Unisys Sees Potential Fraud Risks in New "Check 21" Law

Banks must integrate paper and digital risk monitoring to create stronger "fraud ecosystem"

BLUE BELL, Pa., October 28, 2004 – The risk for increased fraud is front-and-center as banks scramble to comply with a new check imaging law that goes into effect today.

The Check Clearing Act for the 21st Century, or "Check 21," permits banks to process a "substitute check" – a digital image of the original.  This new law will now encourage a spike in new products, such as online access to check images, as banks move to eliminate paper for more cost-effective operations. Yet with these new services, financial institutions also may be unwittingly providing everything criminals need to create perfect counterfeit checks. According to Unisys (NYSE:UIS), most financial institutions have only begun to think about these dangers.

"In the rush to comply with the letter of the law, we've found most banks are still in a state of paralysis on some of the real transformation needed to better serve customers," said Gary Cawthorne, vice president and managing partner of global banking at Unisys.

Unisys, which processes half the world's checks, is a leader in helping banks better understand and address the challenges and opportunities made possible as a result of Check 21. Unisys has conducted image exchange assessment workshops at several top 10 U.S. financial institutions to analyze the gaps that exist in their current operations and help management better formulate a transformation strategy for their entire operations, including fraud detection, new product launches, and other procedures beyond the changes needed in check processing operations. Unisys has identified more than 100 bank business processes potentially affected by Check 21 and image exchange. 

Unisys also recently conducted a survey of bank branch representatives and found that 50 percent say they provide check images online, with almost two-thirds of top-tier banks now offering this service. Yet very few financial institutions link their online fraud monitoring systems with their check fraud detection procedures. Online identity theft schemes continue to rise, and banks are the top targets, according to industry watchdogs such as the Anti-Phishing Working Group. Unisys says that Check 21 could further exacerbate the problem.

"Check 21 has upped the fraud ante," Cawthorne adds.  "As criminals get smarter and use more hi-tech weapons, banks must deploy faster and more advanced fraud detection systems to identify the patterns of these cyber-thieves and stop them before they wreak havoc."

Traditional check fraud detection systems primarily monitor signatures, check number patterns, and customer payment trends. With more online products like check images and statements, banks also can inadvertently provide more information – including signatures – which can help criminals devise fraudulent schemes that do not raise suspicion. Using illegally obtained passwords, sophisticated cyber-thieves can not only access check signatures, but also methodically analyze bank statements and customer check-writing patterns to plot crimes that bypass most traditional check fraud systems. According to Unisys, financial institutions need to transform their risk monitoring procedures to create a "fraud ecosystem" that coordinates monitoring and detection in both check and online operations to better protect customers.

To help banks analyze fraud and other procedures, Unisys utilizes its 3D Visible Enterprise (3D-VE) methodology, an innovative approach to understanding the cause and effect relationships between corporate vision, business operations and the information technology systems that support them, helping to reduce the risks associated with implementing change. Unisys 3D-VE allows banks to track and trace the impact of decisions throughout their enterprises, addressing pressing industry and marketplace transformation issues, such as those brought on by Check 21.

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Contacts

Danielle D'Angelo, Unisys, 212-504-7286 danielle.dangelo@unisys.com   Rob Shapiro, Weber Shandwick, 212-445-8310 rshapiro@webershandwick.com