More trouble for banks: fake cheques - Macleans.ca

More trouble for banks: fake cheques

Banks could be on the hook for honouring forged cheques

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More trouble for banks: fake cheques

As Justice G. R. Strathy put it, the experience of a Toronto business owner whose bookkeeper swindled him out of nearly $400,000 “is an all-too-familiar story.” In this case, office manager Ronald Krane faked his boss’s signature on 478 cheques from 2003 to 2006 to fuel his gambling habit. Currently, the business owner’s only recourse is to go after Krane for the money. But that could soon change. In February, the Ontario judge gave the green light to a lawsuit against the bank that cashed the cheques, which, says the victim’s lawyer, “could have wide implications” for financial institutions across the country.

Since the 1970s, the law has stipulated that unless a bank “knew or could reasonably be fixed with knowledge of the forgery,” it can’t be held responsible for depositing a bogus cheque. As such, when the owner of Dupont Heating & Air Conditioning discovered he had been defrauded, he sued Krane—and won. But according to lawyer Ryan Naimark, the judgment is “not worth the paper it’s written on”; Krane doesn’t have the $585,000 he was ordered to pay. So they tried another approach. As part of tough anti-fraud legislation, passed in 2000 to snuff out money-laundering and terrorism, banks are obligated to monitor account activity and detect suspicious transactions, says Naimark. In this case, Krane was using up to 18 different ABM machines per month to deposit the forged cheques into his Bank of Nova Scotia account, then almost immediately withdrawing the same amount. Says Naimark, “The bank should have caught on to that.”

According to Naimark, that the lawsuit has been allowed to go to trial is “precedent-setting” in itself, and suggests that banks could be held accountable to a third party. Martin Sclisizzi, who is representing the Bank of Nova Scotia, says despite the recent decision, he remains confident that the law will absolve his client of guilt: “[Banks] can’t possibly bear an obligation to a stranger.” He may be right. But in the meantime, this case is one activity banks will be monitoring closely.