Financial Institutions Fraud

• Author: William Chang/Max Rosenthal/Dylan Specht/Cormac Dugan/Jennifer Ferrigno
• Pages: 829-874

FINANCIAL INSTITUTIONS FRAUD

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 830

II. BANK FRAUD STATUTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 830

A. Purpose and Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 831

B. Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 832

1. Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 832

2. Executed or Attempted to Execute . . . . . . . . . . . . . . . . . 834

3. Scheme or Artifice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 835

4. To Defraud or Obtain Monies by False or Fraudulent

Pretenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 835

a. Defrauding a Financial Institution . . . . . . . . . . . . . . 836

b. Employing False or Fraudulent Pretenses . . . . . . . . . 836

5. Financial Institution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 837

C. Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 838

1. Custody or Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 838

2. Good Faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 838

3. Multiplicity or Duplicity of the Indictment . . . . . . . . . . . 839

D. Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 841

III. THE FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT

ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 843

A. Purpose and Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 843

B. Civil Sanctions for Insider Fraud. . . . . . . . . . . . . . . . . . . . . . 844

1. Applicable Law in Civil Cases under FIRREA: Atherton v.

FDIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 845

2. Federal Common Law Post-Atherton: Circuit Split on the

D’Oench Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 846

C. Criminal Penalties Under 12 U.S.C. § 1818(j) . . . . . . . . . . . . 848

1. Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 848

2. Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 849

3. Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 849

4. The Dual Functions of the FDIC . . . . . . . . . . . . . . . . . . . 849

D. Recent Prosecutions and Settlements . . . . . . . . . . . . . . . . . . . 849

IV. THE BANK SECRECY ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 853

A. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 853

B. Title I: Record-Keeping Requirements . . . . . . . . . . . . . . . . . . 855

1. Additional Records to Be Retained by Banks . . . . . . . . . . 856

2. Additional Records to Be Retained by Brokers and Dealers

in Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 857

3. Additional Records to be Retained by Casinos . . . . . . . . . 857

829

4. Additional Records to be Retained by Currency Dealers and

Exchangers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 858

5. Enforcement and Penalties . . . . . . . . . . . . . . . . . . . . . . . 859

C. Title II: Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . 860

1. Money Services Businesses . . . . . . . . . . . . . . . . . . . . . . 860

2. Currency Transaction Reports. . . . . . . . . . . . . . . . . . . . . 861

a. Domestic Currency Transactions . . . . . . . . . . . . . . . 862

b. Foreign Currency Transactions . . . . . . . . . . . . . . . . 864

c. Transactions with Foreign Financial Agencies . . . . . 864

3. International Transportation of Currency and Monetary

Instruments Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 865

a. Elements of the Offense . . . . . . . . . . . . . . . . . . . . . 865

i. Legal Duty to File . . . . . . . . . . . . . . . . . . . . . . 865

ii. Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . 867

iii. Willful Violation of the Reporting Requirement 868

b. Enforcement and Penalties. . . . . . . . . . . . . . . . . . . . 868

c. Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 869

4. Structuring Transactions to Avoid Reporting Requirements . . 870

a. Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 871

b. Enforcement and Penalties. . . . . . . . . . . . . . . . . . . . 872

c. Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 872

d. Recent Prosecutions and Settlements . . . . . . . . . . . . 873

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 manage financial institutions. Finally, 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.

Specifically, this Section addresses the purpose and scope of § 1344, delineates its

statutory elements, discusses several defenses to a charge of bank fraud, and

presents the sanctions for violating the statute.

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. §§ 1829b, 1951–1960; 31 U.S.C. §§ 321, 5311–5314, 5316–5336.

830 AMERICAN CRIMINAL LAW REVIEW [Vol. 60:829

A. Purpose and Scope

The purpose of the BFS is to protect the financial integrity of financial institu-

tions,

4

thereby protecting the interests of the federal government as an insurer.

5

The BFS was enacted following the Supreme Court’s decision in Williams v.

United States,

6

which 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

In response to Williams, Congress passed § 1344 with

the primary purpose of giving the government the ability to prosecute check kiting

and other 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 offenses.

10

Section

1344 is broadly written and criminalizes a variety of offenses against financial

institutions, including check kiting,

11

check forging,

12

false statements and nondi-

sclosures on loan applications,

13

stolen checks,

14

the unauthorized use of auto-

mated teller machines (“ATMs”),

15

credit-card fraud,

16

student-loan fraud,

17

sham

transactions between offshore “shell” banks and domestic banks,

18

automobile-title

4. See United States v. Jimenez, 513 F.3d 62, 72–73 (3d Cir. 2008); United States v. Leahy, 445 F.3d 634, 646

(3d Cir. 2006), abrogated on other grounds by Loughrin v. United States, 573 U.S. 351 (2014).

5. See United States v. Leahy, 445 F.3d 634, 665 (3d Cir. 2006) (Becker, J., dissenting); United States v.

Davis, 989 F.2d 244 (7th Cir. 1993); United States v. Laljie, 184 F.3d 180, 189 (2d Cir. 1999).

6. Williams v. United States, 458 U.S. 279 (1982).

7. Id. at 283, 290.

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 BANKING L. J. 295, 318 (2008); Steven M.

Biskupic, Fine Tuning the Bank Fraud Statute: A Prosecutor’s Perspective, 82 MARQ. L. REV. 381, 382–92

(1999).

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.).

10. John F. Wagner, Jr., Annotation, What Constitutes Violation of Federal Bank Fraud Statute (18 U.S.C.A

§ 1344), 99 A.L.R. Fed. 888, § 2[a] (1990).

11. See, e.g., United States v. Watson, 756 F. App’x 662, 663–64 (8th Cir. 2019); Liberty Bell Bank v.

Rogers, 726 F. App’x 147, 152 (3d Cir. 2018).

12. See, e.g., Loughrin v. United States, 573 U.S. 351, 363–64 (2014); United States v. Thomas, 841 F. App’x

934, 936 (6th Cir. 2021); United States v. Morganfield, 501 F.3d 453, 465 (5th Cir. 2007).

13. See, e.g., United States v. Moratalla, 82 M.J. 1, 3 (C.A.A.F. 2021); United States v. Fattah, 858 F.3d 801,

815 (3d Cir. 2017); United States v. Peterson, 823 F.3d 1113, 1120–21 (7th Cir. 2016).

14. See, e.g., Thomas, 841 F. App’x at 935–36; United States v. Maxwell, 778 F.3d 719, 726–27 (8th Cir.

2015); United States v. Goodale, 530 F. App’x 338, 343–44 (5th Cir. 2013).

15. See, e.g., United States v. Thi, 692 F.3d 571, 572 (7th Cir. 2012); United States v. Miller, 70 F.3d 1353,

1355–56 (D.C. Cir. 1995).

16. See, e.g., United States v. Warshak, 631 F.3d 266, 312–13 (6th Cir. 2010); United States v. Harris, 597

F.3d 242, 247–49 (5th Cir. 2010); United States v. Cole, 160 F. App’x 634, 635–36 (9th Cir. 2005).

17. See, e.g., United States v. Moore, 703 F.3d 562, 565–66 (D.C. Cir. 2012); United States v. Sanders, 59

F. App’x 765, 766–67 (6th Cir. 2003); United States v. Guyon, 27 F.3d 723, 724–25 (1st Cir. 1994).

18. See S. REP. NO. 98-225, at 379 (1983), as reprinted in 1984 U.S.C.C.A.N. 3182, 3519 (noting “use of

bogus or ‘shell’ offshore banks has increasingly become a means of perpetrating major frauds on domestic

banks” and asserting congressional intent that the statute have extraterritorial reach). But see United States v.

2023] FINANCIAL INSTITUTIONS FRAUD 831