Financial Consultants

Bank fraud is a generic term that defines a group of federal and state criminal white collar offenses all of which, simply put, have to do with stealing money from banks and other financial institutions.

Bank fraud charges may include misapplication, embezzlement, false entries in financial institution records, bribery, fraud, making false statements to procure loans, check kitting, bank officers taking out personal loans at preferential rates, computer crimes, and creating overdrafts.

Let’s consider each offense separately. Misapplication is an offense addressed by federal law 18 U.S.C. Sections 656, 657 that is one of the most widely used tools in bank fraud federal prosecutions. This crime involves willfully converting the funds to your own use, benefit or gain, or the use, benefit or gain of a third party.

Embezzlement is an offense very similar to misapplication and is governed by the same statute, 18 U.S.C. Sections 656, 657 that applies to an insider who embezzles funds or property of a financial institution or its holding company. In simple terms, embezzlement is ”the fraudulent appropriation of property by a person to whom such property has been entrusted, or into whose hands it has lawfully come.” The most important element of this statute is that funds must have belonged to victim but the accused must have had lawful possession of the property.

Another bank fraud offense is False Entries in Financial Institution or Holding Company Records, regulated by 18 U.S.C. Sections 1005, 1006. Under this statute, it is a crime for bank employees to make any false entry in bank documents with the intent to defraud the bank. Violation of this law is punishable by a fine of up to $1 million, or imprisonment of up to 30 years, or both. To make their case under this law, the government must establish that (1) the entry is false; (2) the accused either personally made or caused the entry to be made; (3) the accused knew the entry was false when it was made; and (4) the accused intended that the entry injure or defraud the financial institution or holding company or deceive any officer of such institution, company or certain public officials. Section 1006 applies to insiders acting with the intent to defraud while Section 1005 applies to any unlawful participant acting with an intent to defraud.

Bribery (18 USC 215) is another federal bank fraud charge. The law makes it a crime to give, offer, or promise anything of value to anyone with intent to influence or reward a financial institution’s officer, director, employee, agent, or attorney in connection with any business or transaction of the institution. It is also a crime for an officer, director, employee, agent, or attorney of a financial institution to corruptly solicit or accept, or even agree to accept, anything of value from any person, with intent to be influenced or rewarded in connection with any business or transaction of the institution; The penalties for bribery are hefty: the fine of the greater of $1,000,000 or three times the value of the bribe, and/or imprisonment of up to 30 years. However, if the bribe is below $100, the fine is limited to $1,000 and prison term is limited to one year.

The bank fraud statute, 18 U.S.C. Section 1344 is very similar to the federal mail and wire fraud and make it a crime to “knowingly execute or attempt to execute a scheme or artifice to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any of the moneys or funds, credits, assets, securities, or other property owned by or under the custody or control of a financial institution”. Over the years since passing of this statute by Congress, this law has been used in prosecutions of virtually any type of fraudulent behavior that has to do with banks, including car title fraud, stolen or phony checks, credit card fraud, ATM fraud, stolen ATM cards, check kitting, etc. In one case, the defendant who participated in scheme of accumulating bank credit was convicted of bank fraud for falsifying income on credit card applications to increase the amount of credit.

Many bank fraud charges were brought for making false statements to procure loans 18 U.S.C. Section 1014. Under this statute, anyone who knowingly makes any false statement or report or who willfully overvalues collateral for the purpose of obtaining credit from a banking institution will be fined for up to $1,000.000 or imprisoned for up to 30 years.

One common bank fraud crime is a check ”kiting” scheme, where one or more persons using checking accounts at two or more institutions systematically exchange checks of similar amounts. The scheme takes an advantage of the delay as the checks are cleared through the Federal Reserve System. As the result, there is an inflated and uncollected balance at the banks involved. While checks drawn against uncollected funds are in the clearing process, the participants in the scheme use the deposited but uncollected monies. Check kitting schemes do often result in prosecution under mail and wire fraud and bank fraud statutes.