Check “washing” fraud hits local government entity

Be aware as such cases are on the rise

by Mark Reaman 

In what might be a lesson for everyone, but especially entities that deal with high dollar payments that use physical checks, local, regional and national investigators are actively looking into what is described as a “check washing” incident with the Mountain Express. The check fraud resulted in close to six figures being stolen but that is expected to be covered through insurance.

“Mountain Express can confirm that it recently discovered a check fraud incident involving a vendor payment issued to The Downtowner (the company that runs FirstTracks),” said Mountain Express business manager Leah Petito. “The check was originally issued by Mountain Express and was mailed through regular U.S. Mail. It appears the check was intercepted before reaching the intended recipient, altered and deposited by an unauthorized party. The issue came to our attention after The Downtowner notified Mountain Express that payment had not been received. Mountain Express then reviewed its bank records and determined that the check had cleared, but that the payee information had been altered.”

Petito said that after identifying the issue, Mountain Express notified its bank, filed a report with the Crested Butte Marshal’s Office, submitted a U.S. Mail fraud report, notified legal counsel and submitted a claim through the insurance provider, CIRSA. She further explained that Mountain Express is currently working through the CIRSA claim process regarding potential recovery of the funds. Mountain Express has also reissued payment to The Downtowner using secure, tracked delivery with signature required.

Crested Butte marshal Joe Dukeman is lead investigator on the case in Crested Butte. “We are actively investigating this incident. A paper check was sent via USPS to a vendor in Florida,” he said. “The check was intercepted along the way and the payee on the check was washed and changed to a different company with a different address. The check was deposited and cashed over three months before it was discovered and brought to our attention.

“I can’t think of a specific ‘operation’ name for a person or criminal syndicate who intercepts checks in the mail, “washes” the check, deposits the check and cashes them out,” continued Dukeman. “To date, this case has involved seven states that have come to our attention during the investigation. Currently, we have narrowed this list down to two states. That doesn’t mean it won’t grow as we continue our investigation.”

Dukeman said there is a possible suspect, “however, currently our investigation is suggesting our ‘person of interest’ may be a victim of identity theft,” he said.

Petito said Mountain Express is reviewing its payment processes more broadly to reduce future risk. “In the short-term, Mountain Express is moving away from sending high-dollar checks through regular U.S. Mail and is using more secure delivery methods where paper checks are necessary,” she said. “We are also evaluating bank fraud-prevention tools and additional secure payment options, including ACH/electronic payment processes, to reduce reliance on paper checks where appropriate. We appreciate The Downtowner’s communication in bringing the issue to our attention, as well as the assistance of our bank, CIRSA, legal counsel and law enforcement as this matter is addressed.”

According to Dukeman, the CB Marshal’s Office is dealing with a spike in forgery and fraud cases this year, resulting in major financial losses to these criminal enterprises. He suggested people can find advice on how to deal with this type of “economic crime” by going to the Colorado Bureau of Investigation website at CBI.colorado.gov.