It is tax season, and that means financial institutions need to be on the lookout for tax refund fraud and related identity theft. Due to the increase in refunds being distributed via direct deposit, financial institutions may also see an increase in tax refund fraud and related suspicious activity.
The Financial Crimes Enforcement Network (FinCEN) recently issued an Advisory to remind financial institutions of previously-published information concerning tax refund fraud and the subsequent reporting of such activity through the filing of Suspicious Activity Reports (SARs). FinCEN worked closely with the IRS to identify the following indicators of tax refund fraud.
• Multiple direct deposit tax refund payments, directed to different individuals, are made to a demand deposit or prepaid access account held in the name of a single accountholder.
• Suspicious or authorized account opening at a depository institution, on behalf of individuals who are not present, with the absent individuals being accorded signatory authority over the account. The subsequent deposits are comprised solely of tax refund payments. This activity often occurs with fraudulent returns for the elderly, minors, prisoners, the disabled, or recently deceased.
• A single individual opening multiple prepaid card accounts in different names, using valid TINs for each of the supplied names and having the cards mailed to the same address. Shortly after card activation, Automated Clearing House (ACH) credit(s) from Treasury, state or local revenue offices, representing tax refunds, occur. This is followed quickly by ATM cash withdrawals and/or point-of-sale purchases.
• Business accountholders processing third-party tax refund checks in a manner inconsistent with their stated business model or at a volume inconsistent with expected activity. Similarly, individuals processing third-party tax refund checks through a personal account with no business or apparent lawful purpose.
• Business accountholders processing third-party tax refund checks and conducting transactions inconsistent with normal business practices.
• Multiple prepaid cards that are associated with 1) the same physical address [individuals involved in criminal activity may also contact the Customer Service Department requesting to change their address for their permanent prepaid card shortly after opening their temporary prepaid card account online]; 2) the same telephone number; 3) the same email address; or 4) the same Internet Protocol (IP) address, which receive tax refunds as the primary or sole source of funds.
• The opening of a business account for a check cashing business at a financial institution, which subsequently processed a high volume of tax refund checks issued to individuals from other states.
• A sudden increase in volume involving the cashing of tax refund checks issued to individuals from across the United States, moving through the account of an existing check cashing service.
• Individuals using bank accounts where the majority of the transactions are ACH federal tax refunds or refund anticipation loans.
• Individuals attempting to negotiate double endorsed Treasury tax refund checks with questionable identification.
• Individuals accompanying multiple parties to the bank to negotiate Treasury tax refund checks. Such items may or may not be double endorsed checks.
• The freezing or closure of a personal or business account due to suspicious activity involving either Treasury tax refund checks or ACH Treasury deposits.
• The signature/endorsement on the back of the check(s) does not match the identification of the individual conducting the transaction.
• The same signature/endorsement is used on multiple checks, with multiple names.
If a financial institution knows, suspects, or has reason to suspect that a transaction conducted or attempted by, at, or through the financial institution involves funds derived from illegal activity, the financial institution may be required to file a SAR. When completing SARs on suspected tax refund fraud, financial institutions should use the term “tax refund fraud” in the narrative section of the SAR and provide a detailed description of the activity.
Due to the time sensitive nature of these transactions, a financial institution may also wish to contact their local IRS Criminal Investigation Field Office to alert them that a SAR has been filed related to tax refund fraud. In order to obtain contact information for your local IRS Criminal Investigation Field Office, financial institutions can call the FinCEN Regulatory Helpline at (866) 556-3974.
To stay up to date on fraud trends and news, frequently visit our blog. TRC Interactive also offers online, interactive training on topics such as the Bank Secrecy Act. To learn more, contact us at firstname.lastname@example.org
or (800) 222-9909.