
#12251 by Jillian Sun Aug 02, 2009 12:03 pm
Three things you need to know about fake or stolen checks/money orders:

1. If you accept a check that turns out to be fraudulent, you will be required to return the funds and charged a fee, as well as possibly held legally responsible.
2. Don't accept a check or banker's draft from someone unless you absolutely know and trust them.
3. Remember, even after the value of the check has been credited to your account, there is still a risk that the money could be taken out of your account if the check turns out to be stolen or counterfeit.

There are numerous ways a scammer will try to persuade a victim to cash checks. These are the most common in our experience:

Common types of check fraud or money transfer scams

  • The overpayment scam: this is usually where the victim is selling an item online. The scammer will indicate interest in buying the item but want to send a check for more than the asking price for the item, requesting the seller to cash or deposit the check and send the overage to a third party, often a supposed shipping company. The "shipping company" or other third party is either the same scammer or his accomplice. Another fairly common scenario is where the victim is advertising a room or house for rent and the scammer asks the victim to accept a check for more than the deposit, and send on the balance to him or a fictitious third party.

  • The investor or loan scam: this usually follows on from another type of scam, for example that the victim has won a lottery or is due to inherit a large amount of money, where the victim cannot afford to pay the fees demanded. The money does not exist and the scammer is trying to steal money from the victim in the form of fictitious fees. To "help" the victim pay the fees, the scammer introduces another character, an investor, who can provide the money to pay the fees and will send the victim a check or money order. Alternatively, the scammer may be pretending to be a bank or other financial organisation, and the check is a "loan". Please see more information about loan scams here.

  • The job or representative scam : this is where the scammer pretends to be a legitimate business which has overseas clients but no way to process their payments. The basic premise is a lie, since no reputable company would supply goods to customers without having reliable means to receive their payments. The scammer offers the victim a "job" acting as his representative to process incoming payments. The victim is to receive the checks, pay them into a bank account and wire most of the money by Western Union, keeping a small part as their salary. These positions are often referred to as "financial manager", "company representative" etc.
    Another variant of this scam is the "Mystery Shopper" scam in which victims receive checks to spend at businesses and evaluate the businesses. A business you will be asked to "evaluate" will be a Western Union agent. This is possibly a more plausible pretext than most for asking a victim to send a large amount back to the scammer via Western Union.
    Please see more information on Employment scams here.

  • The love scam : the scammer befriends the victim in a chatroom, on a dating site, or through sites like MySpace. After pretending to fall in love with the victim, the scammer will come up with some pretext to ask the victim to cash a check. For example, he may say that someone owes him money, but he's working abroad and cannot pay it into his own account. The scammer will ask the victim to pay it into their account and send the proceeds to him overseas. Sometimes, the scammer convinces the victim to mail out checks for him that he is unable to mail himself. In those instances, the scammer is actually getting the victim to unwittingly commit a crime, in distributing fraudulent checks. The term for this is a "mule". A video of one victim's story can be found here. More information on Romance Scams can be found in here.

How does the scam work?
In all the circumstances described above, the basic scam is the same. The check/money order is fake, forged or stolen. The banks like to clear checks for customers as quickly as possible, so they may show some or all of the proceeds of the check in the victim's account before the bank knows for sure that the check is legitimate. In some countries or states, banks are required to release the proceeds of checks into accounts within a certain number of days. When the victim sees the money in their account, they think that everything is fine, so they send off the money and/or goods being sold to the scammer. Some time later, the bank realises that the check is forged or stolen, and debits the victim's account. The victim is financially responsible for the entire check and will be out any monies or goods sent to the scammer.

How long does it take for a check to clear properly?
Checks can take a long time to go through the system completely so do not assume that a fraudulent check will bounce in a few days or even a couple of weeks. Here's a scenario where it could take months to be returned: Account information on a legitimate bank account is stolen and forged checks are produced using that account number. A victim receives one of the forged checks and deposits it. Their bank checks with the paying bank and sees that it is indeed a legitimate account number and the funds are there to cover the check. Eventually, the account holder whose account was stolen notices the forged checks and reports it. The paying bank contacts the victim's bank and returns the check as fraudulent. The victim's bank notifies the victim and removes the amount for the check from the victim's account. This entire process could take months. Remember, you are financially and usually legally responsible for all checks deposited into your account, even after the bank has made the funds available to you.

Will banks cover the loss?
No. In most countries, the law says that it is up to you to ensure you know who you are dealing with : if you are dealing with a criminal, they will say it is your problem, not theirs. The bank will almost certainly not be liable, even if they have shown the amount as cleared and their terms and conditions spell this out. If you want to be protected, ask your bank to confirm in writing that the check has cleared fully. If they do so, and you act on that and send money, then even if it does later prove to be fake, you'll be protected. Most banks are unlikely to give you that reassurance so you'll need to protect yourself.

Possible legal consequences for the victim
We find that victims of check fraud are often worse off by more than just the money or goods they sent. More and more often, the victim finds that their account is closed by their bank, and they may have trouble opening an account with another bank. Banks frequently call the police, so a victim may be arrested or investigated by the police for money laundering.

How to protect yourself
Read the information here, and on the linked websites, and see if the circumstances sound familiar. If they do, you can ask for advice here and we will do our best to show you whether it is a scam or not. If you are at all unsure about a check, money order, cashier's check or travellers check you have received, you should take it to your bank or local police and tell them you think it may be from a scammer.

More information about check scams
Metropolitan Police Fraud Alert on overpayment scams
National Fraud Information Center guidance
Joe Wein information on company representative scams, with examples

Check scam news items
CBS News - Check scam victim loses $8,000 and gets arrested
CBS News : Check scam victims lose $7,200


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