Famous Figure Fights Fraud

First he wrote bad checks. Then he went to jail. Then he joined the FBI. Then he wrote a biography that became a movie directed by Steven Spielberg where he was portrayed by Leonardo DiCaprio and chased by Tom Hanks. Now he’s telling mortgage company executives how they can avoid being looted.

At the recent annual Mortgage Bankers Association convention and expo in San Francisco, Frank W. Abagnale, a former master forger who now works for the FBI and is author and subject of the hit movie Catch Me If You Can, informed industry executives how to prevent their companies from being victim of the national epidemic of check fraud and protect themselves, employees and customers from identity theft.

From 1988 to 1998, financial institutions prosecuted $771 million worth of forged checks. “But, for all their efforts, and yours likely, they’ve collected less than 5% of the court ordered restitution,” or $37 million, he added.

The former criminal said there are two main reasons for check fraud epidemic.

“We don’t like to hear it, but the truth is we live an extremely unethical society,” and secondly, “we’ve made it simple to defraud,” he added.

Twenty or 30 years ago, criminals had to open an account by walking into a bank lobby, showing identification and being on video. Abagnale said he used to have to rent a property to establish a physical residence for the checks to be sent to.

Now, there are more than 200 companies providing checks on the Internet for $0.99, and the sites even ask whether the checks be delivered to a different address. Only 18% of banks in America process their own checks, all the rest have a third party provider. The United States and Canada are the only two countries that allow checks to be bought outside the jurisdiction of the bank. “Today, anybody can order anybody’s checks,” he added.

Businesses write 4.5 million accounts payable checks a year, he pointed out. Before, companies had to send in a purchase order for their accounts payable checks, be billed, pay a good amount for all those checks, receive the checks locked with a key, would place them in a caged area and would have security bring the checks out at the time they would be written.

Now, “when I go through mortgage companies, and I’ve been through many of them, I always stop where they print their checks,” Abagnale said. He has seen companies that store in their printer 8 ½ by 11-inch sheets of paper — in which half of the paper is a blank check with the company’s name in logo format printed throughout the background and the other half is a blank stub. The check numbers, dollar amounts, and signatures are printed at the time they run through the printer.

Any dishonest employee, or even the FedEx guy who delivers the blank check paper, can easily steal the blank checks and print all the necessary information with a computer at home, all they need is the account number and the check “has your [company] name on it, it’s a live check, you’re liable for it,” Abagnale warned.

But, mortgage companies run risks even with printed checks that are enveloped and dropped off in the mail.

A few years ago, the FBI wired the drop-off mailboxes located at the front of a post office in Seattle for sound and video. Forgers would take mail out of the boxes with a fishing-pole-like device within 30 seconds. They’d pull to the side and look through the windows of envelopes. On some envelopes that contained checks, they’d see the amounts the checks were made for and drop them back in the mailbox. Other mail containing checks, the forgers would open and their voices could be heard describing the type and color of check paper the company used, what type of printer it was printed on and the style font used. “We’ll scan the signature of the controller and were done with the identical check,” the forgers would say, according to Abagnale.

A dishonest employee who receives a mortgage company check, the person receiving a settlement check, anyone can easily make a replica of that check, or alter it by changing the amount or payee data, he added.

Abagnale reminded mortgage executives that by law, under Uniform Commercial Code 3-406, liability lies on whoever is in the best position to prevent forgery. If a mortgage company’s negligence lead to the forgery, the bank in not liable. If the bank and the company were both negligent, the loss is shared.

The former master forger gave mortgage bankers tips to prevent check fraud.

To easily trace checks and avoid fraudulent checks from withdrawing against the mortgage company’s account, Abagnale recommended the use of Positive Pay for large companies and Reverse Positive Pay for small companies. Instead of waiting the usual 30 days for a bank statement to see what checks have been made against the account, the services allow bank statements to be reconciled every day. On a daily basis, the company transmits to the bank a list of the checks it issued for the day. If a check number, dollar amount account number or payee do not match with the checks on the list, the bank will not pay the check.

Blank check paper stock should be avoided. If printing checks in house, companies should buy controlled check paper that is not available on the open market and has security features such as inventory control numbers printed on the back, for tracking purposes as the check numbers will be placed until the check is printed out to the payee. For printed checks, the paper should be from a controlled stock, which is paper that is not allowed to be sold unless it’s printed, according to Abagnale. Companies should keep check stock in a locked area.

Using check paper with prismatic printed backgrounds, such as that of newer U.S. currency bills with colors blended together, defeats the risk of the check being replicated through a scanner.

Checks should have copy void pantographs, which allow the words “void” or “copy” to show up when the check is copied or scanned.

Laser printers add fraud risk if proper controls are not in place. Laser printers use toner, which is non-ink and sits on paper rather than blend into the paper. The dry toner can easily be cracked and scraped off the check, allowing blank space for new data in the same font as the original to be added in. Toner can also be lifted by placing transparent tape on the unwanted data, applying back and forth pressure across the strip of tape and then peeling it off. Toner anchorage check paper should be used in laser printers so the toner can meld into the paper.

A typewriter and matrix printer, on the other hand, are ink-type printers that allow the ink to bleed into and become part of the paper. But even matrix printer ink can be taken off if it is not printed with cloth ribbon. Plastic, carbon, and nylon ribbon will not secure the print from being erased.

Wire accounts should be nonnegotiable income wire accounts that only allow deposits to be made. This will prevent being victim of wire fraud, in which forgers call the company posing as customers and ask for wiring instructions to retrieve bank account information and withdraw funds.

Also, Abagnale said that when he writes checks, signs a contract or mortgage, he uses a uniball, #207, gel pen because, unlike ink, gels are not affected by chemicals and cannot be washed off. The gel should be black, as any other color is transparent and can be washed or altered.

Checks should be printed out with 13-to 14-point bold fonts. Smaller and thinner fonts can more easily be scraped off and have bigger, bolder font typed in to cover the scraped area.

Mortgage fraud is widely associated with fraud for profit, which according to the FBI, is done mostly by insiders who know the mortgage process well and exploit the system to gain profit. But, Abagnale brought light to fraud for property, which is when a prospective borrower provides false information to obtain a mortgage.

“I couldn’t tell you how many mortgages have been made using someone else’s identity,” the FBI collaborator said. “Even if they pay the mortgage, they’re using someone else’s ID because they have judgments, tax liens, bankruptcies and they can’t get credit.”

The Internet has also made it simple to steal identities as people’s identifying information can easily retrieved from many sites. Abagnale said he wrote a paper in which he showed he could go online to simple public records and find out 22 pieces of information about any individual just by inputting a person’s address. In minutes, he was able to find that person’s bank, account number, date of birth, social security number, spouse’s name and children and so on.

“In my entire career, on both sides of the law I have never found a more simplistic crime than [identity theft],” Abagnale said.