BAI Publishes Guide for Identifying and Preventing Check Fraud
- BAI's new report examines methods to ID and prevent check fraud
- Electronic check fraud is the newest wrinkle
- Biometric scanning and AI are covered, but deserve more attention
Financial institutions (FIs) understand that there are several factors involved in creating a strong defense for check fraud. Even though fraudsters are exploiting contactless channels like ATMs and mRDC, there are still many examples of fraudsters going into a bank branch to deposit stolen/fraudulent checks (mostly through mules).
Recently, BAI published a handy guide entitled "Identifying and Preventing Check Fraud" to assist FIs in training its employees to spot fraudulent checks as well as provide an overview of some technologies that can assist in detection.
Topics include:
- Check structure
- Negotiating checks
- Check fraud tactics
- Fake check scams
- How to spot check fraud and scams
Types of Check Fraud
BAI outlines the different types of check fraud, providing a succinct description of each of the following:
- Paperhanging
- Check Washing (Alteration)
- Check Kiting
- Forgery
- Counterfeit Checks
In addition, they describe a newer type of check fraud: Electronic.
In addition to physical check fraud, fraudsters may utilize digital methods to exploit people and defraud them. Electronic check (e-check) fraud essentially occurs when someone fraudulently gains access to a person's account and initiates e-check transactions without consent. There is also mobile deposit fraud which is when someone uses remote deposit technology to deposit the same check into multiple accounts or deposit stolen of counterfeit checks.
Unfortunately, account holders tend to utilize the same passwords or slight variations for everything -- from email accounts to their check accounts -- and once a breach occurs, a fraudster can infiltrate almost all of the other accounts, enabling them to perform electronic check fraud with ease.
Preventing Check Fraud
BAI's guide suggests several methods for preventing check fraud, including: reviewing the checks before depositing; using different technologies to analyze the transaction, account behavior, and image of the check, and; leveraging 314b to reach out to the drawing bank for information to aid in their investigations.
The guide also suggests training bank employees in spotting fraudulent checks. Tellers are the front-line defense for the bank and their customers, and their ability to spot indicators of counterfeits, forgeries, and alterations is key to prevention. With highly recommend you review the exhaustive list on page 5 of the guide.
Unfortunately, the guide provides only a brief overview of two very effective technologies that FIs can use to detect check fraud -- biometric scanning and AI. As long-time readers of our blog are aware, FIs should be deploying a multi-layer technology approach to check fraud, leveraging the following technologies:
- Transactional/Behavioral Analytics to monitor the behaviors of the account
- Image Forensic AI to analyze the images of checks for indicators of counterfeits, forgeries, and alterations
- Payee Positive Pay for business accounts to reconcile check payments to the issuer file
- Consortium data to leverage drawer account transactional data
- Dark web monitoring to scour underground market places and messaging platforms such as Telegram for stolen account information and checks
As noted in the guide, "any organization that processes checks should be aware of the resources that are available to them to best protect themselves and their customers from fraud and scams." These resources are available and ready for FIs to deploy directly, as well as through their core providers or fraud review platforms.