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Most check fraud not single scammer--FinCENs Freis
LAS VEGAS (10/6/10)--Although check use is declining, credit unions shouldn't think that check fraud also is decreasing. In fact, check fraud has grown into the second most common crime reported in suspicious activity reports (SARs), behind money laundering, according to an official at the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN). Money laundering accounts for about half the SARs, said FinCEN Director James H. Freis Jr., in a speech before the Financial Service Centers of America Inc.'s (FiSCA) annual conference meeting in Las Vegas. Suspected check fraud incidents have accounted for more than 600,000 SAR filings since 1996. If check kiting and counterfeit checks are figured in, the number of SAR filings climbs past one million, he said. "Most check fraud activity is unlikely to involve a single instance of criminal behavior," but "often occurs as a serial or repeated activity," Freis told the group. "Criminals who commit check fraud may not stop there. Many may be involved in other illegal activities as well." Those activities include counterfeit checks, credit card fraud, identity theft, check kiting and "other." "This 'other' category really drives home how interconnected check fraud is to other crimes," Freis said. "Some of the related activities reported on a check fraud SAR include: tax evasion; account takeover; ACH fraud, internet and lottery scams; stolen/forged checks; and ATM fraud." He also noted activity can include organized criminal activity--such as narcotics trafficking, trade-based money laundering and terrorist financing. Of the nearly 49,000 SARs filed so far this year by depository institutions reflecting "check fraud," the average suspicious activity amount was for $766,270 and the average loss amount was for $18,836. "The amount is reflective not of an individual fraudulent check, but rather the total related activity," he said. "The point is while several institutions see relatively small amounts lost to fraud, when they share information, a different picture emerges. What may look like a small-time scammer could be in actuality a criminal enterprise that has pulled down millions because the activity is spread across a number of financial institutions, each of whom can't see enough to connect the dots," he told the group. FinCEN, working to analyze suspicious activity reports (SARs) with law enforcement, can paint a more complete picture, he said. Freis noted that FinCEN posed the question, "Should cash checkers be required to file SARs," for public comment in May 2009. FiSCA said it supports encouraging voluntary filings by check casher but did not support a mandatory check casher SAR requirement. "FiSCA's concerns were that a mandatory check casher SAR requirement might result in a large number of reports to FinCEN with little or no benefit to the Bank Secrecy Act goals of curbing money laundering or terrorist financing," he said. He noted that SARs filed by check cashers would provide "lead information you would wish law enforcement to follow up on--individuals trying to take advantage of your business and customers you serve." He cited a 2009 American Bankers Association Deposit Account Fraud Survey, which estimated industry check-related losses totaled $1.024 billion in 2008, up from $969 million in 2006. It was the first time the survey had passed the $1 billion amount. About 80% of banks continued to report check fraud losses in 2008, the same percentage as in 2006, he said. Technology also has created new opportunities for fraud, Freis said. For example, digital scanners and mobile devices fail to capture many of the protections--such as magnetic ink character recognition (MICR) encoding, indelible inks, microprinting and watermarks--developed to mitigate check fraud and counterfeiting. He urged financial institutions to "anticipate such risks as they develop new products."
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