Best Practices for Preventing Banking Fraud in 2013
Given today’s technologically advanced environment with all the tools available to criminals, bank fraud continues to become easier and remains a rising issue that financial institutions need to confront head on. Fraud has evolved from just forging counterfeit checks and currency, and now includes a different set of fraudulent vehicles, such as debit/credit cards, electronic banking, and even identity theft fraud. A panel of key thought leaders and practitioners will help you understand some of the most critical issues with respect to bank fraud in a two-hour live webcast.
The panel will discuss the following issues:
- Utilizing Positive Pay and other Prevention Tools
- Identifying Fraudulent Transactions and Bank Fraud Schemes
- Building and Maintaining Strong Relationships with your Frontline Staff
- Combating Bank Fraud with Help from Law Enforcement Agencies
- Best Practices in Preventing Bank Fraud and Application of Risk Assessment Techniques
- Best Practices on Running an Effective Bank Fraud Department
- Insights and Regulatory Updates
Greg L. Johnson, Partner,
Lewis Brisbois Bisgaard & Smith LLP
Impact of Technological Advances on Legal Duties of Banks and Account Holders that Govern Risk of Check Fraud Losses
- Check fraud: conflicting studies about extent, but generally over 500 million checks forged annually; losses of over $10 billion; trend growing at 2.5% annually
- Reason for rapid growth in frequency and dollar magnitude: ready availability of low cost technology to criminals (computers, scanners, printers, copiers, desktop publishing software, etc.
- To keep pace, bank’s and account holders have had to equip themselves with more technologically advanced means to meet this growing sophistication by criminals and prevent fraud
- The question is—how far must bank’s go under the law in adopting new technologies to keep pace with increasing criminal sophistication?
- Historically, banks assumed virtually all risk of loss for check fraud; under recent UCC changes, the risk of loss now resides with the party in the best position to prevent the loss
- Standard of care that bank’s must now employ to identify check fraud:
- Uniform Commercial Code § 3-406: bank must pay the instrument “in good faith”
- UCC § 1-201: “good faith” means observance of “reasonable commercial standards”
- Courts have equated “reasonable commercial standards” with “ordinary care” (see, e.g., Rodrigue v. Olin Emples. Credit Union, 406 F.3d 434, 450 (7th Cir. 2005))
- UCC 3-103: ordinary care means “observance of reasonable commercial standards, prevailing in the area in which the person is located, with respect to the business in which the person is engaged.”
- UCC § 3-406, Official Comment 1: “The question [of what constitutes ordinary care] is left to the court or the jury for decision in the light of the circumstances in the particular case including reasonable commercial standards that may apply.”
- “[T]he standard of reasonableness is set by comparable businesses. . . . Size is a relevant factor in identifying comparable businesses because, in the banking context, a reasonable commercial standard for processing checks at a small bank with a relatively small volume of checks, and personal familiarity with its customers, would be quite different than what is reasonable for a large bank that processes upwards of a 1,000,000 checks per day.” Espresso Roma Corp. v. Bank of America(2002) 100 Cal. App. 4th 525, 532.
- This then raises the question—how far must a bank go in adopting cutting edge technologies to satisfy its duty?
- Examples from cases
- Odds and ends
- Only imaging checks and not retaining originals—problems in presentment warranty cases (case example)
- Banks can allocate duties for fraud detection to customer in account agreement (UCC section and case examples)
- “Reasonable commercial standards” do not require visual inspection if checks processed by automated means, as long as foregoing visual inspection does not violate bank’s procedures, and bank’s procedures “do not vary unreasonably from general banking usage not disapproved by [UCC].”
Michael M. Rosensaft , Partner,
Katten Muchin Rosenman LLP
2013 Bank Fraud Cases
- how the problems occurred
- what penalties are
- how they can inform bank fraud policies.
- Outsiders committing bank fraud.
- Example: US v. Alberto Lajud Pena (EDNY): Computer hackers break into bank files to create prepaid debit cards and then use them at debit machines worldwide to steal $2.8 million. Issues banks should focus on: magnetic stripes versus computer chips; computer security; keeping up international communications.
- Example: US v. Pearson (N.D. Ill.): Insurance company employee takes personal information and uses it to make fake checks. An old scheme. Steals $700K before it is found out. Highlights importance of internal and external communications.
- Insider employees committing bank fraud
- Example: US v. Watkins (N.D. Ill.): Bank teller takes account information and steals customer profile information and steals at least $245,000 from customer accounts. Issues: controlling what employees has access to information and controls in place to track and monitor access.
- Insider officers committing bank fraud
- Example: US v. Woodward (EDVA): CEO hid losses and gave preferential financing to troubled borrowers to try to prop up amount of bank loans. Parallel SEC case as well. Highlights importance of internal compliance at a very high level.
Armando Linares III, CAMS, Vice President BSA & Compliance Officer,
First State Bank and Trust
- Solutions for the increase in debit fraud
- Education of customers against check fraud and common scams
- Fraudulent Checks and Identity Theft work hand in hand
- Centralizing Efforts: The convergence of Fraud and the BSA Departments
Bruce Owdley, CFE, CFS, Financial Crimes Investigator,
Houston Police Department
- Dentifying Fraudulent Checks
- Spotting Check Fraud Schemes
- Combating Check Fraud with help from Law Enforcement Agencies involved
Who Should Attend:
– Fraud Executives at Banks, Financial Institutions and Related Companies
– Internal Auditors of All Levels
– CEOs and CFOs
– Corporate Financial Officers
– Corporate Security
– Other Related Professional
Greg Johnson is a lead trial attorney with over 25 years of experience. Mr. Johnson practices general commercial litigation. He has handled complex cases in both state and federal trial courts, as well as state and federal appellate courts. His practice focuses primarily on representing financial institutions. He has extensive experience in defense of lender-liability actions and prosecution of complex foreclosure and debt and guaranty enforcement actions. Beyond his primary focus, Mr. Johnson has also represented clients in securities fraud class actions, actions involving technology subject matters and related disputes over patents, trade secrets and alleged anticompetitive/unfair trade practices (primarily in bio-medical, semiconductor and communication fields), state and federal consumer class actions, actions involving disputes over payment and reimbursement for managed health care services and actions against governmental entities.
Greg Johnson is a lead trial attorney with over 25 years of experience. Mr. Johnson practices general commercial litigation. He …
Michael Rosensaft focuses his litigation practice on representing individuals and businesses in white collar criminal matters, regulatory enforcement matters, corporate internal investigations, insurance and health care fraud, and complex civil litigation. Prior to joining Katten, he served as an Assistant US Attorney for the Southern District of New York. In that capacity, Michael oversaw the investigation and prosecution of numerous criminal cases involving bank fraud as well as crimes such as terrorism, international money laundering, export violations, bribery of foreign officials, Racketeer Influenced and Corrupt Organizations Act (RICO) and organized crime, health care fraud, and computer crimes. He is an experienced trial attorney and appellate advocate and was responsible for all aspects of litigation as a federal prosecutor, working closely with agencies including the Federal Bureau of Investigation, the Internal Revenue Service, the Office of Foreign Assets Control, and the State Department.
Michael Rosensaft focuses his litigation practice on representing individuals and businesses in white collar criminal matters, regulatory enforcement matters, corporate …
Armando Linares III MBA, CAMS, M.S. Armando is the Vice President BSA & Compliance Officer for First State Bank and Trust Company. His responsibility covers regulatory risk areas for the bank which include BSA, fraud, OFAC, information security, and bank compliance. He is implementing a new BSA & Compliance program as well as a bank-wide risk management division, which includes new policies and procedures, training courses, monitoring process, synergy of resources, and a regulatory conscious corporate culture. Within the first year he helped implement the bank’s current automated software and also the merging of fraud and BSA functions.
His previous experience is focused on BSA-AML with a commercial community bank in a primarily HIDTA and HIFCA area. There, he assisted in developing the bank’s BSA-AML program, implementation of an automated AML detection software, and bank-wide BSA risk assessment amongst other BSA related responsibilities.
Armando holds a Bachelor’s in Finance and a Master’s in Business Administration from the University of Texas at Brownsville Texas. He also holds a Master’s of Science in Criminal Justice from Grand Canyon University in Phoenix, Arizona.
He recently published a blog site discussing issues that BSA practitioners deal with on a day-to-day basis. www.bsa-aml.com
Armando Linares III MBA, CAMS, M.S. Armando is the Vice President BSA & Compliance Officer for First State Bank and …
Bruce Owdley is Police Investigator for the Houston Police Department Financial Crimes Unit. Officer Owdley has over 16 years of law enforcement experience, with a variety of police experiences, while working in his current position for the past 6 years. His responsibilities range from investigating forgery, fraud & embezzlement cases, which stem from money laundering and organized crime rings. Officer Owdley is a Certified Fraud Examiner (CFE) and a Certified Fraud Specialist (CFS).
In addition to his investigative duties, Officer Owdley also is a TCLEOSE (Texas Commission on Law Enforcement Officer Standards and Education) certified instructor and is responsible for teaching identity theft and fraud in-service classes at the Police Academy and the delivery of the Burglary and Theft and Financial Crimes Investigation module to the cadets at the Houston Police Department Academy. Officer Owdley frequently gives presentations for government, public and private institutions on a regular basis in regard to Financial Crimes, Fraud and Identity theft.
Officer Owdley has developed a sub-specialty in internet fraud investigations by taking on cases which involve e-commerce transactions and internet communication. Officer Owdley is a published author with the Association of Certified Fraud Examiners in their 2010 edition of Internet Fraud Casebook by writing case number 27 in the book, G.I. Hacker. He has also completed his Identity Theft Prevention e-book, which is available on Amazon Kindle. Bruce is the current President for the Lone Star Chapter of the Association of Certified Fraud Specialist in Houston and has big plans for the future of the organization.
Bruce earned a Bachelor of Science degree in Computer Science from Texas Southern University, with a minor in Business. He also holds a Master of Science in Strategic Leadership from Mountain State University in Beckley, West Virginia. Will be awarded a graduate certificate in Administration of Justice from Midwestern State University, Wichita Falls, Texas, May 2013. Email:Brucus.Owdley@houstonpolice.org
Bruce Owdley is Police Investigator for the Houston Police Department Financial Crimes Unit. Officer Owdley has over 16 years of …
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About Lewis Brisbois Bisgaard & Smith LLP
Established in 1979, Lewis Brisbois Bisgaard & Smith LLP is a national, full-service law firm with more than 850 attorneys and 27 offices, in 13 states and the District of Columbia. Lewis Brisbois’ national practice is sophisticated, multi-faceted and well-versed in current legal trends, while their individual state practices provide vast resources and knowledge of procedural and legal nuances. Lewis Brisbois offers legal practice in nearly 30 specialties, and a multitude of sub-specialties associated with each practice area. Their attorneys have broad knowledge, expertise, and sensitivity to their clients’ unique needs. Through interaction among its practice groups, Lewis Brisbois provides a wide range of legal services to each client with a continuity of representation over multiple disciplines. We have built longstanding relationships with corporate and institutional clients based on our ability to provide comprehensive service on a national scale.
About Katten Muchin Rosenman LLP
Katten is a full-service law firm with more than 600 attorneys in locations across the United States and in London and Shanghai. While Katten offers an extensive range of legal services across numerous industries, their Litigation and Dispute Resolution Practice has nearly 200 attorneys dedicated to evaluating, fighting and resolving clients’ most difficult problems. Members of the Litigation Practice regularly appear in federal and state courts across the nation, at the trial and appellate levels, before arbitration tribunals and administrative law judges, and in specialty courts.
Katten’s clients benefit from the experience of the many attorneys who have held positions at the U.S. Department of Justice, the U.S. Attorney’s Office, the White House, the SEC, the CFTC, and other government agencies and prosecutors’ offices. They have the depth and experience to handle virtually any type of case.
About First State Bank and Trust
First State Bank & Trust Company has been in business in Carthage, Texas and Panola County over 110 years. As a community bank in Northeast Texas, we pride ourselves in being locally owned and managed. Small enough to know you, with the convenience of larger institutions. All of our decisions are made here!
First State Bank & Trust Company
Same Name, Same People, Same Service!
About Houston Police Department
The chapter was created to increase awareness of best practices in AML prevention and to offer members an open forum to exchange ideas with local law enforcement and industry professionals. Through networking and educational events, the chapter strives to create a local community of professionals who share the common passion of preventing money laundering and terrorist financing, as well as creating a support network for ACAMS members seeking to earn the CAMS designation.