Financial Institutions Fraud

• Author: Dannette Blain/Michael Augustyn/Annie O'connor/Jason Shumacher/Ryan Steinberg
• Pages: 853-907

FINANCIAL INSTITUTIONS FRAUD

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 854

II. BANK FRAUD STATUTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 855

A. Purpose and Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 855

B. Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 858

1. Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 858

2. Executed or Attempted to Execute. . . . . . . . . . . . . . . . . . 861

3. Scheme or Artifice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 862

4. To Defraud or Obtain Monies by False or Fraudulent

Pretenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 862

a. Defrauding a Financial Institution. . . . . . . . . . . . . . . 863

b. Employing False or Fraudulent Pretenses . . . . . . . . . 863

5. Financial Institution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 864

C. Defenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 865

1. Custody or Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 866

2. Good Faith. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 866

3. Multiplicity or Duplicity of the Indictment . . . . . . . . . . . . 867

D. Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 869

III. THE FINANCIAL INSTITUTIONS REFORM, RECOVERY , AND ENFORCEMENT

ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 871

A. Purpose and Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 872

B. Civil Sanctions for Insider Fraud . . . . . . . . . . . . . . . . . . . . . . 873

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

FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 874

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

D’Oench Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 875

C. Criminal Penalties Under 12 U.S.C. § 1818(j) . . . . . . . . . . . . 878

1. Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 878

2. Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 879

3. Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 879

4. The Dual Functions of the FDIC . . . . . . . . . . . . . . . . . . . 880

D. Recent Prosecutions and Settlements . . . . . . . . . . . . . . . . . . . 880

IV. THE BANK SECRECY ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 884

A. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 884

B. Title I: Record-Keeping Requirements . . . . . . . . . . . . . . . . . . 885

1. Additional Records to Be Retained by Banks . . . . . . . . . . 886

2. Additional Records to Be Retained by Brokers and Dealers

in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 887

3. Additional Records to be Retained by Casinos . . . . . . . . . 888

853

4. Additional Records to be Retained by Currency Dealers and

Exchangers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 889

5. Enforcement and Penalties . . . . . . . . . . . . . . . . . . . . . . . 890

C. Title II: Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . 891

1. Money Services Businesses. . . . . . . . . . . . . . . . . . . . . . . 891

2. Currency Transaction Reports . . . . . . . . . . . . . . . . . . . . . 892

a. Domestic Currency Transactions . . . . . . . . . . . . . . . 893

b. Foreign Currency Transactions . . . . . . . . . . . . . . . . . 895

c. Transactions with Foreign Financial Agencies . . . . . . 895

3. International Transportation of Currency and Monetary

Instruments Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 895

a. Elements of the Offense . . . . . . . . . . . . . . . . . . . . . . 896

i. Legal Duty to File . . . . . . . . . . . . . . . . . . . . 896

ii. Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . 898

iii. Willful Violation of the Reporting Requirement 899

b. Enforcement and Penalties . . . . . . . . . . . . . . . . . . . . 899

c. Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900

4. Structuring Transactions to Avoid Reporting Requirements 902

a. Elements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 902

b. Enforcement and Penalties . . . . . . . . . . . . . . . . . . . . 904

c. Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 904

d. Recent Prosecutions and Settlements . . . . . . . . . . . . 905

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 institu-

tions. 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 institu-

tions. Finally, Section IV examines the Bank Secrecy Act (“BSA”),

3

which pro-

hibits deceptive financial transactions designed to evade certain reporting

requirements.

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. §§ 1951–1960; 31 U.S.C. §§ 321, 5311–5314, 5316–5322.

854 AMERICAN CRIMINAL LAW REVIEW [Vol. 59:853

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

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 financial integrity of financial institu-

tions,

5

in order to protect the interests of the federal government as an insurer.

6

In

Williams v. United States,

7

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.”

8

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 target-

ing financial institutions.

9

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, 646

(3d Cir. 2006); United States v. Thomas, 315 F.3d 190, 196 (3d Cir. 2002).

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

189 (2d Cir. 1999).

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

8. 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 also 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

§ 1014, does not reach check-kiting), overruled on other grounds by United States v. Iverson, 818 F.3d 1015,

1027 (10th Cir. 2016).

9. 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) (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

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