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

C. Criminal Penalties Under 12 U.S.C. § 1818(j) . . . . . . . . . . . . 980

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.).

3. Bank Secrecy Act, 12 U.S.C. §§ 1829(b), 1951–1959 (2018); 31 U.S.C. §§ 321, 5311–5314, 5316–5322

(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

18 U.S.C. § 1014 did not encompass a check-fraud scheme, often referred to as

“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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