In the digital age, paper is the problem

March 18, 2026

The explosion of investment in artificial intelligence (AI)-powered digital innovation in financial services has focused significant attention―and budget―on risks associated with these new technologies. But criminals pay attention to where you are not paying attention, and many financial institutions (FIs) have deprioritized risks associated with legacy monetary instruments like checks, even as they remain ripe for fraud, money laundering and terrorist financing if not appropriately monitored.

Recent criminal prosecutions effectively highlight these risks. According to court documents,¹ on June 18, 2019, the Florida Highway Patrol conducted a traffic stop of a subject suspected of receiving a bulk cash shipment. Upon a search of the vehicle, they did not find cash, but something different: a black duffel bag with more than 35 official bank checks (or “cashier’s checks”) and receipts for additional cashier’s checks totaling more than $1 million.² The individual was subsequently arrested and pled guilty in 2022 to laundering more than $21 million by purchasing cashier’s checks with illicit cash. In the same year, a man from Queens, New York, admitted to laundering $653 million while “[obfuscating] the source of the illegal cash by purchasing official bank checks [and] writing personal and business checks....”³

FIs understand well and capture the risk associated with cash and its placement into the traditional financial system―whether as a deposit or converted into a monetary instrument. These transactions are effectively flagged by institutions’ transaction monitoring systems. However, these funds, which are then withdrawn and deposited at other institutions in the form of an ink-and-paper monetary instrument or check, are frequently underestimated and misevaluated, allowing vast amounts of unusual transactions to fly under the radar. Although advancements in AI will help FIs enhance their data to capture and mitigate this pervasive risk in the future, currently there is not widespread adoption of technology mature and sophisticated enough to do so.

To stay ahead of evolving illegal practices, FIs must proactively adapt as criminal networks and cartels continue to exploit vulnerabilities in the transaction monitoring process. As focus shifts to addressing risks created by digital channels, it is critical not to overlook long-standing physical instruments used in conducting financial crime―as the failure to identify and report such schemes can have serious financial, reputational and regulatory impacts on your business.

Major challenges with the mechanism of checks

While the world concentrates on digital assets, pen-and-paper instruments represent a challenge because key information critical to transaction monitoring is contained in unstructured imagery rather than structured spreadsheet data. A deposited check in a bank branch will typically appear in structured data simply as a “check deposit” with a corresponding deposit date and amount, and the details of the check maker and beneficiary are only available when manually reviewing the scanned check image. Systems typically do not differentiate between instrument types either―a personal check, cashier’s check and money order can all appear the same way. Despite rising use of electronic payment methods like direct deposit and wire transfer, checks remain the easiest way to transfer large sums of money without added fees and are therefore a staple for many consumers and businesses.⁴ The good news is that check images are consistently available due to the Check Clearing for the 21st Century Act (“Check 21”),⁵ which enables FIs to process checks electronically by creating digital copies of the physical check. This results in quicker processing, earlier access to funds for payees and reduced costs for banks. As checks are processed centrally by the local Federal Reserve Bank and sent to FIs, industry professionals have observed that individual FIs struggle to adequately parse and review the large batches of images delivered to them. When the images are used for investigation purposes, they are often reviewed separately from other payment methods and require significant resources for storing and handling the information, in addition to the challenges of monitoring the digital copies for risks.

Based on our experience, managing images of physical instruments in the transaction monitoring process continues to be a challenge for many FIs. Most simply transcribe the value of the checks, but not the critical information contained on them, which could indicate red flags for money laundering and fraud. While AI image processing may be an eventual solution for this, the current image quality provided by the Federal Reserve (200-240 dots per inch [dpi]) does not meet the ideal standard of AI tool vendors (300 dpi)⁶ for reading and transcribing printed text and is therefore not yet a viable solution. Automated transcription of handwriting will require a similar digital public infrastructure and be open to interpretation by the AI tool in question.

Consequences of underestimating pen-and-paper risks

Beyond the technical challenges of monitoring check activity, while FIs focus on the fraud risks for checks, they do not always weigh the money laundering risk the same as other monetary channels, nor do they approach these instruments with the same skepticism as cash or even wire transfers.⁷ While cash and cash equivalents are often the placement method for illicit funds, checks are increasingly used for the layering and integration phases of money laundering. For instance, U.S. investigators recently unraveled an alliance between members of a Mexican cartel and a China-based money laundering syndicate who, over the course of several years, used cashier’s checks and other methods to clean more than $50 million of drug trafficking proceeds.⁸ The criminals structured these deposits in small enough amounts to avoid federal financial reporting requirements and bypass standard compliance reviews.

"FIs that proactively strengthen their check monitoring capabilities now will be better positioned to detect emerging threats and demonstrate regulatory compliance in the future"

Recent risk assessments and enforcement actions highlight that regulators are on the lookout for banks failing to capture the risks of checks. The U.S. Treasury’s 2024 National Money Laundering Risk Assessment highlighted the use of checks by professional money laundering organizations,⁹ and combating these networks is a major priority of the Trump administration.10 Recent consent orders focusing on the coverage of transaction monitoring programs have specifically cited the omission of monitoring check activity for AML risks as a significant gap.11 While the difficulty of monitoring these instruments is higher than other payment channels, this regulatory trend combined with the prevalence of professional money laundering organizations utilizing physical instruments demonstrates that it is essential for FIs to understand and mitigate the risk of money laundering through checks.

Opportunities for FIs to stay ahead of check risk

While there are challenges, FIs can still monitor for certain fact patterns with the information available to them and update digital tools pertaining to checks, including the integration of machine learning and AI. Failing to protect against such risks can have long-lasting impacts on your business, so it is critical to assess and adapt your programs before it is too late. In reviewing your systems, ask the following of your AML/Bank Secrecy Act (BSA) compliance professionals:

Are checks integrated, both data-wise and operationally, into our AML/BSA compliance program, given that they carry a major money laundering and national security risk?
Can we augment data collection processes and increase imagery standards to ensure vital transaction information is extracted and check-specific risk indicators are in place?
Have we performed a proactive coverage assessment to identify our exposure to check risks and implement corrective controls?

The financial crime landscape continues to evolve, but criminals have not abandoned traditional methods―they have simply refined them. While FIs invest heavily in monitoring digital transactions, the failure to adequately oversee check activity creates a compliance blind spot that sophisticated criminal networks are actively exploiting. The cost of inaction extends beyond financial losses to include regulatory penalties, reputational damage and potential national security implications. FIs that proactively strengthen their check monitoring capabilities now will be better positioned to detect emerging threats and demonstrate regulatory compliance in the future. The question is not whether criminals are processing checks through your institution―it is whether you will appropriately detect and report this activity before law enforcement finds it.

Keenan Mahoney, CAMS, senior managing director, FTI Consulting, NY, USA, keenan.mahoney@fticonsulting.com,

Stella Mendes, CAMS, senior managing director and global leader of Financial Services, FTI Consulting, NY, USA, stella.mendes@fticonsulting.com,

Nick Pelino, senior managing director and Financial Crimes Analytics lead, North America, FTI Consulting, IL, USA, nicholas.pelino@fticonsulting.com,