The Financial Crimes Enforcement Network (“FinCEN”) issued last month an in-depth report on check fraud stemming from mail theft (“Report”). This is a pernicious and expanding problem. The Report follows upon a joint alert issued by FinCEN and the U.S. Postal Service (“USPS”) in February 2023, on which we blogged.
Mail theft-related check fraud is the fraudulent negotiation of checks stolen from the U.S. mail. Check fraud refers to any use of paper or digital checks to fraudulently obtain funds, including alterations, counterfeiting, and fraudsters signing checks not belonging to them.
While mail theft often consists of mail being stolen from USPS mailboxes or personal mailboxes, the U.S. Postal Inspection Service reported that 412 mail carriers were robbed on duty between October 2021 to October 2022, and 305 were robbed in the first half of Fiscal Year 2023.
The Report analyzed data received from 15,417 Bank Secrecy Act (“BSA”) reports on mail theft-related check fraud received during the six month period from February 27, 2023 and August 31, 2023. FinCEN identified three primary outcomes after checks were stolen from the U.S. mail: (a) 44% of checks were altered and then deposited; (b) 26% of checks were used as templates to create counterfeit checks; and (c) 20% of checks were fraudulently signed and deposited. The check fraud was reported in every state, with large urban areas reporting more incidents.
Mail theft-related check fraud negatively impacts financial institutions because they typically have liability for check fraud losses as a paying bank for counterfeit checks and fraudulent signatures and the collecting bank for altered checks.
Check manipulation methodologies ranged in sophistication, and many perpetrators made mobile or ATM deposits to avoid interaction with bank personnel.
Unsophisticated methodologies included fraudulently endorsing a check without modifying any information on the check, altering the payee or dollar amount without washing the check, and negotiating a check with a pay to the order of the fraudster.
Moderately sophisticated methodologies included check washing, selling check information online, using compromised check information to create counterfeit checks, stealing newly ordered checks from the mail.
Sophisticated methodologies included opening new accounts in name of payee, romance and employment scams where victims act as mules to move the funds, and insiders at financial institutions or USPS.
According to the Report, BSA reports involved the following five “top” states, in regards to raw numbers and per population:
As the Report reminds: when suspecting mail theft-related check fraud, in addition to filing a Suspicious Activity Report, financial institutions should refer their customers who may be victims to the U.S. Postal Inspection Service.
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