Bank fraud is one of the prevalent issues in the banking sector today. What we aim to do in this article to vividly portray what bank fraud is. 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. 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 (Wise GEEK, 2019).
According to LeRonHaire, bank fraud can be defined as “an unethical and/or criminal act by an individual or organization to illegally attempt to possess or receive money from a bank or financial institution.” From the foregoing, it is crystal clear that bank fraud is a form of financial illegality that takes place within the banking sector.
In order to have an in-depth understanding of bank fraud, let’s consider some of its typologies.
Credit card fraud.Credit card fraud is when a person or organization tries to use a credit or debit card without the proper authorization for financial gain. One of the primary methods used to perform credit card fraud is the act of duplicating or reproducing the information located on the magnetic strip of the card. This illegal process is known as skimming. Criminals can also perform credit card theft by adding a skimmer of their own on top of the original in an effort to illegally utilize the card and its confidential information. One of the more common forms of credit card fraud occurs after having a debit or credit card stolen or lost. In these situations, an unauthorized party has access to another individual’s credit or debit card numbers (although not knowing the PIN number will make it virtually impossible to withdraw monetary funds from an ATM). In other scenarios, credit card fraud may be performed by retailers and merchants who duplicate the information while they have the card in their possession during a purchase (Haire, 2019).
Check fraud. The term check fraud refers to illegally using a check for unauthorized financial gain. There are several ways that check fraud can occur and here are a few examples:
- depositing a check into an account without the proper authorization
- altering a check by changing bank information such as account numbers
- using a check to make a payment knowing that there are insufficient funds in the account
- altering the payment amount on a check
- using checks for false invoices (Haire, 2019).
Electronic fraud. Electronic fraud can be described as the type of fraud that occurs with the use of the internet. Although non-existent for quite some time, the rise and evolution of the internet over the past few decades has made electronic fraud a playground for those looking to obtain some type of gain illegally and without authorization. E-mail scams are one example of electronic fraud. For example, an individual may receive an e-mail asking them to provide their personal banking information in order to process a loan or some other excuse. The intent is to illegally obtain banking or financial information to use for personal gain. Fake websites are another type of electronic fraud. The purpose of the fake websites is to look as real as possible with the hope that unsuspecting individuals will make a purchase and submit their banking or financial information. Once this information is confiscated, it can be used without any prior authorization for financial gain (Haire, 2019).
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.
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 (Carreker.com, 2012).
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 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 (Bell, 2010).
References
Bell, A (2010). Mortgage Fraud & the Illegal Property Flipping Scheme: A Case Study of United States v. Quintero-Lopez
Haire, L (2019). What Is Bank Fraud?—Definition And Prevention. Retrieved from https://study.com/academy/lesson/what-is-bank-fraud-definition-prevention.html
Vamos, R (2008). Anatomy of Bank Fraud. Retrieved from https://www.fraud-magazine.com/article.aspx?id=467