Old check ruse and a new one are consumer threats

Your Money

May 13, 2007|By David Colker | David Colker,Los Angeles Times

Talk about money laundering.

An ordinary check made out to person A is bathed in a chemical available at any hardware store. In just a few minutes, it is blank again and made out to person B - who is a thief.

This process, which has been around for decades, is known as "check washing" among con men, and in an era of high-tech crimes it seems almost quaint.

Except that it's back. Along with other check crimes.

"What we are hearing is that it's a backlash after so much effort made by banks to boost security on their Web sites," said Will Wade, technology editor for trade journal American Banker. "Some of the scammers are going old school with the easier stuff."

U.S. banks lost $711 million because of check fraud in 2005, the most recent year the Federal Reserve studied the matter. But that is only a drop in the bucket.

Losses to individuals and business owners probably push that figure far higher.

It is familiar territory for reformed con artist Frank Abagnale Jr., whose schemes - some involving misdeeds with checks - were so infamous that Steven Spielberg made a film about him, Catch Me If You Can.

"These people today are doing the same thing I was doing 40 years ago," said Abagnale, now a security consultant and author.

But not all the schemes are stuck in the past. A new fake-check fraud, which often makes use of digital printers and the Internet, has proved to be particularly potent.

The nonprofit National Consumers League received more complaints about fake checks than any other scheme last year, except those involving online auctions and purchases.

Here's a guide to the workings of two of the more prominent check frauds, one retro and the other recent:

Check washing.

This was one of the hallmarks of Abagnale's former career, and it is very much alive.

It involves "washing" off the payee and amount written on a check and substituting fraudulent information.

In most cases, the schemer obtains a legitimate check. It can be one placed in a home mailbox as outgoing mail, or one used to pay for services, such as yardwork.

If the check is made out in ordinary ballpoint pen, an over-the-counter solvent can get rid of the writing on it, while leaving the routing numbers and name and address of the account holder. New information can be added.

One defense against this type of fraud is the use of a "secure" pen, such as the Uni-ball 207, that dispenses ink impervious to many solvents. It costs about $2.

If the fraud is successfully carried out and the amount on a washed check is deducted from an account, chances are good that the victim can have the money refunded.

"This would be considered an unauthorized check," said Gail Hillebrand, an attorney with Consumers Union, publisher of Consumer Reports magazine. Unless the schemer is found and made to pay up, the bank would suffer the loss.

But there are loopholes, mostly having to do with time.

Under the Uniform Commercial Code, a financial institution can set a deadline for complaints about a check charge. Generally, the standard is 30 days after a monthly statement is received.

After that, the account holder could be out of luck.

And there is no set time that the bank has in which to pay the money back. "They have to pay, but you have to make them do it," Hillebrand said.

Bonus checks.

In a relatively new ruse, the victim is contacted to say that a check is on the way.

"Often, it's that they have somehow won a sweepstakes," said Susan Grant, director of the National Consumers League's fraud center.

Contact can be made with potential victims by mail or phone. But e-mail has vastly increased the reach of these thieves.

The fraud can start with the check payment for an item bought online. Or it can be born of a virtual affair.

"It can be part of a `sweetheart swindle,' with a check coming from a woman who has established a relationship with someone online," Grant said.

Usually, a check comes from out of the country. The person is asked to cash it and send back part or all of the money.

"They are told it's for taxes, bonding or custom fees," Grant said. "In the case of the sweetheart deal, the person is asked to cash the check because it's difficult to do that in her country."

Often, it's a cashier's check. Banks are usually obligated to pay the money the day after the check is deposited. But that doesn't mean it has cleared.

In a recent case, a West Covina, Calif., woman was told she had won $95,000 in a sweepstakes, Grant said. The woman was sent a "deposit" check for $1,950 and instructed to cash it and wire the money back to pay taxes. Then the rest of the winnings would arrive. She did as told. But no more money came. Worse, the "deposit" check bounced a few days later.

"That's when you hear from the bank," said Charles Bruce, executive director of the National Check Fraud Center. "They want their money back."

Unlike in the money-washing scheme, the victim is held at fault because it was he or she who passed the check, often a forgery done with digital printing.

But who would fall for this kind of scheme in the first place?

"You would be surprised," said Nessa Feddis, a senior counsel for the American Bankers Association. "We hear from lawyers on this one, all kinds of people."

David Colker writes for the Los Angeles Times.

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