What is Check Kiting?
This refers to the purposeful issuing of a check wherein there is not an adequate amount to settle the designated amount. Some of the mechanisms of this fraud strategy include:
- Issuing a check for which there isn’t enough money in the account of the payer.
- Depositing the forged check in a checking account which was recently opened.
- Opening a checking account at a different bank or financial institution.
- Withdrawing the money from the new checking account.
The entity victimized by check kiting is the financial institution that has granted the funds to be withdrawn from the new checking account without waiting for a certain amount of money to check in from the paying bank.
Financial institutions solve this concern by not permitting funds to be withdrawn from the account until a specific time period has gone by. There are several indicators of kiting:
- A number of checks are drawn on the same financial institution
- A considerable number of check deposits per day
- Deposits are being done through several branches of banks. This is to make the deposits’ volume less evident to bank personnel.
- A huge amount of money in an account that hasn’t cleared the paying financial institution
Fundamentally, this kind of fraud is intentional. Anyone involved in check kiting generally has a vast insight of the length of time for checks to clear. People engaged in this fraudulent act will exploit the timing delay in order to withdraw money prior to the financial institution uncovering that there is a dispute. An expert check kiting strategy can lead to losses of millions of dollars.