Bank Fraud

BANK FRAUD IS A SPECIALIZED type of criminal deception that involves customers, employees of the bank, or others who knowingly execute, or attempt execute a scheme to obtain money, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a federally chartered or insured financial institution by means of false or fraudulent pretenses, representations, or promises.

A federally chartered or insured financial institution is a bank with deposits insured by the Federal Deposit Insurance Corporation (FDIC), or a credit union with accounts insured by the National Credit Union Administration Board, or a federal home loan bank.

On October 12, 1984, President Ronald Reagan signed into law the Comprehensive Crime Control Act of 1984. It was designed to fill an obvious gap in the federal criminal laws by enacting the first true federal bank fraud statute. The enactment of Section [Page 74]1344 of the law was the product of growing concern over the inability of federal prosecutors to reach sophisticated financial criminals with antiquated statutes, many of which were enacted more than 50 years ago. Congressional concern over this problem was fueled by the bank failures of the early 1980s, and claims by prosecutors that several Supreme Court decisions interpreting federal criminal laws have hampered prosecutions.

The absence of a federal statute applicable to certain types of fraudulent activities does not mean that those activities will escape prosecution; state laws prohibit virtually all kinds of financial fraud. The superior resources of federal prosecutors, and the arguably greater federal interest in federally insured financial institutions has, however, traditionally meant that federal prosecutors pursue these offenses.

Prosecutors have complained in particular about Supreme Court decisions limiting the reach of those federal criminal statutes that prohibit mail fraud and the making of false statements to banks. The false statement statute (Section 1014) has historically been utilized by the Justice Department to prosecute check-kiting and other similar schemes designed to induce the advancing of money or credit based on a check known by the customer to be drawn on insufficient funds. The government's theory was that the check was implicitly a statement to the bank that there were sufficient funds on deposit to cover the check and that the statement was false. This theory of prosecution was foreclosed, however, by the Supreme Court's 1982 decision in Williams v. United States, which held that check-kiting, or deliberately drawing a check on insufficient funds, is not a violation of Section 1014 because the check is not a statement but merely an order to pay funds. The impact of Williams was to terminate a number of federal criminal investigations. The new bank fraud statute may permit federal prosecution of many of these acts, especially those involving check-kiting.

Bank frauds have also traditionally been prosecuted as violations of the federal mail fraud or wire fraud statutes when the prosecutors could prove that the federal mail or wire communications were used to execute the fraudulent scheme. Federal jurisdiction over the crime is predicated on the use of the mail or wire communications. This approach has been restricted by the Supreme Court's decisions in United States v. Maze, which held that the mail fraud statute must be construed to apply only where the mail is used for the purpose of executing the scheme or artifice to defraud, and is not applicable to every case where the mail is utilized at some point in the scheme. Another problem for prosecutors is that the rise of private courier services means that businesses are making less use of the mails and wires, further reducing the use of these statutes.

...