What happens when you mix checkwashing fraud with the image-deposit rules from Check21?
You get check baking, also known as check cooking. Gone are the days of chemical alterations and one-off deposits. The scam goes completely digital.
What is Check Baking?
Check baking repurposes portions of checks (account numbers, signatures, etc.) and pieces them together to generate check images using photo editing software. Those images are deposited through any remote deposit capture systems that accepts images of checks.
Check baking is an effective tactic for fraudsters due to its inherent differences from checkwashing. Traditional checkwashing allows for the alteration of only one check at a time, necessitating the procurement of multiple checks to execute more fraudulent transactions. In contrast, check baking enables fraudsters to effortlessly produce numerous counterfeit checks and deposit them into various drop accounts (fake or temporary accounts set up specifically for fraudulent activities).
This new approach means scammers adopt the “quantity over quality” strategy to create multiple checks with smaller amounts. Smaller deposits are more likely to go undetected for extended periods. And while not all will go undetected, the benefit of the multiple deposits means some money will be kept even if a percentage of checks get detected by a financial institution’s fraud protocols.
Not only is the generation of fake checks easier, but the deposit is easier as well. Check baking takes advantage of the convenience offered by Check21 rules and image-based check depositing.
This tactic is proving especially effective with business checks where check volume is naturally higher, and reconciliation is usually delayed to the week’s end or even the end of month. By the time discrepancies are identified, accounts are closed and the money is gone.
Check baking does not negate the need to source physical checks, but the method reduces the volume required. With the recent spike in mail theft, new protocols have been implemented to protect mailed checks. Instead of grappling with those challenges, fraudsters can reduce their need with this new approach. The scam’s flexibility and process creativity allow fraudsters to exploit a multitude of channels for potential successful transactions.
As the landscape of check fraud continues to evolve and tactics become more sophisticated, staying informed and adopting advanced preventive measures becomes crucial for financial institutions, fintech companies, and customers alike.
How do you prevent fraudulent deposits on a mass scale as seen in check baking?
Identifying check baking will be a challenge for both banks and customers. However, solutions like implementing AI-based automated analysis on submitted images can help detect questionable deposits quickly. By blending transactional analysis with cutting-edge image forensic AI, financial institutions can effectively combat fraudulent transactions.
Two aspects of check baking will be a challenge for standard transactional analysis. The first consideration is the deposit amount. Fraudsters try to remain below the designated deposit threshold typically set by financial institutions to evade detection, thus exploiting the sheer volume of their attempts as a means to circumvent scrutiny.
The other challenge will be the impact of transactional behavior. Bulk transactions of modified checks can impact an institutions’ behavior models. It can generate a false positive within its established protocols, thus allowing the fake deposits to process.
For financial institutions, this further demands the need for the best possible transactional analytics that are powered by artificial intelligence. Additionally, flagging any deviations from normal behavior becomes particularly crucial when fraudsters attempt to execute multiple payments that do not align with established patterns.
Moreover, the incorporation of image forensic AI by financial institutions empowers comprehensive automated scrutiny of check images. This includes the extraction of check numbers for verification against the serial range, as well as the examination of fonts used on counterfeit checks in comparison to previously cleared items to validate the check writer’s authenticity.
The ability for tools to evaluate not just the contents of the check but the spacing, alignment, etc. will help catch these schemes before they deposit. Even with the convenience of image-altering software, minor inaccuracies in the crafted images during production must be detected by the depositing institution to protect customer and business assets.
As tactics evolve, financial institutions must stay ahead by adopting these state-of-the-art analytical tools. Through a proactive approach, the efforts of fraud prevent teams can thwart attempts to extract customer funds and maintain the institution’s reputation.
Detection & Prevention Resources
Check and Signature Fraud Prevention: Challenges and Resolutions
SignatureXpert.AI An automated signature verification solution
Sources
https://apnews.com/article/check-fraud-banks-organized-crime-5f033b93bd87e2cbeb82b4ab4865a916
Parascript is an industry leader in financial fraud prevention technologies with millions of financial documents processed annually. For more information, contact our fraud prevention experts today.