Federal Entities Warn of Fraudulent Practices
Fraud prevention has been at the forefront of discussions in the financial sector during the early part of 2023, as the Financial Crimes Enforcement Center (FinCEN), the Federal Trade Commission (FTC), and other federal entities roll out warnings of fraud.
The FTC reported that consumers lost over “$5.8 billion to fraud in 2021, an increase of more than 70% over the previous year[,]” and in June 2022, consumers reported a $1 billion loss since the start of 2021 due to crypto scams alone. Most of the crypto scams reportedly originated on social media as “bogus investment opportunities” or “romance scams.” Other top fraud scams include “[i]mposter scams, online shopping scams, prize promotions, sweepstakes, lotteries, Internet services, and business and job opportunities[.]”
U.S. banking regulators released a joint statement[1] on January 3, 2023 addressing cryptocurrency related scams and fraud. The statement comes after the collapse of crypto exchange FTX, which CNBC claims exposed the crypto industry for being “rife with poor risk management, interconnected risks and outright fraud.” The regulatory agencies stated that while “[b]anking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type,” the agencies are still assessing if and how banks can conduct crypto-asset-related activities while adhering to safe and sound banking practices. The agencies said they will continue to monitor crypto-asset-related exposure and issue additional, related statements.
FinCEN, in collaboration with the United States Postal Inspection Service, also addressed the increase in fraud in its alert[2] issued on February 27, 2023, which focused on the “nationwide surge in check fraud schemes targeting the U.S. Mail[.]” While there have been cases of United States Postal Service employees stealing checks at work, FinCEN says that most fraudsters are non-employees who range from individuals to organized crime groups. The alert highlights red flags for financial institutions to look for when identifying check fraud, which include:
· uncharacteristically large withdrawals from a customer’s account via check;
· customer complaints of lost or stolen checks, or checks deposited into an unknown account;
· customer complaints that a check was never received by the recipient;
· checks used for potential withdrawals appear to be different check stock than the known, legitimate check stocks used by the bank;
· a customer with no history of check deposits suddenly has check deposits and withdrawals or transfers of funds;
· a sudden, uncharacteristic deposit of checks followed by withdrawals or transfers of funds;
· checks that give the appearance the original handwriting has been overwritten;
· a new customer opens an account that is only used for frequent check deposits and withdrawals and transfers of funds; and
· a suspicious noncustomer attempting to cash checks in person.
Financial institutions with reason to suspect illegal activity are required to file a Suspicious Activity Report and should reference the “connection between the suspicious activity and the activity highlighted in [the] alert[.]”