Understanding the Root of the Problem and What Businesses Can Do

By Ethan Gibble
Contributing Writer

While fraud headlines in 2023 tend to focus on technological advancements like scammers using artificial intelligence to mimic the voices of friends and family in distress, an age-old financial crime is having a surprising renaissance: check fraud.

Earlier this year, the Financial Crimes Enforcement Network (FinCEN) released an alert stating that although the use of checks in the United States has declined steadily over the years, cases of check fraud continue to rise. According to the alert, banks issued more than 680,000 reports of check fraud last year, up from 350,000 reports in 2021, which itself was up 23 percent over 2020 numbers. This rise correlates with an increase in mail theft complaints received by the United States Postal Inspection Service (USPIS), with 299,020 complaints filed from March 2020 through February 2021. That’s a 161 percent increase over the same period a year earlier.

“The increase in crime throughout the country over the past several years has resulted in escalating criminal incidents against the United States Postal Service (USPS),” said Donna Harris, a public information representative with USPIS. The USPIS reports that 412 letter carriers were robbed on the job in 2022, with 305 incidents reported in the first half of 2023. It also reported an increase in high-volume mail theft from receptacles like blue collection boxes, with 38,500 in 2022 and more than 25,000 in the first half of 2023.

What’s Causing the Surge?
Check washing, where thieves steal checks and use chemicals to “wash” off ink and write the check to themselves in a larger amount, isn’t a novel concept. So, what’s behind its resurgence? The correlation between the rise in check fraud and the timing of COVID-19 stimulus funds flowing through the mail system is not a coincidence. Pandemic rescue funds were an easy target for scammers, whose capabilities became more sophisticated with the emergence of encrypted messaging apps such as Telegram. These apps continue to allow criminals to coordinate check fraud schemes with great anonymity and little regulation, according to a recent CNBC cybersecurity report.

Individual bad actors are just one piece of the puzzle, with check fraud posing a significant money laundering threat from criminal organizations as well. These groups will often use “money mules” — people who knowingly or unknowingly assist a criminal enterprise in avoiding detection — to deposit fraudulent checks into legitimate accounts, before transferring those funds to criminally-held accounts. The FinCEN alert makes clear that business checks can be even more valuable because business accounts are typically well-funded and the activity can go undetected longer than when drawing from a personal account.

What’s Being Done to Prevent Fraud?
“Recognizing these ongoing safety threats to mail and our employees, the USPS and USPIS expanded our Project Safe Delivery initiative,” Harris said. “This nationwide initiative takes a holistic approach by not only enforcing the laws when incidents occur but seeks to prevent these crimes from occurring in the first place.” The facets of this initiative include, but are not limited to, hardening blue collection boxes, enhancing collection box key and lock technology, and instituting dual authentication for change of address protocols.”

In a May press release, the USPIS indicated that 12,000 high-security collection boxes will be installed in high-risk areas throughout the country. It also announced that 49,000 electronic locks will be used to replace antiquated arrow locks which are used to secure mail in collection boxes, parcel lockers and cluster box units. Replacing the locks makes arrow keys held by carriers less valuable for criminals, with the intent of simultaneously decreasing letter carrier robberies and unauthorized access to high-volume mail receptacles.

“These measures not only protect the integrity of the mail but offer additional safeguards for our carriers and other employees,” Harris added. “Furthermore, USPS and USPIS are partnering with federal and local authorities to enforce the laws and bring criminals to justice and are deploying national assets to areas hit hard by these types of crimes.”

USPIS has also collaborated with FinCEN to spread awareness of the issue by sharing with financial institutions a list of 10 red flags that may be indicative of check fraud. Banks, for their part, are increasingly investing in software that helps identify fraudulent checks.

What Can Businesses Do?
Though it’s encouraging that government agencies and banks are taking steps to alleviate the issue, a 2022 Association for Financial Professionals Survey, underwritten by J.P. Morgan, reveals that one-third of business-to-business payments in the United States and Canada are still made by check. So, it’s extremely important for businesses to be vigilant as well.

Positive pay, for example, is a banking service that many businesses have embraced. Positive pay requires a business to provide information to its bank such as a dollar amount, date, check number and account number for each check written. The bank cross references those details against checks presented to them for payment and, if anything suspicious is identified, verifies the check’s authenticity with the business before cashing. Reverse positive pay is a comparable service where a bank informs a business of checks it has received, so that the business can verify authenticity on its own and alert the bank of any issues before the checks are cashed. Those services often do come with a fee, however, which may make them cost-prohibitive for some companies. But there are affordable, process-driven changes that can be made as well.

“While we do not endorse products, business customers could consider using special pens designed to prevent check altering and washing,” Harris said, referring to gel pens whose color sinks into check fibers to make writing more difficult to change than a typical pen. “Businesses who mail checks should also consider mailing their checks inside the post office or handing them directly to their letter carrier for enhanced security.”

For Harris, perhaps the most important tip is to stay on top of finances so that immediate action can be taken if something problematic should happen. “Keeping a watchful eye on your business and personal accounts and checking regularly for all types of financial fraud is paramount,” she said. “Checks and balances are important. If a business writes a check for $100 and it’s cashed for $1,000, the first thing to do is immediately contact the bank and then postal inspectors if the check was sent via the U.S. Mail. The quicker we are notified, the quicker we can begin to investigate where the loss has occurred, increasing the chances of identifying and arresting the responsible individual(s).”

To report check washing with a nexus to the U.S. Postal Service, businesses can call the U.S. Postal Inspection Service at (877)-876-2455 or report it online at www.uspis.gov/report. FEDA will continue a series of articles on this issue over the next year.