CHEQUE AND CREDIT CARD FRAUD

Question 1

Three types of cheque theft are: .

Answer 1

using stolen cancelled cheques to obtain new cheques, cheque washing, and stealing blank cheque stock

Question 2

Stolen cancelled cheques and statements

Answer 2

Although a stolen cancelled cheque can’t be
negotiated, it does have fraud implications. Using a stolen cancelled cheque, a cheque thief can order cheques from a mail-order cheque printer and have them sent to a mail drop address. Cheques can then be written on the new stock and cashed once false identifications are acquired.

Question 3

Cheque washing

Answer 3

Cheque washing is increasing at an alarming rate. Cheques are stolen from mailrooms and mailboxes, and then the cheque is inserted into a solution of
chemicals that can be purchased at a hardware store. Once the cheque is dried, the fraudster can write in any amount and the cheques are usually cashed without question. Most cheque washers alter cheques for relatively small amounts

Question 4

Stolen cheque stock

Answer 4

Professional thieves using sophisticated methods steal blank cheque stock already encoded with customer account information, which makes passing the cheque even easier. Corporate cheques are the most likely target since they are easily
cashed and deposited.

Question 5

Cheque Fraud Schemes

Answer 5

Paperhangers
Stop Payment Orders 
Cheque Kiting
Demand Drafts
Third-Party Bill Paying Services 
Travellers’ Cheques 
Payroll Cheque Fraud
Dumpster Diving 
Scanning
System Password Security Compromised

Question 6

According to an analysis by U.S. Federal Bureau of Investigation (FBI) in the New York City
area, fraudulent cheque passers use the following common techniques:

Answer 6

• Customer attempts to open an account with a corporate cheque or other third-party cheque.
• Customer tries to flatter, hurry, or confuse the teller to draw attention away from the transaction.
• Customer delays endorsing a cheque or producing identification during peak hours to
frustrate the teller and hurry the transaction.
• Customer presents for cash a low-numbered cheque drawn on a new account.
• Customer offers foreign documentation (birth certificate, passport, visa) or non-photo identification (credit card) in lieu of photo identification to open an account or cash a cheque.
• Customer offers altered or damaged identification to open an account or cash a cheque.
• Customer attempts to cash or convert several small cheques into wire transfer, gold, or other tender.
• Customer requests an exception to established rules to force the transaction.

Question 7

he cashier or teller is the front-line defence in preventing cheque fraud. It is important that
they receive the training necessary to identify fraudulent cheques. They should:

Answer 7

• Be aware of magnetic routing numbers.
• Use extra care in examining a cheque drawn from a non-local bank and require positive identification.
• Examine the date on the cheque for accuracy of day, month, and year. Do not accept the cheque if it is not dated, if it is postdated, or if it is more than 30 days old.
• Look for cheques with a cheque number less than 400 on personal cheques or below 1,500 on business cheques (90 percent of bad cheques are written on accounts less than one year old).
• Be aware of fonts used to print the customer’s name that are visibly different from the font used to print the address.
• Be aware that the magnetic ink (MICR) used for routing codes should appear non- reflective and dull.
• Look for MICR coding that does not match the bank district and the routing symbol in the upper right-hand corner of the cheque.
• Be aware of the date that the account was opened.
• Be aware of stains or discolourations on the cheque, possibly caused by erasures or
alterations.
• Have easy access to the signature card.
• Look for perforated edges of the cheques.
• Be aware that a colour copy might reflect odd colours at times due to a failure of the toner to mix satisfactorily.
• Notice absence of any design in the background of the cheque paper.
• Notice absence of bank logo and the printing of the bank name in the regular lettering.
• Notice absence of the address of the bank on the cheque.
• Be cautious of information that is typed or stamped.
• Do not accept a cheque that is not legibly written. It should be written and signed in ink and must not have any erasures or written-over amounts.
• Be aware of what is acceptable identification.
• Recognise forged/altered information.
• Recognise forged negotiable instruments.
• Tellers should telephone the business or account officer for approval on suspicious
requests.
• Be familiar with patterns of behaviour related to potential culprits:
− Overly polite
− Nervous
− Aggressive and hurried

Question 8

During a cheque fraud investigation, look for the following:

Answer 8

• Frequent deposits and cheques:
− In the same amounts
− In round numbers
− With cheques written on the same (other) bank
• Frequent ATM account balance inquiries.
• Many large deposits made on Thursday or Friday to take advantage of the weekend.
• Large periodic balances in individual accounts with no apparent business. • Low average balance compared to high level of deposits.
• Many cheques made payable to other banks.
• Bank willingness to pay against uncollected funds.
• Deposits not made daily or intact.
• Entity uses receipts that do not indicate mode of payment.
• One or more personal cheques in the cash drawer by the fund custodian.
• Deposit timing lags.
• Irregular cheque endorsements.
• Amount of deposit that does not agree with daily activity report.
• Inappropriate access to signature plate.
• Cheque numbers, payee name, date, and amount don’t agree with entries in the cheque
register.
• Voided cheques that are not retained.
• Cheques that are issued to individuals for large, even dollar amounts.
• Supporting documentation for cheques is not available or has been prematurely
destroyed.
• Cash withdrawal with deposit cheques drawn on another bank.

Question 9

There are several tips for businesses to use when cashing business and payroll cheques:

Answer 9

• Examine all cheques. Insist that the cheque be signed in front of the clerk. Compare the
signature written on the cheque with the signature on the driver’s licence or other government-issued identification.
• Be particularly careful with large-dollar cheques presented by noncustomers.
• Examine all cheques for signs of counterfeiting, such as a glossy, “crayonish” appearance
and any lack of detail and sharpness.
• Look for signs of alterations or erasures, especially in the signature or numerical and
written amounts.
• Compare the bank identification and routing numbers for a match.
• The texture of the cheque should appear smooth; a rough document might signal erasures.
• Be cautious of information that is typed or stamped.
• All cheques, except government issue, should have at least one perforated edge.
• The magnetic ink used for routing codes should appear nonreflective and dull.
• Look for faded coloured paper, which can indicate that the cheque has been chemically bleached.
• A colour copy might reflect odd colours at times due to a failure of the toner to mix satisfactorily.
• Black lettering might have a slightly greenish cast when examined under a magnifying glass.
• A light coloured or delicate background might fade out when copied.
• Look for an absence of any design in background of cheque paper.
• Look for an absence of bank logo and the printing of the bank name in regular letterin
• Look for an absence of the address of the bank on the cheque.
• Look for an overall appearance of poor quality of printing and paper.
• A payroll cheque will usually be for an odd amount and will appear neat, clean, and
usually unfolded.
• Tellers should telephone the business or account officer for approval on suspicious
requests.

Question 10

Cheque Fraud Prevention Tools

Answer 10

Check Writing Pens

Fingerprint Identifiers

Question 11

Forensic Document Examination

Answer 11

Signature
Handwriting
Video Spectral Comparator
Electrostatic Detection Apparatus

Question 12

Credit Card Schemes

Answer 12

Unauthorised Use of a Lost or Stolen Card 
Organised Crime Rings 
Advance Payments, Using a forged or counterfeit cheque
Stolen Card Numbers 
Shave and Paste 
De-Emboss/Re-Emboss
Counterfeit Cards 
Telephone/Mail Order Fraud
Mail Theft
False Applications 
Credit “Doctors”
True Name Fraud 
Non-Receipt Fraud 
Key-Enter Counterfeiting
Creditmaster
Probing 
Skimming 
Pretext Calling 
Account Takeover
Institutional Identity Theft and “Spoof” Sites

Question 13

Banks should send cardholders occasional reminders of steps that can be taken to safeguard
their credit card identities, including the following:

Answer 13

• Always carry the least amount of credit cards with you as necessary.
• Sign credit slips and new credit cards as soon as you receive them.
• Do not supply credit card information to unauthorised people.
• Do not leave credit cards unattended with merchants.
• Make it a habit to review credit card statements and immediately report any
unrecognisable charges.
• Immediately report the loss or theft of any credit card to the card issuer.
• Obtain credit reports annually in order to detect any suspicious activity in which credit
cards or other extensions of credit have been granted or applied for without your
consent.
• Never reveal account numbers or other credit card account information to persons
attempting to gain your information on the telephone after they represent themselves as
agents of a bank.
• If you are aware of suspicious activity, immediately inform the relevant credit reporting
agencies and have a “Fraud Alert” placed on your account. This will prevent any
potential new creditor from granting new credit without first contacting you personally.
• Always keep credit card receipts in a safe place, and destroy them after you have received
the billing statement that reflects the charges.
• If you receive a credit card you didn’t apply for, call the issuer and determine why they
sent the card. Someone may have applied in your name and missed the opportunity to
steal the card from your mailbox when it arrived.
• Void incorrect receipts and destroy carbons of credit card slips.
• Keep a record of account numbers, expiration dates, and phone numbers and addresses
of each card issuer so that you can contact them in the event of the loss or theft of your
credit card.
• Do not lend your card to another person.
• Do not write your account number on a postcard or the outside of an envelope.

Question 14

Tellers and merchants should be advised to be alert for the customer who:

Answer 14

• Takes a card from a pocket instead of a wallet or purse.
• Purchases an unusual number of expensive items.
• Makes random purchases, selecting items with little regard to size, quality, or value.
• Makes several small purchases to stay under the floor limit or asks what the floor limit is.
• Signs the sales draft slowly or awkwardly.
• Charges expensive items on a newly valid credit card.
• Cannot provide photo identification when asked.
• Rushes the merchant or teller.
• Purchases a large item, such as a television console, and insists on taking it at the time,
even when delivery is included in the price.
• Becomes argumentative with the teller or merchant while waiting for the transaction to
be completed.

Question 15

Tellers and merchants should be aware of the common signs of forged credit cards:

Answer 15

• Holograms crudely stamped or badly faked with tiny bits of aluminum foil
• Misspelled words on the card
• Altered signature panel
• Discoloured
• Glued
• Painted
• Covered with white tape
• Cards that appear to have been flattened and restamped

Question 16

At the consumer level, the credit card user should remember the following:

Answer 16

• Know where your card is at all times.
• Never leave your card unattended at work—there are more credit card thefts in the workplace than in any other single situation.
• Do not leave the store or ATM without all of the copies and carbons.
• Do not leave your card in plain sight where others can get the number.
• Do not leave receipts in a public trash can, hotel, or shopping bag.
• Review monthly statements for accuracy and any items that you might not have charged.
• Review your statements via electronic means rather than waiting for paper statements. If
possible, cancel paper statements altogether since most fraudsters still practice “dumpster diving” and will riffle through your trash for old receipts and credit card statements.
• Sign the back of a new card as soon as you get it and destroy old cards that are outdated or no longer used.
• Make a list of all of your cards and their numbers. This key information is helpful when reporting lost or stolen cards. Store this list in a highly secured area
• Be wary of offers that come through the mail.
• Never reveal your card number over the phone to anyone who has offered you a prize.
• Report missing cards immediately.
• Do not reveal personal information such as your address and telephone number.
• Do not allow a salesperson to record your credit card number on your cheque.
• Keep your card out of the view of others in a store or at a public telephone so they cannot read the name and account number.
• Use a tiered, see-through container in your wallet for credit cards, so it will be easier to notice missing cards.
• Always check your card when returned to you after a purchase. Make sure it is your card.

Question 17

Prevention

Answer 17

Education Programs
Liaison with Law Enforcement
Technological Deterrents 
Activation of Cards 
CyberSource Advanced Fraud Screen 
Computer Edits 
Card Scrutiny at Point of Sale
Chip Cards

Question 18

There are a couple of other options open to merchants:

Answer 18

• Checking the billing address with delivery address. Beware of orders with different “bill
to” and “ship to” addresses unless the item is intended as a gift.
• Treating orders received from free e-mail accounts with extra scrutiny. Setting up free e-mail accounts with companies like Hotmail or Yahoo is very simple and allows the user anonymity.
• Processing the card payment offline.
• Installing some form of customer validation system. This may include a password that
the customer can use to identify himself.
• Requiring all information to be produced which is printed on the back of the card. In particular, the card verification value—the three-digit number above the signature panel on the back of the card—should be requested.

Question 19

Potential signs of card-not-present fraud:

Answer 19

• First-time shopper—Criminals are always looking for new victims.
• Larger-than-normal orders—Because stolen cards or account numbers have a limited life span, crooks need to maximize the size of their purchase.
• Orders that include several of the same item—Having multiples of the same item increases a criminal’s profits.
• Orders made up of big-ticket items—These items have maximum resale value and therefore maximum profit potential.
• “Rush” or “overnight” shipping—Fraudsters want these fraudulently obtained items as soon as possible for the quickest possible resale, and aren’t concerned about extra delivery charges.
• Shipping to an international address—A significant number of fraudulent transactions
are shipped to fraudulent cardholders outside of the business’s country.
• Transactions with similar account numbers—Particularly useful if the account numbers used have been generated using software available on the Internet (such as CreditMaster).
• Shipping to a single address, but transactions placed on multiple cards—Could involve an account number generated using special software or the use of several of stolen cards.
• Multiple transactions on one card over a very short period of time—Could be an attempt to “run a card” until the account is closed.
• Multiple transactions on one card or a similar card with a single IP (Internet Protocol) address—More than one or two cards could indicate a fraud scheme.
• Orders from Internet addresses that make use of free e-mail services—These e-mail services involve no billing relationships, and therefore provide neither an audit trail nor verification that a legitimate cardholder has opened the account.

Question 20

FINANCIAL INSTITUTION MEASURES

Answer 20

• New account screening—Educate personnel to thoroughly check applicants’
information, comparing ID information, addresses, and credit reports for accuracy.
• PIN activation—Bank customers are often required to provide personal identification
numbers in order to activate their cards over the phone. Callers who are not able to provide the PIN number may have manufactured or stolen the card in question.
• Caller ID—Most people calling to activate their card will do so from home. If the number on Caller ID does not match any of the telephone numbers listed in the customer’s account information bank personnel should ask some identifying questions.
• CVV2/CVC2—Implement these systems as soon as possible.

Question 21

Therefore, each of the following could be considered an electronic fund transfer:

Answer 21

• A customer’s withdrawal of funds from the customer’s own account by use of an ATM.
• A customer’s transfer of funds from the customer’s checking account to the customer’s
savings account at the same financial institution initiated by the customer through his or her personal computer.
• A customer’s transfer of funds from the customer’s checking account to the customer’s
savings account at the same financial institution initiated by the customer through the bank’s automated telephone service.
• A customer’s use of a debit card to purchase goods from a merchant who swipes the customer’s card through a point-of-sale (POS) device to authorise deduction of the amount of the sale from the customer’s checking account.
• A customer’s transfer of funds from his or her bank account to a third party initiated by the customer through his or her personal computer.
• An employer’s instruction, initiated by computer or through a magnetic tape, to a financial institution to deposit funds representing an employee’s pay into the employee’s account.
• A noncustomer’s instruction, initiated by computer or through a magnetic tape, to a
financial institution to withdraw funds from the checking account of a customer and transfer the funds of a noncustomer’s bank account.

Question 22

Biller Direct Systems

Answer 22

In a biller direct system, merchants deal with each
customer individually. In a typical transaction, the customer will enter an Internet site that the biller has created. There, the customer who wishes to pay his telephone bill online will
simply log on to the telephone company’s website, enter a username and password that allow
the customer to pull up a copy of his bill, review it, and instruct the biller to obtain payment
from the customer’s bank account. Prior to this time, the customer will have entered into an
agreement with the biller to receive and to pay his bills electronically. The customer will
usually have created the user name and password and will have provided the biller with
information about the customer and the customer’s account at the financial institution from
which the biller may collect payment. Typically, this will include the customer’s e-mail
address, the routing number of the customer’s bank, and the customer’s account number at
the bank. In some systems, the biller will send an e-mail to the customer indicating that a bill
is outstanding and directing the customer to the biller’s website.

After the customer views the information posted by the biller, the customer may approve
the information and authorise payment. The biller will then initiate payment by contacting a
payment provider that has agreed to collect payments on behalf of the biller. The payment
provider will contact the financial institution that holds the customer’s account and request the institution to debit the customer’s account and remit the proceeds to the payment provider. The payment provider will then credit the proceeds, minus any fees, to the biller. These payments may be transferred through an ACH transfer or through a paper transfer such as a cashier’s check when the recipient is not able to receive payments in an electronic form.

Question 23

Person to Person (P2P) Payment Systems

Answer 23

In order to make a payment, the user enters his or her user name and password along with the e-mail address and payment information for the recipient. Users may authorise the provider to withdraw funds from any of three sources. First, the user may maintain an account directly with the provider. Second, the user may authorise the provider to withdraw funds from the user’s account at another financial institution. If the user registers his or her
bank account as a source of payment, the provider will verify the user’s control of the account by making two small deposits to the account in an undisclosed amount and requiring the user to confirm the amount of the deposits. Third, the user may authorise the provider to charge his or her credit card with the amount of the payment.

Question 24

There are several ways in which fraud may be perpetrated through EBPP and P2P systems

Answer 24

• A biller may send a bill for services not rendered or for goods never sent.
• A person who has obtained information about another person’s bank account may instruct a biller to obtain payment from the other person’s account.
• A hacker may obtain passwords and user names from an aggregator and use that information to direct transfers from a consumer’s bank account.
• An employee at the site providing EBPP services that has been provided a consumer’s user names and passwords for screen scraping purposes may use that information to direct transfers from the consumer’s bank account.
• A bank employee may use customer information to direct transfers from a customer’s account.

Question 25

Banks offering EBPP or P2P systems to customers should:

Answer 25

• Confirm phone and mailing addresses on the application to ensure that they are consistent with information about the applicant that is available from other sources and, with respect to existing customers, consistent with current records about these customers. This may involve obtaining credit reports about the applicant or obtaining copies of utility bills that show the applicant’s address.
• Make sure that the area code on the applicant’s telephone number matches the geographical area for the applicant’s address.
• Send a “welcome” letter to the address on the application with the bank’s return address so that the letter will be returned if the applicant is not living at that address.
• Verify by telephone or additional mailings any change of address requests in the same way that you would verify a new account application.
• If a customer reports the loss or theft of an access device, cancel the existing card, PIN,
or other form of access, and issue a new one.
• If a customer reports that a person previously authorised to use access device reports no
longer has that authority, cancel all cards, PINs, or other access devices, and issue new ones to the customer.
• Always mail PINs separately from other information, such as user names, with which
they are associated.
• Separate the responsibility of bank employees who have custody of information relating to access devices from those who have responsibility for issuance, verification, or reissuance of PINs.
• Ensure that any communication concerning user names or passwords is sent in a secure encrypted format.
• Customers who register for EBPP or P2P systems should be required to provide information indicating that they are authorised to use the bank account or credit card from which payments will be made.

Question 26

Banks that participate in EBPP or P2P systems can take steps to detect fraudulent transactions

Answer 26

• Send customers e-mail alerts when a new bill arrives or a payment is sent. The e-mail
should advise the customer to contact the bank immediately if the bill was not expected
or the payment was not authorised.
• Refuse or scrutinise any transactions from a payer or recipient who has been the subject
of a notice from a credit card issuer indicating that the person was involved in an
unauthorised credit card transaction or unauthorised transfer to or from a bank account.
• Ensure that the name on the bank account associated with the P2P account matches the
name on the P2P account itself.
• Track and verify payments of similar amounts to the same recipient.
• Since P2P systems are frequently used to make payments for online activities, be aware of activities that are typically associated with fraud and scrutinise transactions with customers who engage in such activities. These activities include pyramid schemes, online auctions, and sales of items that have a delayed delivery date

Question 27

This activity, known as cybercloning, involves

Answer 27

the creation of a “spoof” site, complete with a domain name close to the domain name of a legitimate bank and containing the real bank’s logo. An e-mail may be sent asking customers and
potential customers to log on to the false domain name. Those who respond may be asked for information such as account numbers and credit card numbers. Alternatively, individuals may register domain names close to the domain name of actual banks and use those sites to market goods or services with which the bank would not want to be associated