Check Kiting

Check kiting
I had to definitely check this one out. I had never heard of check kiting before I received this assignment. To put it very simply, check kiting is when you write a check from one bank account to cover the lack of funds from another bank account. Check kiting is fraud pure and simple. The scam or crime usually goes something like this: Tom, our criminal has two bank accounts at two different banks. The balance in each of these accounts is minimal, but Tom has an honest face and plenty of ID. Tom writes a check, check A, out for $100 and cashes said check at a local grocery store. The grocery store gives Tom $100 trusting Tom and his honest face. However, Tom knows that the check he wrote to the grocery store is no good, as the account is lacking the funds to cover the check. Before the local grocery store has a chance to deposit Tom's check in their account, Tom writes check B and cashes it at another local store, this check is written on Tom's other bank account that cannot cover the check. Tom knows eventually the checks will come into the banks he has accounts, but continues to write the non sufficient funds (NSF) checks. Because he knows the second bank now shows a positive balance, so Tom can withdraw enough money to deposit back into the first bank before the check bounces for lack of funds.
You may think the aforementioned check kiting scheme is way too complicated for such a small payoff, but sloshing the funds back and forth between accounts can buy Tom enough time to generate real money to cover any other outstanding checks. Some people have been known to use this method, called circular check kiting, when several checks on an overdrawn account may come due before a paycheck or other regular funds can be deposited. The circular check kiting scheme depends on the bank's delay between receipt of deposits and checks and their eventual processing, also known as "float time."
Modern technology may have made check kiting a thing of the past, as most grocery and banks have employed the electronic receipt system, which instantly records and in many cases processes cash transactions. This technology has essentially eliminated or reduced "float time" between banks. It is now much more difficult to withdraw funds from one bank and deposit them in another before the two banks can compare transaction records.
Check kiting is also referred to as robbing Peter to pay Paul. However, most people that use this term are not real criminals in the true sense of the word. They are people who write checks knowing there are no funds to cover it, hope they can cover it before it clears the bank. Make no mistake, this is still a crime. Funny, I'm no expert but isn't this what the stock market does all the time? Oh, but they don't call it check kiting, I believe it is call selling short.


Carol Heath Lead Writer for good info

Check Kiting