of legitimate Companies; these counterfeits in most instances come from Organized Crime and willing participants are recruited to deposit these cheques into their own accounts for a commission. The participants are usually substance abusers, fraudsters and naïve and/or greedy people who think that this is an easy way to make money. In some instances Individuals are not told that the cheque is counterfeit, and in most instances they don't even know who gave them the cheque.

Many of the counterfeit scams are run by Organized Crime and they manage to convince Individuals that the mother lode has just fallen into their lap..."yes we will give you a huge commission for doing nothing", etc. They neglect to mention that you will be the fall guy when the Police come knocking because it's your account which was used to commit the fraud.

Whatever the circumstance, counterfeit cheques are leaving their mark on Financial Institutions because one cheque can result in a write-off worth tens of thousands of dollars. There are literally thousands of counterfeit cheques that are deposited into Customers' accounts at Financial Institutions every day resulting in substantial losses when the Customer is unable to make restitution when the funds have been withdrawn.

The consequences for a naive or greedy person depositing a counterfeit cheque to his/her account can be devastating as they will be on the hook for the chargeback and will also have to convince local Police Authorities that they did not have the intent to commit fraud.

Forging signatures and altering cheques.... is a Criminal Offence.

Company cheques, personal information, credit card applications and many other items which criminals use to commit fraud are stolen from remote mailboxes and apartment mailboxes every day.

The payee name is changed on the cheque and the dollar amount is raised substantially. These cheques are deposited via bank machine and a bank employee is not able to inspect them. When they are deposited over the counter, the bank employee may be too busy to notice that anything is wrong with the cheque.

Many of these fraudsters are even so bold as to use their own name. The money is usually gone before the bank is notified that the cheque has been altered. Someone has to pay, either the fraudster or the bank, depending on the circumstances. And in most cases the bank will end up absorbing the loss because the fraudster has no money.

Sometimes naïve and/or greedy Individuals are recruited to deposit these items into his/her account with promises of a huge commission. There are consequences, and even though you may plead your innocence it will affect you in some way. You will have to pay the money back, your credit history may be affected, and your explanation may or may not be believed. After all, you can only be so naïve, and either your credibility or your intelligence will be questioned, having a negative impact on some aspects of your life. i.e. family, job, friends, future employment if it results in criminal charges or bad credit history, etc. etc. The list is endless.

What you have just read are the most common types of fraud that are perpetrated against Financial Institutions on a daily basis, and account for a significant loss for them. Awareness and education are key elements to prevention.

Suffice it to say that having a criminal record and a bad credit history is like an anchor around your neck which will hamper family life, career opportunities, bank loans and travel outside the Country, among many other repercussions.

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