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Cheque fraud

Cheque fraud is the unauthorized and illegal use of cheques to obtain funds from a bank account, typically involving deception to convert the cheque into cash or a deposit without the account holder's consent.^[1] This form of financial crime exploits the traditional payment instrument's vulnerabilities, such as its physical nature and reliance on manual verification, leading to significant losses for individuals, businesses, and financial institutions.^[2] Common types of cheque fraud include altered cheques, where criminals modify legitimate cheques by changing the payee, amount, or date using chemicals or erasure techniques like check washing; counterfeit cheques, which are entirely fabricated using stolen account details, high-quality printers, or desktop publishing software; and forged cheques, involving unauthorized signatures or endorsements on stolen blanks.^[1] Other variants encompass closed account fraud, where cheques are drawn on accounts that have been closed, taking advantage of processing delays, and identity assumption schemes, where fraudsters impersonate legitimate customers to open accounts or deposit fraudulent instruments.^[1] These methods often intersect with broader criminal activities, such as mail theft, where intercepted cheques are altered before deposit, or organized gang operations targeting high-value corporate accounts.^[3] The prevalence of cheque fraud has surged in recent years despite the decline in cheque usage, driven by remote deposit technologies and mail interception tactics.^[4] In the United States, Suspicious Activity Reports (SARs) related to check fraud nearly doubled from 2021 to 2023, accounting for approximately 30% of all fraud-related SARs in 2023, with mail theft-related incidents alone involving 15,417 reports and over $688 million in suspicious transactions between February and August 2023; a January 2025 alert from the FBI's Internet Crime Complaint Center reiterated the rise in mail theft-related check fraud. In 2024, check fraud SARs reached 682,276, maintaining elevated levels from 2023.^[4]^[5]^[3]^[6] In the United Kingdom, cheque fraud falls under unauthorized banking fraud categories, contributing to broader annual losses estimated at £2.35 billion reported by victims in the year ending March 2021, though specific cheque incidents are less isolated due to reduced cheque volume.^[7] These crimes result in substantial economic impacts, including direct financial losses, recovery costs, and erosion of trust in payment systems, with victims ranging from individuals to large corporations.^[1] Prevention strategies emphasize vigilance and technological safeguards, such as using secure inks, watermarks, and positive pay systems where businesses verify cheques against issued lists before payment.^[1] Individuals are advised to monitor accounts regularly, avoid mailing cheques when possible, and report lost or stolen items immediately to limit liability under laws like the Uniform Commercial Code in the US or the Cheques Act 1992 in the UK.^[2]^[8] Financial institutions employ ID verification, transaction limits, and fraud detection algorithms, while regulatory bodies like the Financial Crimes Enforcement Network (FinCEN) promote interagency collaboration to combat evolving threats.^[3] Despite these measures, the persistence of cheque fraud underscores the need for ongoing education and adaptation to digital alternatives.^[5]

Overview

Definition

A cheque, also spelled "check" in American English, is a written financial instrument that instructs a bank or financial institution to pay a specified sum of money from the drawer's account to the payee or bearer on demand.^[9] It typically includes essential elements such as the drawer's signature, the date, the payee's name, the amount in both numeric and written forms, and the drawer's account details, serving as a legally binding order backed by sufficient funds in the account.^[10] This mechanism facilitates secure, verifiable transactions without the immediate exchange of cash, relying on the banking system's clearing process to transfer funds between accounts.^[11] Cheque fraud constitutes the unauthorized and deceptive use of such instruments to illicitly obtain funds, property, or services, often through the manipulation of cheque details, account information, or the creation of fictitious documents.^[2] This includes actions like forging signatures, altering amounts or payees, or using stolen cheques, all aimed at exploiting the trust inherent in the cheque system to siphon money from victims' accounts.^[12] Unlike legitimate cheque usage, which assumes good faith and adequate funds, fraud hinges on deliberate deception rather than honest errors, bounced payments due to oversights, or legitimate disputes over transactions.^[13] The terminology and persistence of cheques vary globally: "cheque" is the standard spelling in British English and Commonwealth countries such as the UK, Canada, Australia, and India, while "check" predominates in the United States.^[14] Despite the global shift toward digital payments, paper-based cheques remain prevalent in regions like the US—where approximately 11 billion are issued annually—and parts of Canada and the UK, where they continue to account for a notable share of non-cash transactions amid slower adoption of electronic alternatives.^[15]

History

Cheques originated in 17th-century Europe as a form of promissory notes issued by goldsmiths and scriveners, the precursors to modern bankers, to facilitate secure payments without transporting physical gold. The first known cheque in Britain, dated 16 February 1660 (1659 in the old calendar), was drawn by merchant Nicholas Vanacker for £400 on the firm of Clayton and Morris in London, marking the evolution of bills of exchange into a more standardized payment instrument.^[16]^[17] Early instances of cheque fraud in the 18th century primarily involved forgery of these merchant drafts and handwritten orders, prompting innovations like the Bank of England's introduction of pre-printed "cheque paper" in 1717 to deter alterations and counterfeits. By the 19th century, as banking expanded in the United States and United Kingdom through joint-stock banks and increased cheque usage, fraud rose alongside the adaptation of banknote forgery techniques, such as chemical washing and signature imitation, to exploit the growing volume of paper instruments.^[18] Following World War II, cheque volumes exploded in the U.S., from 2 billion in 1946 to 16 billion by 1980, driven by automated clearing processes that introduced mechanical proofing machines around 1950, processing up to 1,300 checks per hour. This era saw a surge in fraud, particularly cheque kiting in the 1970s and 1980s, where perpetrators exploited the "float time"—the delay in interbank clearing—to artificially inflate account balances, resulting in losses exceeding $4 billion annually by 1976.^[19]^[20]^[21] Key milestones included the development of magnetic ink character recognition (MICR) in the mid-1950s by institutions like Stanford Research Institute and General Electric, which standardized encoding on cheques for machine readability and reduced forgery risks, with full Federal Reserve adoption by 1967. Concurrently, the Uniform Commercial Code's Article 3, first published in 1952, standardized rules for negotiable instruments like cheques across U.S. states, clarifying liability and transfer protocols to mitigate disputes from fraud.^[19]^[22]^[23] The shift to electronic payments from the 2000s onward, accelerated by the Check 21 Act of 2004 enabling digital image-based clearing, led to a sharp decline in paper cheque usage and associated fraud, with over 97% of interbank clearings becoming electronic within years. However, a resurgence occurred in the 2010s with vulnerabilities in remote deposit capture (RDC), where fraudsters scanned and deposited altered or duplicate cheque images via mobile apps, exploiting delays in verification and contributing to rising digital check fraud incidents.^[24]^[25]^[26]

Types of Cheque Fraud

Cheque Kiting

Cheque kiting is a form of financial fraud in which an individual exploits the processing delays, known as the "float," between banks by writing cheques between multiple accounts to artificially inflate available balances and withdraw funds before the cheques are dishonored.^[27] This scheme relies on the time lag for cheque clearance, during which the perpetrator deposits a cheque from one account into another and immediately accesses the credited funds, creating an illusion of solvency.^[28] The process typically begins with the fraudster opening accounts at two or more financial institutions, often with minimal initial deposits. For instance, a perpetrator might write a large cheque from Account A at Bank X to Account B at Bank Y, deposit it into Account B, and withdraw the funds from Bank Y before the cheque from Account A clears and is returned as insufficient. To sustain the scheme, the individual then writes an even larger cheque from Account B back to Account A, repeating the cycle across multiple banks to extend the float period and maximize withdrawals.^[29] This manipulation allows the kiter to access uncollected funds, but the scheme collapses when the banks detect the pattern and reverse the credits, leaving the institutions to absorb the losses.^[30] Cheque kiting was particularly prevalent in the pre-electronic banking era, when manual processing delays could span several days, enabling elaborate schemes that caused significant insolvencies, such as one in 1982 that led to a bank's failure.^[28] The rise of electronic cheque processing and faster funds availability under regulations like the Expedited Funds Availability Act of 1987 has reduced its frequency by shortening the float to hours or even minutes.^[31] However, the scheme persists in modern contexts, including with remote deposit capture technologies that allow digital cheque submissions, potentially reintroducing delays in verification.^[32] Banks detect cheque kiting through monitoring for unusual transaction patterns, such as frequent inter-account transfers, rapidly increasing deposit amounts relative to low average balances, repeated inquiries into account status, or cheques where the payee and maker names match across multiple items.^[29] Institutions may also flag accounts permitting draws against uncollected funds, a common enabler of the fraud.^[33] The economic impact of cheque kiting primarily burdens financial institutions, which incur losses when perpetrators withdraw credited but unverified funds before reversal. Overall check fraud, including kiting, resulted in estimated losses exceeding $1 billion for U.S. banks in the 1990s, with individual schemes varying widely in scale.^[1] Reported cases illustrate this range, such as one involving approximately $839,400 in losses to a single bank due to unchecked kiting activity, and another exceeding $7 million across multiple institutions.^[34]^[35]

Forgery

Forgery in cheque fraud involves the unauthorized creation or imitation of cheque elements, such as signatures or endorsements, to deceive financial institutions or payees into honoring fraudulent instruments. This distinguishes it from other forms by focusing on fabricating false representations from legitimate or blank stock rather than modifying issued cheques. Perpetrators aim to mimic authentic details to withdraw funds from the drawer's account without permission.^[1] Key types include signature forgery, where criminals imitate the drawer's handwriting to authorize payment; endorsement forgery, involving falsified payee signatures to enable unauthorized cashing or deposit; and full cheque fabrication, which entails producing an entire false cheque using stolen or replicated stock. Signature forgery often targets stolen pre-signed or blank cheques, while endorsement forgery exploits intercepted legitimate cheques by adding fake approvals on the reverse. Full fabrication may involve creating cheques from scratch with forged account details, though it borders on counterfeiting when mass-produced. These types exploit vulnerabilities in verification processes at banks or merchants.^[1]^[36] Methods employed by forgers include photocopying or high-resolution scanning to replicate cheque designs, signatures, and security features like watermarks or microprinting. Advanced techniques use desktop publishing software and color laser printers to imitate legitimate cheque stock, often bypassing older safeguards such as pantographs—background patterns that reveal "VOID" when copied via standard methods. Digital tools, including image-editing software, further enable precise alterations to scanned images for submission via mobile deposit apps. Forgers may also obtain cheque-writing software or magnetic ink character recognition (MICR) toners to produce convincing replicas.^[1]^[37]^[38] Common scenarios feature the theft of blank cheques from vehicles, mailboxes, or businesses, which are then completed with forged payee names, amounts, and signatures before presentation for payment. Insider access to cheque stock or account information allows perpetrators—such as rogue employees—to generate and issue forged cheques directly from internal systems. Another frequent case involves gangs targeting corporate payroll around paydays, using stolen blanks to fabricate employee payment instruments with forged endorsements for rapid cashing at multiple locations. These incidents often rely on false identification to evade teller scrutiny.^[1]^[36]^[39] The evolution of forgery techniques has shifted from manual handwriting imitation in the pre-digital era to sophisticated digital replication, accelerated by the rise of mobile banking since the 2010s. Early methods in the 1990s involved simple photocopies of stolen chequebooks, but digital forgery now comprises a growing share of cases, with fraudsters using software for altering images submitted remotely. This adaptation has increased success rates amid declining cheque usage.^[40]^[41]^[37] Forgery accounts for a substantial portion of cheque fraud, with a 2024 Federal Reserve survey indicating that check-related fraud represented about 30% of total fraud losses, and sub-types like payee and endorsement forgery affecting 90% and 84% of reporting institutions, respectively. The Association for Financial Professionals' 2025 Payments Fraud Report noted that 63% of organizations encountered check fraud in 2024, underscoring forgery's persistent impact despite electronic alternatives.^[42]^[43]

Alteration

Alteration fraud involves the unauthorized modification of a legitimate cheque after it has been issued, typically to change the payee, amount, or other details to divert funds to the fraudster.^[1] This differs from forgery, which creates an entirely invalid cheque from scratch, as alteration begins with a genuine instrument.^[44] Fraudsters exploit vulnerabilities in physical handling or digital processing to make these changes, often evading initial detection.^[45] Common techniques include chemical washing, where thieves use solvents like acetone, bleach, or paint thinner to dissolve the ink on the payee name or amount without damaging the cheque's paper or signature.^[46] Once erased, the fraudster rewrites the details using a pen or printer, such as altering a payee from "Company" to an individual's name or raising the numerical amount by adding digits.^[1] Another method involves erasing or scraping off original text mechanically, followed by re-entry with typewriters, imprinters, or digital tools.^[45] The process often begins with acquiring a valid cheque through mail interception, such as "mailbox fishing," or via insider access by dishonest employees who handle cheques before mailing.^[47] For digital alteration, fraudsters may photograph the cheque for remote deposit capture (RDC) at ATMs or mobile apps, then edit the image using photo editing software to modify amounts or payees before submission, exploiting the electronic clearing process.^[48] These altered cheques are then deposited into accounts controlled by the fraudster, with funds quickly withdrawn to minimize reversal risk.^[47] Banks incorporate security features to counter alteration, such as microprinting—tiny text along signature lines that blurs if photocopied or chemically treated—and watermarks visible at an angle, which are difficult to replicate without specialized equipment.^[1] Heat-sensitive ink, used for amounts or lines, distorts or changes color when exposed to solvents, revealing tampering attempts.^[45] Additionally, recommending black gel pens for writing cheques helps, as their ink permeates the paper and resists chemical dissolution, unlike standard ballpoint ink.^[46] Illustrative cases include a cheque originally for $69.99 being raised to $969.99 by inserting a "9" and corresponding words, or payee alterations like changing "Johnson CO." to "Johnson Cooper" for cashing with false identification.^[1] With the rise of ATM and mobile deposits, digital manipulations have increased, allowing fraudsters to alter scanned images of small cheques (e.g., $100 to $1,000) before electronic submission.^[47] The impact is significant, as alterations often go undetected until the cheque clears, which can take weeks, leading to direct losses for the payee or issuer if accounts lack fraud insurance.^[44] Financial institutions faced approximately $1 billion in check fraud losses from 1996 to 1997, with mail theft-related alterations surging post-2020—doubling Suspicious Activity Reports from 350,000 in 2021 to 680,000 in 2022—exacerbating risks in high-value business accounts.^[1]^[47] Victims may also suffer identity theft from exposed personal data on stolen cheques.^[46]

Embezzlement

Embezzlement involving cheques refers to the theft of funds by individuals in positions of trust, such as company employees, who misuse their access to issue cheques from legitimate organizational accounts for personal benefit. This form of fraud typically falls under asset misappropriation schemes like check tampering, where perpetrators intercept, forge, or alter cheques drawn on the employer's bank account. Unlike external fraud, it exploits internal authority and relies on the perpetrator's ability to manipulate financial records to conceal the theft. Common methods include creating fictitious payees by issuing cheques to shell companies or fake vendors controlled by the employee, diverting legitimate payments by altering the payee on existing cheques to themselves or accomplices, and using corporate cheque-writing privileges to cover personal expenses such as credit card bills or cash withdrawals. In authorized maker schemes, employees with legitimate signing authority simply write cheques to themselves without altering documents. These tactics often involve supporting falsified invoices or approvals to integrate the fraudulent disbursements into routine accounting processes.^[49] Perpetrators are frequently bookkeepers, accountants, or other finance staff with access to cheque stock, accounting software, and bank reconciliation duties, as these roles provide the necessary controls to execute and hide the fraud. According to occupational fraud data, employees at the staff level commit 37% of such schemes, often leveraging their routine handling of payments. Key red flags include unreconciled bank accounts showing discrepancies between records and statements, unusual or newly created vendor names without corresponding purchase orders, and patterns of small, frequent cheque issuances that evade larger scrutiny thresholds. Other indicators encompass missing or voided cheques, altered endorsements on returned items, and employee behaviors like living beyond apparent means or resisting shared duties in financial processes.^[50] These schemes often accumulate larger sums over extended periods due to their subtlety, with check tampering cases reporting a median loss of $155,000 and billing schemes involving fictitious payees at $100,000, far exceeding typical single-transaction frauds. Overall, asset misappropriation via such internal cheque abuse contributes to median organizational losses of $120,000 per incident, highlighting the significant financial impact when undetected.

Counterfeit Cheques

Counterfeit cheques refer to fraudulent instruments entirely fabricated to imitate the design, layout, and details of legitimate bank-issued cheques, often targeting financial institutions' formats for deceptive deposits or withdrawals. This form of cheque fraud relies on replicating elements such as bank logos, account numbers, and magnetic ink character recognition (MICR) lines to appear authentic. Unlike alteration, which modifies genuine cheques, counterfeiting creates standalone replicas from scratch, enabling mass production for scams.^[51] The production process typically involves desktop publishing software, high-resolution scanners, commercial laser printers, and blank security paper to generate realistic fakes. Fraudsters acquire critical details like routing and account numbers by intercepting genuine cheques from mail or exploiting data from stolen documents, allowing them to encode accurate MICR lines using specialized printers. These tools enable the duplication of visual elements, including fonts and layouts, often sourced from publicly available bank cheque images or insider leaks.^[52]^[53]^[54] Counterfeit cheques commonly stem from demand deposit account (DDA) scams, where fraudsters use pilfered account information to fabricate instruments that drain targeted deposit accounts upon processing. Stolen cheque images, obtained through mail theft or online data breaches, serve as templates for these replicas. In distribution, scammers mail these fakes to victims as overpayments in purchase or prize scams, urging them to deposit the cheque and wire back the excess before it bounces. Increasingly, they are deposited remotely via mobile apps, exploiting delayed verification in digital capture systems.^[55]^[56]^[57]^[58] Advanced digital counterfeiting tools in the 2020s have heightened risks by allowing fraudsters to bypass traditional security features like holograms, ultraviolet (UV) inks, and microprinting, either through high-fidelity replication or omission without detection. For instance, affordable software and printers can mimic UV-reactive patterns or embed subtle flaws that evade casual inspection. This has contributed to a surge in incidents, with the Federal Reserve's 2024 Payments Study reporting a 5% increase in the number of financial institutions experiencing check fraud losses in 2024 compared to 2023, largely tied to remote deposit schemes involving counterfeits. By mid-2025, reports indicated continued escalation, underscoring the vulnerability of digital deposit methods.^[59]^[60]^[61]^[62]

Bad Cheque Writing

Bad cheque writing, also known as passing bad checks or paperhanging, involves the intentional issuance of a cheque drawn on an account with insufficient funds or a closed account, typically to deceive merchants into providing goods or services. The perpetrator knowingly exploits the processing delay—known as the float—between cheque deposit and clearance to complete the transaction before the bank rejects it for non-sufficient funds (NSF). This form of fraud is prevalent in retail settings, where businesses may accept cheques without immediate verification, allowing the fraudster to obtain value without legitimate payment.^[1]^[63] Variations include writing cheques on accounts that have been closed prior to issuance, often deposited through ATMs or remote channels to enable quick cash withdrawal, or opening new accounts using stolen identities that are immediately drained via unauthorized transfers or withdrawals. In these scenarios, the fraudster may issue multiple cheques in quick succession across different locations to maximize gains before detection. Unlike unintentional NSF incidents, these acts demonstrate deliberate deception.^[1] Intent is established through patterns such as repeated issuance from the same underfunded account or the perpetrator absconding immediately after the transaction, confirming awareness of the account's inability to cover the amount. While there may be brief overlap with embezzlement in corporate contexts where insiders issue bad cheques for personal benefit, bad cheque writing generally occurs as an external, opportunistic act without privileged access.^[1] Merchants face significant losses from bad cheques, covering the cheque's face value plus processing and recovery costs, though many states permit recovery through issuer fees ranging from $20 to $40 per incident. Small businesses bear the brunt of these impacts, as they often lack the resources of larger retailers to implement robust verification or absorb unrecovered losses, exacerbating financial strain in competitive markets.^[64]^[65] Bad cheque writing is a common subtype of cheque fraud, particularly in retail, contributing to broader trends where 63% of organizations reported check-related fraud attempts or incidents in 2024 surveys.^[66]

Other Methods

One lesser-known method of cheque fraud involves account abandonment, where fraudsters open a bank account using stolen or fabricated identities, issue multiple cheques against it, and then close or abandon the account before the cheques clear, leaving the payees and financial institutions with losses. This tactic, often part of broader bust-out schemes, exploits the delay in cheque processing to maximize fraudulent withdrawals before detection.^[67]^[1] Cheque conversion fraud typically entails the theft of legitimate cheques, followed by forging the payee's endorsement to deposit them into the fraudster's account and subsequently withdrawing the funds as cash or via transfers. Criminals target stolen mail or intercepted deliveries for these cheques, relying on the brief window before the issuing bank identifies the forgery. This method is particularly prevalent among opportunistic thieves seeking quick gains, with losses often borne by the original payee if not reported promptly.^[68]^[69]^[70] Unusual variants include the exploitation of deceased individuals' accounts, known as ghosting fraud, where perpetrators impersonate the deceased using obituaries or public records to access dormant cheque accounts and issue or cash fraudulent instruments. In rare international cases, fraudsters have laundered proceeds through cross-border cheque schemes, such as using counterfeit or altered instruments in multi-jurisdictional transfers to obscure illicit funds, though this has declined with the rise of electronic payments.^[71]^[72]^[73] Emerging hybrid methods blend traditional cheque fraud with digital scams, such as sending victims fake prize or lottery winnings in the form of altered or counterfeit cheques, prompting them to deposit the instrument via mobile apps and wire back "fees" or excess funds before the fraud is discovered. These schemes capitalize on the immediacy of mobile deposits, where provisional credits are granted quickly, allowing fraudsters to extract value remotely.^[74]^[75] Historical examples from the 1990s illustrate the evolution of these tactics, including organized rings using chemical "washing" machines to erase and alter ink on stolen cheques, enabling reuse for larger amounts; one such case involved a gang indicted for bank fraud after producing bogus instruments that defrauded U.S. banks of millions. In modern contexts, exploits of mobile banking apps have surged, with fraudsters manipulating remote deposit capture by submitting high-quality images of forged cheques, leading to a reported uptick in losses as digital tools outpace traditional verification.^[76]^[77] According to the Association for Financial Professionals' 2025 Payments Fraud Report, checks remain the payment method most often subjected to fraud, with 63% of respondents reporting that their organizations faced check fraud in 2024.^[43]

Detection and Prevention

Technological Measures

Technological measures for preventing cheque fraud rely on advanced software, hardware, and artificial intelligence to verify authenticity, detect alterations, and identify suspicious activities in real time. Check truncation systems, which digitize physical cheques for electronic processing, incorporate imaging technologies to scan and analyze cheque images for signs of tampering, such as erased or modified ink patterns. These systems use optical character recognition (OCR) to extract and validate key elements like amounts and signatures, enabling automated detection of forgeries that might evade manual review. For instance, AI-powered image analysis can identify discrepancies in cheque layouts or security features, reducing processing times while flagging potential fraud before funds are released.^[78]^[79]^[80] Machine learning algorithms further enhance detection by identifying anomalous patterns in cheque deposits, such as unusual deposit frequencies, amounts deviating from account norms, or irregular transaction sequences indicative of schemes like kiting. Unsupervised machine learning models scan historical data for outliers without predefined fraud labels, while supervised approaches train on labeled datasets to predict risks with high accuracy, often achieving over 99% detection rates for known patterns. These tools integrate with banking platforms to score deposits in real time, alerting institutions to halt processing on suspicious items and minimizing losses from altered or counterfeit cheques.^[81]^[82]^[83] Positive pay systems provide a robust software-based safeguard where banks receive electronic files from issuers detailing cheque details, including serial numbers, amounts, and payees, then match these against presented items during clearing. If a mismatch occurs—such as an altered amount or unauthorized payee—the system flags the cheque for review or return, preventing payment on fraudulent instruments. Widely adopted since the 1990s, positive pay has proven effective in corporate environments, with financial institutions reporting significant reductions in cheque-related losses through automated verification.^[1]^[84] Magnetic Ink Character Recognition (MICR) technology, embedded in the cheque's bottom line, uses magnetic ink for routing numbers, account details, and cheque numbers to enable machine-readable validation during processing. Banks employ MICR readers to confirm the ink's authenticity and detect alterations, as non-magnetic substitutes often fail to scan correctly, exposing counterfeit attempts. Combined with OCR for cross-verification, MICR ensures high-speed clearing while providing a fraud-resistant layer, with modern systems achieving 99.5% accuracy in field recognition even on degraded images.^[85]^[86]^[87] For mobile cheque deposits, safeguards incorporate device fingerprinting to authenticate user devices based on unique attributes like IP addresses, browser configurations, and hardware signatures, preventing unauthorized submissions of manipulated images. Geofencing restricts deposits to predefined geographic areas tied to the account holder's location, blocking attempts from remote or suspicious origins that could indicate image-based fraud, such as photoshopped cheques. AI-driven analysis of deposit images further scrutinizes for inconsistencies, integrating device data to flag anomalies in real time and reduce risks associated with remote capture vulnerabilities.^[83] In October 2025, the Federal Reserve expanded its Check Fraud Mitigation Toolkit to include enhanced resources on AI integration for real-time fraud scoring, providing banks with guidelines for deploying machine learning models that assess cheque risks during processing and improve overall detection efficacy. This update builds on earlier toolkits by emphasizing scalable AI tools for institutions, aiming to address rising digital cheque threats through collaborative industry standards.^[88]^[89]

Bank and Institutional Practices

Banks and financial institutions implement rigorous verification protocols to mitigate cheque fraud risks. For new account holders, many banks place holds on deposits of 2 to 7 business days to allow time for cheque clearance and detect potential kiting or insufficient funds issues, a practice standardized by the Federal Reserve's Regulation CC to ensure funds availability while reducing fraud exposure. Additionally, institutions often utilize third-party cheque verification services such as TeleCheck or Certegy, which cross-reference cheque data against databases of returned items and account histories to approve or decline transactions in real-time at the point of sale. These protocols help prevent bad cheque writing by flagging high-risk items before they are cashed. Employee training forms a cornerstone of institutional defenses against internal cheque fraud, particularly embezzlement. Banks conduct regular training programs emphasizing recognition of altered or forged cheques, proper handling of negotiable instruments, and adherence to anti-fraud policies, often mandated by bodies like the American Bankers Association. To prevent collusion, segregation of duties is enforced, ensuring no single employee controls the entire cheque processing cycle—from issuance to reconciliation—while internal audits are performed quarterly or more frequently to review transaction logs for anomalies. Reconciliation processes are essential for detecting discrepancies in cheque handling. Institutions perform daily reconciliations by matching issued cheques against cleared items through automated systems integrated with their core banking software, enabling swift identification of unauthorized alterations or duplicates. For businesses and banks managing high volumes of incoming payments, lockbox services—secure postal facilities operated by banks like JPMorgan Chase—streamline receivables by depositing cheques directly into accounts and providing electronic images for rapid verification, reducing the window for interception or forgery. To safeguard against losses from cheque fraud, banks procure specialized insurance coverage. Fidelity bonds, also known as employee dishonesty bonds, protect against theft or embezzlement by staff, covering up to millions in potential losses and required under federal banking regulations for insured institutions. For merchants accepting cheques, bank-provided merchant services include chargeback protections that reimburse fraudulent transactions, often backed by guarantees from networks like Visa or Mastercard for eligible cases. Collaboration among institutions enhances collective fraud prevention efforts. Banks participate in shared databases like Early Warning Services' ChexSystems, which aggregates data on cheque-related fraud incidents across member institutions to deny services to known offenders and alert on suspicious patterns in real-time. This network, utilized by over 80% of U.S. banks, facilitates proactive risk assessment without violating privacy laws.

Legal and Regulatory Frameworks

In the United States, the Uniform Commercial Code (UCC) Articles 3 and 4 provide foundational legal frameworks for negotiable instruments and bank deposits, respectively, addressing various forms of cheque fraud such as forgery, alteration, and unauthorized endorsements.^[90] Article 3 governs the creation, transfer, and enforcement of negotiable instruments like cheques, imposing duties on parties to prevent fraud, including provisions for employer's responsibility for fraudulent endorsements by employees and negligence contributing to forged signatures. Article 4 outlines bank responsibilities in check processing and collection, allocating risks for fraud between banks and customers, such as time limits for reporting alterations or forgeries to limit liability.^[91] Additionally, 18 U.S.C. § 513 criminalizes the counterfeiting, forgery, or possession of securities of states or private entities, including cheques, with intent to defraud, treating such acts as felonies punishable by fines or imprisonment.^[92] Internationally, regulatory approaches vary but emphasize liability limitations and payment security. In the United Kingdom, the Cheques Act 1957 protects banks from liability when paying unendorsed or crossed cheques in good faith, reducing exposure to fraud by shifting some responsibility to the drawer and facilitating efficient clearing while deterring unauthorized negotiations.^[93] In the European Union, the revised Payment Services Directive (PSD2, Directive (EU) 2015/2366) establishes rules for payment services, including enhanced authentication to combat fraud in electronic and traditional payments like cheques, with banks liable for unauthorized transactions unless customer negligence is proven, and it promotes secure information sharing among institutions.^[94] These frameworks aim to standardize protections across member states, though PSD2's focus on digital payments has indirectly bolstered cheque security through broader anti-fraud measures. Reporting requirements under the Bank Secrecy Act (BSA) and anti-money laundering (AML) regulations mandate that U.S. banks file Suspicious Activity Reports (SARs) for transactions over $5,000 suspected of involving cheque fraud or related crimes, enabling early detection and regulatory oversight.^[95] Enforcement involves agencies like the Federal Bureau of Investigation (FBI), which leads criminal probes into bank fraud including cheque schemes, and the Federal Deposit Insurance Corporation (FDIC), whose Office of Inspector General investigates institutional misconduct and supports joint task forces on payments fraud.^[96]^[97] Cross-border challenges are addressed through Financial Action Task Force (FATF) standards, which require countries to implement AML measures for wire transfers and payments, including the 2025 update to Recommendation 16 mandating transparency in cross-border payment data to trace fraudulent activities like cheque kiting.^[98] Recent updates in 2025 have strengthened these frameworks, with the Federal Reserve expanding its Scams and Check Fraud Mitigation Toolkits to include guidance on enhanced due diligence, urging banks to conduct deeper customer verifications and monitor high-risk cheque transactions as part of BSA/AML compliance.^[88] These toolkits, now incorporating educational resources on fraud trends, support regulatory efforts like the joint FDIC-Federal Reserve-OCC request for information on payments fraud mitigation, emphasizing collaborative actions to enforce due diligence without imposing new mandates.^[99]

Consumer Protections

Consumers and businesses can protect themselves from check fraud by implementing key best practices. Using secure check stock with built-in security features, such as watermarks, microprinting, and pantograph technology that reveals "VOID" when photocopied, makes forgery more difficult. Monitoring accounts daily through online banking or mobile apps enables prompt detection of suspicious activity, such as unexpected withdrawals or altered checks. Voiding unused checks by writing "VOID" across the face in ink and shredding them prevents their interception and fraudulent use. Reporting suspected check fraud promptly is essential to limit liability and initiate recovery. For unauthorized electronic fund transfers, including checks converted to ACH, consumers must notify their bank within 60 days of receiving the account statement under Regulation E to cap liability at $50. If check fraud involves identity theft, such as stolen personal information used to forge checks, victims should report it immediately to the Federal Trade Commission via IdentityTheft.gov to obtain a recovery plan and alert credit bureaus. Recovery options provide avenues for reimbursement in many cases. Federal law and bank policies often offer zero-liability protection for unauthorized electronic transactions if reported timely, shielding consumers from financial loss beyond $50. For bad checks that bounce due to insufficient funds, recipients can pursue recovery through small claims court, where statutes in most states allow claims for the check amount, bank fees, and sometimes treble damages without needing an attorney. Education on common scams enhances vigilance. Overpayment schemes, where scammers send a fraudulent check exceeding the owed amount and request a refund via wire or gift card, can result in losses once the check fails; consumers should never deposit such checks or send money before verification. For high-value transactions, opting for certified checks—where the bank verifies and sets aside funds from the payer's account—ensures payment security and reduces bounce risks. Valuable resources support fraud awareness and prevention. The Consumer Financial Protection Bureau provides consumer guides on spotting check fraud, reporting unauthorized transactions, and protecting accounts. The 2025 AFP Payments Fraud and Control Survey emphasizes tips like regular staff training on recognizing phishing and check tampering, as well as minimizing check usage in favor of secure digital alternatives, noting that 63% of organizations faced check fraud attempts in 2024.^[100]

Legal Consequences

Criminal Penalties

Criminal penalties for cheque fraud vary significantly by jurisdiction, the amount involved, and the specific method employed, often classifying the offense as either a misdemeanor or felony based on the fraud's scale. In the United States, small-scale cheque fraud, such as writing a bad check for less than $1,000, is typically prosecuted as a misdemeanor, punishable by up to one year in county jail and fines up to $5,000.^[13]^[101] Larger amounts elevate the charge to a felony, with potential sentences ranging from one to 30 years or more in prison and fines up to $1 million, depending on the extent of the loss and other factors.^[13]^[102] At the federal level in the U.S., cheque fraud often falls under 18 U.S.C. § 1344, which prohibits schemes to defraud financial institutions and carries a maximum penalty of 30 years imprisonment and fines up to $1 million per count.^[103]^[104] State laws provide additional frameworks; for instance, California's Penal Code § 476a addresses passing bad checks with insufficient funds, classifying it as a misdemeanor for amounts under $950 (up to one year in jail) or a felony for higher amounts (16 months to three years in state prison).^[105]^[106] Sentencing can be enhanced by aggravating factors, such as prior convictions for similar offenses, involvement in organized crime, or schemes affecting multiple victims, which may increase prison terms and fines under federal guidelines.^[107]^[108] International extradition is possible for cross-border cheque fraud cases, particularly when they involve significant financial institutions, as facilitated by treaties and federal statutes like 18 U.S.C. § 3181 et seq.^[109]^[110] Specific forms of cheque fraud carry tailored penalties; for example, check kiting—exploiting float times between accounts—may be prosecuted as bank fraud under 18 U.S.C. § 1344 if electronic transfers are involved, akin to wire fraud under 18 U.S.C. § 1343, with up to 30 years imprisonment.^[111]^[112] Embezzlement via cheque fraud, such as misappropriating entrusted funds through forged or altered checks, is often charged under state theft statutes like larceny by check, with penalties aligning to the value stolen (e.g., misdemeanor for under $1,000, felony above).^[13]^[113] Internationally, penalties reflect similar principles but differ in structure. In the United Kingdom, cheque fraud is primarily addressed under the Fraud Act 2006 as fraud by false representation, punishable by up to 10 years imprisonment and unlimited fines on conviction.^[114]^[115] In Canada, under Criminal Code section 380, fraud involving cheques is an indictable offense: up to 14 years for amounts over $5,000, or up to two years for lesser amounts, with fines and restitution possible in both cases.^[116]^[117]

Civil Liabilities

In the United States, banks bear primary liability for paying forged or altered cheques under the Uniform Commercial Code (UCC), particularly Articles 3 and 4, which govern negotiable instruments and bank deposits. If a bank pays an item bearing an unauthorized signature or alteration without exercising ordinary care, it must recredit the customer's account, as the item is not properly payable under UCC § 4-401. However, this liability shifts if the customer fails to exercise reasonable promptness in examining statements and reporting the unauthorized item; under UCC § 4-406, a customer has one year to report unauthorized signatures and three years for alterations or unauthorized indorsements, after which the bank is discharged from liability for subsequent payments on similar forgeries.^[118] Merchants accepting bad cheques (non-sufficient funds or NSF) can recover the face value plus additional civil remedies through state bad cheque statutes. These often permit recovery of NSF fees ranging from $20 to $40, depending on state caps, as well as costs for collection efforts. In cases of intentional bad cheque writing, merchants may pursue lawsuits for treble damages—up to three times the cheque amount—plus attorney's fees in states like Florida, New Jersey, and California, where statutes such as Florida Statutes § 68.065 explicitly authorize such penalties to deter fraud.^[119]^[120]^[121] Businesses victimized by cheque fraud may seek reimbursement through commercial crime insurance policies, which typically cover losses from forgery, counterfeiting, and employee dishonesty. These policies, often including fidelity bonds, reimburse direct financial losses and related expenses, though claims may involve disputes resolved via policy arbitration clauses. Coverage limits and exclusions vary, but such insurance is standard for protecting against the financial impact of fraudulent instruments.^[122]^[123] Account holders perpetrating or negligently enabling cheque fraud face full civil liability for unauthorized items if they fail to report them timely under UCC § 4-406, potentially bearing all losses after the statutory periods expire. Additionally, involvement in cheque fraud can result in negative reporting to consumer reporting agencies like ChexSystems, which tracks banking history including NSF incidents and suspected fraud, damaging the holder's ability to open new accounts for up to five years and indirectly affecting creditworthiness.^[118]^[124]^[125] For cross-border cheque fraud, the 2019 Hague Judgments Convention facilitates the recognition and enforcement of civil judgments in participating states, aiding victims in recovering assets from international perpetrators by streamlining legal proceedings without re-litigation, provided the judgment meets criteria like due process and absence of fraud in its procurement.

Notable Incidents and Trends

2024 Chase Bank Glitch

In late August 2024, a viral social media trend on platforms like TikTok promoted a purported "infinite money glitch" at JPMorgan Chase Bank, encouraging users to deposit fraudulent checks and withdraw funds before the bank could detect the invalidity of the payments.^[126] The scheme primarily exploited ATM deposit processes but also involved mobile check deposits, where participants used fake, altered, or checks from closed accounts to gain immediate access to credited funds under the bank's provisional credit policy.^[127] This led to widespread attempts at check fraud, with thousands of customers reportedly trying the method over a few days, resulting in significant unauthorized withdrawals before the bank intervened.^[128] The root cause stemmed from a temporary technical issue in the bank's processing system, combined with standard practices allowing quick availability of deposited funds during high-volume periods, which delayed verification and enabled the fraud to spread rapidly via online videos demonstrating the process.^[126] Fraudsters deposited checks for inflated amounts—often tens or hundreds of thousands of dollars—and immediately withdrew cash or transferred funds, leaving accounts in negative balances once the bogus checks were identified.^[127] Chase detected the anomaly within days, but not before multiple incidents occurred, including cases where individuals withdrew over $290,000 in a single event.^[128] The impact extended beyond financial losses, affecting thousands of Chase customers whose accounts were scrutinized, frozen, or closed as part of the investigation; the bank reimbursed legitimate victims but pursued recovery aggressively, filing lawsuits against at least four individuals and businesses for amounts exceeding $660,000 in documented cases.^[126] This incident eroded customer trust and highlighted operational risks, prompting regulatory scrutiny and public warnings from the bank labeling the trend as "fraud, plain and simple."^[128] In response, Chase temporarily suspended certain high-value deposit functionalities, reviewed thousands of transactions, and referred suspected fraudsters to law enforcement for criminal prosecution.^[127] The bank implemented stronger monitoring protocols, including improved real-time fraud alerts and collaboration with authorities to identify participants through video evidence and account data.^[126] By early 2025, Chase had escalated legal actions, suing additional customers in state courts for smaller thefts under $75,000 to recoup losses.^[129] The event underscored vulnerabilities in remote deposit capture systems, particularly the risks of provisional crediting in digital and ATM channels, urging financial institutions to bolster image verification and AI-driven anomaly detection to prevent similar exploits amid rising social media-driven fraud.^[127]

Recent Developments in 2025

In 2025, the Association for Financial Professionals (AFP) reported that 79% of organizations experienced payments fraud attacks or attempts in 2024, with check fraud emerging as the most prevalent type alongside account takeover (ATO) incidents.^[43] Specifically, 63% of respondents faced attempted or actual check fraud during that period, a slight decrease from 65% in 2023.^[66] Overall consumer fraud losses reported to the Federal Trade Commission (FTC) reached $12.5 billion in 2024, a 25% year-over-year rise, underscoring the escalating financial impact.^[130] Emerging trends in cheque fraud highlight a shift toward digital facilitation, with fake check scams increasingly delivered via email phishing, which accounted for a significant portion of attempts amid broader phishing volumes exceeding 3.4 billion malicious emails daily.^[131] AI-assisted counterfeiting has gained traction, enabling fraudsters to generate realistic fake checks using accessible machine learning tools to mimic genuine designs and signatures.^[89] Additionally, proceeds from check fraud are being integrated into cryptocurrency laundering schemes, where illicit funds are converted and obscured through cross-chain transactions, contributing to the $21.8 billion in high-risk crypto activity observed in 2025.^[132] No major isolated incidents dominated 2025 headlines until November, when U.S. authorities charged 12 individuals in New Jersey with an $11 million conspiracy involving stolen U.S. Treasury checks, demonstrating continued organized efforts in check theft and alteration.^[133] The Federal Reserve expanded its Scams and Check Fraud Mitigation Toolkits in October, incorporating new educational resources on fraud schemes and prevention strategies to bolster industry awareness.^[88] In the UK, Action Fraud and UK Finance data indicate persistent digital shifts in fraud, with total fraud losses reaching £629 million in the first half of 2025—a 3% increase year-over-year—though cheque-specific volumes have declined amid reduced paper usage.^[134] Looking ahead, while paper cheque volumes continue to decline, hybrid digital-paper fraud persists, with experts anticipating sustained threats from AI-enhanced tactics and crypto integrations unless detection technologies evolve further.^[135]

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If convicted of bank fraud you may be facing large fines of up to $1,000,000 and/or imprisonment of up to thirty years. Federal Code Provision for Bank Fraud.
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476a § PC - Writing Bad Checks - California Law & Penalty
Penal Code 476a PC makes it a crime to write or pass a bad check (knowing that there are or will be insufficient funds in the account).Elements of The Crime · Effective Defenses · Penalties · Immigration Consequences
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California Bad Check Laws - PC 476a - Wallin & Klarich
Rating 4.7 (270) Writing a check while knowing that funds are insufficient can be charged as a misdemeanor offense that can result in sentence of up to one year in county jail.
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Aggravating and Mitigating Factors in Criminal Sentencing Law
Oct 15, 2025 · A common aggravating factor is a prior record of similar convictions. Other aggravating factors typically relate to the circumstances of the offense itself.
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Aggravating and Mitigating Circumstances in Federal Sentencing
Aggravating factors are circumstances that increase the defendant's culpability and could lead to an enhanced sentence, such as prior convictions and victim ...
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9-15.000 - International Extradition And Related Matters
9-43.000 - Mail Fraud And Wire Fraud · 9-44.000 - Health Care Fraud · 9-46.000 ... International extradition is the formal process by which a person found ...
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International Extradition: A Guide to U.S. and International Practice
Nov 10, 2020 · This Advisory is meant to provide a basic primer for those interested in understanding the law and practice of international extradition, with a focus on the ...
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Check Kiting | Title 18 U.S. Code § 1344
If proven, accusations of check-kiting can lead to severe penalties. These include substantial fines and a potential 30-year federal prison sentence, the ...
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Check-Kiting Defense Lawyer - Law Offices of Peter Katz
Prison sentences: Federal check-kiting convictions can result in up to 30 years in prison, depending on the scale of the fraud and any additional charges. Heavy ...
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Types of Embezzlement in New York (2025) - Vitaliano Law
Jan 1, 2025 · Under state law, embezzlement is prosecuted under larceny statutes. ... Check fraud; Credit card fraud; Falsified contracts; Identity theft. One ...<|separator|>
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Fraud Act 2006 - Legislation.gov.uk
(a)on summary conviction, to imprisonment for a term not exceeding [F11the general limit in a magistrates' court] or to a fine not exceeding the statutory ...
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Is it an offence for a person to submit a cheque in the ... - LexisNexis
Submitting a cheque without sufficient funds may be an offense if the individual knows or believes the account lacks funds, implying the cheque will be honored.<|control11|><|separator|>
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Criminal Code ( RSC , 1985, c. C-46) - Department of Justice Canada
Jun 4, 2025 · 380 (1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the ...
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Fraud (Offence) - Criminal Law Notebook
s. 380(1)(a) [fraud over $5,000], Indictable Offence(s). (14 years max) ; s. 380(1)(b) [fraud not exceeding $5,000], Hybrid Offence(s). (absolute). (absolute) ...
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§ 4-406. CUSTOMER's DUTY TO DISCOVER AND REPORT ...
CUSTOMER's DUTY TO DISCOVER AND REPORT UNAUTHORIZED SIGNATURE OR ALTERATION. (a) A bank that sends or makes available to a customer a statement of account ...
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State Allowed NSF Fees - Recur360
State Allowed NSF Fees ; Colorado, $20, New Mexico ; Connecticut, $20, New York ; Delaware, $40, North Carolina ; District Of Columbia, $25, North Dakota ; Florida.
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Penalties for Writing a Bad Check in the United States | 2025
May 21, 2025 · Florida: Civil recovery includes check amount, bank fees, and damages up to three times the amount. ... Knowing your state's laws, keeping ...
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New Jersey Revised Statutes Section 2A:32A-1 (2024) - Civil action ...
Title 2A - Administration of Civil and Criminal Justice Section 2A:32A-1 - Civil action for bad checks, electronic funds transfers. Universal Citation: NJ ...
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https://www.recur360.com/state-nsf-fees/
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What, Exactly, Does Business Crime Insurance Cover? - CCIG
Dec 11, 2020 · Covers you if someone forges a check, provides counterfeit money or alters financial materials to commit a crime against your company.
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Chex Systems, Inc. - Consumer Financial Protection Bureau
Jan 30, 2025 · Provides deposit account information to lenders evaluating whether to offer credit to consumers with damaged, little or no credit history. Chex ...
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How to clear up your ChexSystems report - Bankrate
Sep 15, 2025 · Your ChexSystems report includes account closures for negative reasons, bounced checks, unpaid overdraft fees, suspected fraud or identity theft ...Missing: damage | Show results with:damage
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JPMorgan Chase sues customers over 'infinite money glitch' ATM ...
Oct 29, 2024 · The banking giant is filing lawsuits against customers who exploited a viral technical glitch this summer that allowed people to pull huge amounts from Chase ...
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Chase Bank "Money Glitch" Trend is Just Plain Check Fraud - ACFE
This “trend” is actually a form of check fraud that can have serious legal and financial repercussions for those involved.
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JPMorgan sues customers over check fraud linked to glitch ... - Reuters
Oct 28, 2024 · The glitch in late August let customers deposit big checks in ATMs and withdraw funds immediately before the checks could clear, even if the ...<|control11|><|separator|>
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JPMorgan Chase infinite money glitch: Bank sues more customers
Apr 16, 2025 · The bank is now going after customers who allegedly stole amounts below $75,000, which means it is filing complaints in state courts, instead of ...
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New FTC Data Show a Big Jump in Reported Losses to Fraud to ...
Mar 10, 2025 · Newly released Federal Trade Commission data show that consumers reported losing more than $12.5 billion to fraud in 2024, which represents a 25% increase over ...Missing: fake | Show results with:fake
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81 Phishing Attack Statistics 2025: The Ultimate Insight - Astra Security
Aug 19, 2025 · Phishing email statistics suggest that nearly 1.2% of all emails sent are malicious, which in numbers translated to 3.4 billion phishing emails daily.
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2025 Trends in AML and Financial Crime Compliance As We Enter Q4
Oct 16, 2025 · Cross-chain laundering is accelerating: Criminals are no longer relying on a single blockchain to obscure funds. $21.8bn in illicit and high- ...
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https://www.ftc.gov/news-events/news/press-releases/2025/03/new-ftc-data-show-big-jump-reported-losses-fraud-125-billion-2024
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10 statistics for better fraud prevention in 2025 - Alloy
Sep 16, 2025 · Consumer fraud losses increased by 25% year over year, totaling more than $12.5 billion in 2024. · Financial organizations report an increase in ...