20 Types Of Bank Frauds

This article on 20 Types Of Bank Frauds topic explains types of frauds including flash funds and softwares hackers use to carry out the fraudulent activities. Bank fraud is the use of potentially illegal means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently posing as a bank or other financial institution. In many common breakdown, bank fraud is a criminal offence.

While the specific elements of particular banking fraud laws vary depending on jurisdictions, the term bank fraud applies to actions that employ a scheme or artifice, as opposed to bank robbery or theft. For this reason, bank fraud is sometimes considered a white-collar crime.

MT103 [Flash Funds Fraud]

The scammer will use MT103 Software commonly (flash funds software), they will use it will carry out the illegal transaction with just your basic bank account details, they will send any amount you and them agreed on or you want to sell your property either it’s digital asset or physical produce, it will reflect on your bank account available whereby you will never be suspicious of the transaction to be unauthentic until your business transaction with the scammer is closed and they have moved on, when you will realize you have been scammed is when issues arises with the payment being rejected by your bank (the beneficiary bank) which means the victim’s bank, because your bank will deem it suspicious or inauthentic transaction and will reject it thereby tagging it fraudulent activity.

Accounting Fraud

In order to hide serious financial problems, some businesses have been known to use fraudulent bookkeeping to overstate sales and income, inflate the worth of the company’s assets, or state a profit when the company is operating at a loss,

These tampered records are then used to seek investment in the company’s bond or security issues or to make fraudulent loan applications in a final attempt to obtain more money to delay the inevitable collapse of an unprofitable or mismanaged firm.

Examples of accounting frauds include the Enron scandal, World Com and Ocala Funding. These companies “cooked the books” in order to appear as though they had profits each quarter, when in fact they were deeply in debt.

Demand Draft Fraud

Demand draft (DD) fraud typically involves one or more corrupt bank employees. Firstly, such employees remove a few DD leaves or DD books from stock and write them like a regular DD. Since they are insiders,

They know the coding and punching of a demand draft. Such fraudulent demand drafts are usually drawn payable at a distant city without debiting an account. The draft is cashed at the payable branch.

The fraud is discovered only when the bank’s head office does the branch-wide reconciliation, which normally take six months, by which time the money is gone.

Remotely Created Check Fraud

Remotely created checks are orders of payment created by the payee and authorized by the customer remotely, using a telephone or the internet by providing the required information including the MICR code from a valid check.

They do not bear the signatures of the customers like ordinary cheques. Instead, they bear a legend statement “Authorized by Drawer”. This type of instrument is usually used by credit card companies, utility companies, or telemarketers. The lack of signature makes them susceptible to fraud. The fraud is considered Demand Draft fraud in the US.

Uninsured Deposits

A bank soliciting public deposits may be uninsured or not licensed to operate at all. The objective is usually to solicit for deposits to this uninsured “bank,” although some may also sell stock representing ownership of the “bank.” Sometimes the names appear very official or very similar to those of legitimate banks. For instance, the unlicensed “Chase Trust Bank” of Washington D.C. appeared in 2002, bearing no affiliation to its seemingly apparent namesake; the real Chase Manhattan Bank[3] is based in New York. Accounting fraud has also been used to conceal other theft taking place within a company.

Bill Discounting Fraud

Essentially a confidence trick, a fraudster uses a company at their disposal to gain the bank’s confidence, by posing as a genuine, profitable customer. To give the illusion of being a desired customer, the company regularly and repeatedly uses the bank to get payment from one or more of its customers. These payments are always made, as the customers in question are part of the fraud, actively paying any and all bills the bank attempts to collect. After the fraudster has gained the bank’s trust, the company requests that the bank begin paying the company up front for bills it will collect from the customers later. Many banks will agree but are not likely to go whole hog right away. So again, business continues as normal for the fraudulent company, its fraudulent customers,

and the unwitting bank. As the bank grows more comfortable with the arrangement, it will trust the company more and more and be willing to give it larger and larger sums of money up front. Eventually, when the outstanding balance between the bank and the company is sufficiently large, the company and its customers disappear, taking the money the bank paid up front and leaving no one to pay the bills issued by the bank.

Duplication or Skimming of Credit/Debit Card Information

This takes a number of forms, ranging from merchants copying clients’ credit card numbers for use in later illegal activities or criminals using carbon copies from old mechanical card imprint machines to steal the info, to the use of tampered credit or debit card readers to copy the magnetic stripe from a payment card while a hidden camera captures the numbers on the face of the card.

Some fraudsters have attached fraudulent card stripe readers to publicly accessible ATMs to gain unauthorised access to the contents of the magnetic stripe as well as hidden cameras to illegally record users’ authorisation codes. The data recorded by the cameras and fraudulent card stripe readers are subsequently used to produce duplicate cards that could then be used to make ATM withdrawals from the victims’ accounts. Some of these scammers use offrakle software to carry out these activity.

Cheque Kiting

Cheque kiting exploits a banking system known as “the float” wherein money is temporarily counted twice. When a cheque is deposited to an account at Bank X, the money is made available immediately in that account even though the corresponding amount of money is not immediately removed from the account at Bank Y at which the cheque is drawn. Thus both banks temporarily count the cheque amount as an asset until the cheque formally clears at Bank Y. The float serves a legitimate purpose in banking, but intentionally exploiting the float when funds at Bank Y are insufficient to cover the amount withdrawn from Bank X is a form of fraud.

Forged or Fraudulent Documents

Forged documents are often used to conceal other thefts; banks tend to count their money meticulously so every penny must be accounted for. A document claiming that a sum of money has been borrowed as a loan, withdrawn by an individual depositor or transferred or invested can therefore be valuable to someone who wishes to conceal the fact that the bank’s money has in fact been stolen and is now gone.

Forgery And Altered Cheques

Fraudsters have altered cheques to change the name (in order to deposit cheques intended for payment to someone else) or the amount on the face of cheques, simple altering can change $100.00 into $100,000.00. (However, transactions for such large values are routinely investigated as a matter of policy to prevent fraud.)

Instead of tampering with a real cheque, fraudsters may alternatively attempt to forge a depositor’s signature on a blank cheque or even print their own cheques drawn on accounts owned by others, non-existent accounts, etc. They would subsequently cash the fraudulent cheque through another bank and withdraw the money before the banks realise that the cheque was a fraud.

Fraudulent Loan Applications

These take a number of forms varying from individuals using false information to hide a credit history filled with financial problems and unpaid loans to corporations using accounting fraud to overstate profits in order to make a risky loan appear to be a sound investment for the bank.

Fraudulent Loans

One way to remove money from a bank is to take out a loan, which bankers are more than willing to encourage if they have good reason to believe that the money will be repaid in full with interest. A fraudulent loan, however, is one in which the borrower is a business entity controlled by a dishonest bank officer or an accomplice; the “borrower” then declares bankruptcy or vanishes and the money is gone. The borrower may even be a non-existent entity and the loan is merely an artifice to conceal a theft of a large sum of money from the bank. This can also be seen as a component within mortgage fraud.

Empty ATM Envelope Deposits

A criminal overdraft can result due to the account holder making a worthless or misrepresented deposit at an automated teller machine in order to obtain more cash than present in the account or to prevent a check from being returned due to non-sufficient funds. United States banking law makes the first $100 immediately available and it may be possible for much more uncollected funds to be lost by the bank the following business day before this type of fraud is discovered. The crime could also be perpetrated against another person’s account in an “account takeover” or with a counterfeit ATM card, or an account opened in another person’s name as part of an identity theft scam. The emergence of ATM deposit technology that scans currency and checks without using an envelope may prevent this type of fraud in the future.

Identity Theft or Impersonation

Identity theft operates by obtaining information about an individual, then using the information to apply for identity cards, accounts and credit in that person’s name. Often little more than name, parents’ name, date and place of birth are sufficient to obtain a birth certificate; each document obtained then is used as identification in order to obtain more identity documents. Government-issued standard identification numbers such as “social security numbers” are also valuable to the fraudster.

Money Laundering

The term “money laundering” dates back to the days of Al Capone; money laundering has since been used to describe any scheme by which the true origin of funds is hidden or concealed.

Money laundering is the process by which large amounts of illegally obtained money (from drug trafficking, terrorist activity or other serious crimes) is given the appearance of having originated from a legitimate source.

Card Payment Fraud [commonly Carding]

Credit card fraud is widespread as a means of stealing from banks, merchants and clients. In this case, the scammer will use an OTP bypassing software/technology like offrakle to take out money from the credit/debit card by having info of the card and can use it to buy digital assets (or cryptocurrency from any crypto exchange of their choice or use it to order for expensive goods to an offshore location and use a middle man as proxy to launder the money by giving the middle man percentage after the illegal transaction or activity is completed.

Phishing or Internet Fraud

Phishing, also known as Internet fraud, operates by sending forged e-mail, impersonating an online bank, auction or payment site; the e-mail directs the user to a forged web site which is designed to look like the login to the legitimate site but which claims that the user must update personal info. The information thus stolen is then used in other frauds, such as theft of identity or online auction fraud.

A number of malicious “Trojan horse” programmes have also been used to snoop on Internet users while online, capturing keystrokes or confidential data in order to send it to outside sites.Fake websites can trick a visitor into downloading computer viruses that steal personal information. A visitor encounter security messages claiming his machine has viruses and instructing him to download new software, which is actually a virus.

Prime Bank Fraud

The “prime bank” operation which claims to offer an urgent, exclusive opportunity to cash in on the best-kept secret in the banking industry, guaranteed deposits in “primebanks”, “constitutional banks”, “bank notes and bank-issued debentures from top 500 world banks”, “bank guarantees and standby letters of credit” which generate spectacular returns at no risk and are “endorsed by the World Bank” or various national governments and central bankers. However, these official-sounding phrases and more are the hallmark of the so-called “prime bank” fraud; they may sound great on paper, but the guaranteed offshore investment with the vague claims of an easy 100% monthly return are all fictitious financial instruments intended to defraud individuals.

Rogue Traders

A rogue trader is a trader at a financial institution who engages in unauthorized trading; at times to recoup the loss they incurred in earlier trades. In those instances, out of fear and desperation, they manipulate the internal controls to circumvent detection to buy more time.

Unauthorized trading activities invariably produce more losses due to time constraints; most rogue traders are discovered at an early stage with losses ranging from $1 million to $100 million, but a very few working out of institutions with extremely lax controls were not discovered until the loss had reached well over a billion dollars. Rogue traders may not have criminal intent to defraud their employer to enrich themselves; they may be merely trying to recoup the loss to make their firm whole and salvage their employment. Some of the largest unauthorized trading losses were discovered at Barings Bank (Nick Leeson), Daiwa Bank (Toshihide Iguchi), Sumitomo Corporation (Yasuo Hamanaka), Allfirst Bank (John Rusnak), Société Générale (Jérôme Kerviel), UBS (Kweku Adoboli), and JPMorgan Chase (Bruno Iksil).

Wire Transfer Fraud

Wire transfer networks such as the international SWIFT interbank fund transfer system are tempting as targets as a transfer, once made, is difficult or impossible to reverse. As these networks are used by banks to settle accounts with each other, rapid or overnight wire transfer of large amounts of money are commonplace; while banks have put checks and balances in place, there is the risk that insiders may attempt to use fraudulent or forged documents which claim to request a bank depositor’s money be wired to another bank, often an offshore account in some distant foreign country.

WARNING: There is a very high risk of fraud when dealing with unknown or uninsured institutions.

The risk is greatest when dealing with offshore or Internet banks (as this allows selection of countries with Tax Banking regulations), but not by any means limited to these institutions. There is an annual list of unlicensed banks on the US Treasury Department web site which currently is fifteen pages in length.

Also, a person may send a wire transfer from country to country. Since this takes a few days for the transfer to “clear” and be available to withdraw, the other person may still be able to withdraw the money from the other bank. A new teller or corrupt officer may approve the withdrawal since it is in pending status which then the other person cancels the wire transfer and the bank institution takes a monetary loss.