Who Thought Check Kiting Would Make a Comeback?
- Check kiting is becoming more and more common
- There are generally two bank accounts involved
- Solid defenses are required to prevent losses resultant of "kiting"
If you ask anyone in the banking industry if they thought check fraud would be running rampant in 2024, the majority would respond with a simple "no." However, OrboGraph saw signs back in 2015 that check fraud was starting to make a comeback with the introduction of EMV chips to credit/debit cards, and was on the forefront of investing its research and development into artificial intelligence and machine learning for check fraud detection.
We noted recently that most check fraud schemes still utilize many of the same methods from decades ago, just with a little twist.
Well, it looks like Check Kiting is making a comeback -- with the "Infinite Money Glitch" as a prime example.
Explaining Check Kiting
Our partner ThreatAdvice, through its Dark Defend Blog, offers a concise overview of check kiting. The scheme involves writing checks from an account with insufficient funds and covering the shortfall by depositing checks from another underfunded account. This cycle creates the illusion of liquidity across multiple accounts.
Check kiting typically involves two or more bank accounts held by the same individual or business. The fraudster opens Account A at Bank A, then opens Account B at Bank B. They write a check from Account A and deposit it into Account B, despite Account A not having sufficient funds. Before Bank B realizes the shortfall, the individual withdraws money from Account B.
They also offer a diagram of the practice:
This unstable and risky practice eventually and inevitably collapses, leaving banks or businesses with significant financial losses -- key red flags include:
- Frequent deposits and withdrawals
- Multiple bank accounts
- Abnormal account balances
- Checks from distant banks
It's important to note that, while typically two or more accounts are used, cases like the Infinite Money Glitch show that a single account can be used and abused.
Combatting Check Kiting with Technology
To combat check kiting, ThreatAdvice -- true to its name -- offers solid guidance:
- Monitor Unusual Account Activity: Watch for irregular deposit and withdrawal patterns, especially across multiple accounts or institutions.
- Implement Holds on Large Deposits: Placing a hold on large deposits, especially if they involve checks from other banks, can give institutions time to verify fund availability.
- Use Real-Time Account Verification: Advances in banking technology allow for real-time account balance verification, which can help reduce the window of opportunity for kiting fraud.
OrboGraph partners with ThreatAdvice, integrating our image forensic AI technology into their TAFraudSentry solution that offers unmatched check fraud detection capabilities. Along with their FraudXchange, these tools monitor account activity in real-time, ensuring financial institutions are protected from various types of check fraud, including check kiting.
By leveraging the latest technologies, banks can stay one step ahead of fraudsters and their check kiting schemes to safeguard their financial operations.