The Growing Menace of Retail Fraud: Detection Technology, Partnerships with Law Enforcement, and Employee Training Are at Work, but So Are the Fraudsters

By Matthews, Von | The RMA Journal, September 2003 | Go to article overview

The Growing Menace of Retail Fraud: Detection Technology, Partnerships with Law Enforcement, and Employee Training Are at Work, but So Are the Fraudsters


Matthews, Von, The RMA Journal


A manager of Corporate Investigations arrested participants at RMA's Retail Risk Management Conference with anecdotes and preventive measures around the increasingly active, sophisticated, and far-reaching problem of retail fraud.

In recent years, fraud in the retail area has become a serious problem for financial institutitions, which have seen a huge increase in fraudulent attempts of all types.

There are the "basics"--forgeries, counterfeit checks, unusual deposits placed in accounts--that escalate as criminals and technology get smarter. There are many instances of check fraud, including fraudulent checks used to purchase more sophisticated computer equipment that creates better-quality counterfeit checks. There's debit card fraud and, of course, the especially wrenching issue of identity theft.

Counterfeit Checks

Numerous rings have formed specifically to commit check fraud against banking institutions. Banks are working with law enforcement to identify possible fraud rings that steal checks after infiltrating various banks' lockbox areas. Those same checks are frequently returned through both regular and international clearing--sometimes alter being sent to Africa, the Orient, etc.--altered or in a way that would attempt to beat Positive Pay.

Checks are frequently stolen and altered. A common fraud committed with altered checks is as follows: An order will come in to a high-end car dealer in the U.S., perhaps through the Internet. Based on the Internet order, dealers will deposit the checks and subsequently ship cars to the fraudsters (paying for all of the shipping fees and towing services), because they had been given a check that was significantly more than the actual purchase price of the vehicles. In today's auto market, you can imagine that these dealers would be very enthusiastic and willing to believe the order is legitimate. In cases of an altered check, the bank of first deposit would be liable for these alterations.

Banks may consistently see check kiting on a small-dollar basis. Some people play with the "float time" when writing checks, especially if they are close to payday. However, in some instances, check kites may grow to large amounts, and in those cases law enforcement agencies--for example, the FBI--may become involved. Check kiting can be serious, and financial institutions need to have a system in place to flag suspected incidents.

Another potential fraud risk for banks involves accounts that are opened through the mail, such as various investment or money market accounts, Using stolen identities, thieves apply to open accounts, often with a postal money order and often arriving by Fed Ex or overnight UPS. Soon after, a flood of large-dollar checks may come in, and funds subsequently will either be wired out or drawn as checks written on the accounts. The checks that come into these types of accounts often are stolen credit-card convenience checks. Credit-card convenience checks are very valuable to criminals, who take them and forge a signature--the victim knows nothing about it until the credit card company calls about the debt.

In most cases, a flood of these applications could indicate a network of criminals working together. Look for red flags such as accounts opening with postal money orders, "next-day" mailings of applications, cell phones listed for contact information, and large-dollar corporate checks and/or convenience checks being deposited, followed by quick, large withdrawals.

Another twist on counterfeit checks is that criminals are illegally obtaining passkeys for high-rise apartment building mailboxes and stealing the tenant's mail. They steal bank statements and returned checks and create new checks on those accounts, sometimes with different names. This is called account takeover.

Occasionally, criminals get help in committing fraud from an unknowing second party, Imagine, for example, after an initial contact by someone claiming to need help cashing a check, the criminal sends them a $25,000 check with instructions to cash the check, send $20,000 to various individuals, and keep $5,000 for their "trouble.

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