FINANCIAL INSTITUTIONS FRAUD
Published date | 01 July 2021 |
Date | 01 July 2021 |
FINANCIAL INSTITUTIONS FRAUD
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 956
II. BANK FRAUD STATUTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 956
A. Purpose and Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 957
B. Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 960
1. Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 960
2. Executed or Attempted to Execute. . . . . . . . . . . . . . . . . . 963
3. Scheme or Artifice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 963
4. To Defraud or Obtain Monies by False or Fraudulent
Pretenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 964
a. Defrauding a Financial Institution . . . . . . . . . . . . . . . 965
b. Employing False or Fraudulent Pretenses . . . . . . . . . 965
5. Financial Institution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 966
C. Defenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 967
1. Custody or Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 968
2. Good Faith. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 968
3. Multiplicity or Duplicity of the Indictment . . . . . . . . . . . . 969
D. Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 970
III. THE FINANCIAL INSTITUTIONS REFORM, RECOVERY , AND ENFORCEMENT
ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 973
A. Purpose and Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 974
B. Civil Sanctions for Insider Fraud . . . . . . . . . . . . . . . . . . . . . . 975
1. Applicable Law in Civil Cases under FIRREA: Atherton v.
FDIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 976
2. Federal Common Law Post-Atherton: Circuit Split on the
D’Oench Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 978
1. Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 981
2. Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 982
3. Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 982
4. The Dual Functions of the FDIC . . . . . . . . . . . . . . . . . . . 982
D. Recent Prosecutions and Settlements . . . . . . . . . . . . . . . . . . . 983
IV. THE BANK SECRECY ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 986
A. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 986
B. Title I: Record-Keeping Requirements . . . . . . . . . . . . . . . . . . 987
1. Additional Records to Be Retained by Banks . . . . . . . . . . 989
2. Additional Records to Be Retained by Brokers and Dealers
in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 990
3. Additional Records to be Retained by Casinos . . . . . . . . . 990
955
4. Additional Records to be Retained by Currency Dealers and
Exchangers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 991
5. Enforcement and Penalties . . . . . . . . . . . . . . . . . . . . . . . 992
C. Title II: Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . 993
1. Money Services Businesses. . . . . . . . . . . . . . . . . . . . . . . 993
2. Currency Transaction Reports . . . . . . . . . . . . . . . . . . . . . 995
a. Domestic Currency Transactions . . . . . . . . . . . . . . . 995
b. Foreign Currency Transactions . . . . . . . . . . . . . . . . . 997
c. Transactions with Foreign Financial Agencies . . . . . . 997
3. International Transportation of Currency and Monetary
Instruments Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 998
a. Elements of the Offense . . . . . . . . . . . . . . . . . . . . . . 998
i. Legal Duty to File . . . . . . . . . . . . . . . . . . . . 998
ii. Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . 1000
iii. Willful Violation of the Reporting Requirement 1001
b. Enforcement and Penalties . . . . . . . . . . . . . . . . . . . . 1001
c. Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1002
4. Structuring Transactions to Avoid Reporting Requirements 1004
a. Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1005
b. Enforcement and Penalties . . . . . . . . . . . . . . . . . . . . 1006
c. Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1006
d. Recent Prosecutions and Settlements . . . . . . . . . . . . 1007
I. INTRODUCTION
This article reviews the development and application of three federal crimi-
nal statutes that govern offenses by or against financial institutions. Section II
analyzes the Bank Fraud Statute (“BFS”),
1
which concerns fraud against finan-
cial 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
manage financial institutions. Section IV examines the Bank Secrecy Act
(“BSA”),
3
which prohibits deceptive financial transactions designed to evade
certain reporting requirements.
II. BANK FRAUD STATUTE
This section examines the Bank Fraud Statute (“BFS”), 18 U.S.C. § 1344.
4
Specifically, this section addresses the purpose and scope of § 1344, delineates its
1. Bank Fraud Statute, 18 U.S.C. § 1344 [hereinafter “BFS”].
2. Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. No. 101-73, 103 Stat. 183
(1989) [hereinafter FIRREA] (codified in scattered sections of 12 U.S.C., 18 U.S.C., and 31 U.S.C.).
(2018).
956 AMERICAN CRIMINAL LAW REVIEW [Vol. 58:955
statutory elements, discusses several defenses to a charge of bank fraud, and
presents the sanctions for violating the statute.
A. Purpose and Scope
The purpose of the BFS is to protect the interests of the federal government as
an insurer of financial institutions.
5
In Williams v. United States,
6
the Supreme
Court held that the crime of making false statements to financial institutions under
“check-kiting.”
7
This holding provided the driving force behind the creation of the
BFS. In response to Williams, Congress passed § 1344 with the primary purpose of
giving the government the ability to prosecute check-kiting and other increasingly
sophisticated frauds targeting financial institutions.
8
The BFS, as enhanced by the FIRREA and the Crime Control Act of
1990,
9
has since become the basic provision for prosecuting bank fraud
4. The current BFS states:
Whoever knowingly executes, or attempts to execute, a scheme or artifice— (1) to defraud a finan-
cial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other prop-
erty 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.
18 U.S.C. § 1344 (2018).
5. See United States v. Jimenez, 513 F.3d 62, 72–73 (3d. Cir. 2008); United States v. Leahy, 445 F.3d 634,
665 (3d Cir. 2006) (Becker, J., dissenting) (finding that the BFS requires that defendants both use fraudulent
pretenses to obtain money that is under the bank’s custody and act to defraud the bank, because the purpose of §
1344 is to protect federal government’s interest as the insurer of financial institutions).
6. Williams v. United States, 458 U.S. 279 (1982).
7. Id. at 283, 290 (reversing a conviction under 18 U.S.C. § 1014, which criminalized false statements to
financial institutions, on the grounds that § 1014 does not reach check-kiting schemes); see United States v.
Cronic, 900 F.2d 1511, 1513–16 (10th Cir. 1990) (holding that 18 U.S.C. § 1341, which “largely overlap[s]” with
§ 1041, does not reach check-kiting), overruled on other grounds by United States v. Iverson, 818 F.3d 1015,
1027 (10th Cir. 2016).
8. Thomas E. McCurnin & Peter A. Frandsen, Grounding Check Kiting with Check 21: The Civil and
Criminal Ramifications of Check Kiting in the 21st Century, 125 THE BANKING L. J. 295, 318 (2008) (noting that
the BFS has generally superseded “all statutes for prosecution of check kiting and many other bank fraud cases
by outside and insiders as well”); Steven M. Biskupic, Fine Tuning the Bank Fraud Statute: A Prosecutor’s
Perspective, 82 MARQ. L. REV. 381, 382–92 (1999) (discussing § 1344 as a “broad” and “flexible” statute passed
to protect financial institutions from check kites and fraud schemes not covered by other laws: “Congress sought
to create a statute that would address what it saw as increasingly complex frauds aimed at financial institutions”).
Check-kiting is described as:
[D]rawing checks on an account in one bank and depositing them in an account in a second bank
when neither account has sufficient funds to cover the amounts drawn. Just before the checks are
returned for payment to the first bank, the kiter covers them by depositing checks drawn on the
account in the second bank. Due to the delay created by the collection of funds by one bank from
the other, known as float time, an artificial balance is created.
Id. at 382 n.4.
9. Crime Control Act of 1990, Pub. L. No. 101-647, 104 Stat. 4789 (1990) (codified as amended in scattered
sections of 18 U.S.C.).
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