Check fraud is a serious crime that targets individuals and businesses alike, and it seems like it won’t subside any time soon. In fact, 2023 statistics reveal that financial institutions filed 680,000 suspicious activity reports for possible check fraud in 2022 alone. If this isn’t concerning enough, according to Nasdaq’s Global Financial Crime Report, the Americas alone lost around $21 billion due to this type of financial fraud in 2023.

Whether you issue checks for personal or business-related reasons, staying vigilant is crucial to avoid this crime. In this guide, you’ll learn all about check fraud, its types, and the ways it occurs. We’ll also provide real-life examples of check fraud you can learn from and offer tips to help you stay protected.

What Is Check Fraud?

Check fraud refers to the illegal use of paper or digital checks to steal money from an individual or a business. While there are many types of check fraud, this crime typically involves stealing a check and forging the account holder’s signature, writing counterfeit checks for unauthorized accounts, or altering the check amount or payee.

How Does Check Fraud Happen?

Check fraud can occur in various ways. Sometimes, criminals can commit check fraud in your name by stealing paper checks from your mailbox or office. In other cases, they may impersonate a legitimate business and ask for sensitive data like your payment information via email so they can write checks using your credentials.

Common Types of Check Fraud

While there are various methods criminals use to obtain checks illegally and use them for fraudulent activities, the most frequent types of check fraud are:

1. Paperhanging
2. Check kiting
3. Check washing/cooking
4. Check forgery
5. Identity check theft
6. Check counterfeiting
7. Mobile check fraud
8. Cashier’s check fraud

Paperhanging

Criminals commit paperhanging when they purposefully write bad checks that seem legitimate to pay for goods or services. These checks can’t be cashed because the scammers either don’t have sufficient funds in their account or close the account after writing a check. 

To stay off the bank’s radar, criminals exploit the “float” period—the gap between the time a check is deposited and cleared. This way, the bank can’t notice the check is bad until it bounces. By then, the criminals have already disappeared with the stolen goods.

Check Kiting

Check kiting is similar to paperhanging since it also involves using the “float” time to commit the crime. However, in this type of check fraud, scammers use two different bank accounts to write bad checks from one account to the other. For example, they write a $500 check from Bank A, deposit it to Bank B, and then withdraw the money before Bank B realizes the check is bad.

Check Washing/Cooking

Criminals can steal a paper check and wash it with chemicals to erase the check amount and recipient but keep your signature. This allows them to write in a new amount and add themselves as recipients to deposit the check into their account.

Check cooking works in a similar way—criminals scan and alter the check using special software before printing it. This is usually done to bypass security measures that may prevent check washing.

Check Forgery

Check forgery involves scammers forging your signature and using it on blank checks. They can then write a check for any amount in your name and add themselves as the payee to steal your funds. A forged signature also allows them to make the check or any other documentation seem properly authorized.

Criminals may also forge the endorsement and sign the back of the check in your name. This way, they can deposit and cash checks by pretending to be you. 

In some cases, criminals may steal your already filled-in check and try to use it as if it’s theirs. They may attempt to spend or deposit it by, for example, impersonating the check’s legitimate payee.

Identity Check Theft

Identity check theft involves a criminal impersonating you to write and use checks at your expense. Scammers usually obtain the information they need to impersonate you by hacking into and taking over your accounts, or they may steal your credentials through phishing and open a bank account in your name. This allows them to acquire or forge checks they can deposit or spend.

Check Counterfeiting

Counterfeit checks are fake checks criminals create to fully resemble legitimate checks, but the essential details they add belong either to someone else’s account or a non-existent one. Criminals use these checks to trick individuals or businesses into depositing them, allowing the scammers to withdraw the funds before the account holder or their bank realizes the check is fake.

These checks are usually made using a computer or scanner to include the same design and logo as a legitimate check. Criminals may also create a counterfeit check from scratch using magnetic ink on a blank check to make it look legitimate.

Mobile Check Fraud

Since some mobile apps allow you to deposit checks by capturing images of them, criminals can use this as an opportunity to edit these images and forge or alter checks. They can also attempt to cash a check twice by:

1. Capturing an image of a check and depositing it
2. Depositing the physical check at a bank or an ATM shortly after 

This way, they can use the “float” period to deposit the same check twice before the original deposit clears.

Chashier’s Check Fraud

The most common kind of cashier’s check fraud occurs when criminals buy your products or services and issue a fake check worth more than the goods they’ve purchased. They then provide a reason for overpaying, claiming it was an accident, and ask you for a refund. If you agree, you later find out that the check was fake and the criminal stole your money, but by then, they’ve usually already disappeared.

Real-Life Examples of Check Fraud

Check fraud can range from small floated checks to multi-million dollar scams. 

The three real-life stories that demonstrate the damages and losses check fraud caused in the past are:

1. The Synergy Brands, Inc. Scheme
2. The Texas Check Kiting Fraud 
3. The Cleveland Check Fraud

The Synergy Brands, Inc. Scheme

Mair Faibish, the former CEO of Synergy Brands, Inc., was convicted of participating in a check kiting fraud scheme worth more than $1.3 million in 2014 and sentenced to over five years in prison. The fraud involved issuing checks for more money than Faibish and his co-conspirators had in accounts at several American and Canadian banks. 

To commit the crime, they sent checks to multiple companies in Canada that Faibish was a beneficial owner of. Then, these companies sent checks with larger amounts back to Faibish’s accounts or his other companies, allowing them to move money across international borders and avoid getting caught for a long time.

Synergy seemed to be generating more money than it actually was until it was inspected by the Securities and Exchange Commission in 2008. The company was taken off the stock market the same year and went bankrupt in 2011, costing banks over $26 million.

The Texas Check Kiting Fraud

Texas entrepreneur Jeff Woodward committed a check kiting fraud between 2004 and 2006 through his motorsports and car dealership businesses. Every day, Woodard or his co-conspirators wrote multiple checks on one account and deposited them with another, and they held accounts in several banks.

Half of the checks were signed by Woodward and the other half by his associates, totaling $114 million and resulting in $1.6 million in bank losses. Woodard was sentenced to four years in federal prison and ordered to pay restitution of $2.5 million.

The Cleveland Check Fraud

Three young women in Cleveland executed a check-kiting scheme worth $165,000, leading to $120,000 in losses for multiple banks. They committed fraud by convincing people to open new checking accounts, to which they later deposited bad or counterfeit checks. They then withdrew large sums at a local casino before the banks discovered the checks were illegitimate.

They managed to deposit checks 31 times in 2014 before being caught. The case was investigated by the FBI and the Ohio Casino Control Commission, and the women were prosecuted by the Assistant U.S. Attorneys.

How To Prevent Check Fraud

You can implement several check fraud prevention strategies to protect yourself or your business from this crime. If you combine them all, you’ll have greater chances of reducing the risk of check fraud.

Here are the most effective tips for preventing check fraud:

1. Keep your mail safe
2. Use checks with security features
3. Write checks with black gel pens
4. Use online banking
5. Open a high-security savings account

Keep Your Mail Safe

Criminals can easily steal the checks that arrive in your mailbox if you don’t pick them up immediately. To prevent this from happening, you can:

• Pick up your mail as soon as it arrives
• Send checks through a post office collection box 
• Hand checks directly to a carrier

If you’re expecting a check to arrive while you’re out of town, you can put a hold on your mail or reroute it to another address.

Make sure you shred any old mail, unused/canceled checks, bank statements, or pre-approved credit notices. If you don’t, criminals may steal them from the trash and use them to commit fraud.

Use Checks With Security Features

Always use checks that have security features like watermarks, reactive ink, or security paper. It’s crucial to use checks which are difficult to replicate, so your checks should ideally also include:

• A 3D reflective holo stripe
• A combination of visible and invisible fibers
• High-resolution microprinting

For extra safety, ensure your checks are locked in a safe location until you’re ready to use them.

Write Checks With Black Gel Pens

To ensure your checks are protected from check washing, always write them with long-lasting black gel ink because criminals will have trouble washing it off. For example, Uni-Ball claims its pens have Super Ink which can keep you protected from fraud.

Use Online Banking

If you can, try eliminating writing paper checks altogether and switching to online banking. This will allow you to pay close attention to all your transactions, making it easier to spot suspicious activity on your account.

You can also ask if your bank offers positive pay services—these help you detect check fraud by matching the check information provided by companies with the checks your bank receives.

Open a High-Security Savings Account

If you want to prevent check fraud altogether, consider opening a bank account with strong security features. 

Most banks flag security flaws once financial fraud has already happened, but a high-security banking platform helps you prevent fraud completely. For example, it doesn’t allow transactions with financial institutions previously associated with fraud, and it relies on multi-factor authentication as an extra layer of protection.

The best high-yield savings account that provides various advanced fraud protection features is FortKnox. This platform was created to protect your money from fraud and help you earn high interest rates on the funds in your account.