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Credit Union ‘Risk Alert’: Fraudulent U.S. Treasury Check Scam

In a recent cautionary notification from TruStage, credit unions are cautioned to maintain vigilance over their daily activities to mitigate the risk of financial losses associated with fraudulent U.S. Treasury checks (referred to as Treasury checks) that have been presented for deposit by their members.

These fraudulent incidents extend to both longstanding and newly enrolled members. It has come to light that certain Treasury checks have been identified as counterfeit, as they were flagged upon return to the Federal Reserve for being “altered/fictitious.” Furthermore, credit unions have also been subject to reclamation notices from the U.S. Treasury pertaining to modified Treasury checks and Treasury checks bearing counterfeit endorsements.

Here are additional details outlined in the Risk Alert.

Details
An uptick in fraudulent deposit claims involving fraudulent Treasury checks is occurring. Some of the Treasury checks appear to be counterfeits as they were returned through the Fed as altered/fictitious. Other Treasury checks are believed to have been stolen out of the mail. The fraudsters forged the payee’s endorsement on the stolen Treasury checks or altered (washed) the payee listed on the checks.

Summary of Fraud Cases
Summary:

  • Fraudsters opened fraudulent accounts, including business accounts, under the names of the payees listed on the stolen Treasury checks. The fraudsters deposited the Treasury checks and subsequently withdrew the proceeds after the funds were made available. The credit unions received a notice of reclamation from the U.S. Treasury due to the forged endorsements. Refer to the red flags contacted in the RISK Alert, Fraudulent business accounts opened to cash stolen checks.
  • Fraudsters altered/washed the payees listed on the Treasury checks and opened fraudulent accounts under the names of the new payees added to the checks. The fraudsters deposited the altered Treasury checks and withdrew the proceeds after the funds were made available. The credit unions received a notice of reclamation from the U.S. Treasury due to the alterations.
  • Existing as well as new members deposited what are believed to be counterfeit Treasury checks and withdrew the proceeds when the funds were made available. The Treasury checks were returned through the Fed as altered/fictitious.

Important Rules on Treasury Checks
Refer to 31 CFR Part 240.

Altered or forged Treasury checks: refer to §240.4.

When accepting a Treasury check for deposit or payment, the credit union makes the following presentment guarantees to the Treasury:

  • All prior endorsements are genuine.
  • The check has not been materially altered.
  • Credit union has no knowledge that the signature of the drawer is forged.
  • Credit union has made all reasonable efforts to ensure the check is authentic.
  • With respect to electronic checks, the check accurately represent all of the information on the front and back of the original check; the Treasury will not be asked to pay a check that has already been paid (no duplicate presentments); the Treasury’s receipt of an electronic check will not result in the loss of the Treasury’s ability to detect a material defect or alteration.
  • Limitations on Treasury Checks (§240.5): The Treasury is not obligated to pay a check over 12 months old.
  • Reclamations of Checks Paid [§240.8(a)]: The Treasury has one year to pursue a breach of presentment guarantee claim against the credit union. The one-year deadline can be extended by an additional 6 months if the payee provides notice of the forgery to the Treasury within one year of issuance.
  • Counterfeit Treasury Checks [§240.8(c)]: The Treasury will not reclaim a counterfeit check unless the credit union failed to take all “reasonable efforts” to ensure the check is authentic. “Reasonable efforts” mean, at a minimum, verifying the existence of the Treasury watermark on the original check. “Reasonable efforts” may also require the verification of other security features on the check. Refer to U.S. Treasury Check Security Features.
  • Reclamation Procedures (§240.9): The Treasury will send a notice of reclamation to the credit union to recover the amount of the check in the event the credit union breaches a presentment guarantee under §240.8.

Credit unions can learn more about the U.S. Treasury’s reclamation procedures by reviewing the Bureau of the Fiscal Service Check Reclamation Procedure (Gold Book).

Click here to read the TruStage-issued Risk Alert.

Access the ‘Compliance Hotline’
Your League-member benefits include the Compliance Hotline — providing exclusive access to dedicated compliance experts:

Using the above phone number and email address, you can gain access to a knowledgeable team that’s ready to address all your credit union’s compliance inquiries — promptly and efficiently. With the Compliance Hotline, you can proactively respond to impromptu questions and issues by getting clarity and insight on technical topics that normally slow you down. We want to help you unlock the full potential of your League membership by leveraging the resources and support you need to navigate the complex world of compliance effortlessly. We’re ALWAYS just a phone call or email away!

Additionally, other League-member compliance resources include: 

  • ViClarity
  • CU PolicyPro
  • ComplySight
  • InfoSight
  • CU Store
  • Record Retention Guide
  • GRC Technology Solutions

For more information, email Lisa Quaranta.

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