Even Nigerian Internet scams evolve and become more sophisticated as time passes. Today, we see scams allegedly originating from many countries; and in reality, who really knows where these criminals are domiciled.
In addition to possible geographic dispersion, some of these scams that I have seen incorporate elements that tend to make them more believable than earlier scams. For example, a certain genre of scams involves seeking out an attorney purportedly to accept checks from a fictitious company’s customers, deposit the checks into the attorney’s bank account, retain a five-figure amount as the attorney’s “fee” for providing the service, and then forwarding the rest of the payment to the fictitious company in some foreign country. My own personal experience has been that most of these scams purport to be for companies in Asia; but as I stated earlier, who really knows?
The element that I have seen that lends credibility to this type of scam is that the criminal approaches the attorney based upon finding the attorney’s name in the state bar association’s member list, and may state in their initial communication to the attorney that he or she was recommended to the fictitious company by the state bar association.
Of course, the simple plan for this type of scam is that the initial check received by the attorney, while allegedly a payment from a customer of the fictitious company, is in fact a completely phony check backed by no funds whatsoever, and most certainly sent by the fictitious company itself. The criminal’s intent is to have the attorney deposit the phony check into his personal, business, or Interest on Lawyers Trust Account (“IOLTA account”), and then forward the specified amount of funds on to the fictitious company, leaving a five-figure fee for the attorney.
If there is no indication that the check presented for deposit is a fraudulent check, then the bank can make the case that it in good faith accepted the check for deposit into the customer’s account, as it typically does any other check in the normal course of business.
However, if the check has clear indications of fraud, and if it is known that a bank employee or officer personally handled the check when it was presented for deposit into the customer’s account, then that is a different matter altogether.
Another interesting wrinkle, and one that also tends to add credibility in the mind of an attorney who is most likely untrained as a banker, is that the phony check is quite often a phony Cashier’s Check or Official Check from a well known bank.
As you most likely already know, the reason that a Cashier’s Check is so enticing in one of these scam transactions is that the Cashier’s Check is an obligation of the bank, and not an obligation of the party making the payment. The party that purchased the Cashier’s Check has paid its funds to the bank that issues the check, so the payment risk from the company presenting the Cashier’s Check is an issue for the bank and is not an issue for the recipient of the Cashier’s Check. The recipient of the Cashier’s Check is comforted by knowing that the Cashier’s Check is an obligation of the bank and not of the party that paid the bank for the Cashier’s Check.
One of these phony Cashier’s Checks that I examined recently had the following problems that were obvious to me as a trained banker but that may not have been obvious to an attorney or another non-banker:
1. This particular phony Cashier’s Check purportedly was issued by Citibank. The print on the “Citibank” name that appears in the upper left-hand corner of the check was obviously of two different type fonts. Clearly, the criminal that created the check lifted the “Citi” logo, including the umbrella, from one source and then simply added the remaining “bank” in as close a font as he or she could find, and clearly did not do a good job of trying to match up the fonts. This is a clear indication of fraud.
2. In the bottom left-hand corner of the check is the term “Name of Remiter” and the word “remiter” is misspelled. The correct spelling is “remitter.” This is a second indication of fraud.
3. Having noticed the font problem as well as the misspelling, a reasonable banker should make other efforts to determine the legitimacy of the subject Cashier’s Check. One item the banker could check was the routing number. When I checked the routing number on this phony Cashier’s Check, the number did not match up with the particular Citibank entity that was named on the check as the remitter. This is a third indication of fraud.
4. A search of the websites and SEC filings of Citibank and Citigroup indicate that there is no such entity as the fictitious one named as the remitter of the check. This is a fourth indication of fraud.
5. This particular phony Cashier’s Check had a toll-free number printed on it. A prudent banker, seeing the other indications of fraud, should simply call the toll-free number, as I did, and the banker would find that the number did not belong to Citibank at all but rather was the number of the O2 Messaging Service in the UK answered by a recording of a lady with a distinct British accent. This is a fifth indication of fraud.
In my professional opinion, it immediately should have been obvious to any reasonably knowledgeable banker that this large Cashier’s Check was a phony check. At the same time, I would not necessarily expect a typical bank customer – even an attorney customer - to recognize these indications of fraud since bankers have the expertise to know what to look for on a check in terms of indications of fraud. Consumers usually do not have this expertise.
Since most of the checks I have seen in these scams are of the six-figure variety, it is my opinion that they are certainly large enough to warrant close scrutiny by the bank.
In most of these scam cases, the sizable phony check is handed over the counter to a teller. Therefore, a bank employee has the opportunity to inspect the phony check, and has the further opportunity to present the phony check to a supervisor or bank officer for their inspection.
This inspection issue is important because banks serve as the “traffic cops,” so to speak, in determining which instruments enter the banking system and which instruments do not. When a bank fails to recognize an obviously fraudulent check and accepts it for deposit, the bank enables the fraudulent check to enter the banking system and run its unfortunate course that results in a loss. In my professional opinion, a bank’s failure to recognize an obviously fraudulent check, such as the one described above, often is the proximate cause of the loss in these situations.
Nationwide banking industry standards would dictate that any reasonable banker notify a customer presenting a check with clear indications of fraud that it appears that the check is a fraud, and refuse to accept the check for deposit into the customer’s account. If the Bank in the above cited case had noticed any of the five clear indications of fraud, and had followed this common, logical, nationwide banking industry standard, then it is more likely than not that the scam would have stopped at that point and no losses would have occurred.
It is a nationwide banking industry standard that banks are responsible for training their employees, especially the employees that handle checks, in methods for recognizing fraudulent checks. When a bank fails to provide this training for their staff, or provides insufficient training, then the bank is ill prepared to monitor the legitimacy of the checks accepted for deposit into the accounts of its customers.
When a bank accepts for deposit an obviously fraudulent check with multiple clear indications of fraud, it is my professional opinion that the Bank cannot claim holder-in-due-course status.
It has been my professional experience that those who are not banking professionals generally do not know the details of check clearing and look to their bank for guidance in these matters. Furthermore, it has been my professional experience that a customer of a bank is justified in relying upon what the bank’s officers and employees tell the customer.
Therefore, it is important that bank employees and officers must be very precise in the language they use when communicating with bank customers regarding the status of checks intended to be deposited. According to Regulation CC, “Available for Withdrawal” is defined as:
“Available for withdrawal with respect to funds deposited means available for all uses generally permitted to the customer for actually and finally collected funds under the bank's account agreement or policies, such as for payment of checks drawn on the account, certification of checks drawn on the account, electronic payments, withdrawals by cash, and transfers between accounts.” (Source: 12 C.F.R. § 229.2 Definitions. Federal Reserve Regulation CC.)
Please notice that this definition includes the words “… actually and finally collected funds …” which puts to rest in the mind of any reasonable person any idea that the status of the funds represented by the check could change in the future.
Customers are often confused by the concept of “provisional credit” (as described in Title 4 of the UCC) that is granted to deposits when they are received but before the check has finally cleared the bank on which it was drawn, making the status of the funds “final” and “available for withdrawal.” Provisional credit means that the funds can be reversed out of the account if the check fails to clear the bank on which it was drawn. In effect, provisional credit means that the status of the funds represented by the check is subject to change up until the point that the check is finally settled and the funds are made available for use.
The problem is that some banks have written into their Rules of Accounts that they can reverse a deposit out of a customer’s account anytime that a problem occurs with a deposited check, whenever that might be. To my knowledge, there are no known surveys of banks’ policies in this regard, but in my professional opinion, an open-ended policy regarding final settlement of a check is unreasonable in that there is apparently no defined end-point in time at which the bank ever considers a deposited check to be finally settled. Clearly, this is unreasonable, and makes it impossible for a customer to ever know when the funds represented by a check are available for use.
In my professional opinion, an open-ended policy is unreasonable in that it never gives the customer a point in time when they can be assured that the deposited check has finally cleared and settled.
Clearly, no intelligent and reasonable businessperson would send out their own check or wire out their own funds, especially to an account in a foreign country, unless they were sure that they were wiring against good funds. That is precisely why it is imperative that a bank clearly and accurately communicate to their customer the status of funds that the bank accepts for deposit into a customer’s account.
These scams involve a nonexistent transaction between the company that contacted the attorney to hire him to collect money for them and a second company that allegedly owes them money in payment of a purchase. In reality, the scam artist is not affiliated with the company he says he is, and there is no transaction between the two companies. A further confusing factor is that the entities that are purportedly involved in the fraudulent transaction are, at least in my experience, real companies; but they are not actually involved in any transaction at all. Therefore, if an attorney who receives one of these checks decides to perform some due diligence by investigating the existence of the companies, he will find that they are real companies, and that it would be logical for them to be doing business together. For example, one case involved a company that makes production machinery and the other company is a manufacturer that would be a logical user of this type of machinery. The bottom line is that due diligence that determines that both companies exist and are logical business partners does nothing but support the legitimacy of the transaction.
Some of the companies alleged to be involved in these phony transactions are in Asia (I've seen Korea, Taiwan, Hong Kong, People's Republic of China, Japan, and others), so it is unlikely that an attorney would have much chance of success in telephoning the company due to time zone differences, language difficulties, etc.
Many Complaints seem to indicate that the UCC implies that the date by which a final settlement of a check must be achieved is open-ended. As a professional banker with forty years’ experience, I have never heard this claim nor have I ever seen anything that indicates that it is true. Certainly it would be unreasonable to have an open-ended time period during which a check could be returned. Consequently, a bank’s customer relies on his or her bank to tell them when they have use of the funds. Accordingly, when a bank provides its customer with false or misleading information regarding the status of a deposited check, and this triggers the customer’s issuance of a check or outgoing wire transfer, then it is more likely than not that the bank will be held responsible as being the proximate cause of any loss.
Furthermore, it is common knowledge in the banking industry nationwide that the guidelines for the two main means of effecting international funds transfers, SWIFT (Society for Worldwide Interbank Financial Telecommunications) and CHIPS (Clearing House Interbank Payments System), discourage initiating funds transfers that rely on funds that have not yet been determined to be good.
Another reason that it is imperative that a bank clearly communicate the status of funds, especially a large amount of funds, deposited into a customer’s account is that it is clearly foreseeable by the bank that a serious problem can result if the funds are not available to cover an outgoing check or wire transfer that is intended to be covered by the deposited funds.
As I mentioned earlier, one popular genre of these scams involves targeting attorneys. Attorneys can deposit checks into their personal account, their business account, or their IOLTA account, or whatever an attorney’s trust account may be called in your state. All bank employees that handle checking accounts should be trained to know that an attorney’s trust account or IOLTA account should not be overdrawn, and that an overdrawn account of this type usually automatically triggers a notice from the bank to the state bar association regarding the overdrawn status of the account. Therefore, any bank employee handling these matters should know that an attorney would never risk overdrawing his or her IOLTA account, and the bank personnel should notify the attorney if there was any chance that the funds represented by the subject check would not be good or would not cover any proposed outgoing check or wire transfer.
In my professional opinion, a bank that fails to follow the guidelines, policies, and procedures described above fails to exhibit good faith, honesty in fact, ordinary care, and commercially reasonable standards of fair dealing with its customers.
ABOUT THE AUTHOR: Don Coker
Don Coker has 40 years' experience as a banker, bank regulator, and consultant. Called on as an expert witness consultant for over 460 cases nationwide for plaintiffs and defendants. Over 100 testimonies. In DRI and AAJ databases of recommended experts. Widely published. Highly credible. Mr. Coker serves clients worldwide from his office in the metro Atlanta, Georgia area.
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More information about Don Coker
Internet Check Scams that Target Attorneys and Law Firms
By Don Coker Banking Consultant & Banking Industry Standard Procedures Expert Witness
Call Don Coker at (770) 852-2286
Check Scam scenarios evolve and become more sophisticated over time. Anyone can become a target for a check scam criminal. However, as strange as this may sound, one of the most popular (and effective) check scam scenarios today is one that targets attorneys. Expert Witness Don Coker explains what you need to know to protect yourself and to deal with problems that occur.
While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.