Better Than Cure!
Its time financial institutions initiate strong measures
to curb fraud!
Over the past few years, the banking industry has been affected
by fraudulent transactions. Financial institutions lose billions
of dollars each year in the way of deposit-account thefts. According
to American Bankers Association, the number of no credit check
bank accounts thefts in 2001, have touched USD 4.3 billion.
And since then, the figures have only doubled every two years.
In the past, committing
fraud would have required expertise. Today its as easy as drawing
a cheque. Thanks to the Internet! Many institutions turn a blind
eye to such fraud, dismissing it as a normal loss in the course
of business. Experts, however, opine that neglecting theft amounts
to encouraging it.
In view of the growing
concern over bank frauds, the Federal Reserve in association
with Federal Trade Commission and such other bodies have proposed
a rule that entails financial institutions to implement theft
The proposal also states that the programs should include policies
and procedures to detect, prevent and mitigate identity theft
in connection with no credit check bank accounts and existing
accounts as well.
Identity theft is one
of the major bank frauds. Fraudsters steal critical customer
information, such as the social security number, driver licence
number, or bank account number. He then uses the information
to obtain credit.
In a Garner survey of
US households in 2003, it was established that individuals who
are close to the bank customers, commit nearly more than half
of all identity thefts.
Despite the banks fighting
back fraud with ever-increasing ways to detect and contain them,
the identity thieves incessantly fine-tune their methods as
well. Nessa Feddis of the American Bankers Association observes,
the criminals are like water: They see an obstacle; they try
to go around it.
Many banks and credit
card issuers, that extend financial credit to consumers do not
recognise identity theft as fraud, and instead write it off
as a credit loss, says Avivah Litan, vice president and research
director at Garner. As a result, the victims of identity theft
have reached 9.9 million between mid 2002 and mid 2003, as reported
by Federal Trade Commission.
The 2003 Federal Trade
Commission report also estimated the identity theft losses to
financial institutions to have reached USD 47 billion.
Cheque kiting is another
common form of bank theft. Cheque kiters typically open several
accounts with different banks with minimal fund deposits. These
accounts are then used to obtain money for short-term use. Money
is withdrawn from one bank on the strength of the deposit of
a cheque with a second bank. And that cheque is covered by another
one from a third bank, and so on. The scheme works till one
of the accounts goes bankrupt, or the cheque bounces because
of lack of funds. The cheque bounce is known as a Non Sufficient
Fund (NSF) cheque.
Writing a currently dated
cheque represents that there is sufficient money in the account
to cover the cheque. Therefore, an intentionally written NSF
cheque is considered fraud and the offender is liable to face
The OTB case
The Overseas Trust Bank
(OTB) case is a typical example. Before the bank collapsed in
1985, it was the third largest local bank in Hong Kong. Fraud
at OTB began with the involvement of its top officials in the
cheque kiting activity. The cheque-kiting scheme started in
small amounts, which then escalated to huge sums. Later, with
the cheque kiting going awry, the bank collapsed.
The above mentioned frauds
are only a sample. The Internet explosion and its ability to
hide a criminals identity have prompted fraudsters to make
the most out of the present scenario.
The famous Nigerian Letter Scam
Dubbed the Four-One-Nine
scam, this was famous the world over as the Nigerian letter
scam. Initially, the fraudsters took the help of postal services.
With the advent of the Internet, the fraudsters have shifted
their operations online.
The Internet Fraud Complaint
Centre (IFCC) has received more than six hundred complaints
on the Nigerian Letter scam. The monetary loss suffered by the
fraud victims was USD 31,000
The modus operandi
The fraud was committed in this manner. The fraudsters would
send unsolicited e-mail or fax to unassuming victims. The message
promises the victims a huge sum of money for utilising their
no credit check bank accounts to send funds
abroad. The fraudsters would identity themselves as chief auditors
of a bank, chief security officers or as family relatives of
the deceased. They would then request the victims to give them
their telephone number, fax number, address and bank account
The fraudsters then ask the victims to pay money upfront. The
money was supposed to meet miscellaneous expenses in processing
and transferring funds to the overseas account.
would follow by a request for more money and would continue
either till the victims suspend the contract or run out of money.
How to prevent fraud
Awareness to the various
ways in which fraud can be committed and education as to how
this can be prohibited can only help prevent fraud. The use
of modern technology in simplifying the bank operations can
to some extent curtail such fraudulent activities. For instance,
the use of digital imaging technology can enable banks to process
cheques at a much quicker rate and thereby detect fraud in the
early stages. But, even the best technology has its own limitations.
Though it allows for a quick processing, it doesnt allow banks
to scrutinise physical cheques for ensuring protection against
different kinds of fraud.
Frank Abagnale, fraudster
turned banking industry consultant, says that financial institutions
could prevent theft by concealing vital information from its
employees. Most importantly, banks and other financial service
providers should implement solutions that effectively monitor
Its evolution time!!!
Its time the banking industry has got serious about preventing
fraud. Intense competition and lower margins no credit check bank accounts have made
banks to stay on their toes. In such a scenario, fraud cannot
be considered to be a normal loss. If they do, then they are
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