The Law Firm of Piacentile, Stefanowski & Malherbe LLP

Banking Fraud: What Is It?

Banking fraud is a serious crime that can result in significant losses for financial institutions and their customers.

Banking fraud occurs when someone knowingly executes or attempts to execute, a scheme to defraud a financial institution to obtain money, or other types of property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.

Accounting fraud is the most common type of bank fraud. It occurs when businesses provide false financial information to banks in order to get approved for loans that they can't pay back. This type of fraud can be difficult to detect, but there are some red flags that you can look out for, such as:

  • Unusual or unexpected changes in revenue or profits

  • Frequent small transactions that don't make sense

  • Suspicious invoices or bills from suppliers

Another common type of bank fraud is wire transfer fraud. This occurs when scam artists convince victims to send them money by wire transfer, typically by pretending to be someone they are not, such as a family member or friend in need of financial assistance. They may also promise goods or services that they never intend to deliver.

Other types of banking fraud include the following:

  • Phishing scammers get the victim’s personal information and access to their social media, email, or even bank accounts. Scammers usually use this information to commit other types of fraud, most commonly wire transfer fraud. When a phishing scam involves the victim’s bank account information, and the scammer uses that information to transfer money to another bank account, it can also be called ACH Fraud.

  • Money laundering involves criminals depositing money that was acquired through illegal means into bank accounts. Usually, they pretend the money was made through a legal business, and they deposit the money in that business account.

  • Check fraud can occur by forging a check in order to get money from a legitimate bank account by altering the information on the check (can be the beneficiary or the amount of money), or by forging a signature on a check that was stolen from the owner.

  • Rogue Trading is commonly done in investment banks. Fraud occurs when a trader in charge of a customer’s funds engages in unauthorized trading. They do this by manipulating or circumventing the bank’s internal controls that are meant to detect this kind of activity. The rogue trader usually engages in this type of fraud to recover the money lost in another trade, but sometimes they can also enrich themselves in the process.