Check kiting: detection, prosecution and prevention

FBI Law Enforcement Bulletin,The, Nov, 1993 by Johnny S. Turner, W. Steve Albrecht

The second signal, area abnormalities, is very common, because kiters want to allow as much float time as possible. As a result, they often use banks in different cities or regions of the country. Therefore, bank authorities should question excessive or unnecessary use of out-of-town banks.

The third indicator, frequent deposits, check writing, and balance inquiries, is perhaps the most telling sign of kiting. In order to cover themselves, kiters make frequent deposits and write numerous checks. They inquire about their bank balances often in order to understand float times and to determine whether there is "money" in their accounts to support checks.

Fourth, escalating balances also signal check kiting. Because each check must be large enough to cover the one written before it, account balances usually grow very quickly. In one case, the bank lost $1.5 million in just over a month. In another, an individual who listed his job status as "unemployed" opened an account with $10, kiting it to over $45,000 in just 2 months.

The fifth signal, bank abnormalities, means that check kiters usually make deposits with checks drawn on the same bank. In conducting normal business or other transactions, it is highly unlikely that all checks being deposited will be from the same few banks. Therefore, authorities should be wary of such deposits, suspecting kiting as the motivation for them.

For example, one $2 million kite was detected when a kiter made a deposit that included numerous checks, all drawn on the same bank in which the deposit was being made. When the kiter realized he had deposited the wrong bag, he telephoned the bank and brought a substitute bag full of checks for deposit. The substitute deposit included a large number of checks, all drawn on another bank. Many banks use the sixth signal--the average length of time money remains in an account--to determine if deposits are immediately being withdrawn. Because this may signal a kiter's taking advantage of float times, most kiting suspect reports highlight accounts where money stays in the account an average of less than 2 or 3 days.

NSF activity, the seventh signal, may or may not be present in kiting. When balances escalate dramatically, as often happens, there may be no NSF activity. Professional kiters usually understand Federal banking regulations well enough to know how long checks and deposits take to clear. However, amateur kiters often "bounce" checks because of their lack of knowledge of clearing times. Finally, signal eight, using alternative deposit and withdrawal methods in an effort to avoid detection, is a good predictor of kiting. Unfortunately, this activity is often difficult to monitor, because most kiters avoid entering the same bank branch several times a day. Instead, they use drive-up windows, other branches, night drops, automatic teller machines, and other alternative access methods to avoid suspicion.

Banks must take full advantage of these eight signals to detect check kiting activity accurately. Kiting suspect reports should be distributed daily, and if they signal a potential kite, checks and deposits should be pulled and other kiting indicators in the "SAFE BANK" checklist investigated.