Forge Me if You Can

Though the Check Clearing for the 21st Century Act (“Check 21 Act” or simply “Check 21”) isn’t new anymore, the issues have not been sorted out and “Check 21” as a topic of debate, confusion and aggravation is far from finished.

Partially, the reason for the ongoing dilemma is a discrepancy between what the legislation means and how it works. Check 21 affects banks, distributors, producers and consumers in different ways. These groups are trying to reconcile the issues that have the greatest impact on their own uses and purposes.

For banking institutions, Check 21 simply allows the image of a check to be legally considered as a negotiable document. The legislation designates how original paper checks can be truncated (removed from circulation and replaced with electronic images), transmitted and reconverted (reprinted on paper). The act also designates who is accountable in certain cases of fraud.

Nothing in the legislation specifies how checks must be designed, but banks have been applying pressure to make scanned copies of checks easily readable. The requests from banks vary—some value security features over scanning ease while others insist checks be easily read by optical devices.

Check distributors are in an unenviable situation when it comes to Check 21. They must alleviate consumers’ fears while trying to make sense of the regulations. On top of this, check security features must be precariously balanced. In many cases, unless a distributor works to stay informed, it is unlikely he or she would notice any serious changes. As Jim Powers, customer service manager at Giraffe Document Solutions, Louisville, Ky., pointed out, “[Check 21] hasn’t had as big an impact as I thought it would. ... Some banks don’t even enforce [the new standards].” Even so, Giraffe has made sure to adjust documents to be in compliance. Specifically, the company has redesigned its void pantograph. The new pantograph utilizes digital, direct-to-plate technology and keeps the pantograph away from areas of interest which might interfere with a bank’s ability to read the scanned version.

While banks may not be overly concerned about security, to consumers check security is vital, even if they are not aware of it. Many underestimate the potential problems caused by security holes. Especially under the new legislation, measures to prevent fraud are crucial. Distributors need to know of potential problems and know how to address security concerns even while juggling new design requests. Distributors who take the time to learn about security and fraud liability law may find many new customers who will be thrilled to learn how to protect themselves and will be happy to buy from a distributor who prevented potentially massive problems.

Noting the motivations for the Check 21 Act will help distributors understand the need for enhanced security. Check 21 was enacted to increase efficiency of money transfers and reduce costs; it was not intended to prevent fraud. Use of check images for nearly instant verification may prevent checks drawn on non-existent accounts from being paid and reduce theft or fraud during transit. However, there are many other methods of check fraud.

To learn about fraud, BFL&S spoke with Frank Abagnale, a consultant in document security and expert in methods of fraud and forgery. Abagnale is most known as the author and subject of Catch Me if You Can, which was made into a popular Steven Spielberg film. Abagnale is also the author of several books about fraud and identity theft. His renown in the security field comes from his ability to circumvent it. As a minor, Abagnale became one of the most notable, successful and notorious forgers ever. Those days are far behind him, but he continues to draw from his experiences to help law enforcement agencies and those in the private sector prevent the kinds of crimes that he himself once committed.

Abagnale had harsh words about the new legislation: “That is the stupidest law ... I sometimes sit back and ask myself ‘Do criminals have lobbyists in Washington?’” Sandy Horner, president of Diversiform Software Compatible Checks, Alexandria, Va., also noticed the problems with the new rules: “Golly,” she said with a strong dose of sarcasm, “that seems kinda counterproductive for security.”

As Abagnale explained, Check 21 makes many kinds of check fraud easier. “The truth is, [banks] really don’t care about fraud. All they care about is the cost of doing business,” he asserted. Via Check 21, banks save enough money on transportation costs and make enough money on increased volume and speed of transactions to outweigh the cost of fraud.

According to Abagnale, “Business-to-business, the check is still the most popular form of payment made by a company to another company” and “On the personal side ... Americans are writing about 39 billion checks a year.” With so much money moving on checks, it is no wonder banks sought a faster way to work with them, even at the cost of increasing fraud instances.

For these reasons Abagnale said, “I always tell people ‘you have to protect yourself.’ You can’t rely on the bank to protect you; you can’t rely on the police to protect you; you can’t rely on the government to protect you. You have to be a smarter business person, a wiser business person.”

One serious security hole in Check 21 has to do with evidence. Suppose a forged check is scanned, truncated and paid. When the fraud is detected later, it is very possible the original document will no longer exist. The evidence of the forgery is destroyed. Abagnale related one of his own scams to convey how modern technology and laws make fraud easier than when he was pulling scams. Abagnale had devised a way to coat counterfeit checks with a caustic chemical. “Within 24 hours the check would disintegrate and I called it the disappearing check. So there was no check by the time it went to deposit. [When it] went into the clearing house it was nothing but shreds of paper. ... This is basically the same thing,” he said.

Forgery is a problem common to checks. Often criminals secure a bank account number and print counterfeit checks using this information. There are many methods to foil the forger who creates his or her own checks. Most watermarks (both true and artificial) are very difficult to reproduce, as are micro-printed lines. Thermochromatic inks are particularly useful because they are very hard to duplicate, do not scan or copy well, are readily visible and easy to test.

As Steve Rosenman, commercial marketing manager at Paris Business Products, Westampton, N.J., explained, direct and extremely visible security features are highly effective. “Though the covert features are good, in order to validate them you need to have a person wanting to do it and that certainly doesn’t happen on the teller level and usually it doesn’t happen in the bank’s departments,” Rosenman said. “So we feel that visible security features are better.” At the time of writing, Paris was just releasing a new check-line, Docugard Plus, with additional thermochromatic ink security features.

Horner concurs with the assessment that bank employees do little to prevent fraud: “[Tellers] don’t even know how to look at a check... they don’t read the warning bands. [Banks] aren’t training their people to look at anything, to know anything.”

Abagnale proved these concerns to be true. He related his experience cashing a check on a cocktail napkin. He was able to do this by dressing very well and coming to the bank in a Rolls Royce. The teller was more interested in Abagnale than the check.

It is also very easy to replicate a company’s check if a secure paper stock isn’t being used. “If a business is using a very generic check without security features, they’re going to leave themselves open to fraud,” Rosenman said. Abagnale had similar thoughts about the necessity of using controlled and secure check stock. “If you’re going to go to Office Depot and buy checks over the counter and then wonder why someone has replicated your checks, that’s ridiculous. You have to use a little common sense and protect yourself.”

Horner also stressed the necessity of secure check stock. If a company uses a readily available stock and a criminal is able to purchase it and replicate the check then “there is no way for the bank to look at it and know that it is a forged check. ... [The criminal] created a real check on real stock.” For this reason, Diversiform will not ship blank check stock.

Abagnale’s thoughts on controlled stock are the same. He has designed several lines of checks, printed and tightly controlled to his specifications, with numerous security features, both overt and covert. His most recent checks, SuperCheck and SuperBusinessCheck, include thermochomatic inks and warnings to protect the check writer from fraud due to teller error. He explained his process: “When I design a check, I ask myself ‘how would I forge this check and what would I do to replicate this? Color copy it? Scan it?’ Then I go on and eliminate every possible conceivable thing that could happen to it and then come up with a finished check.” Abagnale pointed out, he does not sell the checks or make commission on them. He has simply designed a secure check to fill what he perceived as a hole in the market in his efforts to protect consumers. This dedication has earned him much respect above and beyond his already extreme expertise.

Check fraud is rarely prosecuted anymore. This leaves preventative measures up to producers and distributors as well as the common sense of the end-user. “If you look at the statistics,” Abagnale informed, “last year there were 20 billion dollars in forged checks, which is huge. Bank’s took only 10 percent of those losses. Ninety percent of those losses were pushed back to the customer, to the company or to the business.” With the stakes so high, those involved in check printing, distribution and security can’t afford to remain in the dark on these issues. Helping prevent fraud means better business for everyone.