Bank fraud
Bank fraud is the use of potentially illegal means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently posing as a bank or other financial institution. In many instances, bank fraud is a criminal offence.
Overview
Bank fraud is the use of potentially illegal means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently posing as a bank or other financial institution. In many instances, bank fraud is a criminal offence. While the specific elements of particular banking fraud laws vary depending on jurisdictions, the term bank fraud applies to actions that employ a scheme or artifice, as opposed to bank robbery or theft. For this reason, bank fraud is sometimes considered a white-collar crime.
Accounting fraud
Unprofitable or mismanaged businesses eager to hide serious financial problems may use fraudulent bookkeeping to overstate sales, income, profits, and assets. These fictitious records are then used to sell the company's bond or security issues or to obtain fraudulent loans, to delay the eventual collapse of the business. Examples of accounting frauds include the Enron scandal, World Com, and Ocala Funding. These companies regularly "cooked the books" to appear profitable when in fact they were deeply in debt.
Demand draft fraud
Demand draft (DD) fraud typically involves one or more corrupt bank employees. First, the employee removes a few DD leaves or books and write in a money value using the correct coding and punching, usually payable without debiting an account, at a city far away from the employee's home branch. The draft is cashed at the distant payable branch, and the fraud is discovered only after a branch-wide reconciliation which may take as long as six months, by which time the money is gone.
Remotely created check fraud
Remotely created checks are orders of payment created by the payee and authorized by the customer remotely, using a telephone or the internet by providing the required information including the MICR code from a valid check. They do not bear the signatures of the customers like ordinary cheques. Instead, they bear a legend statement "Authorized by Drawer". This type of instrument is usually used by credit card companies, utility companies, or telemarketers. The lack of signature makes them susceptible to fraud. The fraud is considered Demand Draft fraud in the US.
Uninsured deposits
A bank soliciting public deposits may be uninsured or not licensed to operate at all. The objective is usually to solicit for deposits to this uninsured "bank," although some may also sell stock representing ownership of the "bank." Sometimes the names appear very official or very similar to those of legitimate banks. For instance, the unlicensed "Chase Trust Bank" of Washington D.C. appeared in 2002, bearing no affiliation to its seemingly apparent namesake; the real Chase Manhattan Bank is based in New York. Accounting fraud has also been used to conceal other theft taking place within a company.
Bill discounting fraud
Essentially a confidence trick, a fraudster uses a company at their disposal to gain the bank's confidence, by posing as a genuine, profitable customer. To give the illusion of being a desired customer, the company regularly and repeatedly uses the bank to get payment from one or more of its customers. These payments are always made, as the customers in question are part of the fraud, actively paying any and all bills the bank attempts to collect. After the fraudster has gained the bank's trust, the company requests that the bank begin paying the company up front for bills it will collect from the customers later. Many banks will agree but are not likely to go whole hog right away. So again, business continues as normal for the fraudulent company, its fraudulent customers, and the unwitting bank. As the bank grows more comfortable with the arrangement, it will trust the company more and more and be willing to give it larger and larger sums of money up front. Eventually, when the outstanding balance between the bank and the company is sufficiently large, the company and its customers disappear, taking the money the bank paid up front and leaving no one to pay the bills issued by the bank.
Duplication or skimming of card information
This takes a number of forms, ranging from merchants copying clients' credit card numbers for use in later illegal activities or criminals using carbon copies from old mechanical card imprint machines to steal the info, to the use of tampered credit or debit card readers to copy the magnetic stripe from a payment card while a hidden camera captures the numbers on the face of the card. Some fraudsters have attached fraudulent card stripe readers to publicly accessible ATMs to gain unauthorised access to the contents of the magnetic stripe as well as hidden cameras to illegally record users' authorisation codes. The data recorded by the cameras and fraudulent card stripe readers are subsequently used to produce duplicate cards that could then be used to make ATM withdrawals from the victims' accounts.
Cheque kiting
Cheque kiting exploits a banking system known as "the float" wherein money is temporarily counted twice. When a cheque is deposited to an account at Bank X, the money is made available immediately in that account even though the corresponding amount of money is not immediately removed from the account at Bank Y at which the cheque is drawn. Thus both banks temporarily count the cheque amount as an asset until the cheque formally clears at Bank Y. The float serves a legitimate purpose in banking, but intentionally exploiting the float when funds at Bank Y are insufficient to cover the amount withdrawn from Bank X is a form of fraud.
Forged or fraudulent documents
Forged documents are often used to conceal other thefts; banks tend to count their money meticulously so every penny must be accounted for. A document claiming that a sum of money has been borrowed as a loan, withdrawn by an individual depositor or transferred or invested can therefore be valuable to someone who wishes to conceal the fact that the bank's money has in fact been stolen and is now gone.
Forgery and altered cheques
Fraudsters have altered cheques to change the name (in order to deposit cheques intended for payment to someone else) or the amount on the face of cheques, simple altering can change $100.00 into $100,000.00. (However, transactions for such large values are routinely investigated as a matter of policy to prevent fraud.) In February 2023 the Financial Crimes Enforcement Network (FinCEN) warned of a nationwide surge in fraud involving cheques stolen from the mail, which may then be altered by "check washing": chemicals are used to remove the original ink so that the payee, and often the amount, can be replaced. Financial institutions in the United States filed more than 680,000 suspicious activity reports related to check fraud in 2022, nearly twice as many as in 2021. Instead of tampering with a real cheque, fraudsters may alternatively attempt to forge a depositor's signature on a blank cheque or even print their own cheques drawn on accounts owned by others, non-existent accounts, etc. They would subsequently cash the fraudulent cheque through another bank and withdraw the money before the banks realise that the cheque was a fraud.
Fraudulent loan applications
These take a number of forms varying from individuals using false information to hide a credit history filled with financial problems and unpaid loans to corporations using accounting fraud to overstate profits in order to make a risky loan appear to be a sound investment for the bank.
Fraudulent loans
One way to remove money from a bank is to take out a loan, which bankers are more than willing to encourage if they have good reason to believe that the money will be repaid in full with interest. A fraudulent loan, however, is one in which the borrower is a business entity controlled by a dishonest bank officer or an accomplice; the "borrower" then declares bankruptcy or vanishes and the money is gone. The borrower may even be a non-existent entity and the loan is merely an artifice to conceal a theft of a large sum of money from the bank. This can also be seen as a component within mortgage fraud (Bell, 2010).
Wikipedia contributors · Bank fraud · revision 1381341833 · CC BY-SA 4.0 · Plain text extracted and formatting adapted; tags derived from linked topics.