BANKING FRAUD

Banking fraud occurs when someone attempts to take funds or other assets from a financial institution or from customers of that institution by posing as a bank official.

How does Banking fraud work?

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.[1] In many instances, bank fraud is a criminal offense. 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.[

Common types of Banking fraud schemes

Accounting fraud

In order to hide serious financial problems, some businesses have been known to use fraudulent bookkeeping to overstate sales and income, inflate the worth of the company’s assets, or state a profit when the company is operating at a loss. These tampered records are then used to seek investment in the company’s bond or security issues or to make fraudulent loan applications in a final attempt to obtain more money to delay the inevitable collapse of an unprofitable or mismanaged firm. Examples of accounting frauds: Enron and World Com and Ocala Funding. These companies “cooked the books” in order to appear as though they had profits each quarter, when in fact they were deeply in debt.


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purpose in banking, but intentionally exploiting the float when funds at Bank Y are insufficient to cover the amount withdrawn from Bank X is a form of fraud.


Identity Theft & Impersonation

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.)

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.


Wire transfer fraud

Wire transfer networks such as the international SWIFT interbank fund transfer system are tempting as targets as a transfer, once made, is difficult or impossible to reverse. As these networks are used by banks to settle accounts with each other, rapid or overnight wire transfer of large amounts of money are commonplace; while banks have put checks and balances in place, there is the risk that insiders may attempt to use fraudulent or forged documents which claim to request a bank depositor’s money be wired to another bank, often an offshore account in some distant foreign country.

There is a very high risk of fraud when dealing with unknown or uninsured institutions.

The risk is greatest when dealing with offshore or Internet banks (as this allows selection of countries with lax banking regulations), but not by any means limited to these institutions. There is an annual list of unlicensed banks on the US Treasury Department web site which currently is fifteen pages in length.