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Types of Bank Fraud

There are many different types of bank fraud. Some of the most common types of fraud tend to be check fraud, debit and credit card fraud, safe deposit box fraud, and ACH fraud, but there are many additional types of bank fraud both within and beyond these basic categories. Here’s a closer look at some of the more unusual types of bank fraud faced.

Accounting Fraud

Accounting fraud primarily affects business lending. Businesses who commit accounting fraud “cook the books” so they look more profitable on paper than they really are. Based on these fraudulent statements, banks grant loans to these businesses, but ultimately, because the businesses are insolvent, they can’t repay the loans. Then, the banks get left with a loss. The classic example is the Enron scandal.

Loan Fraud

Accounting fraud can lead to loan fraud, but this type of fraud isn’t just limited to businesses presenting fraudulent information on their loan applications. When individuals present false information in order to obtain a loan, that is also loan fraud. Similarly, if a thief steals someone’s identity and applies for a loan in their name, that is another type of loan fraud. Additionally, if someone has a line of credit and a scam artist draws funds from that line, that also falls into this category.

Wire Transfer Fraud

Wire fraud includes all cases of fraud involving wire transfers or the internet. In some cases, the scammers steal the username and password of a banking customer, and they wire money to themselves. For instance, when an attacker stole the sign-in details from a company in Missouri, the attacker was able to steal $440,000 in wire transfers

Often, however, with this type of fraud, the scam artist convinces the victim to wire money to them. For instance, in the all-too-popular secret shopper scam, the scam artist convinces someone that they’ve been hired to be a secret shopper for a wire transfer company or a bank. The scam artist directs the victim to wire some funds through that institution. The victim believes that if they do this, they will be compensated for the funds they sent and for their work as a “secret shopper”. However, after they wire the funds, the other party disappears, and the victim never gets their money back.

Phishing Fraud

Phishing is when a scam artist uses email, text, phone calls, or other methods to try to obtain a victim’s banking details. This type of fraud often overlaps with other types of fraud. For instance, fraudsters often use phishing emails to get bank account details from their victims so they can commit ACH or wire transfer fraud.

Rogue Traders

If you run an investment bank, you likely have traders on staff, and in this situation, you need to ensure that you protect yourself from rogue traders. These are traders who engage in unauthorized trades and manipulate the system to make it look as if their trading activities are generating more money for the bank than they really are.

Demand Draft Fraud

Like rogue trading, demand draft fraud happens internally. One of the bankers simply generates a demand draft payable at another branch or even at another bank. Then, they leverage what they know about the system to avoid detection, they cash the demand draft, and they keep the funds.

Bill Discounting Fraud

Although this type of bank fraud is relatively rare, you should still understand the risk. Generally, with bill discounting fraud, the fraudster opens a business account at the bank. Then, the “business owner” convinces the bank to start collecting bills from the business’s clients. The so-called clients are part of the scam, so they always pay the bills. After a while, the financial institution gets lulled into a false sense of security about this customer. Eventually, the customer asks the bank to credit the bills in advance. When the bank does that, the fraudster takes all the money and runs, and the bank never gets those funds back.

ATM Fraud

ATM fraud includes everything from reprogramming the machine to installing a skimmer to steal card details. However, it can also include making fraudulent deposits by depositing empty envelopes — an envelope-free ATM is usually the easiest way to avoid that.

Money Laundering

Money laundering is when criminals deposit fraudulently obtained sums of cash into a bank. They typically try to make the funds look as though they have come from a legitimate source. For instance, if someone is selling drugs, they may try to pretend that the cash is from a business, and they may deposit the funds in that business’s account. Legally, you are obligated to report cases of suspected money laundering, and failure to do so, can put your financial institution into a precarious position.

With so many types of bank fraud and new ones constantly on the horizon, you need fraud protection you can trust. To learn how SQN Banking Systems can help, contact us today.