..it's not our decision to make. In some cases, if the customer has given value for the item, he will need to keep it in order to pursue a civil action or file a criminal complaint.
You are right. Whoever in "law enforcement" told you otherwise is simply wrong.
There's no need for me to reiterate the reasons you gave for returning the check to its rightful owner; you are on point. If it were me, I would ask to be able to note the problem with the check on its face. A person who was a true innocent would have no problem with my request...