Targeting businesses can be much more profitable for fraudsters than personal identity theft.

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Nelson Robinson
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When You Aren t You: Corporate Identity Theft A New Snake in the Grass.

) CorporateIdentity Theft CorporateIdentity Theft is one of the newest financial

Presented at 2015 Greg Litster, President SAFEChecks There are two major types of

In one major type, fraudsters target and imitate a legitimate business.

and predicts this crime will spread across the country.

1 When You Aren t You: Corporate Identity Theft A New Snake in the Grass... (and Check Fraud Still #1.) CorporateIdentity Theft CorporateIdentity Theft is one of the newest financial threats facing businesses and organizations. Presented at 2015 Greg Litster, President SAFEChecks There are two major types of Corporate Identity Theft. In one major type, fraudsters target and imitate a legitimate business. Targeting businesses can be much more profitable for fraudsters than personal identity theft. Dun & Bradstreet has reported cases of corporate identity theft in at least 22 states, and predicts this crime will spread across the country. Corporateidentity theft is the unauthorized use of a company s name and information by criminals in order to illegally obtain money, goods, or services. The Internet has made it easy to create a non-existent business that looks legitimate no organization is immune from the threat of corporate identity theft. Some losses have reached a half-million dollars before the crime was discovered. 1 1

When banks or other commercial lenders evaluate a business, they look for

the legal and financial capacity to conduct its business.

business addresses telephone numbers government licenses credit history

government records of legitimate businesses, and then altering company

Criminals open new bank accounts and obtain loans and credit cards in the

and equipment, creating the illusion of a successful business.

2 When banks or other commercial lenders evaluate a business, they look for evidencethat the company is what its officers say it is, and that it has the legal and financial capacity to conduct its business. Evidence = Proof of Right Proof of Right can include financial statements business addresses telephone numbers government licenses credit history etc. Each Proof of Right that can be verified increases the appearance of a company s legitimacy. Thieves can create fraudulent Proofs of Right by gaining access to state government records of legitimate businesses, and then altering company information, such as the registered agents names and addresses. Criminals open new bank accounts and obtain loans and credit cards in the name of the business, often using the compromised identity of business owners or officers. They use falsified financial statements to even lease offices, furniture and equipment, creating the illusion of a successful business. They use bank loans and retailer lines of credit to purchases items that can readily be sold for cash. Often, this leaves the unwitting victimized business awash in debt and legal fees defending itself against creditors. 2 2

3 Criminals tend to target smaller and midsize businesses with strong credit ratings that are easily identified through credit rating agencies. Business credit reports are intended to promote buying and selling, and help managers make risk assessment decisions, so business credit reports are readily available to virtually anyone. Family businesses, churches, and inactive companies have been targeted. Smaller businesses with strong credit ratings are tempting targets for criminals because they often have fewer legal and financial defenses than large corporations. Real Life Examples. In California: A seafood company received an order for $500,000 worth of goods. After completing a credit check, the company shipped the order and billed the customer. The customer responded that it had never placed nor received the order. It was discovered that the customer's credit information and a different address had been given by a fraudster. In California, identity thieves moved into the same building as a law firm under the firm's own name! and billed the firm for $70,000 worth of computers and furniture. When the products arrived, they hired a moving truck and disappeared. By that time, both the goods and the thief had already vanished. 3 3

In Oregon, identity thieves reinstated old mining companies to steal their corporate

(Oregon recently established limits on how long a company can be dormant before it

) In Colorado: Criminals updated or altered the registration information on file

After the registration information was changed, the criminals used the altered

including Home Depot, Office Depot, Apple and Dell.

was contacted by a major retailer regarding nearly $250,000 in purchases made in its

when he contacted Dun & Bradstreet to ensure an address change was recorded properly.

that was set up to forward everything to California.

database, such as increasing the number of his employees from 15 to 150 and his

In Florida: An aviation company had been dissolved by the owners.

4 In Oregon, identity thieves reinstated old mining companies to steal their corporate identity. (Oregon recently established limits on how long a company can be dormant before it is reinstated.) In Colorado: Criminals updated or altered the registration information on file with the state. After the registration information was changed, the criminals used the altered corporate identity to make online applications for credit from various retailers, including Home Depot, Office Depot, Apple and Dell. Colorado authorities became aware of the scam after one of the targeted companies was contacted by a major retailer regarding nearly $250,000 in purchases made in its name. In Colorado: A small business owner learned of his company s identity theft when he contacted Dun & Bradstreet to ensure an address change was recorded properly. That's when he learned of a new registered agent and address -an Aurora mail drop that was set up to forward everything to California. The thieves also had changed key information about his company on Dun & Bradstreet's database, such as increasing the number of his employees from 15 to 150 and his company's annual revenues by a factor of 10! In Florida: An aviation company had been dissolved by the owners. It was then reinstated by corporate identity thieves. Soon after, they applied for a $140,000 federal fuel tax credit, which was delivered as a check. The scammers and the money disappeared and the previous owners only learned about it when the IRS came knocking on their door." Solutions to this type of Corporate Identity Theft. Many state governments are actively working to help better protect government controlled and regulated business data. 4 4

The biggest challenge is alerting and educating organizations about this new type of crime, and motivating them actively

Defensive strategies include using better passwords, dual-authentication controls, and checking business legal filings

Businesses should verifyatypical large purchases and change of shipping address from current clients.

Keep all documents containing business information or business identifiers in a secure place that is not accessible by

Criminals post fake credit applications, and after a legitimate company has filled it out, the criminals have all the

5 The biggest challenge is alerting and educating organizations about this new type of crime, and motivating them actively self-monitor. Defensive strategies include using better passwords, dual-authentication controls, and checking business legal filings regularly. Organizations should protect their business EIN / TIN as they would a Social Security number. Businesses should verifyatypical large purchases and change of shipping address from current clients. Businesses should verifyunusual large purchases from new clients. Keep all documents containing business information or business identifiers in a secure place that is not accessible by unauthorized persons. Shred them when discarded. Use caution when completing a credit application. Criminals post fake credit applications, and after a legitimate company has filled it out, the criminals have all the information they need to defraud the business, or obtain loans or lines of credit in the business' name. Review your commercial and business banking agreements understand the time frames for reporting fraud, anomalies, etc. Monitor your business accounts daily. Many banks provide and text alerts regarding your account activity, which can help alert you to suspicious transactions. 5 5

If your business provides or maintains a list of trade or credit references, request each reference to notify you if they are contacted by a third party.

from accessing your credit file. Training!

6 If your business provides or maintains a list of trade or credit references, request each reference to notify you if they are contacted by a third party. If you are not applying or planning to apply for new credit, you can place a security freeze on your personal credit to prevent businesses with whom you do not already have an existing relationship from accessing your credit file. Training!! Protecting your business, and the sensitive information of your business, your customers, and employees is the responsibility of everyone in your organization. In the second major category of Corporate Identity Theft, criminals target an organization s clients or vendors through Corporate Hacking. Hackers target Accounts Receivable List Hackers target Accounts Receivable List Send bogus change-of-bank notifications to customers Hackers target Accounts Receivable List Send bogus change-of-bank notifications to customers New PO Box controlled by hackers Hackers target Accounts Receivable List Send bogus change-of-bank notifications to customers New PO Box controlled by hackers New Bank R/T and account controlled by hackers Solutions to this type of Corporate Identity Theft. 6 6

7 Banks: Monitor bank changes on outgoing repetitive wires Banks: Monitor bank changes on outgoing repetitive wires Companies: Confirm ALL bank change notifications from vendors Banks: Monitor bank changes on outgoing repetitive wires Companies: Confirm ALL bank change notifications from vendors Buy cyber crime and check fraud insurance Banks: Monitor bank changes on outgoing repetitive wires Companies: Confirm ALL bank change notifications from vendors Buy cyber crime and check fraud insurance Use payee positive pay and high security checks RESOURCES: businessidtheft.org Dun & Bradstreet Bloomberg BusinessWeek, The Council of State Governments Also, review information and resources offered by your state and local government. Check Fraud Why talk about Check Fraud? Check Fraud Produces more $ Losses than all other types of payment fraud! AFP 2015 Payments Fraud Survey 50%of organizations still issue checks. Check fraud is not going away! AFP 2015 Payments Fraud Survey Checks remain the most-often targeted payment method by those committing fraud attacks. Check fraud also accounts for the largest dollar amount of financial loss due to fraud. 7 7

8 Fraudulent Payments by Method (Respondents were hit multiple ways; total > 100%) Fraud Losses by Method How Dollars were actually lost CHECKS 77% Corporate Cards 34% Wire Tranfers 27% CHECKS 45% Corporate Credit Cards 25% Wire Transfers 20% ACH Debits 7% 40 ACH Debits 25% 40 Corporate 20 ACH Credits 10% 20 Debit Cards 2% The newest twists on Check Fraud. ACH Credits 1% 0 Percentage 0 Percentage Mobile Banking and Deposit Fraud: Double Debits Mobile Banking Deposit Fraud Scenario: A check is mailed to Dishonest Don Don deposits the check using smart phone app Digitized check is paid at drawer s bank 10 days later, Don cashes the same check at a check cashing store 2 nd check hits the drawer s bank account (check is presented for payment twice) Who Takes The Loss? The answer is found in the Rules governing Check 21 Under the Warranty Liability for the loss falls to the bankthat allowed its customer to use its smart phone app. Bank can charge the loss against its customer (assuming $$ is still there) Mobile Banking and Deposit Fraud: Holder in Due Course Scenario: A title insurance company gives John Doe a check at closing. John Doe deposits the check via a mobile app, then comes back to office and returns the check, asking that it be made payable to John Doe orjane Doe. 8 8

9 The company doesn t think to place a Stop Payment on the first check because they have the check in hand. 1. If a physical check is returned for a replacement, place a stop paymenton the returned check. It may have been deposited remotely. 2. Recipient MUST sign an affidavitstating the check was not deposited. 3. An Affidavit does not provide protection, only a right to sue and collect legal fees. Strategies to Prevent Check Fraud Don t Write Checks! Use Commercial Purchase Cards Pay electronically (ACH) But, if you are going to write checks #1. Positive Pay Positive Pay......a powerful tool! PositivePay.net #2. High Security Checks Effective check fraud prevention strategies begin with a high security check. 9 9

10 High Security Checks 1. Deter the forger(psychological warfare) 2.Thwart forgers attempts to replicateor alter the check 3.Provide legal protection from some Holder in Due Course claims (UCC 3-302) What makes a check secure? 10+ safety features Important Security Features Controlled Check Stock Dual-tone True Watermark Thermochromatic Ink (reacts to heat) Warning Bands worded correctly Toner Anchorage Copy Void Pantograph Chemical-reactive Ink + Paper Inventory Control Number on Back (laser) UV Ink + UV Fibers Microprinting Laid Lines Controlled Check Stock Is a critical security feature Checks should beunique in some wayto every other organization s check stock No two organizations should have the exact, identical check stock Uncontrolled Check Stock Checks ARE NOTuniquely designed or customized for every end-user It is sold entirely blankto countless entities, organizations, and fraudsters, by print brokers all over the USA How is Uncontrolled Check Stock a problem? Counterfeit Cashiers Checks Counterfeit Cashiers Checks Counterfeit Cashiers Checks 10 10

Counterfeit Cashiers Checks Counterfeit Cashiers Checks Holder in Due Course and Uncontrolled Check Stock Web: FraudTips.net HIDC & Uncontrolled Check Stock Robert Triffinv.

11 Counterfeit Cashiers Checks Counterfeit Cashiers Checks Holder in Due Course and Uncontrolled Check Stock Web: FraudTips.net HIDC & Uncontrolled Check Stock Robert Triffinv. Somerset Valley Bank and Hauser Contracting Company Obtaining Controlled Check Stock 1. Custom-manufacturechecks using an ORIGINAL design, true-watermarked paper, and at least 10 security features, OR 2. Buy from a supplierthat only sells controlled check stock that has never been replicated or used in a check fraud scam. SAFEChecks.com Other Important Security Features Dual-tone True Watermark Thermochromatic Ink (reacts to heat) Warning Bands worded correctly Toner Anchorage Copy Void Pantograph Chemical-reactive Ink + Paper Inventory Control Number on Back (laser) UV Ink + UV Fibers Microprinting Laid Lines HIDC & High Security Checks Robert Triffin v. Pomerantz Staffing Services AFP 2014 Payments Fraud Survey Check Fraud Methods Alterations: 1. Payee Name Alterations = 52% 2. Dollar Amount Alterations = 37% This is up from 49% and 22% respectively, in the 2013 Survey. AFP 2014 Payments Fraud Survey Most of these alterations could have been prevented with check security features! 1. Payee Name Alterations = 52% 2. Dollar Amount Alterations = 37% 11 11

12 Preventing Altered Payees High-security checks 14 point font for Payee Name High-quality toner Hot laser printer Payee Positive Pay Frank Abagnale s Fraud Bulletin on Laser Check Printing Positive Pay Provides NO PROTECTION Against Added Payee Names! #3. Secure Check Writing Software To Prevent Added Payees Typical Check Layout Fix it:use a Secure Name Font Secure Name Font printed above original payee name helps eliminate Added Payee Name Risk Leaves No Room for Adding Bogus Payee Secure Name Font printed above original payee name helps eliminate Added Payee Name Risk Open Areas Where Forgers Add A New Payee Name Secure Name Font No room for an Added Payee Identical data is printed on both checks. Which check would forgers prefer to attack? Greg Litster, President SAFEChecks (800) 949-BANK (818) cell greg@safechecks.com GLITSTER@aol.com # # # # 12 12

Mobile Banking Fraud the newest twist on check fraud.

mrdc Fraud Any Recourse Against Losses?? Mobile Banking and Deposit Fraud April 20, 2017 Greg Litster, President SAFEChecks Mobile Banking Fraud the newest twist on check fraud. Mobile remote check deposit