Why haven't government/banks acted to prevent money laundering and other scams?

Question

I read about so many scams where people are given large cheques to deposit, and then asked to repay most of the money and keep a bit for themselves. The cheques then bounce, and the person is out the money that they "refunded".

Aren't there ways that this can be prevented? I can think of some options, but maybe there are reasons why these won't work, or aren't being enacted:

• Banks could flag accounts from which cheques like this have bounced more than once, and alert anyone depositing a cheque from that account that it might be fraudulent
• Banks could note any time there is the following pair of transactions: a cheque is deposited / a sum that is a significant percentage of that cheque is withdrawn/transferred within a certain time period (I realize this would create a lot of false positives - maybe paycheques from legitimate businesses could be ignored...?)
• The government could move to ban cheques entirely, or allow only certified cheques (where the money is put on hold when the cheque is created so that it cannot bounce). With the many electronic transfer options available today, it doesn't seem that the benefits of cheques outweight the risks anymore. (I haven't written a personal cheque in years, and the only ones I've deposited have been from businesses I have had a long-standing relationship with.)
• Banks could require anyone stopping payment on a cheque to supply significant ID and/or collateral of some sort, so that if it turns out that they are defrauding someone, they will be able to be tracked down and/or have financial penalties. (Maybe when they stop payment, those funds are frozen for a few weeks, so that if anyone complains (and provides evidence) about being defrauded, they can be reimbursed from those funds?)
• Perhaps there are other options that I haven't thought of. It just seems like it's too easy for anyone to write a cheque and then cancel it.

These are just some of my ideas. If you want to refute them, that's fine, but the main question is

Why haven't banks/the government done more to regulate/track cheques to prevent scams involving stop-payments?

Answer 1

Banks could flag accounts from which cheques like this have bounced more than once, and alert anyone depositing a cheque from that account that it might be fraudulent

Checks are written on a Bank A account and deposited at Bank B. A deposits the money in the person's account and (electronically) sends it to B for payment. The scammers are good at ensuring it takes as long as possible for B to determine that the check is fraudulent. Fundamentally, B would have to provide the alert but A is the only one with the account's history.

An "easy" fix would be to change the regulations that require A to credit the depositer's account immediately and require them to wait until the check clears. Banks would love the additional float that would provide. But that would cause a lot of hardships for the 99% of account holders that are depositing valid checks and don't keep a large enough balance to deal with checks not clearing for a week or two. And it doesn't help if the check clears but needs to be reversed because of fraud/ money laundering where the sending account was a victim of the scammers.

Banks could note any time there is the following pair of transactions: a cheque is deposited / a sum that is a significant percentage of that cheque is withdrawn/transferred within a certain time period (I realize this would create a lot of false positives - maybe paycheques from legitimate businesses could be ignored...?)

As you point out, the problem is false positives. If I'm running a roofing business, for example, I might get three different checks from new customers for deposits in the same week. I'm going to go out immediately and spend most of that on materials. But the bank has no idea if the money I just spent at Home Depot was spent on roofing shingles or on gift cards.

The government could move to ban cheques entirely, or allow only certified cheques (where the money is put on hold when the cheque is created so that it cannot bounce). With the many electronic transfer options available today, it doesn't seem that the benefits of cheques outweight the risks anymore. (I haven't written a personal cheque in years, and the only ones I've deposited have been from businesses I have had a long-standing relationship with.)

The volume of checks is certainly declining. But there are still benefits. There is a decently large class of "un-banked" individuals that don't have bank accounts but need to be paid (which is why check cashing businesses exist). Checks are free as opposed to credit cards that charge businesses a fee. And checks are very convenient where there isn't an existing business arrangement. If some guy hits my car, their insurance company can send me a check without needing me to set up direct deposit with them first. The postal service can forward that check to me if I've moved in the time between filing the claim and having it resolved.

Banks could require anyone stopping payment on a cheque to supply significant ID and/or collateral of some sort, so that if it turns out that they are defrauding someone, they will be able to be tracked down and/or have financial penalties. (Maybe when they stop payment, those funds are frozen for a few weeks, so that if anyone complains (and provides evidence) about being defrauded, they can be reimbursed from those funds?)

It is very rare that scams involve writing a check and then stopping payment on that check before it is cashed. Banks have to know information about their customers so if I write a check and stop payment, it is reasonably easy for you to sue me civilly and/or for the cops to come arrest me for criminal fraud.

It is far more likely that the scammers have

• forged the check but done so in a way that takes time for the check to bounce.
• written a valid check that gets paid but then gets reversed for fraud later. The person that wrote the bad check was a victim of the scammer. Maybe they got an electronic deposit from a hacked account or some other fraudulent source and it took weeks or months for the fraud to be discovered.

Answer 2

Others have replied to your suggestions point by point. So let me just add some general comments.

One: If you come up with a scheme to make it difficult or impossible to pull off a certain scam, that does not mean the scammers will say, "Drat, I guess I now have to get a real job." They'll just come up with some alternate way to carry out the scam. That's not to say that plugging holes in the security system is useless. But it's naive to suppose that if you repair the hole in the fence that the thief made last time, that he'll just give up rather than cutting another hole in the fence.

Two: Any security measure will likely make it more difficult for honest people to carry on normal business. It's not enough to say, Will this keep out thieves? You should also ask, How much trouble will this cause honest people? Like, we could prevent a lot of shop lifting if we demanded that every customer leaving the store show a receipt. Some stores do this, but it's a pain. We could prevent a lot of shop lifting if we strip searched every customer leaving the store to make sure they weren't trying to sneak out stolen items. But this would be a serious imposition on the privacy of legitimate customers.

Three: Any security system that generates too many false positives is going to result in people ignoring the true positives. Like, remember car alarms? Some car maker got the brilliant idea of having a car beep its horn if anyone touched it. The idea was that if someone tried to break into a car, the alarm would go off and someone would hear it and call the police. Except ... anyone brushing past the car in the parking lot sets off the alarm. People walking past the car on the street set off the alarm. Those alarms go off so often that everyone just ignores them. When I hear a car alarm go off, I don't think, "I should call the police". I think, "Sigh, another annoying car alarm. I wonder how long until it stops." Likewise, if you have some scheme for detecting suspicious transactions that generates a lot of false positives, bank employees and consumers will quickly learn to ignore them. Of course later when one of them turns out to be real, someone will say, "You were sent a message warning you that this transaction was suspicious! Why did you ignore it?" And the bank officer will sheepishly say, "I'm sorry, I messed up." When the real answer is, "We get 5,000 of these warnings a day, and most days all 5,000 are bogus. Occasionally 1 is real. We don't have time to investigate all 5,000 false alarms every day for the 1 every year that's real." See, "The Boy Who Cried Wolf".

In real life, 99.9+% of bank transactions are legitimate. Fortunately, of course. The problem is identifying the tiny percentage of fraudulent transactions amidst the mass of legitimate transactions, without putting too much of a burden on the honest people and the bank employees that it slows the whole system to a crawl.

Answer 3

Banks do all these things. What makes you think they don't?

The government could move to ban cheques entirely

Why? Most people never use checks to begin with, but those who do - they have a necessity. If governments ban this instrument, the necessity doesn't go away, and there will be a replacement.

Banks could require anyone stopping payment on a cheque to supply significant ID and/or collateral of some sort, so that if it turns out that they are defrauding someone, they will be able to be tracked down and/or have financial penalties.

Usually, in scams involving checks these are not the account owners defrauding. How would collateral help?

It just seems like it's too easy for anyone to write a cheque and then cancel it.

It's also criminal.