Check Fraud Increases As Criminals Evolve

Check fraud increased 84% between 2021 and 2022, to 680,000 reported cases, according to the U.S. Department of the Treasury. Part of this growth stems from the fact that check fraud has become easier and more accessible. Cybercrime groups are openly hawking fraudulent check schemes on the Telegram messaging app.

Check fraud started rising during the COVID-19 pandemic partially due to stimulus programs. Criminals made easy money by stealing checks from the mail, altering them, and selling them or hiring mules and walkers to deposit the fake checks.

The Evolution of Check Fraud

Check fraud dates back to the first printed checks in the 1700s. But now, criminals are super-charging it on popular messaging platforms such as Telegram, where they can buy stolen checks and hire people to deposit them.

According to David Maimon, a professor at Georgia State University who monitors platforms and techniques criminals use to alter, sell and buy checks, information from one stolen check is now used to print more checks.

“We are seeing criminals selling the checks along with sensitive information on the victims, including Social Security numbers and balances in the accounts,” Maimon said. “If we’re talking about a company, we’re talking about employment identification number, which comes along with the check.”

Check fraud is so popular that tutorials hosted on Telegram give pointers on how to obtain checks. “The market is now evolved in terms of the type of commodities that the criminals are offering to a point where criminals will offer to replace a check that did not work,” Maimon said.

Check fraud also has a thriving secondary market for stolen checks on Telegram. There are thousands of stolen and counterfeit checks for sale, and it’s only growing month over month.

For the better part of the past 20 years, check fraud was stable and exceptionally predictable.

Bank fraud investigators agree that with the recent changes, new strategies are needed. Not just for counterfeit checks, but legitimate checks being negotiated nefariously. Fraudsters are combining identity theft and fake bank accounts to deposit checks and bypass authentication by the bank.

Advancement in Check Fraud Tech

With this sudden resurgence in fraud, there is an opportunity for banks to take a hard look at their fraud strategies for checks.

Legacy fraud detection tools are designed to flag suspicious checks during high-volume processing, but the false positive rate is high. Typically, check processors find one fraudulent check out of every 800 inspected, experts said.

Banks can reduce false positives by integrating legacy systems and image analysis systems with risk engine platforms or business rules engines. These platforms use filtering to effectively reduce false positives.

If banks are able to integrate all these controls together, which is oftentimes a pretty big challenge, you can get the false positive rate down to somewhere in the range of 30 to 1.

Image analysis tools should be combined with mobile identity verification and authentication to determine the risk of the check. For example, mobile deposits need to be treated as high-risk transactions, and banks should be able to verify that the customer has possession of the mobile phone and is making the deposit.

If you have questions about the evolving risk landscape for banks, call ITPAC today.