7 Interesting Facts
1. One to two notes out of every 10,000 U.S. currency notes are counterfeit.
2. In fiscal year 2002, approximately 60 percent of detected counterfeit notes passed in the United States originated outside of the country.
3. The $100 note is the most commonly counterfeited note outside of the United States; the $20 note is the most commonly counterfeited note domestically.
4. In fiscal year 2002, the U.S. Secret Service and international authorities seized $130 million in counterfeit notes before they were circulated and $44.3 million in counterfeit notes that had passed into circulation.
5. Last year, the U.S. Secret Service arrested 4,900 people for currency counterfeiting activities. The conviction rate for such crimes is approximately 99 percent.
6. Counterfeiters outside of the United States most often use traditional offset presses, while domestic counterfeiters most often use digital equipment.
7. In 2002, the U.S. Secret Service seized 555 pieces of digital equipment, including personal computers, that had been used for counterfeiting.
Source: U.S. Bureau of Engraving and Printing
The client, which issues 200,000 checks monthly, now orders approximately $65,000 in checks each year. The distributorship stores a 3-month supply in a secure section of its warehouse and issues releases every two weeks. "That's actually one of our value-added offerings," Mellon says. "A lot of distributorship's our size don't have secure areas for checks."
A Growing Threat
Despite the growth of digital financial transactions such as online banking, direct deposit and check cards, financial fraud remains a major problem for businesses. Check fraud costs U.S. firms $10 billion annually, according to the National Check Fraud Center, a private organization in Charleston, S.C., that provides information to help law enforcement, financial institutions and retail organizations nationwide detect, investigate and prosecute white-collar criminals. In addition, attempted check fraud surpassed $4.3 billion in 2001, doubling for the second time in four years, according the American Bankers Association's 2002 Deposit Account Fraud Survey Report.
As desktop publishing equipment becomes easier to use and high-end printers become more affordable, more criminals are trying their hand at document fraud. Color copiers, scanners, laser printers and personal computers are now weapons of choice for criminals. In fact, the U.S Bureau of Engraving and Printing reports that less than 1 percent of counterfeit currency notes detected in the United States in 1995 was produced digitally. That figure had mushroomed to nearly 40 percent by 2002.
Many businesses are heeding the message and protecting themselves, Mellon says. "The media is driving it," he says. "People are reading all of the bad publicity in The Wall Street Journal or USA Today about all of the fraudulent activity going on out there, including stories about the Enrons."
To thwart fraud, distributors should encourage customers to layer documents with multiple overt and covert features, says Lisa Sandstrom, president of Viking Business Products, a 24-year-old distributorship in Fort Wayne, Ind., that provides checks, narcotic prescription pads and other security documents. "Everyone's heard the horror stories of bank tellers who are in a hurry and cash pay stubs instead of checks," she says. "You have to be able to prove that you attempted to protect the document." Some commonly used features include chemical-reactive paper, visible and invisible fibers, watermarks, foil stamping and void pantographs. "A lot of manufacturers offer certain security features at no charge," Sandstrom says. "Certainly add all the free ones, then encourage your customers to consider additional ones they may need to pay for." End users also can implement safeguards such as "positive pay" and "reverse positive pay," computerized check number matching programs between banks and their corporate customers.
Protecting More than Checks
Although checks remain the most commonly protected documents, other documents that warrant protection include gift certificates, academic transcripts, certificates of authenticity, deeds, licenses, security badges, titles of ownership and membership cards. But many end users still don't realize the importance of protecting such documents until their businesses fall victim to fraud.
An equipment manufacturing firm called Viking Business Products after uncovering fraud. The manufacturer, which produces temperature sensors and related products for customers worldwide, ships its products with certificates that authenticate they've been calibrated to certain standards. The manufacturing firm printed the certificates on 8 1/2 x 11-inch cut sheets. It discovered that a competitor, which sold uncalibrated, lower-quality products, was copying the certificates and shipping them with its own products.
Viking Business Products provided the manufacturing firm with 8 1/2 x 11-inch certificates on 28# stock that includes copy pantographs and the client's logo screened in the center of each sheet. The distributorship provides 5,000 certificates annually.
Many businesses are still in the dark when it comes to document security and pass up opportunities to protect themselves, distributors say. Education is vital. The more buyers understand the potential for fraud, the better chance distributors have to sell security features successfully.
Kara S. Carpenter is assistant managing editor of Print Solutions. Email her your comments at kcarpenter@PSDA.org.
Thanks to The Flesh Company, St. Louis, for assistance.
UPDATE: Distributorship Victimized by Check Fraud
The Feb. 1, 2002 edition of DMIA's E-Weekly Newsletter reported on a distributorship that had been victimized by check fraud. The case was unusual because of the sophistication of the forgery. Criminals forged a check for $92,358 with the distributorship's name, logo and account information as well as its president's signature. The check was deposited into an account at a New York bank, then most of the money was wired to Nigeria.
A week prior to that forgery, the distributorship stopped another fraudulent check for $119,102.89 before it could be processed. (The distributorship was unaware that the $92,358 fraudulent check had been processed previously.) The company received a call from a computer hard drive manufacturing firm in Massachusetts saying that it had received a check in the distributorship's name as payment for $119,102.89 in equipment for a Nigerian company. The manufacturing firm already had called the distributorship's bank to ensure the funds were available, but still was reluctant to ship the equipment. The manufacturing firm's owner thought it was strange that a business in the United States would pay for equipment for a Nigerian company, the distributor says. "We were able to stop this check within two hours of it being processed at our bank," he says. According to the distributor, the crooks most likely had planned to sell the equipment on the black market.
The fraudulent checks were printed on chemical-reactive paper that included artificial watermarks, Toner Grip™ and fluorescent fibers. They also included MICR numbering and microprinting. In fact, the fraudulent checks were almost identical to the distributorship's own checks--the fake signatures even looked like his own, the distributor says.
After closing his company's checking account, the distributor immediately contacted his attorney and the authorities. (Crooks tried to cash two more checks for approximately $70,000 and $30,000 after the account was closed.)
The FBI, U.S. Secret Service and the distributorship's local police investigated and found the fraud was committed by a Nigerian crime ring that operates worldwide. One member of the crime ring, who operated in the distributorship's area, worked as a driver for a bank's courier service. He stole one of the distributorship's accounts payable checks from a lock box the bank had set up for a printing manufacturer. After scanning the check, the crook created new ones with the distributorship's name, address and logo, as well as its president's signature. They were printed on check stock purchased from an office supply store. To ensure the checks would clear, the individual also carefully numbered the checks much higher than the authentic check.
The crook then sent the checks to another member of the crime ring in New York. Offering a variety of excuses for why he was unable to deposit the check himself, that person convinced a trusting elderly couple to deposit the $92,358 check into their bank account, then immediately wire $87,358 to Nigeria. The couple was allowed to retain $5,000 for their help.
After trying to recoup its financial losses from its bank for more than 11ˇ2 years, the distributorship settled with the bank last month for $45,000. According to the bank's insurance company, the bank wasn't liable for the loss because the distributorship's president used a rubber stamp to sign company checks at the time the fraud occurred. The insurance company says the bank isn't responsible for fraudulent checks processed with facsimile signatures, including ones signed with rubber stamps or mechanical devices. When the distributorship opened its bank account, the company's president signed a signature card and authorized the bank to accept checks with facsimile signatures. The back of the card included a legal agreement that said the bank wasn't responsible for checks fraudulently drawn with facsimile signatures. But the distributorship's lawyer argued that that agreement protects banks only when signature stamps or other facsimile signature devices are stolen, not when checks are stolen, then reproduced.
Since the fraud occurred, the distributorship has pulled most of its business from the bank. "What's really frustrating is I've known the vice president of the bank for 12 years," the distributor says. "I tried to sit down with him and talk through this and say, 'Look, we're both losing out on this deal. Can't we come up with something that would be agreeable to both of us?' His position was, 'It's been handed over to the attorneys now, so all communication has to go through them.' It's unfortunate it had to end up this way."
The distributorship's new checks are loaded with security features, including a graduated color pattern, invisible and visible fibers, void pantographs, chemical reactive paper and thermochromic ink. The company also implemented additional security measures: Only two people within the firm can sign checks, and the distributorship's bank must verify checks written for more than a set dollar amount. Yet, the distributor still worries about the potential for fraud. "I've tried to do everything I possibly can to protect myself," he says. "I think I've gone beyond 'ordinary care.'"
