Teva Canada Ltd. v. Bank of Montreal, 2016 ONCA 94, contains everything you ever wanted to know about how cheques work and is a case study in financial risk. This is interesting reading for anyone who works with cheque systems or is seeking to replace them (re: Fintech industry). The litigation is focussed on the (federal) Bills of Exchange Act.

The case began with a Teva employee writing cheques to himself for around $5 million. The employee registered Master Business Licenses (MBLs) for names similar to Teva customers (and then a couple imaginary ones).

Eventually the employee's fraud was discovered and his (former) employer, Teva Canada Ltd., sued the banks for conversion. The case has the full details or you can read a brief summary in the Financial Post.

The fraud committed by the Teva employee was quite unsophisticated (they used real name + MBL) and was perpetrated over several years. It was discovered following an investigation triggered by Scotiabank reporting a suspicious cheque.

Surely better technology could avoid problems like this. Teva's internal policies weren't followed in issuing the cheques, but this sounds like an excellent opportunity for fraud detection algorithms. A similar technique (slightly incorrect company name as payee) appears to have been used on a much grander scale to steal billions from Malaysian investment fund. The facts of that case are still being uncovered and will undoubtedly be litigated in several jurisdictions.

Paragraph 23 of the case explains the terminology of cheques:

“Collecting Bank” is the bank in which a cheque is deposited ...;
“Drawer” is the person on whose account a cheque is drawn ...;
“Drawee” or “Drawing Bank” is the bank on which a cheque is drawn and is directed to pay the cheque ...;
“Payee” is the person to whom the cheque is payable;
“Bearer” is a person delivering a cheque to a bank.