Sal Scanio spoke at BAI’s Payments Connect 2014 conference, The Future of Payments Fraud, in Las Vegas on March 11, 2014, as part of a panel titled, Counterfeit
Cashier’s Checks: Avoiding Both Fraud and Revenue Losses.
In recent years, financial criminals have moved upstream to find victims, often by scamming established bank customers into accepting counterfeit cashier’s checks. As a recent FBI bulletin illustrates, one common scheme is directed at law firms, in which a fraudster assumes the identity of a foreign entity seeking to retain a law firm to collect a large debt. Shortly after the law firm issues a demand letter, the firm receives a facially valid cashier’s check in payment of the debt. Per the “client’s” instructions, the firm deposits the cashier’s check in its account and then promptly wires out the funds overseas, without allowing the check to clear. The cashier’s check is returned as counterfeit and charged back to the law firm’s account, potentially resulting in an overdrawn account.
While banks have charge-back rights under deposit agreements with their customers as
well as the UCC (including breach-of-warranty claims for indorsement liability), customers often raise non-UCC common law claims in an effort to shift liability for the loss to the bank. Such claims, typically plead equitable estoppel or negligent misrepresentation
based on allegations that the bank said the “check had cleared” or “funds were available,” the bank did not place a Reg. CC hold for any amount over $5,000, or the bank permitted uncollected funds to be transmitted by an international wire transfer. Although the UCC’s provisions often displace common law claims, some courts have held otherwise, particularly in cases where a bank had communications with its customer about the check-collection process, finding they are not specifically covered by the UCC. In virtually all cases, customers argue that banks have superior knowledge of banking operations and greater access to information and thus the depositary should bear the risk of loss.
In order to avoid exposure for fraudulent cashier’s checks, banks may consider various measures, including:
- Placing Reg. CC holds on cashier’s checks over $5,000
- Reviewing the bank’s written disclosures on cashiers’ checks regarding check clearance and funds availability
- Instructing staff on communicating with customers on cashiers’ checks regarding check clearance and funds availability (and documenting those communications where appropriate)
- Include a question on the wire transfer request whether the funds are being sent to a person introduced over the internet
- Implementing appropriate outgoing wire transfer verification procedures, including alerts for wires based on recent deposits
For further information, contact Salvatore Scanio at sscanio@ludwigrobinson.com or 202-289-7605, or Robert Ludwig at rludwig@ludwigrobinson.com or 202-289-7603.