FinCEN Issues Nationwide Alert on Rise in Check Fraud Through Mail

From the very onset of 2024, the Financial Crimes Enforcement Network (FinCEN) has zeroed-in on several key issues directly affecting the U.S. financial space that were to be addressed by domestic businesses. Over the last several years, FinCEN – a bureau of the U.S. Department of the Treasury tasked with collecting and analyzing financial data in order to combat international money laundering, terrorism financing and other significant financial crimes – has worked diligently to identify various concerning trends affecting the realms of finance and regulatory compliance for financial service providers, while also highlighting pervasive threats to financial integrity facing American citizens as well. In previous iterations of their reports, the most recent of which coming in January, FinCEN has underlined areas such as identity-related fraud and other criminal trends that include sanctions evasion tactics by Russian actors in wake of the military conflict in Ukraine, illicit financial threats posed by wildlife and human trafficking, ransomware trends affecting financial entities and government agencies, as well as a number of other risks posed to the U.S. real estate sector in its current state. These efforts have culminated in targeted new guidance being issued by the regulator to better detect and mitigate the threats to financial integrity posed through these avenues, this as the federal government continues its crusade against illicit finance.

Fast forward to September, and FinCEN has released yet another a bombshell report on a new topic affecting financial entities small and large, as well as outside industries, and one with unique consequences for the average consumer. The primary subject of this latest Financial Trend Analysis keys on mail theft-related check fraud, an area which the U.S. Treasury Department established as a concern dating back to early 2023, and a trend that developed into a significant issue for law enforcement and various government agencies since the early days of the Covid-19 pandemic. Soon after the Treasury flagged this issue, FinCEN, working in close collaboration with the United States Postal Inspection Service, issued an Alert on Nationwide Surge in Mail Theft-Related Check Fraud Schemes Targeting the U.S. Mail in which this form of crime was labeled the single “largest source of illicit proceeds in the United States” and of the anti-money laundering/countering the financing of terrorism (AML/CFT) National Priorities.^1ßwv=

Mail theft-related check fraud is the fraudulent negotiation of checks stolen from the domestic mail system, namely the U.S. Postal Service. The practice itself is essentially the combination of two crimes: mail theft and check fraud. Unfortunately for the proper authorities attempting to thwart these crimes, this form of illicit activity has arguably the greatest scope of any in the world, as it can take place virtually anywhere in the continental United States and beyond (though more likely to occur in densely populated metropolitan areas). The severity of this growing trend is evidenced by the United States Postal Inspection Service (USPIS) findings from the period between March 2020 and February 2021 alone in which it received 299,020 mail theft complaints, equating to a 161% increase compared with the previous 12-month period.⁴ Also working against law enforcement is the fact that the efforts taken by criminals to complete their schemes are growing much more sophisticated and becoming increasingly organized amongst larger groups of bad actors and criminal syndicates. In line with the major mainstream technological developments seen over the past two decades for consumers and businesses, the practice of conventional check fraud has also grown to include advanced counterfeit check technology of its own which make the transactions ultimately performed appear all the more legitimate and more challenging to identify and deter.

The initial thought that comes to mind when discussing mail fraud often involves the much more localized process of a perpetrator looting neighborhood mailboxes. While stealing mail from personal mailboxes, as well as those actually maintained at USPS locations, remains the single most common method for initiating these crimes, criminals have also successfully turned to the bulk approach that involves going straight to the source in robbing mail carriers themselves. Given the increased risks involved, there has somewhat surprisingly been a major uptick in the total number of these incidents seen over recent years, with FinCEN’s report citing that 412 mail carriers were robbed on duty between October 2021 and October 2022, with another 305 robberies committed in the first half of Fiscal Year 2023 alone.⁴ Clearly the risk has been worth the reward as evidenced by the extraordinary increase in overall check fraud rates seen since 2020 alone however. Bad actors have clearly realized that it is more efficient to rob mail carriers and sort through literal bags of mail at a time than to complete the much more timely process of rummaging through individual mailboxes in hopes of finding a singular check to cash. All told, once criminals steal a check, they have several different ways to go about committing the ultimate fraudulent act. In a breakdown of the BSA data pulled by FinCEN to back their report, they identified three primary outcomes for checks stolen from U.S. mail. FinCEN’s analysis writes that most often, criminals may alter the check by changing the payees and/or the amounts before depositing into accounts different from the one originally intended on the mailed check, which accounted for 44% of the cases surveyed.  The second-highest outcome was 20% of stolen checks being used by fraudsters to duplicate and/or create new counterfeit checks to allow for multiple payouts to be spaced out periodically. Finally, fraudulently signed and deposited checks on behalf of the criminals themselves accounted for another 20% of the cases. The FinCEN report also indicated that the original perpetrators of these crimes have also gone as far as to sell the stolen check to a third-party source who is then free to do with it what they please. 

While mail fraud is certainly an issue affecting society as a whole, the direct connection to the financial sector and its institutions is undeniable. While the larger issue at hand clearly involves USPS and law enforcement struggling to slow this trend down, the second-hand ramifications largely involve U.S. financial institutions, especially when you consider that it is the institution itself who will be liable for the check fraud losses –  especially when the banks themselves have accepted checks that are forged, altered, or improperly endorsed regardless of the sophistication behind these efforts. Given the shear number of domestic financial institutions involved in the check writing and deposit process across America, the problem is growing ever-more pervasive. During FinCEN’s review period of Bank Secrecy Act (BSA) data filed between February 27 and August 31, 2023, the regulator received a total 15,417 BSA reports from 841 financial institutions on mail theft-related check fraud, amounting to more than $688 million in reported suspicious activity.⁴

The U.S. government is now turning towards raising awareness on mail theft-related check fraud to improve the first line of defense against these growing crime threats, calling on citizens to remain vigilant throughout the mailing process, or shifting to more secure online processes (i.e. bill pay) and money transfers altogether. When sending checks by mail, the use of high-security checks is recommended to make the counterfeiting process more difficult for fraudsters. Consumers have also been encouraged to have a bank send wire payments or to simply have banks write checks on behalf of the customer to add an additional layer of security to this process. While sending/delivering mail directly to your local post office is far from the most efficient process, it is also much more secure step than sending via personal mailboxes and even the classic USPS blue boxes at current.  

The report also urges domestic financial institutions to remain vigilant for signs of check fraud, while performing their proper due diligence during the respective deposit and check-cashing processes. This also lends to the adoption of new technologies with increased security features, such as the use of automated check image analysis technology and signature verification tools for proper authentication, to avoid failures in mitigating these risks. FinCEN has also identified several red flags to help financial institutions detect, prevent, and report suspicious activity connected to mail theft-related check fraud. All told this latest Trend Analysis demonstrates the severity of mail theft-related check fraud and why fraud in general remains a top priority for the American government, while also highlighting the important role that financial institutions play in reporting information pursuant to the Bank Secrecy Act to assist in bringing fraudsters to justice.³ Domestic FI’s are also reminded that in cases of suspected mail theft-related check fraud, customers who may be victims should be referred to the U.S. Postal Inspection Service, in addition to the firm involved filing appropriate SAR’s. “FinCEN values its ongoing collaboration with the United States Postal Inspection Service (USPIS) to raise awareness of this criminal activity impacting innocent Americans across the country”, said FinCEN Director Andrea Gacki following the release of the latest FTA.²

The latest Financial Trend Analysis can be read in its entirety here.

Citations

1. “FinCEN Alert on Nationwide Surge in Mail Theft-Related Check Fraud Schemes Targeting the U.S. Mail.” Financial Crimes Enforcement Network, U.S. Department of the Treasury, 27 Feb. 2023. 
2. “FinCEN Says Banks Reported $688 Million in Mail Theft-Related Check Fraud.” PYMNTS.Com, 9 Sept. 2024. 
3. Larson, Kristen E. “FinCEN Reports Check Fraud Amounting to $688 Million over Six Month Period.” Money Laundering Watch, Ballard Spahr LLP, 7 Oct. 2024. 
4. “Mail Theft-Related Check Fraud: Threat Pattern & Trend Information, February to August 2023s.” Financial Crimes Enforcement Network, U.S. Department of the Treasury, Sept. 2024.