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One of our commercial customers reported several checks as forgeries promptly after receiving its account statement. The customer’s employee had stolen the checks and forged them. Should we file a police report? If the customer receives restitution from its employee, would we be entitled to receive that restitution?

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Since a police report already has been filed regarding the forgeries, the question becomes whether the bank should file a suspicious activity report, which would be required if the total dollar amount of the forgeries exceeds $5,000. 

Also, under the Uniform Commercial Code (UCC), in most circumstances, you will need to reimburse the customer for the amount of a forged check if the customer alerts you to the forgery with “reasonable promptness” (i.e., within one year of receiving an account statement, or a shorter time period defined by your account agreement). Since the customer reported the forgeries within a week of receiving the account statement, it undoubtedly has fulfilled its obligation to report the forgery to you in a timely fashion. As the payor bank, your institution will be liable for the forged checks (the exception would be if the presenting bank was aware of the forgery). 

There is nothing preventing you from also reporting the incident along with the amount of your loss to the police. Since it is possible that a court in criminal proceeding involving the employee might order the employee to reimburse your institution (since your institution likely will incur the loss), this second filing of a police report will place the fact and amount of your loss into the record of the criminal proceeding. Having said that, it may be necessary for your bank to directly sue the employee for reimbursement. 

For resources related to our guidance, please see:

  • FinCEN SAR rules, 31 CFR 1020.320(a)(2) (“A transaction requires reporting . . . if it is conducted or attempted by, at, or through the bank, it involves or aggregates at least $5,000 in funds or other assets . . . .”)
  • UCC, 810 ILCS 5/3-401(a) (“A person is not liable on an instrument unless (i) the person signed the instrument . . . .”)
  • UCC, 810 ILCS 5/4-406(c) (“[T]he customer must exercise reasonable promptness in examining the statement. . . If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer must promptly notify the bank of the relevant facts.”)
  • UCC, 810 ILCS 5/4-302(a) (“If an item is presented to and received by a payor bank, the bank is accountable for the amount of: (1) a demand item . . . whether properly payable or not, if the bank, in any case in which it is not also the depository bank, retains the item beyond midnight of the banking day of receipt . . . .”)