Check-washing scams are on the rise again. Across the country, thieves are stealing checks from victims’ mailboxes, “washing” off the ink with a chemical solution, and writing out checks to themselves in larger amounts. Last year, losses were over $800 million.
In New York, a thief stole a $42 check from a veteran’s mailbox, rewrote it for $7,000, and drained the victim’s account. In Chicago, a woman’s $32 check was stolen and rewritten for nearly $10,000. When she went to the bank to report the theft, the bank said seven other customers had recently been affected by the same scam. In California, there were recently 56 arrests in a check-washing scam that affected at least 750 victims and caused millions in losses.
Why Thieves Wash Checks
Thieves engage in check washing because it’s an easy scam to commit and they want money. Consider the fraud triangle in relation to check-washing:
- Motivation — Thieves are motivated by easy money, and as the economy continues to decline, financial crime rates are likely to increase.
- Opportunity — To commit check washing, thieves just need to look through mailboxes in neighborhoods that are empty during the day while people are at work or school, or they can jump on the dark web, buy a stolen mailbox key, and pilfer the big blue boxes for checks to steal.
- Rationalization — In most cases, the thieves don’t think about their individual victims, and they rationalize that it’s okay to steal from banks.
You don’t have to be Walter White to understand the chemistry of check-washing. A few minutes on YouTube is all the training that a burgeoning thief needs. Then, a quick trip to the store to pick up acetone, bleach, and paint thinner, and they are ready to go. Are you ready to stop them?
Liability for Check Fraud
Most state laws offer protection to consumers against check washing. As long as the victim reports the crime in a certain amount of time, their financial institution has to refund the money. This can get extremely expensive for banks. They may end up bearing the losses of the bad check, but in most cases, they also have to devote human and financial resources to investigating the incident and processing the refunds.
In both the New York and Chicago stories above, the victims were unable the recoup their funds quickly. The woman from Chicago was waiting about two weeks, while the veteran from New York had been waiting over a year for his refund. In both cases, once the media covered the stories and named the banks, the banks rectified the situation with their customers’ accounts.
As you know, by this time, the reputational damage was done. These banks were in the media. The coverage explained that the banks cashed forged checks that were clearly not real. In one situation, the thief wrote the check in crayon. The stories also said that the banks gave their customers the runaround.
Stories like these can be extremely damaging to a bank’s reputation. Reputational damage translates to lost customers and makes it harder to attract new customers. It can often cost more than the actual fraud losses and mitigation costs.
How to Minimize the Risk of Check Washing
When a thief presents a teller with a washed check, the teller can easily recognize the tell-tale signs of a forgery. At community banks, the tellers may even be familiar with their customers. Thieves are aware, and they get around this by using remote mobile capture to deposit the stolen checks into their accounts.
Financial institutions need to employ a multi-pronged anti-check fraud strategy if they want to reduce losses due to check washing. Consider the following tools and services:
- Positive pay — Business account holders create a payee issue file, and when someone attempts to cash a check against their account, the positive pay solution checks the payee name against the file. If the name on the check doesn’t match anything in the file, the bank holds the check until it receives confirmation from the customer.
- Check stock validation — This analyzes the check to see if security features such as holograms have been washed off and added back on. Check stock validation tools can spot inconsistencies more accurately than humans, and if they detect an issue, they send it to your fraud team for manual review.
- Managed fraud services — Banks that don’t have a fraud analysis team or that want coverage 24/7/365 may want to look into outsourcing the human aspect of their anti-fraud efforts. Remember, crime doesn’t stop when you’re sleeping.
- Automated signature verification — To wash the numbers and written amount off the check, the thief has to fully submerge it in the solution. That also washes off the accountholder’s signature, forcing the thief to forge the check. Signature verification tools look at static and dynamic aspects of every signature that comes through the mobile capture system, and if the signature doesn’t match the reference signature on file, the system flags the deposit for manual review.
In addition to having security measures to protect your clients’ accounts from the threat of washed checks, you also need to protect your financial institution from the thieves who open accounts, deposit bad checks, and drain the accounts before the bank realizes that the checks are bad. In some cases, this can leave you holding more losses than you incur with the victims’ accounts. To protect your financial institution from this aspect of check washing, consider the following tips:
Watch for New Account Fraud — Your anti-fraud solution needs to look for potential signs of fraud across the account opening process. You can’t wait until the account is used to make a payment or another type of transaction. For instance, if someone is opening an account using a mobile device, your system should ensure that the IP address isn’t linked with criminal activity.
Monitor for Signs of Account Takeover — In other cases, thieves take over legitimate accounts so they can cash their stolen checks. To spot account takeover, you need tools that alert you when activity starts on a dormant account. You also need to monitor all engagements with the account, not just payment transactions.
Your system should look for patterns of behavior that indicate fraud. For instance, someone changing the email address on their account isn’t necessarily indicative of fraud, but when someone changes their login details and updates the physical address from an unusual IP address, that may be a sign of account takeover.
As long as mail and checks exist, there will continue to be mail theft and check fraud. The threat is growing, and coverage from news sources like Good Morning America ensures that your customers are worried about it. Do you have the tools in place to protect them and yourselves?
We can help. At SQN Banking Systems, we provide financial institutions with anti-fraud tools and solutions. We use sophisticated algorithms and real-time detection to help our clients effectively prevent check and payment fraud across all their payment channels.
Don’t let thieves sneak past your barriers with low-tech scams. Instead, invest in the protection you need for your customers, your reputation, and your bottom line. Let’s start with a fraud analysis to see where you could strengthen your efforts — to learn more, contact us today.