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What is the Check Kiting Fraud?

Bank deposit fraud is a frequent crime happening with many banks throughout the world. Kiting is a deposit fraud type that does not occur that often; however, this type of scam, even though much rarer, can bring devastating consequences to the banking institutions.

In the words of Sydney Hicks from the Sterling Commerce Banking System Division, ‘Other types of fraud are a thunderstorm while kiting is like a tornado’.

Check kiting is, first and foremost, a rather sophisticated, yet in a way simple fraud type. It can work with a small sum of money, as well as with a large one. It works like this:

Let’s say your Bank A balance is $5, yet you write a check for $500 in another bank (Bank B). Before the processing of the deposit, you return and inform teller at the Bank B that you would like to withdraw $400; you receive the cash and get lost prior to check bouncing.

While this is a simple kite, there have been records of check kiting including several millions of dollars. This sort of money loss can easily ruin an entire banking institution. For instance, records show a credit union based in Illinois that faced a $4M loss and had to shut down. The last decade also showed testimonials of $10M to $20M losses, which are devastating to multiple credit unions and businesses.

A fraud scheme practiced for a long time, especially during financial recessions.

The process is also known as circular kiting (because it works in such a fashion), retail kiting, corporate kiting, etc. Con artists working with this are nothing short of seamless, so the process itself might come undetected for a long time.

Kiting is something that happens just about daily at most banking institutions all around the world; the only variation is the banking security level. While kiting most often revolves around business-owning individuals with low revenues who need to keep their businesses going, it happens with new customers and longtime clients as well.

Normally, check kiting is difficult to spot, because the paper hangers (con artists) do it very well. Details of the transactions do not appear on account sheets. In case of what we call circular kiting (involving multiple account holders), detection gets a lot more difficult.

Penalties for this felony are hefty

This felony is considered a white-collar crime, a serious fraud offense. Normally, kiters play with several millions of dollars; since these crimes are managed by the government, federal and state charges are to be faced by the offender. Fines include up to $500K and 10 to 20 years in prison.

Penalties for this felony are hefty

Steps to prevent getting scammed

First and foremost – make sure to introduce security measures regarding possible signature and endorsement forging. Signature forging is the simplest form of check fraud – checks are legitimate, but the signature is not. Check washing also can have a certain role in minor kiting scams, as working checks might be necessary for the inception of the process. Be very careful of giving your bank information and choose trusted issuers of checks, such as Check Issuing.

From everything previously mentioned, it is easy to conclude that kiting is a massive banking fraud and a very serious offense. And while this crime includes heavy penalties, legal action, and enormous fines, many people still commit it.

If you would like to get to know more, we encourage you, as always, to refer to our website and read about check fraud prevention here.

By |2019-04-11T10:35:08-07:00April 6th, 2019|Blog, Business Operations|0 Comments

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