bad cheque

Cheque fraud



Types of cheque fraud

There are various methods in which cheque kiting and paper hanging have been widely committed. These include:

Illegal borrowing


Circular kiting

Circular kiting describes forms of kiting in which one or more additional banks serve as the location of float, and involve the use of multiple accounts at different banks. In its simplest form, the kiter, who has two or more accounts of his/her own at different banks, writes a cheque on day one to himself from Bank A to Bank B (this cheque is referred to as the kite), so funds become available that day at Bank B sufficient for all cheques due to clear. On the following business day, the kiter writes a cheque on his Bank B account to himself and deposits it into his account at Bank A to provide artificial funds allowing the cheque he wrote a day earlier to clear. This cycle repeats until the offender is caught, or until the offender deposits genuine funds, thereby eliminating the need to kite, and often going unnoticed.

Complex versions of this scheme have occurred involving two separate people, each with an account at a different bank, constantly writing cheque to one another, or a group of individuals writing cheque in a circular fashion, thereby making detection more difficult. Some kiting rings involve offenders posing as large businesses, thereby masking their activity as normal business transactions and making banks inclined to waive the limit of funds made available.

Retail-based kiting

Retail-based kiting involves the use of a party other than a bank to unknowingly provide temporary funds to an account holder lacking funds needed for cheque to clear. In these cases, the kiter writes cheque(s) to one or more places of retail (usually supermarket(s)) that offer cash back in addition to the amount of a purchase as a courtesy to their patrons. Following the transaction, the kiter deposits the cash received back into his/her bank on the same day in order to provide sufficient funds for other cheque to clear, while the cheque written that day will clear one or more business days later. This action is repeated as necessary until legitimate funds can be deposited into the account.

Another version of this scheme involves purchasing an item from a place of retail with a cheque, and returning it promptly for a cash refund, followed by depositing that cash into the transactional account. This is more difficult these days, as more places of retail will delay a refund on purchases made by cheque.

Retail kiting is more common in suburban areas, where multiple supermarket chains exist within close proximity. While it is more difficult to detect and prosecute, it involves lesser amounts of cash than circular kiting, and therefore is a lower threat. However, a 1999 episode of the CBS program Real TV showed video surveillance of a man purchasing a single item with a cheque at a supermarket, obtaining $50 cash back, the maximum allowed by the store, and depositing the cash into his account at a bank branch within the store in order to prevent other cheque from bouncing. According to the show, a suspicious employee reported his behavior to police, and the video was used in his prosecution.



Bad cheque writing







Sometimes, forgery is the method of choice in defrauding a bank. One form of forgery involves the use of a victim's legitimate cheques, that have either been altogether stolen and then cashed, or altering a cheque that has been legitimately written to the perpetrator, but adding words and/or digits in order to inflate the amount.


Unusual cases

Some more unusual methods of cheque fraud have been committed at various times.

For example, disappearing ink has been used to commit a rare form of fraud. In such cases, the perpetrator chemically alters the substance that so it disappears in several hours or days rather than a few minutes. S/he then writes a cheque to him/herself (or a partner in the scheme) using Bank A's account for a specified amount, say, $5100. In this amount, the digit 5 is written with the disappearing ink, and the remainder of the amount in regular ink. The cheque will be deposited in Bank B's account, where $5100 will be added, but by the time it reaches Bank A for clearance, the cheque will then read $100, and only $100 will be debited from that account.

"Cheque washing" involves the theft of a cheque in transit between the writer and recipient, followed by the use of chemicals to remove the ink representing all parts other than the signature The perpetrator then fills in the blanks to his/her advantage.

Combating cheque fraud

In most jurisdictions, passing a cheque for an amount of money the writer knows is not in the account at the time of negotiation (or available for overdraft protection) is usually considered a violation of criminal law (see National Check Fraud Center for a description of laws in all 50 U.S. states). However, the general practice followed by banks has been to refrain from prosecuting cheque writers if the cheque reaches the bank after sufficient funds have been deposited, thereby allowing it to clear. But the account holder is normally held fully liable for all bank penalties, civil penalties, and criminal charges allowable by law in the event the cheque does not clear the bank.



Before the passage of the Check Clearing for the 21st Century Act, when cheques could take 3 or more days to clear, playing the float was fairly common practice in otherwise-honest individuals who encountered emergencies right before payday.




Laws about cheque kiting

Cheque kiting is illegal in most countries. In the United States, the banking industry is heavily regulated and even insured by the U.S. government. According to the United States Department of Justice, cheque kiting can be prosecuted under several existing laws including those against bank fraud misapplication or required entries (). It can draw a fine of up to $1,000,000.00, imprisonment for up to 30 years, or both, and many first-time offenders with no criminal background have received stiff sentences. In addition to the federal remedies, state law often provides for alternate civil and criminal consequences.

Although the United States prosecutes some paper hangers under federal law, most uttering of a bad cheque in the United States is prosecuted as a state offense.

Laws will vary from state to state, but in Ohio, Revised Code 2913.11(2)(B) says "No person, with purpose to defraud, shall issue or transfer or cause to be issued or transferred a check or other negotiable instrument, knowing that it will be dishonored or knowing that a person has ordered or will order stop payment on the check or other negotiable instrument". Ordinarily, passing a bad cheque in Ohio is a misdemeanor, but large cheques or multiple cheques within a six-month period aggregating to large amounts make it a 5th-, 4th-, or 3rd-degree felony, depending on the amounts involved.

Although not in Ohio, some states protect the careless with regard to the "with purpose to defraud" provision. Indiana's statute IC 35-43-5-5 holds that it is a defense if the person issuing the cheque "pays the payee or holder the amount due, together with protest fees and any service fee or charge, which may not exceed the greater of twenty-seven dollars and fifty cents ($27.50) or five percent (5%) (but not more than two hundred fifty dollars ($250)) of the amount due, that may be charged by the payee or holder, within ten (10) days after the date of mailing by the payee or holder of notice to the person that the check, draft, or order has not been paid by the credit institution." Furthermore, it is not a crime if "the payee or holder knows that the person has insufficient funds to ensure payment or that the check, draft, or order is postdated", or "insufficiency of funds or credit results from an adjustment to the person's account by the credit institution without notice to the person.


See also

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