Cheque loophole still wide open

A LOOPHOLE believed to have been used by convicted fraudster Warren Templeton to steal millions of euros from British expats is still wide open and could be abused again.

Templeton’s victims made out cheques to Société Générale thinking the money would be invested into one of its high-interest funds.

Instead, the conman was able to pay them into his personal accounts.

Connexion has discovered that it is standard banking practice in France for a customer to be able to deposit a cheque into their own account despite it being made out in the bank’s name.

The loophole was banned in the UK in 2006 after it was realised it was too open to scams.

Connexion tested the procedure at a branch of Société Générale in Nice. One of our journalists asked to pay a cheque for €5,000 made out to Société Générale but signed by a third party into his own account.

The cashier asked no questions, reminded our reporter to sign the back of the cheque, and a day later the sum appeared in his account.

Although the Templeton case centres on Société Générale, one of his victims wrote cheques to Crédit Agricole – and again Templeton was able to pay them into his account at that bank.

Twelve of the Dordogne residents who fell prey to the scam are suing Société Générale for damages, claiming the bank failed in its duty to protect customers from fraud. The case was due to be heard on September 25, as Connexion went to press.

Société Générale refused to discuss the details of the fraud before the trial. However it said in a statement: “Under current French banking regulations, making a cheque out to a bank is not prohibited.

“Processing such cheques requires certain precautionary measures. Société Générale’s internal procedures respect this practice and the necessary verifications.”

The Financial Services Authority and the British Banking Association spotted that the loophole was an open door for fraudsters and closed it in 2006. Cheques can no longer be banked in the UK with just the name of a financial institution in the payee line and must include more identifying details such as the name of the person whose account is to be credited or their account number.

However, unlike most of its European neighbours, France still relies heavily on payment by cheque. The French Banking Federation said 3.6 billion cheques were written in France in 2007. They are generally used to pay for high-value items and services, with the average cheque made out for €595 compared with €50.50 for the average card transaction.

Banking expert David Corneille, a fraud prevention consultant for the Banque Populaire and Caisse d’Epargne, said the sheer number of cheques made adequate controls impossible.

“Effectively there are no checks. They only look at the paying-in slip,” he said.

“This case doesn’t shock me at all. If there were only three cheques in the country they would be looked at, but we are talking about thousands of cheques every day.”

The 12 victims who are suing the Société Générale for damages could find out on September 25 whether they have been successful.

Between them, they lost about €2m – but it is thought Templeton’s fraud netted as much as €10m and other victims have not come forward.

Templeton pretended to be an agent for the Société Générale-backed Swan 2006 investment fund, promising returns of 15%.

His victims did not realise their life savings had gone into his personal accounts and not into the high-interest fund.

Société Générale stressed in its statement to Connexion that Templeton was never employed by Société Générale.

It is suing him saying it too was “a victim of Templeton’s fraudulent activity”.

Joy Coleman, who lost €450,000 to the conman, said she believed the bank had been negligent. She said: “The amounts involved are staggering. Surely the bank should have realised something had gone wrong. The least they could do is give us our money back.”

Her husband Steve added: “It seems crazy that you can write a cheque to a bank yet the money ends up in someone else’s account. We don’t understand how this happened.”

British business and finance lecturer Dr Ray Donnelly, who has been following the case since it first emerged, advised Société Générale to “settle, settle quickly and settle generously” to restore its reputation.

“When one individual is doing it with consistently large amounts of money and they’re all for round sums, alarm bells should have been ringing if they had been awake,” he said.

Connexion finance expert Hugh MacDonald warned that the cheque loophole extends to other banks, utility companies and even the taxman.

He said: “When writing out cheques to organisations that have other account-holders such as yourself, at the very least put on the back of the cheque your name, account number, invoice number or anything to link the payment being for your benefit – not someone else’s.”

Templeton was not registered as a financial adviser in either the UK or France. The UK register can be checked online at www.fsa.gov.uk/pages/register.

Its French equivalent, the Autorité des Marchés Financiers (AMF), keeps a public list of regulated advisers at http://bit.ly/advisers. Brokers are registered at www.orias.fr, the website for the Organisme pour le Registre des Intermédiaires en Assurance.

Connexion has approached the Banque de France, the French Banking Federation, the government fraud prevention body DGCCRF and the French Association of Bank Users about the loophole but none of them have yet responded.

Despite being sentenced to two years’ prison by a Bordeaux court in June, Templeton is currently in the UK because he was allowed to walk free from court to have time to consider appealing.

In the French legal system, the Greffier des Services Judiciaires has to make sure the judge’s instructions are carried out – informing the Service d’Execution des Peines that a prisoner should be turning himself in to start his sentence.

However, if the prisoner does not turn up, it will take several months for the SEP to start to look for him.

Templeton is just one of more than 82,000 prisoners who are at large rather than in jail.

So far he has not been sent a summons to return to jail and the Service d’Execution des Peines said that it would not necessarily start to look for him until October, or perhaps later.