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From the article: “... a person could open checking accounts at bank A and bank B, at first depositing $500 into bank A and nothing in bank B. Then, they could
by usaphp 7y ago
From the article:
“... a person could open checking accounts at bank A and bank B, at first depositing $500 into bank A and nothing in bank B. Then, they could write a check for $10,000 with account A and deposit it into account B. Bank B immediately credits the account, and in the time it might take for bank B to clear the check (generally about three business days), the scammer writes a $10,000 check with bank B, which gets deposited into bank A to cover the first check. This could keep going, with someone writing checks between banks where there’s no actual funds, yet the bank believes the money is real and continues to credit the accounts.”
I still don't understand how is it possible for a bank to not see a balance on another account right at the time they saw a check deposited? I mean it's not like they have to call someone to get a paper records of an account balance, it is all digital anyway, so why is there such a big delay?
- toomuchtodo 7y agohttps://engineering.gusto.com/how-ach-works-a-developer-perspective-part-1/ https://engineering.gusto.com/how-ach-works-a-developer-pers... (How ACH works: A developer perspective - Part 1) https://engineering.gusto.com/how-ach-works-a-developer-perspective-part-2/ https://engineering.gusto.com/how-ach-works-a-developer-pers... (How ACH works: A developer perspective - Part 2) https://engineering.gusto.com/how-ach-works-a-developer-perspective-part-3/ https://engineering.gusto.com/how-ach-works-a-developer-pers... (How ACH works: A developer perspective - Part 3) https://engineering.gusto.com/how-ach-works-a-developer-perspective-part-4/ https://engineering.gusto.com/how-ach-works-a-developer-pers... (How ACH works: A developer perspective - Part 4) My note: The Federal Reserve is working on an ACH modernization program (Real-Time Gross Settlement [RTGS]) to move towards real time settlement. It is still several years off. Financial infrastructure requires the same cautious handling as say, air traffic control systems, when modernizing.
- elliekelly 7y agoAs someone who has sadly spent many hours of my life with my nose in the ACH regulations and trying to wrap my head around ACH ops I can confirm that the entire system makes zero sense for the modern world. Unfortunately, the system we’ve built up is so unbelievably & needlessly complex from both a legal perspective and a technology perspective that it’s hard for anyone to even make progress on the important stuff - like basic security. But the system is so interconnected and important that even “disruptive” new fintech companies are forced to find a way to get their tech to work with the ACH network rather than the ACH network figuring out how to modernize.
- toomuchtodo 7y agoI have spoken with responsible parties at the Federal Reserve about the modernization process, and while they take it seriously (Powell was harassed about it during congressional testimony about Libra when Zelle was brought up), one must understand the momentum and inertia of systems of this scale. These are not "startupy" scale problems. Financial plumbing is boring and stakeholder, not technology, driven. As it should be: as a stakeholder, you shouldn't care what the underlying is (there are no tracks for a hype train here; these are systems that must run reliably for decades), all you should care is your money gets to you fast, the person who sent it can be assured it'll get there fast, and that the system is secure and cost efficient.
- braythwayt 7y agoAs discussed in the OP, this is cheque kiting:" https://en.wikipedia.org/wiki/Check_kiting https://en.wikipedia.org/wiki/Check_kiting It is a scheme that goes back literally centuries in commerce. I'm amazed that I can hit send on an iMessage now and within seconds (or fractions of a second!) somebody's phone gives out a "ping!," anywhere in the world, yet cheque kiting hasn't been eliminated in 2019. --- (I am speaking rhetorically. Yes, I understand about legacy systems and legacy processes. I'm not surprised that it works with what we have running today, I'm surprised that it hasn't been fixed in the 40-odd years that I've been old enough to have a bank account.)
- r00fus 7y agoPerhaps the reason it's not "solved" has to do with who benefits from the latency of check cashing process?
- throwwsydj 7y agoWhat do you have in mind? Who might benefit?
- nickjj 7y agoMy naive explanation is it must be really really really scary to modify a banking routine that affects an entire country's currency or even most of the world in some way or another. If your iMessage doesn't get sync'd 1 out of 10,000,000 times because of some software bug then there's really no harm but if your balance isn't correct because of a bug in the software, that's a whole different category level of concern that has cascading negative effects.
- braythwayt 7y agoRisk is always an interesting thing to consider in software, especially with complex systems. Let's say there are two bugs in our banking code. Bug A means that every once in a while, it fails and a user can't log in. Bug B means that the system always works, but every once in a while, it shows an incorrect balance on an account. Hmmm... Which one is worse? Well, that depends. Obviously B is very bad in some very obvious ways. But A could be catastrophic if one of the system's uses is doing something like making payroll for hundreds or thousands of people. Hmmm...
- sokoloff 7y agoWould you want a bank to be able to see the balances in an account at another bank? Why? That seems like a security risk (in that that information is much more than is required for the banking system to function). All you really want to know is "is this check good?" If I write you a check for $4.69, I don't want you or your bank getting access to the fact of my bank balance, just the fact of whether or not my bank will settle that $4.69 check.
- ellius 7y agoYeah also that's not how the process of check clearing works (instant account-to-account payments). Banks batch checks payable to the same counterparty institutions and then compare their liabilities against one another to transfer only the net. It's an extension of the historical process where banks would physically go to a clearing house with bundles of paper checks and tally the differences between institutions.
- munk-a 7y agoThis is a laziness that really shouldn't exist anymore - it solved the problem of jim having to run over to that other bank twenty times a day, but now that jim is just electrons we should send him everywhere instantly.
- njharman 7y agoYou say that like writing testing, integrating with existing systems and maintaining the software to do that. The additional hardware. The insurance to cover losses and lawsuits when new system breaks is hacked. All the managers, Lawyers and others needed to craft agreements and contracts between thousands of banks across jurisdictions. Is free. Protip, it costs a lot of money. More money than it is worth.
- guntars 7y agoSo let's not do it because it's hard? I think it's a ridiculous attitude. It's an instance of where people that have the ability to change things don't have the incentives to do so because they aren't the ones bearing the cost. This is one example where the government could do some good by creating a spec for an instant money transfer system and say that they'll accept it at all government institutions by some time in the future. I think people would then do the rest.
- duxup 7y agoStrange. When I deposit a check in an account only a portion of it is immediately "available". So I'm guessing they're just using that available proportion all the time?
- toomuchtodo 7y agoYour bank is floating those funds to you until they settle from the other account. If the check bounces, you're on the hook for it. Hence the scam where someone sends you a fake check for a large amount, and asks for you to return the excess funds after you deposit it but before your bank has fully settled the funds transfer. If you don't think a check will clear, don't deposit it. Ask for cash or a wire from the sender (cashier check fraud is a thing).
- benjohnson 7y ago>>cashier check fraud is a thing Indeed! Many people are not aware that even valid cashier checks can have a stop-payment put on them if someone claims the check has been 'lost'
- heyyyouu 7y agoEven when the rest of it is "available" it can be taken back after weeks if it doesn't actually "clear." There's what you see as clearing vs. actual clearing. I've also had, with very large deposits, to call my bank and insist they call the other bank because they only way they'll clear the check is through manual verification. (This was a big bank and a smaller credit union -- 15 days later the big bank would only clear the check with a phone call from the credit union, but wouldn't tell me why/how and took a lot of digging from me to get the hold lifted. It also turned out the credit union had given the big bank the OK two days in, but big bank's system didn't "read" it somehow). In other words, things can still VERY manual when it comes to check clearing, particularly large checks.
- pinewurst 7y agoI remember reading a semi-apocryphal story from the 70s where a criminal group rented a minicomputer w some logistics software package and used it to pyramid a huge check kiting scheme. They had some tech problems which caused the whole thing to implode, given the tight time constraints they had in keeping the money moving.
- perl4ever 7y agoI think I've heard of that program. "‘...Gordon’s great insight was to design a program which allowed you to specify in advance what decision you wished it to reach, and only then to give it all the facts. The program’s task, which it was able to accomplish with consummate ease, was simply to construct a plausible series of logical-sounding steps to connect the premises with the conclusion. ‘And I have to say that it worked brilliantly. Gordon was able to buy himself a Porsche almost immediately despite being completely broke and a hopeless driver. Even his bank manager was unable to find fault with his reasoning. Even when Gordon wrote it off three weeks later.’"
- lodi 7y agoBasically, banks charge each other per each transaction. To minimize the amount they have to pay, instead of requesting thousands of small transactions, they batch things up into larger overnight jobs. The other problem is that banks can only directly deal with other banks that they have a relationship with. So to transfer money from bank A to bank C, where A and C don't have an account with each other, they have to go through bank B that they both mutually trust. It's kind of like a computer network where each hop between routers can take up to a day.
- maxerickson 7y agoThat's a mechanistic explanation though, not an explanation of why they don't share the information that would reduce fraud. (they could batch the transactions/fees and still share information about the members of the batch…)
- lallysingh 7y agoThey're competitors.
- maxerickson 7y agoWithout thinking too hard about it, it sure seems like sharing the information would be mutually beneficial, so I'm not sure why that would matter. (it wouldn't be an antitrust problem, the communication would also benefit their customers)
- sbarre 7y agoYou'd be surprised how often that is not true for secondary and support services. In Canada we have many service providers (Interac and Symcor being two big examples)that are joint ventures between all the banks they service. So things like (historically) bill printing and mailing and more currently fraud detection and various digital transformation initiatives are being done by these service providers, so that the banks don't all have to spend money on the same stuff separately (and can interoperate more easily). As a bonus, they can also offer those services to other parties and increase profit for the bank owners.
- coliveira 7y agoThis is not a new scheme, anyone with time and patience can do this. The problem is how to make the scheme work on a large scale. This is what makes this case different.
- njharman 7y agoI think the problem is how not to get caught.
- bonestamp2 7y agoSeriously. How did he actually think he was going to get away with this? Something doesn't seem right. What was his plan?
- kd0amg 7y agoI wonder that about pretty much any case of embezzlement these days. With conventional larceny, a thief can appear clean after fencing the stolen goods, but moving money around other than as cash leaves a paper trail indefinitely. There's no point where you can say, "Now I've escaped with the loot, and everything's done."
- bonestamp2 7y agoAgreed, the timing was so precise in this case I just expected that he'd be out of the country by the time they came to his house a few days later. Maybe his plan was foiled when the banks froze his accounts almost immediately.
- dboreham 7y agoThis must explain why banks are so interested in blockchains.
- otakucode 7y agoWhile attending college, I worked as a mainframe operator in the evenings at a data center for a bank. There are parts of the financial system which are most definitely not digital and not 'online' at all. For instance, each night I would have to dial in to a national server to download the transactions from ATM cards, then load those into the banks system. I don't know if that has changed, but that introduced a great deal of lag. The bank only operated on weekdays. And not on holidays. So anything done on those days didn't update the account information until the night after the next bank day. So if you went and withdrew money via ATM after 5PM or so (this is assuming the national system WAS online and realtime... I don't actually know that for a fact) on a Friday and there was a bank holiday on the following Monday, your account at the bank would not reflect that until Tuesday evening (I worked in the evening, and it was my responsibility to do that). This was awhile ago, up until 2001, so things may have changed but I strongly doubt they have changed very significantly given that even then they were using an NCR mainframe which was literally the very last operational one of its kind (the owner of the 2nd to last one gave us theirs for free when they replaced it with a PC, so we got a DR site!). Their policy was to never change anything that cost a penny if it still functioned. When I left, the bank had been acquired by a larger bank and the plan was to move the smaller banks processing into the larger ones data center. I ran into one of my coworkers 5 or so years later and none of that had happened. Everything was still as it was.
- dredmorbius 7y agoSee also J.K. Galbraith's "bezzle", from The Great Crash, 1929: In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in – or more precisely not in – the country’s business and banks. This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks. https://creditwritedowns.com/2009/01/quote-of-the-day-john-kenneth-galbraith-the-bezzle.html https://creditwritedowns.com/2009/01/quote-of-the-day-john-k...