On February 28, the Financial Crimes Enforcement Network of the U.S. Department of Treasury (FinCEN) issued an alert warning financial institutions to be vigilant in identifying and reporting check fraud schemes targeting the U.S. Mail. The alert was prompted by a nationwide surge in such activity. In 2021, FinCEN saw a 23% increase in the number of check fraud-related Suspicious Activity Reports (SARs). This upward trend continued in 2022, when the number of SARs related to check fraud nearly doubled.
This type of fraud generally pertains to the negotiation of checks stolen from the U.S. Mail. According to FinCEN, fraud, including check fraud, is the largest source of illicit proceeds in the United States. Fraud is also one of the priorities in combating the financing of terrorism.
FinCEN explained that criminals are targeting USPS blue collection boxes and unsecured residential mailboxes. Mail theft can occur through forced entry, the use of makeshift fishing devices, or the use of authentic or counterfeit master keys. After stealing the checks, fraudsters may alter or “wash” the checks, replacing the payee information with their own or fraudulent identities or with business accounts that they control. During check washing, the dollar amount on the check is often increased. These checks may be deposited in person, through automated teller machines (ATMs), or by remote deposit into accounts they control. Once the checks are deposited, the fraudsters often rapidly withdraw the funds through ATMs or wire them to other accounts they control.
In conjunction with the U.S. Postal Inspection Service, FinCEN has identified red flags to help financial institutions identify and report such suspicious activity. These include:
- Non-characteristic large check amounts to a new payee.
- Customer complains that a check they mailed was never received.
- Checks used to withdraw funds from a customer’s account appear to be of a noticeably different check stock than that used by the issuing bank.
- Existing customer with no history of check deposits has new deposits and withdrawals or transfer of funds.
- Checks show faded handwriting underneath darker handwriting, giving the appearance that the original handwriting has been overwritten.
- New customer opens an account seemingly used only for the deposit of checks followed by withdrawals and transfer of funds.