Check Fraud Is Back: Why Financial Institutions Must Stay Vigilant

Despite the dominance of digital payments, check fraud is seeing a surprising and costly resurgence. What was once considered a fading threat has evolved into a sophisticated operation fueled by organized criminal networks, targeting financial institutions and vulnerable customer segments.

A Rising Threat in a Digital World

Recent data from the Financial Crimes Enforcement Network (FinCEN) shows an alarming increase in check fraud activity. In 2022, financial institutions filed over 680,000 Suspicious Activity Reports (SARs) linked to check fraud, nearly double the amount from the previous year. That trend has continued into 2024, as fraudsters exploit lingering reliance on paper checks in business and government transactions.

Much of this surge is driven by mail theft and increasingly brazen tactics. Criminals have been stealing checks from U.S. Postal Service boxes—sometimes using stolen “arrow” keys or robbing mail carriers—and then altering, counterfeiting or washing those checks to siphon funds from victim’s accounts. High-value targets include business checking accounts, tax refunds and government-issued disbursements, which are often sent by mail and represent attractive payouts for fraudsters.

How Criminals Are Exploiting the System

Today’s check fraud isn’t just opportunistic; it’s organized. Criminal rings have developed methods to mimic legitimate instruments using high-resolution printing and forgery techniques that can fool even trained eyes. Once a fraudulent check is deposited—often via ATM or mobile deposit to avoid teller scrutiny—funds are withdrawn before the fraud is detected.

Money mules play a crucial role in these schemes. Fraudsters recruit individuals to open bank accounts and move funds, creating multiple layers that obscure the money trail. These tactics not only delay detection, but also complicate recovery efforts. In many cases, funds are irretrievable by the time the fraud is discovered.

The Challenge of Detection

Financial institutions face a fundamental challenge. Altered or counterfeit checks are becoming more difficult to identify, especially when checks originate from familiar payees or resemble standard business transactions. In many cases, the fraudulent activity looks indistinguishable from a typical deposit until it’s too late.

While some institutions rely on pattern recognition, such as spotting sudden check usage by a customer who previously didn’t use checks, or large “round dollar” withdrawals, fraudsters are continuously refining their techniques to avoid detection. These schemes often unfold across multiple institutions or customer profiles, making manual tracking ineffective without robust analytics.

Regulatory Response and Industry Guidance

Regulators have acknowledged the growing threat and responded with coordinated guidance. In early 2023, FinCEN, in collaboration with the U.S. Postal Inspection Service, issued a nationwide alert on mail theft and check fraud. The alert included red flag indicators and updated SAR filing instructions, asking financial institutions to reference the alert in filings and mark the “check fraud” box.

The Federal Financial Institutions Examination Council (FFIEC) has reinforced the importance of tools like positive pay and payee name verification. These measures help confirm that processed checks match previously issued items, reducing the likelihood of fraudulent payouts. In parallel, the FDIC and FTC have released public warnings about fake check scams, aimed at educating consumers, particularly seniors, who are disproportionately impacted by this threat.

Law enforcement agencies have increased their focus as well. The FBI and U.S. Postal Inspection Service have successfully dismantled several organized check theft rings, often involving violence, forgery and complex laundering operations.

Staying Ahead of the Curve

For financial institutions, check fraud presents a dual challenge: it is both a legacy issue and an evolving threat. Legacy because it has existed for decades, evolving because the perpetrators are now using modern technology and networked operations to refine their strategies.

To effectively respond, institutions must take a layered approach. Strong internal controls, proactive monitoring and staff training are essential. But so is leveraging modern fraud detection technology—solutions that integrate behavioral analytics, account monitoring and pattern recognition to flag suspicious activity in real time.

Institutions should also strengthen their customer communication. Many victims of check fraud, particularly elderly customers, may not recognize the signs of compromise until funds are gone. By promoting fraud awareness and encouraging prompt reporting of missing or altered checks, financial institutions can reduce loss exposure and improve customer trust.

Strengthen Your Check Fraud Defense with NICE Actimize

NICE Actimize delivers real-time fraud detection capabilities designed to help financial institutions detect and stop check fraud at scale. Our advanced analytics and rule-based engines help uncover suspicious activity, while automated SAR workflows improve compliance and case management efficiency. We empower banks to respond quickly and confidently to the growing risk of check fraud—and to stay ahead of the fraudsters driving it.