Question & Answer

Question: We recently got burned pretty badly on a kite situation. Can you tell me what we should do in case of a kite? What are our rights to protect ourselves?

Answer: A kite is a federal offense, so your "rights" are pretty clear. You can protect yourself by actions designed to combat the offense and make yourself (your institution) whole.

If you have identified a kite, there are several specific steps you should take immediately:
Freeze the funds in the account-put a computer hold on them, or put them on referral so that nothing further can go out of the account without your knowledge.

Return any checks possible-you can return those checks that came in for payment today, and those from yesterday-if they are all on their way back by midnight. They are timely returns if you beat the midnight deadline.If you are in a loss position, you may want to call other involved financial institutions which are NOT receiving any of your bounced items. Find out if they have any good funds in the name of your depositor for which you could indemnify them for accepting a late or "without entry" return.

Pull copies of the last few statements and all checks written against and copies of all checks deposited to the account. This will let you know what other financial institution(s) and account(s) is involved. Also check your central file to see if the principal on the account under investigation has any other accounts with your institution in the same name or is affiliated to accounts under other titles. If so, you'll want to check those accounts out too.

Contact the Federal Bureau of Investigation-and enlist their help. If you are sure of your facts, and you know this is a kite, they will be interested.

Fill out a Criminal Referral Form-and make sure you have the documentation necessary to go with it if copies are requested by law enforcement. (Remember, kiting is a federal offense, so even if you did not take a loss, you should report it.)

Maintain a strict surveillance on the account until you can get it closed out. Watch for automatic reopenings by means of a deposit. Some con artists have been known to slide deposits through in the mail, reopen the account and have one last fling before you know the account has been reopened. If you have a "no reopen" code, be sure it's on.

Prepare prosecution in cooperation with law enforcement. If the FBI cannot handle the case, they will inform you in short order. Then you will want to contact your local law enforcement (probably your county's District Attorney) and work with them.

Once you have (hopefully) made your account good, you want to be sure and contact the other financial institution(s) involved and assist them in any way you can. If you discovered the kite before they did, they will be in a loss position. If you have money left over, they may want to indemnify you in order to make some recovery.

Editor's Note: Special thanks to the Philadelphia FBI office for their input on the above response.

Copyright © 1991 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 2, No. 7, 8/91