FinCEN Addresses Tax Refund Fraud Prevention and Detection

The Financial Crimes Enforcement Network (FinCEN) advised financial institutions last week on how to identify instances of tax refund fraud. Credit unions are in an excellent position to discover this type of fraud because of the methods for tax refund distribution—direct deposits into checking accounts, paper checks and direct deposit into prepaid access card accounts.

Signs of potential tax refund fraud that the agency identified in its advisory include:

  • Multiple direct deposit tax refund payments that are made to a single accountholder;
  • Suspicious or authorized account opening at a depository institution, on behalf of individuals that are not present, with the fraudulent actor being named as having signatory authority;
  • Business accountholders that process third-party tax refund checks in a manner inconsistent with their stated business model or at a volume inconsistent with expected activity;
  • Accountholders that process a large number of tax refund checks for individuals who live out of state;
  • Processing of multiple refund checks for similar dollar amounts;
  • Processing of Treasury refund checks or bank checks that are sequentially numbered or are within a few numbers of each other; and
  • Discrepancies between the dollar amount of refund checks being deposited and the amount of currency being withdrawn to cover the cashing of these refund checks.

The elderly, minors, prisoners, the disabled or the recently deceased are often victims of this type of fraud, FinCEN said. The agency encouraged institutions that believe this type of fraud is occurring to use the term “tax refund fraud” in the narrative section of their suspicious activity report (SAR) and provide a detailed description of the activity.

 

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

Posted in Business Solutions.