Which Type Check Fraud Has Been Most Common Over History?
- Check fraud remains a growing concern for banks and depositors alike
- There are three primary types of check fraud
- Most common check fraud types evolved over the past 2+ millennia
Did you know that the origin of checks can be traced back to 312 BC? Would it be a surprise that, even back then, fraud was rampant? According to a historical record from CrossChecks:
321 – 185 BC: A letter of credit called “adesha” was used by merchants in ancient India when presented to a banker from a third party. The nature of these written documents (i.e. promissory notes) left the door open for forgery and counterfeiting. Criminals could easily forge the documents or create counterfeit versions to defraud third parties or banks.
Now, an informative chart posted on LinkedIn by Denise Calisi, SVP, Regional Manager, Wealth Management Metro Detroit at Comerica Bank, depicts the three most common forms of check fraud.
The Evolution of Check Fraud
As the financial landscape continued its evolution in the next 2+ millennia following "adesha," fraud continues to be an major issue, particularly when it comes to checks. When the first printed checks were introduced in 1762 by British Banker Lawrence Childs, check floating, paperhanging, and chemical alternation were all immediately-emerging challenges.
Fast forward to the 1990's, and forgery becomes the most common type of check fraud perpetrated; criminals would steal check books to make illegal check copies. The movie "Catch Me If You Can" glamorized Frank Abagnale and showcased his skills as a counterfeiter; however, this method was time consuming and required materials such as specialized ink, paper, and a keen eye for detail.
Around 2015, the introduction to EMV chips greatly influenced fraudsters to move off of credit card fraud and focus on a less-secure payment channel: checks. Fraudsters found that checks could be easily altered by using simple chemicals like acetone -- the common chemical in nail polish remover. And, as we all know, as more fraudsters got their hands on stolen checks, there was a massive increase seen in alterations through the pandemic.
However, fraudsters realized that alterations, while profitable, only offered a one-time quick score. With the rise in mRDC and other contactless deposit channels, counterfeiting checks offered a massive opportunity. Anyone with a computer and photo editing software like Photoshop are able to create their own check stock digitally, print them on a common printer, and deposit a large volume of counterfeit checks into various mule/drop accounts.
While technology has provided opportunities for fraudsters, there are benefits for FIs as well. AI and machine learning technologies are key technologies for detection check fraud. These technologies are utilized by both transactional analytics and image forensic solution systems to monitor the behavior of accounts for anomalous transactions, while also analyzing the images of checks for indicators of counterfeits, forgeries, and alterations.
There are many lessons to be learned from history, and now there has never been more resources available to FIs to combat fraud. However, it falls to FIs to adopt these innovative technologies and fight back.