New federal regs put spotlight on anti-fraud measures

Congratulations are in order for Treasure Valley law enforcement and anti-fraud professionals. A bank crime spree investigated by the US Secret Service and the Boise Police Department with the assistance of Wells Fargo Bank led to guilty pleas by two suspects; a third suspect awaits trial.

The multi-state crime spree involved a 29-year-old-woman and her 24-year-old male companion who travelled from California to Idaho to commit crimes involving identity theft and bank fraud. The young woman, Luisa Lamonthe, visited two Wells Fargo branches in the Treasure Valley and impersonated a bank customer using false identification (her photo with an actual bank customer’s name) to withdraw the customer’s account balance.

According to the plea agreement, she and her colleague committed similar crimes at other bank branches while traveling through Arizona and Utah en route to the Treasure Valley. Lamonthe admitted she and her colleague stole at least $169,100 during their six-month crime spree.

An organized crime ring known as Armenian Power (AP), whose members claim a heritage from Armenian, Russian and other Eastern bloc countries, perpetrated a similar scheme. Like Lamonthe and her friends, AP members engaged in a check fraud scheme (albeit on a much larger scale) where they fraudulently obtained customer information and attempted to deplete their accounts by impersonating the customers. AP members even went to victims’ homes to pick up blank checks they had fraudulently ordered. Ninety-nine individuals were charged with bank fraud and other crimes in February 2011 under Operation Power Outage.

Apparently prison hasn’t stopped these gang members from perpetrating fraud; two are accused of smuggling mobile phones into prison to coordinate bank fraud schemes while incarcerated. Robbing people of their security through bank fraud and identity theft can be so profitable, convicted felons risk doing additional time by continuing their schemes from prison cells.

Check fraud and identity theft schemes are popular among small teams of thieves like Lamonthe and friends, as well as multi-national organized crime rings like Armenian Power. They are highly lucrative and have low operational costs. They target anyone with a bank account – individuals, small businesses and large businesses.

What is being done to protect businesses and individuals from this pernicious crime?

In response to “an increasingly hostile online environment,” the Federal Financial Institutions Examination Council (FFEIC) issued new regulations that took effect January 1, 2012. The guidelines require financial institutions to conform to the Council’s guidance on fraud security and customer awareness.

FFEIC is an inter-agency body responsible for defining uniform examination principles and standards for use by state and federal authorities tasked with supervising financial institutions. It consists of the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), the Office of Thrift Supervision (to be replaced by the Consumer Financial Protection Bureau when it is operational) and the State Liaison Committee.

“Customers and financial institutions have experienced substantial losses from online account takeovers,” the FFIEC stated in a press release in June 2011. “Effective security is essential for financial institutions to safeguard customer information, [and] reduce fraud stemming from the theft of sensitive customer information…”

The new guidelines stress the need for financial institutions to:

 Perform risk assessments based on internal and external threats, customer profiles and known security breaches and threats in the institution and industry;

 Adopt strong fraud security measures to mitigate risks;

 Enhance customer awareness and education regarding threats and risk control tools; and

 Provide a list of contacts for customers to report suspicious activity.

The FFEIC guidelines are minimum standards only. How banks, credit unions and other financial institutions implement new fraud detection and mitigation tools will affect the financial security of individuals and businesses.

Due to advances in technology, these types of crimes are becoming easier to commit in Idaho and across the United States. Watch for information from your financial institutions on fraud risk management, and take advantage of their educational opportunities to protect yourself and your business.

Denise McClure, CPA, CFE is a forensic accountant and the owner of Averti Fraud Solutions, LLC in Boise. She is a frequent author, speaker and trainer on preventing and deterring embezzlement and fraud. Her ideas on fraud risk management have helped organizations improve efficiency, profitability and security. For more information, visit www.AvertiFraudSolutions.com or e-mail Denise@AvertiFraudSolutions.com.

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