Financial institution fraud.

• Author: Hofer, Matthew
• Position: I. Introduction through III. The Financial Institutions Reform, Recovery, and Enforcement Act C. Criminal Penalties Under 12 U.S.C. 1818(j - Annual Survey of White Collar Crime

1. INTRODUCTION II. BANK FRAUD STATUTE A. Purpose and Scope B. Elements of an Offense 1. Knowledge 2. Executes or Attempts to Execute 3. Scheme or Artifice 4. To Defraud or Obtain Monies By False or Fraudulent Pretenses a. Defrauding a Financial Institution b. False or Fraudulent Pretenses 5. Financial Institution C. Defenses 1. Custody or Control 2. Good Faith 3. Multiplicity of the Indictment D. Penalties III. THE FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT A. Purpose and Scope B. Civil Sanctions for Insider Fraud 1. Applicable Law in Civil Cases under FIRREA: Atherton v. FDIC 2. Federal Common Law Post-Atherton: "No-Duty" Rule 3. Federal Common Law Post-Atherton: Circuit Split on the D'Oench Doctrine C. Criminal Penalties Under 12 U.S.C. [section] 1818(j). 1. Scope 2. Elements 3. Penalties D. Double Jeopardy 1. The Dual Functions of the FDIC 2. Hudson v. United States E. Recent Prosecutions and Settlements IV. THE BANK SECRECY ACT A. Purpose B. Title I: Record-Keeping Requirements 1. Additional Records to Be Retained by Banks 2. Additional Records to Be Retained by Brokers and Dealers in Securities 3. Additional Records to be Retained by Casinos. 4. Additional Records to be Retained by Currency Dealers and Exchangers 5. Enforcement and Penalties C. Title II: Reporting Requirements 1. Money Services Businesses 2. Currency Transaction Reports a. Domestic Currency Transactions b. Foreign Currency Transactions c. Transactions with Foreign Financial Agencies 3. International Transportation of Currency and Monetary Instruments Reports a. Elements of the Offense i. Legal Duty to File ii. Knowledge iii. Willful Violation of the Reporting Requirement b. Enforcement and Penalties. c. Defenses i. Excessive Fines ii. Double Jeopardy 4. Structuring Transactions to Avoid Reporting Requirements a. Elements b. Enforcement and Penalties c. Defenses I. INTRODUCTION

   This Article reviews the development and application of three federal criminal statutes that govern offenses by or against financial institutions. Section II analyzes the Bank Fraud Statute ("BFS"), (1) which concerns fraud against financial institutions. Section III reviews the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), (2) which regulates the conduct of officers, directors, and third-party fiduciaries who fraudulently managed financial institutions. Section IV examines the Bank Secrecy Act ("BSA"), (3) which prohibits deceptive financial transactions designed to evade certain reporting requirements.

2. BANK FRAUD STATUTE

   This Section examines the Bank Fraud Statute ("BFS"), 18 U.S.C. [section] 1344. Specifically, this Section addresses the purpose and broad scope of [section] 1344; delineates its five statutory elements; discusses several defenses to a charge of bank fraud; and presents the sanctions for violating the statute.

   1. Purpose and Scope

      The purpose of the BFS is to protect the interests of the federal government as an insurer of financial institutions. (4) The driving force behind the legislation was the Supreme Court's decision in Williams v. United States, (5) in which the Court held that the crime of making false statements to financial institutions did not encompass check-kiting schemes. (6) Congress passed [section] 1344 in reaction to this ruling primarily to give the government the ability to prosecute check-kiting. (7) The BFS also criminalized a variety of other schemes intended to defraud federally insured financial institutions. (8)

      The BFS covers a variety of offenses against financial institutions, including check-kiting, (9) check forging, (10) false statements and nondisclosures on loan applications, (11) stolen checks, (12) unauthorized use of automated teller machines ("ATMs"), (13) credit card fraud, (14) student loan fraud, (15) bogus transactions between offshore "shell" banks and domestic banks, (16) automobile title fraud, (17) diversion of funds by bank employees, (18) submission of fraudulent credit card receipts, (19) false statements intended to induce check cashing, (20) and mortgage fraud. (21) Thus [section] 1344, as enhanced by the FIRREA22 and the Crime Control Act of 1990, (23) has become the basic provision for prosecuting bank fraud offenses.

      Although broadly written, [section] 1344 fails to reach all crimes relating to financial institutions. For example, money laundering, (24) bribery of bank officials, (25) fraud committed by a bank on its customers, (26) and schemes to pass bad checks (27) all fall outside of the scope of [section] 1344. Similarly, [section] 1344 does not protect a bank customer against "pigeon drop" schemes, (28) in which funds are legally withdrawn from an account by the customer and are no longer under the custody or control of the institution when the fraud occurs. (29)

   2. Elements of an Offense

      To obtain a conviction under [section] 1344, the government must show that the defendant: (i) knowingly, (ii) executed or attempted to execute, (iii) a scheme or artifice, (iv) to either (a) defraud, or (b) through false or fraudulent pretenses, representations, or promises, obtain the monies or other property of, (v) a financial institution. (30)

      1. Knowledge

         The knowledge element of the BFS requires that the government prove the defendant had the intent to defraud a financial institution. (31) Such intent "cannot be inferred from the mere presence of a defendant at the scene of the crime or association with members of a criminal conspiracy." (32) However, intent can be adduced from the totality of the evidence, (33) including evidence of prior similar acts (34) and other circumstantial evidence. (35) Furthermore, a defendant's apparent "reckless indifference" (36) for the truth or "conscious avoidance" (37) of the truth can serve as evidence of actual knowledge.

         The defendant need not conceal his actions from bank employees to satisfy the intent element. (38) If the government proves the defendant had such fraudulent intent, it need not demonstrate that the defendant either received personal benefits (39) or contemplated harm to the bank. (40)

         The knowledge element of [section] 1344 also does not require the government to prove that the defendant knowingly made direct misrepresentations to the financial institution. (41) Whether the defendant knew the financial institution was federally insured is irrelevant to establishing knowledge. (42) Instead, the question turns on what the defendant actually knew about the status of the accounts used. (43)

      2. Executes or Attempts to Execute

         Under the BFS, the government must prove that the defendant either executed or attempted to execute a scheme to defraud a financial institution. (44) Where an indictment includes both the "execute" and "attempt to execute" language, a jury must unanimously find only that the defendant either executed or attempted to execute a scheme to defraud a financial institution in order to find the defendant guilty. (45)

         Section 1344 does not specifically define "execution." Thus, courts consider a number of factors in determining whether a scheme has been executed, including: (i) the ultimate objective of the scheme; (ii) the nature of the scheme; (iii) the benefits intended; (iv) the interdependence of the acts; and (v) the number of parties involved. (46) This list is not meant to be exhaustive; assessing whether something is an "execution" is difficult and "depends upon the particular facts...