How Fraudsters are Leveraging AI for Check Fraud
- FOX News recently covered the topic of check fraud
- The segment examined emerging techniques, including AI
- Some of FOX's information requires clarification
In a recent article, FOX News informs its readers on the dangers of check fraud, going through the basics of how it's committed, while also explaining how AI is being utilized by fraudsters for altering checks ("check washing").
The surge in fraud reports reflects more than just isolated criminal acts. Organized crime rings are increasingly turning to check washing as a hybrid crime, blending old-school mail theft with new digital tools like AI. Fraudsters now use advanced technologies to forge identities, alter check images and exploit gaps in banking security, making check washing more sophisticated than ever. As financial institutions strengthen cybersecurity defenses, scammers are targeting physical mail systems as a weaker link to bypass digital barriers.
The segment goes on to highlight some of the emerging techniques being deployed by increasingly sophisticated fraudsters.
They include:
-Mobile deposit fraud: Criminals alter check images or deposit the same check into multiple accounts.
-Synthetic identity fraud: Scammers create fake identities using AI-generated documents to open accounts and cash stolen checks.
-Business Email Compromise (BEC): Attackers impersonate executives or vendors to convince companies to send checks to fraudulent accounts.
Clarifying the Information in the Article
Before we jump into AI's role, a few clarifications are in order. When Kurt "CyberGuy" Knutsson, the author of the FOX News article, states, "Organized crime rings are increasingly turning to check washing as a hybrid crime, blending old-school mail theft with new digital tools like AI.", he is most likely referring to check cooking, not check washing. This is explained on our Understanding Check Fraud webpage
- Check Cooking is the practice involving the use of advanced photo image editing software by criminals to meticulously recreate authentic checks.
- Check washing is a sophisticated and widespread form of financial fraud involving the use of chemicals, such as acetone (found in nail polish remover), rubbing alcohol, or bleach, to erase ink from specific fields on a check. Once the ink is removed, fraudsters can alter critical details, including the payee name, amount, date, or even the signature, to redirect funds for illicit gain.
Alterations and counterfeits are distinctly different, according to Reg CC, for warranties and liabilities -- a subject that will be discussed By Michele Barlow of PaymentsFirst at the upcoming Check Fraud Roundtable -- click here to register (restricted to financial institutions only).
Additionally, while not incorrect on the "mobile deposit fraud," Knutsson is referencing merely one scenario of mobile check fraud -- duplicate presentment. Mobile check fraud primarily involves fraudulent activities that utilize mobile banking applications or remote check deposits. With the convenience of depositing checks remotely, scammers have seized the opportunity to exploit weaknesses in the system. Fraudsters are able to deposit counterfeits, forgeries, and alterations into a bank account without physical inspection by bank personnel. This type of fraud can occur rapidly, as offenders often aim to withdraw funds before financial institutions can detect any discrepancies or halt the transactions.
AI's Role in Check Fraud
We recently discussed how fraudsters are using Gen-AI to create, with a few simple prompts derived from stolen information, fake checks.
Mr. Knutsson is correct when he points out that fraudsters are leveraging AI for synthetic identity fraud and business email compromise (BEC). These technologies make it extremely easy to, for instance, trick individuals into providing credentials, or open up drop accounts for check fraud.
That being said, AI is being also being deployed by financial institutions to fight back, powering various technologies that include image forensics, transaction monitoring, and behavioral analytics -- all part of the a multi-layered strategy for both On-Us and Deposit Fraud detection. When a fraudulent check enters the system, both the BoFD and paying bank have the tools needed to detect the counterfeit before funds are made available -- protecting themselves and their customers.