Cheque fraud refers to a category of criminal acts that involve making the
Cheque fraud refers to a category of criminal acts that involve making the

unlawful use of cheques in order to illegally acquire or borrow funds that
unlawful use of cheques in order to illegally acquire or borrow funds that

do not exist within the account balance or account-holder's legal ownership.
do not exist within the account balance or account-holder's legal ownership.

Most methods involve taking advantage of the float to draw out these funds.
Most methods involve taking advantage of the float to draw out these funds.

Specific kinds of cheque fraud include cheque kiting, where funds are deposited
Specific kinds of cheque fraud include cheque kiting, where funds are deposited

before the end of the float period to cover the fraud, and paper hanging,
before the end of the float period to cover the fraud, and paper hanging,

where the float offers the opportunity to write fraudulent cheques but the
where the float offers the opportunity to write fraudulent cheques but the

account is never replenished. Types of cheque fraud
account is never replenished. Types of cheque fraud

= Cheque kiting= Cheque kiting refers to use of the float
= Cheque kiting= Cheque kiting refers to use of the float

to take advantage and delay the notice of non-existent funds.
to take advantage and delay the notice of non-existent funds.

= Embezzlement= While some cheque kiters fully intend to
= Embezzlement= While some cheque kiters fully intend to

bring their accounts into good standing, others, often known as paper hangers,
bring their accounts into good standing, others, often known as paper hangers,

have pure fraud in mind, attempting to "take the money and run."
have pure fraud in mind, attempting to "take the money and run."

Bad cheque writing A cheque is written to a merchant or
Bad cheque writing A cheque is written to a merchant or

other recipient, hoping the recipient will not suspect that the chequee will
other recipient, hoping the recipient will not suspect that the chequee will

not clear. The buyer will then take possession of the cash, goods, or
not clear. The buyer will then take possession of the cash, goods, or

services purchased with the cheque, and will hope the recipient will not take
services purchased with the cheque, and will hope the recipient will not take

action or will do so in vain. Abandonment
action or will do so in vain. Abandonment

The paper hanger deposits a cheque one time that s/he knows is bad or
The paper hanger deposits a cheque one time that s/he knows is bad or

fictitious into his/her account. When the bank considers the funds available,
fictitious into his/her account. When the bank considers the funds available,

but before the bank is informed the cheque is bad, the paper hanger then
but before the bank is informed the cheque is bad, the paper hanger then

withdraws the funds in cash. The offender knows the cheque will bounce,
withdraws the funds in cash. The offender knows the cheque will bounce,

and the resulting account will be in debt, but the offender will abandon the
and the resulting account will be in debt, but the offender will abandon the

account and take the cash. Such crimes are often used by petty
account and take the cash. Such crimes are often used by petty

criminals to obtain funds through a quick embezzlement, and are frequently
criminals to obtain funds through a quick embezzlement, and are frequently

conducted using a fictitious or stolen identity in order to hide that of the
conducted using a fictitious or stolen identity in order to hide that of the

real offender. This form of fraud is the basis for the
real offender. This form of fraud is the basis for the

Nigerian cheque scam and other similar schemes; however, in these cases, the
Nigerian cheque scam and other similar schemes; however, in these cases, the

victim will be the one accused of committing such crimes, and will be left
victim will be the one accused of committing such crimes, and will be left

to prove his/her innocence. = Forgery=
to prove his/her innocence. = Forgery=

Sometimes, forgery is the method of choice in defrauding a bank. One form of
Sometimes, forgery is the method of choice in defrauding a bank. One form of

forgery involves the use of a victim's legitimate cheques, that have either
forgery involves the use of a victim's legitimate cheques, that have either

been altogether stolen and then cashed, or altering a cheque that has been
been altogether stolen and then cashed, or altering a cheque that has been

legitimately written to the perpetrator, by adding words and/or digits in order
legitimately written to the perpetrator, by adding words and/or digits in order

to inflate the amount. Other cases involved the use of
to inflate the amount. Other cases involved the use of

completely fake cheques, as in the case of Frank Abagnale. The perpetrator
completely fake cheques, as in the case of Frank Abagnale. The perpetrator

passes or attempts to pass a cheque that has been manufactured by him/herself,
passes or attempts to pass a cheque that has been manufactured by him/herself,

but that represents a non-existent account.
but that represents a non-existent account.

= Unusual cases= Disappearing ink has been used to commit
= Unusual cases= Disappearing ink has been used to commit

a rare form of fraud. In such cases, the perpetrator chemically alters the
a rare form of fraud. In such cases, the perpetrator chemically alters the

substance so that it disappears in several hours or days rather than a few
substance so that it disappears in several hours or days rather than a few

minutes. The individual then writes a cheque to him/herself using Bank A's
minutes. The individual then writes a cheque to him/herself using Bank A's

account for a specified amount, say, $5100. In this amount, the digit 5 is
account for a specified amount, say, $5100. In this amount, the digit 5 is

written with the disappearing ink, and the remainder of the amount in regular
written with the disappearing ink, and the remainder of the amount in regular

ink. The cheque will be deposited in Bank B's account, where $5100 will be
ink. The cheque will be deposited in Bank B's account, where $5100 will be

added, but by the time it reaches Bank A for clearance, the cheque will then read
added, but by the time it reaches Bank A for clearance, the cheque will then read

$100, and only $100 will be debited from that account.
$100, and only $100 will be debited from that account.

Cheque washing involves the theft of a cheque in transit between the writer and
Cheque washing involves the theft of a cheque in transit between the writer and

recipient, followed by the use of chemicals to remove the ink representing
recipient, followed by the use of chemicals to remove the ink representing

all parts other than the signature. The perpetrator then fills in the blanks to
all parts other than the signature. The perpetrator then fills in the blanks to

his or her advantage. Sometimes the cheque fraud comes from an
his or her advantage. Sometimes the cheque fraud comes from an

employee of the bank itself, as was the case with Suzette A. Brock, who was
employee of the bank itself, as was the case with Suzette A. Brock, who was

convicted of theft for writing five corporate cheques to her own birth name
convicted of theft for writing five corporate cheques to her own birth name

from her desk as a loan servicing agent for Banner Bank of Walla Walla, WA.
from her desk as a loan servicing agent for Banner Bank of Walla Walla, WA.

The most notorious "bad cheque artist" of the 20th century, Frank Abagnale,
The most notorious "bad cheque artist" of the 20th century, Frank Abagnale,

devised a scheme to put incorrect MICR numbers at the bottom of the cheque he
devised a scheme to put incorrect MICR numbers at the bottom of the cheque he

wrote, so that they would be routed to the incorrect Federal Reserve Bank for
wrote, so that they would be routed to the incorrect Federal Reserve Bank for

clearing. This allowed him to work longer in one area before his criminal
clearing. This allowed him to work longer in one area before his criminal

activity was detected. Combating cheque fraud
activity was detected. Combating cheque fraud

In most jurisdictions, passing a cheque for an amount of money the writer knows
In most jurisdictions, passing a cheque for an amount of money the writer knows

is not in the account at the time of negotiation is usually considered a
is not in the account at the time of negotiation is usually considered a

violation of criminal law. However, the general practice followed by banks has
violation of criminal law. However, the general practice followed by banks has

been to refrain from prosecuting cheque writers if the cheque reaches the bank
been to refrain from prosecuting cheque writers if the cheque reaches the bank

after sufficient funds have been deposited, thereby allowing it to clear.
after sufficient funds have been deposited, thereby allowing it to clear.

But the account holder is normally held fully liable for all bank penalties,
But the account holder is normally held fully liable for all bank penalties,

civil penalties, and criminal charges allowable by law in the event the cheque
civil penalties, and criminal charges allowable by law in the event the cheque

does not clear the bank. Only when the successful clearance of a
does not clear the bank. Only when the successful clearance of a

cheque is due to a kiting scheme does the bank traditionally take action.
cheque is due to a kiting scheme does the bank traditionally take action.

Banks have always had various methods of detecting kiting schemes and stopping
Banks have always had various methods of detecting kiting schemes and stopping

them in the act. Computer systems in place will alert bank officials when a
them in the act. Computer systems in place will alert bank officials when a

customer engages in various suspicious activities, including frequently
customer engages in various suspicious activities, including frequently

depositing cheque bearing the same, large monthly total deposits accompanied
depositing cheque bearing the same, large monthly total deposits accompanied

by near-zero average daily balances, or avoidance of tellers by frequent use of
by near-zero average daily balances, or avoidance of tellers by frequent use of

ATMs for deposits. New technology in place today may make
ATMs for deposits. New technology in place today may make

most forms of cheque kiting and paper hanging a thing of the past. As new
most forms of cheque kiting and paper hanging a thing of the past. As new

software rapidly catches illegal activity at the teller/branch level
software rapidly catches illegal activity at the teller/branch level

instead of waiting for the nightly runs to the back office, schemes are not only
instead of waiting for the nightly runs to the back office, schemes are not only

easier to detect, but may be prevented by tellers who deny customers illegal
easier to detect, but may be prevented by tellers who deny customers illegal

transactions before they are even started.
transactions before they are even started.

Part of how banks are combating cheque fraud is to offer their clients fraud
Part of how banks are combating cheque fraud is to offer their clients fraud

protection services. Because it is impossible for banks to know every
protection services. Because it is impossible for banks to know every

cheque that a customer writes and which may or may not be fraudulent, the onus
cheque that a customer writes and which may or may not be fraudulent, the onus

is on the client to make the bank aware of what cheque it writes. These systems
is on the client to make the bank aware of what cheque it writes. These systems

allow customers to upload their cheque files to the bank including the cheque
allow customers to upload their cheque files to the bank including the cheque

number, the amount of money, and in some cases, the payee name. Now, when a
number, the amount of money, and in some cases, the payee name. Now, when a

cheque is presented for payment, the bank scrubs it against the information
cheque is presented for payment, the bank scrubs it against the information

on file. If one of the variables does not match, then the cheque would be
on file. If one of the variables does not match, then the cheque would be

flagged as a potentially fraudulent item.
flagged as a potentially fraudulent item.

These services help with external fraud but they do not help if there is
These services help with external fraud but they do not help if there is

internal fraud. If an employee sends information to the bank with fraudulent
internal fraud. If an employee sends information to the bank with fraudulent

items, then the bank would not know to deny payment. A system of dual controls
items, then the bank would not know to deny payment. A system of dual controls

should be put into place in order to not allocate all capabilities to one person.
should be put into place in order to not allocate all capabilities to one person.

Before the passage of the Check Clearing for the 21st Century Act, when cheques
Before the passage of the Check Clearing for the 21st Century Act, when cheques

could take 3 or more days to clear, playing the float was fairly common
could take 3 or more days to clear, playing the float was fairly common

practice in the USA in otherwise-honest individuals who encountered emergencies
practice in the USA in otherwise-honest individuals who encountered emergencies

right before payday. Circular and abandonment frauds are
right before payday. Circular and abandonment frauds are

gradually being eliminated as cheques will clear in Bank B the same day they
gradually being eliminated as cheques will clear in Bank B the same day they

are deposited into Bank A, giving no time at all for non-existent funds to
are deposited into Bank A, giving no time at all for non-existent funds to

become available for withdrawal. With image-sharing technology, the funds that
become available for withdrawal. With image-sharing technology, the funds that

temporarily become available in Bank A's account are wiped out the same day.
temporarily become available in Bank A's account are wiped out the same day.

While there may still be some room for retail kiting, security measures taken
While there may still be some room for retail kiting, security measures taken

by retail chains are helping reduce such incidents. Increasingly, more chains are
by retail chains are helping reduce such incidents. Increasingly, more chains are

limiting the amount of cash back received, the number of times cash back
limiting the amount of cash back received, the number of times cash back

can be offered in a week or a given period of time, and obtaining
can be offered in a week or a given period of time, and obtaining

transactional account balances before offering cash back, thereby denying it
transactional account balances before offering cash back, thereby denying it

to those with low balances. For example, Wal-Mart's policy is to determine
to those with low balances. For example, Wal-Mart's policy is to determine

account balances of those obtaining cash back, and some Safeway locations will
account balances of those obtaining cash back, and some Safeway locations will

not offer cash back on any accounts with balances under $250, even when funds are
not offer cash back on any accounts with balances under $250, even when funds are

sufficient to cover the amount on the cheque. Customers who are noted to
sufficient to cover the amount on the cheque. Customers who are noted to

obtain cash back frequently are also investigated by the corporation to
obtain cash back frequently are also investigated by the corporation to

observe patterns. Some businesses will also use the cheque
observe patterns. Some businesses will also use the cheque

strictly as an informational device to automatically debit funds from the
strictly as an informational device to automatically debit funds from the

account, and will return the item to the customer thereafter. However, in the
account, and will return the item to the customer thereafter. However, in the

United States this is done through the Automated Clearing House; though faster
United States this is done through the Automated Clearing House; though faster

than traditional check clearing, contrary to popular belief the ACH is
than traditional check clearing, contrary to popular belief the ACH is

not instantaneous. Though this practice reduces the room for kiting, it does not
not instantaneous. Though this practice reduces the room for kiting, it does not

always eliminate it. See also
always eliminate it. See also

Advance-fee fraud Bad check restitution program
Advance-fee fraud Bad check restitution program

Bank fraud ChexSystems
Bank fraud ChexSystems

Federal Bureau of Investigation House banking scandal
Federal Bureau of Investigation House banking scandal

Job kiting, named by analogy Qchex
Job kiting, named by analogy Qchex

United States Secret Service White-collar crime
United States Secret Service White-collar crime

References External links
References External links

National Check Fraud Center - a description of laws in all 50 U.S.
National Check Fraud Center - a description of laws in all 50 U.S.

states.
states.