Topic: Fraud
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An international bank has wired funds to one of our customers. We believe that the wire was fraudulent and that the customer could possibly be a party to the fraud. If the international bank decides to recall the wire, may we send back the funds without the customer’s permission if the customer insists that the wire was not fraudulent? We currently have the funds frozen.
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In certain narrow circumstances described below, we believe that you may send the funds back to the originating bank without the customer’s permission — but there is no guarantee that you will be able to recover the funds from your customer after refunding the originating bank. Under the Uniform Commercial Code (UCC), once your bank…
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We discovered that a cashier’s check issued on behalf of our customer was deposited and cleared at another institution, without the payee’s official endorsement. The check’s payee said that they do not bank with the other institution and the other institution stated that we need to submit a forged endorsement case so they can research it. How should we submit such a case? We have an “Affidavit of Alteration or Other Fraudulent Act” form, but we do not know whether the customer or the bank should sign and complete it, since it was a cashier’s check drawn on our bank’s account. Additionally, are there any Illinois Uniform Commercial Code (UCC) provisions we should consider?
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We believe that the “Affidavit of Alteration or Other Fraudulent Act” form should be signed and completed by your institution, as the relevant cashier’s check is a draft drawn by your bank against its own account. Your bank’s “Affidavit of Alteration or Other Fraudulent Act” form states that an account owner must sign and complete…
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A customer asked to deposit several checks totaling more than $5,000 and then requested that the funds be wired out. The customer claimed to be helping a friend, but we suspect they may be involved in a money mule scheme. Our primary regulator is the FDIC, and we are familiar with the steps for filing a suspicious activity report (SAR) but would like to know who in addition to FinCEN we should contact regarding this matter. Is it appropriate to alert local law enforcement, and is there a hotline we should call? We do not want to provide information we are prohibited from disclosing.
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In addition to FinCEN, we believe it would be appropriate to alert local law enforcement, your local FBI field office, and your FDIC regional office of a suspected money mule scheme. The FDIC’s SAR rules direct banks to file a SAR “with the appropriate federal law enforcement agencies and the Department of Treasury in accordance…
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We have been receiving requests from customers to allow reverse wires where, for example, a customer’s payroll company would initiate a wire request rather than the customer. Have you seen this practice, and are you aware of heightened fraud for this type of transaction? On receiving such a request, we would call our customer to confirm its legitimacy and have the customer sign an agreement in which they would provide the account number where the wire is to be sent. Any additional insights related to this process would be helpful.
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We believe that reverse wires may pose higher risks of fraud than traditional wire transfers, since they are initiated by the recipient of the wired funds, but we believe that the risks can be reduced using fraud prevention measures such as those described in your question. We are aware that some payroll companies require payment…
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A customer just notified us that ACH fraud has occurred on their account for the last six months. Does Regulation E require that we credit the customer for unauthorized transactions made during the sixty-day period preceding the notification, or for the sixty-day period occurring after the first unauthorized transaction that occurred when the fraud first began?
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Your bank likely will be required to credit the customer for unauthorized transactions that occurred during the first sixty days after you transmitted a periodic statement showing an unauthorized transaction. Under Regulation E, when a customer fails to report an unauthorized transaction within sixty days after transmittal of the statement showing the unauthorized transaction, the…
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A customer used the Cash App mobile payment service in a transaction that turned out to be a scam. Although the customer initiated the transaction, they were defrauded by the other party. Is there anything we need to do in this situation, and is there any state law that protects an individual who is a party to a transaction where another party has acted in bad faith?
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No, we do not believe you are required to take action when a customer initiates a mobile peer-to-peer (P2P) transaction that turns out to be fraudulent. Regulation E defines an “unauthorized electronic fund transfer” as “an electronic fund transfer from a consumer’s account initiated by a person other than the consumer without actual authority to…
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We have begun to detect fraud related to the CARES Act stimulus programs. Often, these customers did not obtain their loans or stimulus through our bank. Apparently, fraudsters are approaching individuals and encouraging them to fraudulently apply for SBA loans, then taking a percentage of the funds. We have worked with the Secret Service and other law enforcement agencies and have been successful in recovering some of this fraud, but we are unsure what the extent of our responsibility is with respect to fraud detection. If we simply file a suspicious activity report (SAR), the fraudulently obtained funds likely will be long gone before the proper authorities have time to act. How should we balance policing these federal stimulus programs with the reputational risk of offending customers with legitimate transactions?
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Your bank might consider reporting suspected fraud involving Paycheck Protection Program (PPP) loans and Economic Injury Disaster loans (EIDLs) to the Small Business Administration, in addition to your current efforts to file SARs and report fraud to law enforcement agencies. When you suspect fraud related to an EIDL, you may contact or submit a complaint…
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Do we need to have a legal document authorizing us to freeze a customer’s account, or can we initiate a freeze to investigate suspected fraud if our account agreement allows us this privilege? We believe a customer may be committing fraud, and we want to freeze their account before any more potentially fraudulent checks are deposited into the account.
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No, we do not believe you need a document authorizing you to freeze an account if the terms of your account agreement allow you to freeze an account to investigate suspected fraud. Generally, your bank’s authority to freeze your customer’s account is governed by your account agreement. Additionally, we note that when investigating suspected fraud,…
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We paid five checks that turned out to be forgeries for a business customer. Our customer notified us of the forgeries shortly after receiving their account statement, and we returned them to the depository bank, but the returns were after the midnight deadline. Our account agreement provides that we are not responsible for any unauthorized signature or alteration that would not be identified by a reasonable inspection of the item. Our account agreement does not mention or offer specific fraud detection services. Can we avoid liability on this basis?
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We would not recommend relying on your account agreement to avoid liability to a customer for forged checks that your customer reported in a timely manner, but we note that we cannot provide legal advice. We recommend working with bank counsel to review and analyze your account agreement’s provisions with respect to the customer’s responsibility…
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We learned that a customer fraudulently obtained an economic injury disaster grant from the SBA, despite not owning a business. The customer used the funds to purchase a cashier’s check that was mailed to a recipient who cashed it at an out-of-state bank. We learned of the fraud approximately one week after issuing the cashier’s check and put a stop payment on it. When the check came into our bank, we returned it due to the stop payment. However, the depository bank claims that it called our bank to verify the authenticity of the cashier’s check and was advised that it is valid. Are we liable for the cashier’s check?
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Yes, we believe your bank is liable for the cashier’s check. The Illinois Supreme Court has held that a cashier’s check is the equivalent of cash. As a general rule, once a cashier’s check enters the stream of commerce, the issuer (your bank) is liable under the Uniform Commercial Code (UCC) if it refuses to…