Types of Bank Fraud & Examples: What You Need to Know

Bank fraud is a constant threat in the financial sector, posing serious risks to both institutions and customers. It manifests in numerous ways, from sophisticated cyberattacks to traditional methods like forged checks. Fraudsters continuously adapt to security measures, finding new ways to exploit vulnerabilities. For banking professionals, staying updated on the latest schemes is essential to protecting assets and maintaining customer trust. Understanding the different types of bank fraud and how they operate not only helps prevent significant financial losses but also safeguards the integrity of banking institutions.

What is Bank Fraud?

Bank fraud refers to the use of deception or dishonest methods to obtain money, assets, or other financial gains unlawfully from a bank or financial institution. These illegal activities can target the bank directly or the customers it serves. The primary objective of bank fraud is typically financial gain, but the collateral damage can include identity theft, data breaches, and significant reputational harm to the institution.

Fraud can take many forms, often involving technology and digital platforms, but older, more conventional methods still pose significant risks. Whether through phishing emails or tampered checks, fraudsters can cause considerable damage if not identified early. Banking professionals need to be aware of how these frauds occur, the warning signs, and how to mitigate the risks.

5 Types of Bank Fraud and Examples

Banking professionals must be prepared to deal with various forms of fraud. Here are five common types of bank fraud that continue to challenge financial institutions:

Check Kiting

Check kiting involves exploiting the float time between two or more bank accounts. A fraudster will write a check from one account without sufficient funds and deposit it into another account. Since the check takes a day or two to clear, the fraudster can withdraw the funds before the bank realizes the account was overdrawn. This form of fraud can create artificial balances, making it seem like more money is available than there actually is.

Example: A customer writes a $10,000 check from Bank A and deposits it into their account at Bank B, even though Bank A only has $2,000. Before the check bounces, the customer withdraws the money from Bank B, leaving both banks at a loss.

Cashier’s Check Fraud

A cashier’s check is often considered secure because it is guaranteed by the issuing bank. However, fraudsters have found ways to create counterfeit cashier’s checks that look legitimate. The unsuspecting victim deposits the fake check, which appears to clear initially, but once the fraud is discovered, the bank reverses the funds. Unfortunately, this often leaves the customer responsible for any money they may have spent or withdrawn.

Example: A scammer sends a counterfeit cashier’s check to a victim as payment for a product or service. The victim deposits the check and ships the goods before the fraud is identified. The scammer disappears, leaving the victim without money or product.

Vishing

Vishing, or voice phishing, involves fraudsters impersonating a bank or financial institution over the phone to extract personal information from victims. They may claim there is suspicious activity on the victim’s account and request verification of sensitive details such as account numbers, PINs, or passwords. Once the fraudster has this information, they can access the victim’s accounts, steal funds, or commit further fraud.

Example: A fraudster calls a customer, posing as their bank’s fraud department. They convince the customer to share their account credentials under the pretense of protecting them from an alleged breach. With this information, the fraudster drains the customer’s account.

CEO Fraud

CEO fraud, also known as business email compromise (BEC), targets corporations by impersonating high-level executives. Fraudsters typically send an email that appears to be from a company’s CEO or senior executive requesting an urgent wire transfer or sensitive company data. Lower-level employees, fearing repercussions, may comply without verifying the request, resulting in significant financial losses or data theft.

Example: An employee in the finance department receives an email seemingly from the CEO requesting an immediate $50,000 wire transfer for a confidential business deal. Believing the email to be legitimate, the employee transfers the money without realizing the CEO’s account has been spoofed.

Internet Bank Fraud

Internet bank fraud encompasses any fraudulent activities through online banking platforms. These can include phishing emails, malware attacks, or unauthorized account access. Fraudsters often trick victims into providing login credentials or personal information, allowing them to siphon funds or use the accounts for money laundering purposes.

Example: A fraudster sends a phishing email that looks like it’s from the victim’s bank, prompting them to click a link to update their account information. The victim enters their credentials on a fake website, giving the fraudster full access to their online banking account.

Learn More About Bank Fraud in Our Upcoming Course

Staying ahead of fraudsters requires continuous learning and specialized training. BankersHub offers the Certified Fraud Specialist (CFS) course, tailored specifically for banking professionals who want to deepen their expertise in fraud detection and prevention. This comprehensive 7-course on-demand program delves into several critical areas, such as mobile payments fraud, deposit operations fraud, check fraud, wire transfer fraud, and more. Participants will learn practical insights and strategies to prevent fraud, helping protect their institutions and customers’ resources. Register today to begin your Certified Fraud Specialist journey!