02 June 2013

The Digital Detective, Banking part 1

Banking on Naïveté

Readers and writers may be aware of many internet ploys attributed to Nigerians and occasionally Russians. One of the first I saw came in an eMail and read something like:
Hello, my name is Renaldo. I’m a Ukraine artist and I sell my works all over the world. Some customers want to pay by cheque or money order, which is expensive and difficult to cash here. I will pay you 10% if you can cash cheques and wire me 90%. Please?
Consider three possibilities:
  1. It’s barely possible although unlikely the request is legitimate.
  2. It’s a money laundering scheme.
  3. It’s an outright scam to grab your money.
In the third outcome, the schemers arrange to have a number of checks sent, which you cash and forward the proceeds. Eventually you receive a large money order or draft drawn on a major bank. Your bank likes it, cashes it, and gives you the money, whereupon you forward 90%.

Two or three weeks later, your now angry banker calls you, demanding restitution for a bad money order. The forgery was so good, it not only fooled you, it fooled them, but by now the money’s in Asia or Africa and you’re stuck, having to repay your bank several thousand dollars.

This works in a similar way to an eBay / Craig’s List scam. You advertise an item for sale and the bid closes at $150. To your surprise, you receive a money order for $1500 followed by a panicky eMail, wherein the buyer claims their bank or post office made a typo and added an extra zero. Instead of returning the check, they say they trust your honesty and since they need the item you’re selling, they suggest you cash the money order and return the excess along with the item you sold.

All goes well until your bank belatedly discovers the money order is fraudulent. Not only is your precious item long gone, but you must repay your bank.

During the next few weeks, I’m going to write about bank and brokerage fraud.

How to Fly a Kite

Kiting was once a commonplace fraud where the perpetrator opens accounts in at least two separate banks, neither of which places a hold on checks. Indeed, kiting exploits the hold greedy banks place on checks, holds where they use your money for free. High-speed electronic banking and stiff penalties have made the crime less common now because many checks can be instantaneously verified.

Here is how traditional kiting works: Our perpetrator, whom we'll call James Whitcomb Wiley III of Beaver Meadows, Indiana (no relation to the real James Whitcomb Wiley III of Beaver Meadows, Indiana) establishes accounts at Frugal Savings & Loan and Penury Bank & Trust, with no money to speak of in either account. Still, our man Wiley wants $1000.

He goes to Frugal S&L and withdraws $1000, covering it with a simultaneous deposit of a check for $1000 drawn upon his Penury Bank account. He’s just kited his first check. An honest person would scurry over to Penury and deposit funds there before the flaky check arrives, but not Wiley.

Wiley intends to live in Beaver Meadows for a while, but his prospects of earning $1000 to reimburse Penury Bank remain elusive. So he writes a check drawn on Frugal S&L to deposit in Penury Bank– whereupon he kites his second check, and now Penury is waiting for Frugal's check to clear. Before the empty account can be discovered, he deposits a fresh but worthless Penury check into Frugal, and continues the cycle.

Theoretically, a diligent fraudster could continue this a long time. In times past, people have pulled it off for weeks, even months. However, such schemes are subject to human error and unforeseen events that eventually expose the kite and bring the party to a halt. Meanwhile, Mr. Wiley has probably moved on to another state, possibly opening an account with a check drawn upon Penury Bank & Trust.

bank vault
A Bank's Back Office

At the bottom of your checks is a row of numbers and hyphens printed in a distinctive 'MICR' type style using special magnetic ink.

You’ll notice at least two groups of numbers. One group you’ll recognize as your account number. The group before it contains nine digits, which represents the bank’s routing number, unique to each institution. You may also find the check number and, after it’s returned from the bank, possibly the amount of the check, which it’s wise to verify.


Banks don’t require customers to use checks they provide, indeed, as the story ‘Swamped’ pointed out, you can write out a check on anything, even a paper napkin. Many people buy checks from a paper supplier, like those that advertise in the local ad sheets.

At the end of a business day, banks gather checks and deposits made during the day and checks received from federal clearing houses, which they feed through a MICR device. MICR (pronounced my’cur) stands for magnetic ink character recognition and the machine, a magnetic ink character reader, reads those numbers from checks and deposits slips into the computer.

Occasionally checks jam or the machine fails to read the numbers. An operator may glue a strip at the bottom or place the check in a glassine envelope and manually key the numbers with a MICR imprinter. If the clearing house sends a check to the wrong bank, it will be kicked out and sent back to be routed to the correct one. Experienced operators are used to this and handle flaws and flubs as a matter of course.

Here I've built background for next week, where I'll reveal the Endless Kite.


  1. And here I thought the only banking problem was B of A's impenetrable statements!

  2. Janice, according to historical sources, Bank of America originally began as a mafia stronghold. It's nice to see it hasn't strayed far from its roots.

  3. Leigh,
    Do you think there's any such thing as an honest bank?

  4. It seems the email scams are pretty easy because of a lack of diligence by the victims but especially by the banks. You would expect the banks to catch bogus checks and money orders no matter how good the forgery.

    And I wonder is it trust or greed that makes people easy targets for such scams.

  5. I don't understand how banks maintain their guise of respectability, but after the government payoffs in 2008, I suppose we have a clue. Wrong as it is, I guess it's little wonder we romanticize bank robbers.

  6. Vicki and anon, for certain banks have devised tricks of the trade, and I use 'tricks' in its trickiest sense.

    Louis, you ask a perceptive question. Often, you hear only greed mentioned, but it seems more complicated than that. Perhaps people ask why they shouldn't experience good fortune too. But I notice a number of the Nigerian scams refer to charities and religion, so I think the schemes play (and prey) upon any number of motives. Greed may be high on the list, but it's too simple and insulting an answer.

  7. I guess bank robbery is legal as long as it's the banks doing the robbing.

    I think greed more than anything drives people in getting sucked into the scams, but there are some pretty gullible folks out there.

  8. Leigh, I hadn't thought about the religious aspect of some of the scams. I can see how that would bring a lot more into play than simple greed.

    Not too long ago I watched a woman on a TV show who was scammed by a Nigerian huckster. She kept refusing to believe she'd been scammed even when the TV host proved it to her. Sometimes people don't want to know the truth.

  9. Vicki, I've read that before, that the portrait scammers paint is so seductive, that victims not only refuse to listen to family and friends, but even after they've lost their savings or house, they continue to believe in the fortune promised by the bad guys.

  10. Lauren Delray02 June, 2013 20:52

    Isn't there some sort of urban legend about somebody writing a check on a pig skin?

  11. I had heard a supposed anecdote about a check written on the side of a live hog, but another article speaks of a cow. It's apparently not unusual to write checks, especially checks to the IRS, on shirts. "Shirt off my back," get it?

  12. I'm not sure how we got on this topic, but here's more on cashing cows and pigs.

  13. "You can't cheat an honest man". Maybe. It's really hard to scam someone who isn't greedy. It's summed up by a telemarketer who called us up one day. My husband answered. The telem. said, "Do you want to be a millionaire?" My husband said, "No." The telemarketer gasped, then babbled, and Allan hung up on him.

    Personally, I love receiving Nigerian scam letters, etc., because I love reading whatever the latest wrinkle is. But why and how people fall for that - is it that we just cannot believe there is no such thing as a free lunch? '


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