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Money Order Fraud

Contents

What Is Money Order Fraud?

Money order fraud involves forged certified checks and money orders, typically drawn on an overseas bank, which are issued to an unsuspecting person. The person is assured that a money order or certified check is "as good as cash." The victim deposits the check into a bank account, and initially the check clears. The person then withdraws part or all of the funds, and wires them to the person who sent the check. The check is then dishonored as a forgery, and the bank withdraws the money from the victim's account or demands repayment from the victim.

Many people who fall victim to this fraud think that they protecting themselves by checking with the bank to be sure that the check has cleared before they withdraw any money. Unfortunately, this fraud is based upon laws which require banks to make deposits available to their customers within a specified period of time, which is usually significantly shorter than the amount of time it takes for the bank to determine that the check is no good.

Examples of Money Order Fraud

Common forms of email fraud include the following:

Work At Home - The victim is offered the opportunity to make easy money by clearing checks for a business or charity, with the victim supposedly receiving a percentage of each check they clear. The victim deposits the checks and wires the money to the client, usually to a bank in Canada, Europe or Africa. The checks are later dishonored, and the victim's bank demands reimbursement.

Online Auctions and Classifieds - A person claiming to be an international buyer responds to an advertisement, offering to pay a premium price for the item being sold - often more than the asking price. They tell the seller that they will send a money order for the purchase price, plus an additional sum for the international shipment of the merchandise. The seller is asked to wire the shipping costs to a shipping company identified by the buyer. The money order is later dishonored, and the seller is out several thousand dollars.

Pleas for Help - In a variation of advance fee fraud, the victim receives a plea for help from somebody claiming to have money stuck in a foreign country that they cannot get out. They offer the victim a percentage of the money in return for clearing the check. After the victim deposits the check and wires the funds, the check is dishonored.

Debt Collection - A lawyer or debt collection service is offered a substantial commission to collect a debt for somebody located overseas. When contacted, the debtor happily agrees to pay off the full debt and sends a money order to the collector. The collector deposits the check and forwards the "client's share" of the money to the overseas client, only to discover a few days later that the money order was fraudulent and that they have to repay the bank for the money they withdrew - or worse, that the funds of their actual clients have been used to satisfy that obligation.

Please note that there are many variations on this scheme, and as one becomes known another version seems to develop. Any private individual who is offered payment by an international check or money order should suspect possible fraud.

Why Aren't Banks Protecting Their Customers?

As was previously mentioned, banks operate under federal regulations which require them to make deposited funds available to a customer within a specific amount of time. If banks do not detect a problem with the check during that time, they will make the funds available to the customer. A bank teller may sincerely believe that as the funds are available in the account, the check was good.

Faced with the prospect of having to explain their violation of federal banking laws, particularly in cases where the checks ultimately are honored, banks have opted to follow the law and put a risk of loss on the person who deposits the check. The banks defend this practice, noting that the person who is in the best position to know if a particular transaction is suspect, or that a particular check may be forged, is the customer.

Many banks will now close your accounts if you deposit a fraudulent overseas check or money order.

How Can You Protect Yourself?

There are several things you can do to protect yourself from money order fraud:

  1. Think About The Offer. Most of these scams are obvious once you think about them. Why would somebody who supposedly can't get funds out of a country be able to send you a money order - thereby getting funds out of the country - and why would they pick a complete stranger as their partner? Why would somebody need an intermediary to deposit large money orders for them, when they obviously have their own bank account? Why would somebody who could easily send money to their own shipper trust a complete stranger with thousands of dollars to be forwarded to the shipper, rather than simply paying the shipper directly?

  2. Get the Money Through a Money Transfer Service. You may have noticed that the perpetrators of this fraud don't want you to send them a check - they want the money wired to them (or to their partners in fraud) through an international money transfer service like Western Union. If you're selling somebody an expensive item such as a car, there is no reason that you can't insist that an international seller pay through a wire transfer service.

  3. Insist On Checks From A U.S. Based International Bank. While any time you participate in a deal that seems suspect you risk that the money order you receive will be fraudulent, you can at least insist that the money order sent to you be issued from a U.S. based international bank. If the person is in a nation with no international bank branches, insist on a wire transfer service. Using a domestic bank will make it much more likely that the forgery will be detected before the check "clears".

This is a type of fraud where the offer is almost always too good to be true. If you have any suspicion that the person you are dealing with may not be completely legitimate, don't send that person any money until you are absolutely certain that the check has been honored by the overseas bank.