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Dealing with Kiting

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Question: 
We have a kiting scenario come to life, and I want to make sure I am covering all my bases. A SAR will be filed. What law enforcement should be contacted: FBI or local? This is a very large amount, do I need to notify our primary regulator? If so, how soon?
Answer: 

If there is risk to your institution involved, deal first with that, by being the first institution to pull the plug on the kite. That can be done with "reasonable doubt" exception holds that can tie up check deposits for up to seven business days, or with a "summary execution" that slams the door on any further deposits and immediately starts sending back checks drawn on kited funds. If you are not primarily responsible for dealing with check frauds and losses in your institution, get whoever is involved in the closing of the account and any follow-up.

Then get your SAR in order and filed, and notify the FBI (check kiting is a form of bank fraud, and a federal offense) as soon as possible afterwards. If the amounts are large (as you have suggested), a "heads up" to your primary regulator would be a good idea, particularly if your bank is likely to incur a loss. If you involve local law enforcement (which is certainly an option), make sure that you let them know that the FBI has been notified (and clue the FBI in that you've told the locals).

First published on BankersOnline.com 6/14/10

First published on 06/14/2010

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