Bank Fraud

18 U.S.C. 1344

The bank fraud statute is very short. Despite its’ brevity, it is a very broad statute that encompasses a multitude of criminal acts. 18 U.S.C. 1344 states simply that:

Whoever knowingly executes, or attempts to execute, a scheme or artifice-
(1) to defraud a financial institution; or
(2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;
shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

The concise language and lack of limitations allows the government to apply it to many types of activity that are not specifically defined. It is important to remember that the “financial institution” must be a federal chartered or insured institution. However, banks that are not themselves federally chartered or insured, but are the subsidiary of the issuing institution or substantially involved in the transaction, may also qualify as a financial institution under this statute.

The most hotly contested issue in many fraud cases is the definition of a “scheme to defraud.” Courts around the country have issued hundreds of opinions on the definition of scheme to defraud, but the Second Circuit summed it up saying:

“Scheme to defraud” within bank fraud statute is not capable of precise definition but is measured in particular case by determining whether scheme demonstrated departure from fundamental honesty, moral uprightness, or fair play and candid dealings in the general life of the community.

U.S. v. Ragosta, C.A.2 (Vt.) 1992, 970 F.2d 1085.

Because no precise definition exists, the government oversteps their bounds in some instances and charge conduct that does not qualify. Additionally, the information used during the scheme must be material to the transaction. Immaterial representations, even if false, do not meet the standard for conviction.

Check-kiting is a specific type of bank fraud that involves the use of checks to withdraw money when insufficient funds exist to back the checks. The Second Circuit has described a check-kiting scheme as “embellished” where:

Defendant committed “embellished” check-kiting, so as to be subject to prosecution under section of bank fraud statute prohibiting schemes or artifices to obtain money of financial institution by false or fraudulent pretenses or representations, where he concealed control over account in one bank from another bank by using checks signed by another person and by having his employees make deposits into account, he carefully coordinated deposits to conceal number and amount of daily deposit, he discussed state of his accounts with branch managers of banks and assured them that overdrafts were inadvertent and any problems would be corrected, and he falsely alleged that he would obtain loan to remedy overdrafts.

U.S. v. Burnett, C.A.2 (N.Y.) 1993, 10 F.3d 74.

But, the Fifth Circuit has said that check-kiting is not an automatic when there are insufficient funds to back a check deposit:

Defendant who had engaged in check kiting scheme by depositing a series of checks, which were not backed by sufficient funds, in various federally insured banks did not violate criminal statute prohibiting obtaining of money from federally insured financial institution by means of false or fraudulent pretenses or representations; mere depositing of check was not of itself representation that bank account on which it was drawn had a sufficient balance to cover check.

U.S. v. Medeles, C.A.5 (Tex.) 1990, 916 F.2d 195.

The point is that bank fraud is almost never a given. There is room to litigate whether a person’s conduct constitutes bank fraud. That is why it is so important to seek out an experienced federal criminal defense attorney to assist you in fighting the charges against you.