Bad-check gang being shut down in New York

The district attorney’s office in New York is closing in on a criminal gang that has written more than $1 million worth of bad checks at New York banks.

With the help of at least six of the region’s major banks, the New York City Police Department and the state Department of Motor Vehicles, “Operation Facelift” has uncovered the group that has preyed on more than 200 unsuspecting bank customers.

“This particular ring has been stopped,” says David Woodcock, security officer for GreenPoint Bank in Manhattan. “But there are a lot of them operating out there, and they are a major problem to us all.”

Check fraud, especially the counterfeiting of checks and the opening of new accounts to cash spurious checks, is becoming an ever-bigger headache. Such fraud doubled to $2.2 billion in 1999, from $1.1 billion in 1997, according to the American Bankers Association.

Newer technologies, like desktop computers and laser printers, are making it easy for sophisticated groups to counterfeit checks.

Tactics like Dumpster diving – digging through banks’ trash – are being used to obtain customer names and account numbers.

“You have to have eyes in the back of your head, because there are always innovative fraud situations developing,” says Mr. Woodcock.

research comes first

Experts say that organized rings have made major attacks on New York’s big banks. The perpetrators study targeted institutions and use the Internet to gain more information about customers.

“Those groups talk to people in banks,” says Charles Bock, director of fraud prevention and investigation at Chase Manhattan Bank. “They try to develop relationships and associations. They learn practices and procedures, and then they say, `This bank does not have its act together.”‘

Once they have obtained the identities of bank customers, the criminal rings use the information to open fraudulent checking accounts. The gang that is currently targeted by the district attorney’s office, for example, used hundreds of phony driver’s licenses to open accounts all over the city, according to Mr. Woodcock.

Other institutions participating in the sting included Astoria Savings Bank, Citibank, HSBC Bank, Dime Bancorp and European American Bank, a security official says.

Mr. Woodcock says that the investigators were able to identify some of the so-called “passes,” who were used to cash the checks. After those individuals were arrested and questioned, law enforcement officials were able to get to the ringleaders.

“Passes usually don’t know anything about the guys who run the rings,” he says. “In this case, they did.”

One popular scheme many of those groups use is to steal company and government checks from the mail, produce perfect computer copies and cash them under other people’s names through the bank accounts they have obtained.

Michael Kessler, a private investigator in New York, points out that the thieves are long gone by the time the company or the government reconciles its ledgers and contacts the bank to complain.

Others blame lax prosecution against white-collar criminals for the rise in check fraud.

“You have a problem with law enforcement to some degree,” says Nessa Feddis, senior federal counsel at the American Bankers Association.

“Who would you rather meet in the back alley, a white-collar criminal or a person who murdered somebody?”

The ABA says that banks lost $679 million in 1999 from check fraud, up from $512 million in 1997.

In addition to facing big losses from check kiting, banks are being hit with the growing expenses associated with fraud prevention.”It’s not only the cost of losses, but also the cost of remedial measures that you have to put in place to combat this kind of thing,” says Mr. Woodcock.

Besides staffing up security departments to detect fraud, banks are working closely with law enforcement officials. And more and more banks are implementing sophisticated systems that alert them to suspicious patterns.

But Mr. Kessler, the investigator, is skeptical. “That software is only as good as the information that you put in,” he says. “If the information is not accurate or there is a change in the pattern, the software can’t pick it up.”