Like other fraudulent acts, bank fraud involves some purposeful or knowing deception, deceit, or misrepresentation to obtain a monetary or financial windfall. This places the offense squarely in the same category of white-collar crimes as mail fraud, wire fraud, healthcare, and insurance fraud.

In some instances, a fraudulent scheme or artifice could even fall under more than one of these federal laws. What sets bank fraud apart is that it is only applicable to frauds against financial institutions.

Common Types of Bank Fraud

Within the U.S. Code bank fraud is distinguished from other frauds and scams, but this broad category of frauds can be broken down further. The common types of bank fraud involve accounting, checks, fraudulent documents, and other schemes.

• Fraudulent documents and loan applications: Documentation is imperative at financial institutions, particularly banks where every dime is accounted for by employees. Therefore, fraudulent documents showing a loan, withdrawal, or other transfer are necessary to hide missing funds.
• Accounting fraud: Fraudulent bookkeeping is one of the oldest tactics used to cover up bank fraud and similar schemes. A financial institution or loan applicant can misstate income, receivables, inflate the value of company assets, or show operations running at a profit – all in an effort to secure a loan or better financing.
• Money laundering: There is a separate federal statute that criminalizes most types of money laundering, but when acts to disguise the origin of funds involves banks and financial institutions, the crimes are simultaneously considered bank fraud. Many financial institutions are turning to the latest technology, including artificial intelligence and blockchain, to better monitor for money laundering schemes.
• Mobile fraud and deposits: A substantial portion of bank fraud is now committed via the applications and software available on any smartphone. Frauds may include manipulation of mobile remote deposit capture technology, in which checks can be deposited through a digital picture, or online identity theft by hacking the personal information stored on mobile apps.
• Payment card fraud: Debit and credit card fraud are rampant in the United States and are often addressed under a separate statute of the U.S. Code. However, when payment card, frequently referred to as debit card fraud, directly involves the financial institution backing the card and holding the connected accounts, federal investigators may look at charges under the bank fraud statute.

What are Examples of Federal Bank Fraud?

Actions that falsify or modify a check, which is then knowingly presented to a financial institution for payment or other financial windfall, fall under the federal bank fraud statute. These actions can include:

• Presenting a check to bank A that is cashed by the teller and the funds automatically withdrawn, and simultaneously removing the same funds from bank B before the check clears and the banks transfer the money. This is called check kiting and was a specific fraud that Congress wanted to criminalize when passing the bank fraud statute.
• Use of an offshore, ghost banking institution to defraud an entity federally insured by the government here in the U.S.

What Are the Federal Laws on Bank Fraud?

The federal bank fraud statute criminalizes any act or scheme that is intended to defraud a financial institution or unlawfully obtain a windfall of money, funds, securities, or other property of a financial institution. The language of this statute may first seem applicable to a narrow set of actions and schemes, but Section 1344 of the U.S. Code has been broadly applied since it was passed in 1984.

As technology increases the possible avenues and instances of bank fraud in the United States, more criminal cases are brought in federal district courts. Today, the bank fraud statute is applied to instances of forged and altered checks, credit card, and debit card fraud, diversion of funds, and manipulation or misuse of an automatic teller machine.

What Are the Elements of Federal Bank Fraud?

A federal prosecutor must prove several things to convict a defendant of bank fraud. The standard of proof in bank fraud cases, as in all federal criminal cases, is beyond a reasonable doubt. These elements a prosecutor must prove are found directly in the federal statute but still require some explanation.

Bank fraud is:

1. Knowingly executing or attempting to execute
2. A scheme or artifice that
3. Defrauds a financial institution or uses false pretenses or representations to obtain money or property from a financial institution.

What Is a Financial Institution in Bank Fraud?

Pertinent to the definition of bank fraud is the term “financial institution.” Of course, inclusive in the definition of this term are banks, but it also includes other financial institutions. A financial institution is any entity that conducts or facilitates financial and monetary transactions. Included as financial transactions are mortgages, other loans, investments, checking, currency exchange, and deposits.

This expansive definition of a financial institution encompasses most businesses operating in the financial sector, such as insurance companies, trust companies, credit unions, brokerage firms, and investment firms. The term financial institution is applicable to companies that serve both individual and corporate clients. However, bank fraud is limited to those credit unions and mortgage and lending businesses that are federally insured.

 

Start of Criminal Charges: Investigating Bank Fraud

Before a defendant is charged with bank fraud or any other federal criminal offense, the federal government needs to collect evidence of the crime. The government needs enough evidence to receive a federal indictment for bank fraud.

An indictment can only be brought, or formally called “returned,” by a federal grand jury. There are between 16 and 23 citizens that sit on a grand jury, and this group of individuals must decide that there is probable cause the defendant committed bank fraud. This determination is made based on the evidence presented by a federal prosecutor.

Wondering where this evidence to the grand jury originates from? It is collected during a federal investigation.

How Is Bank Fraud Uncovered?

Bank fraud is often detected through routine means. Financial institutions are regularly performing audits, system updates, and other maintenance that can uncover instances and indications of bank fraud. Discrepancies in reporting, entering incorrect information into systems and technology, and inconsistent processes are all red flags of bank fraud.

As well, technology plays a major role in detecting bank fraud. Today’s networks and systems are better able to monitor transactions and documentation. These systems are constantly looking for inconsistencies that could indicate schemes, scams, and other fraud. Of course, the use of technology is both uncovering more bank fraud and leading to more sophisticated frauds against financial institutions. As more information is stored on servers and networks, it becomes easier to manipulate, access without authorization and utilize in a fraud.

Who Investigates Bank Fraud?

Detecting and preventing bank fraud is a priority for several government agencies, not least of all the Federal Bureau of Investigations. However, an individual or financial institution shouldn’t be surprised if the government agency knocking on their door is the United States Secret Service. Here’s why.

Investigation by the U.S. Secret Service

• The U.S. Secret Service is most often associated with the protection of the President, Vice President, and their immediate families. This was not the original intention and mission of the U.S. Secret Service. Rather, the Secret Service was founded to uncover and investigate counterfeiting of the U.S. dollar. This is still part of the agency’s mission.

The responsibilities of the U.S. Secret Service have expanded over time. Today’s mission for the Secret Service includes the investigation into crimes against or involving financial institutions, computer and telecommunication fraud, identity fraud, and other financial frauds and white-collar crime.

• Financial Crimes Division of the U.S. Secret Service is tasked with criminal investigations into Financial Systems Crimes. Crimes in this category include bank fraud, forgery, counterfeiting currencies, computer fraud, automated payment fraud, and fraud of direct deposit and payments. Bank fraud comprises a significant portion of the investigative work carried out by the Secret Service’s Financial Crimes Division.

Other Federal Agencies Handling Investigation

• Internal Revenue Service: The Financial Institution Fraud Program of the Internal Revenue Service (IRS) is tasked with uncovering and investigating fraud against specific financial institutions. Among those institutions under its purview are savings and loans associations, credit unions, and stockbrokers. The IRS is in a unique position to uncover bank fraud because it is responsible for audits of several large institutions, small businesses, and individuals.
• Office of the Inspector General: This office, a division of the Department of Health and Human Services, might seem an unlikely agency to tackle federal bank fraud, but its Office of Investigations is responsible for investigating fraud within the Federal Deposit Insurance Corporation (FDIC). This includes the investigation into fraud, waste, mismanagement, and other scams taking place within the FDIC. The majority of these cases are investigations into mismanagement and fraud by FDIC employees.
• Federal Bureau of Investigations: Investigation of white-collar crimes is principally handled by the FBI. The FBI is the primary investigative agency under the Attorney General, according to Section 533 of the U.S. Code. This Section grants the Attorney General the power to appoint officials to detect crimes against the United States. Over time, criminal fraud and financial crimes have become a major focus of the FBI.

Repercussions of a Conviction for Bank Fraud

The criminal punishment for conviction of bank fraud is the most noticeable, newsworthy, and discussed repercussion of a federal conviction. But a prison sentence isn’t the only way conviction for bank fraud will impact your life.

Criminal Punishment for Bank Fraud

Under Section 1344 of the U.S. Code, the potential criminal punishment for bank fraud is steep. This applicable section of the code calls for a maximum prison sentence of 30 years and a criminal fine of up to $1 million dollars. When determining the length of imprisonment and criminal fine, a federal judge may consider:

• The total losses to a financial institution;
• The means used to perpetuate bank fraud and whether other federal offenses are implicated;
• Any remorse or indication of a better lifestyle by the defendant;
• The duration of the fraud and any expectation for future fraudulent behavior; and
• Harm to any victims or third-parties beyond the bank, saving and loan, or other financial institution.

Other Financial Implications of Bank Fraud

Most federal white-collar crimes, including bank fraud, are not only punishable by imprisonment and criminal fines, but convictions carry other financial implications. Immediately, a defendant should be concerned with the imposition of restitution to the victim of bank fraud.

A federal judge can require the defendant to repay the total amount of losses to the bank or other financial institution. This restitution is in addition to any criminal fine. The payment is also mandatory – imposed by a court order that cannot be overlooked or ignored after a conviction for bank fraud.

Reputational Harm from Bank Fraud

The reputation harm of a bank fraud conviction is long lasting. Conviction for any type of federal fraud carries a strong stigma of distrust and dishonesty. Following a bank fraud conviction, individuals will find it far more difficult to secure a personal or business loan, refinance the property, receive a mortgage, or complete complicated financial transactions.

Reputational harm can also extend to licenses and certifications. A conviction for bank fraud will lead to administrative hearings on any state or national license to trade in securities or commodities, handle financial advising, or work as a public accountant. Even licenses in the medical field can be impacted by a conviction for bank fraud.

Importance of Putting Together a Defense

Charges and convictions for bank fraud rely heavily on the specific facts of the case. Juries and judges want to understand the exact method and means for perpetrating a bank fraud, which means the prosecutor must collect a substantial amount of evidence and documentation during due diligence to be successful.

When you take early and purposeful steps to build a defense to accusations of bank fraud, you build your own narrative against the accusations and have an opportunity to collect evidence that opposes the prosecutor’s case.

Your biggest asset when building together a defense is a federal defense lawyer. Your defense lawyer does much more than merely appear in court. It is a lawyer’s job and responsibility to:

• Explain the implications and ramifications of bank fraud charges;
• Analyze the potential outcome for your case and help you understand the investigation or charges against you;
• Collect evidence helpful to your defense and the evidence held by an investigative agency, such as the Secret Service or FBI, or a federal prosecutor;
• Set the strategy for your defense to bank fraud;
• Review and advise on any settlement offers or plea bargains from the federal prosecutor;
• Know the case law for the federal district and appellate court where your case is being heard and likewise know how those decisions differ from outcomes in other parts of the United States; and
• Keep you informed of any developments in your case, whether positive or negative to your defense.

All of these important aspects of a defense to bank fraud are actioned by a federal defense lawyer before a criminal trial begins. These are also the actions that set the tone for that criminal trial and frequently dictate the tone and outcome of your case. It is for these reasons that putting together a defense to charges of bank fraud should happen early and forcefully.

Recent Cases of Bank Fraud in the U.S.

Reports and news articles on white-collar crime are frequent. You can read about phishing scams, credit card fraud, and identity theft on a daily basis, but coverage and conversations on bank fraud are far less frequent.

The lack of conversation on federal bank fraud isn’t due to a lack of fraudulent activity involving financial institutions; there is plenty to say. These crimes are investigated every day and through a variety of means. Also, technology has provided new tools to perpetrate, detect, and defend the crime of bank fraud. Here are some recent bank fraud cases across the U.S.

• In August 2018, President Trump’s lawyer, Michael Cohen, was investigated for $20 million in bank fraud related to his taxi medallion business. It was alleged that president Trump’s former lawyer received $20 million in loans to his tax businesses that were either fraudulent or undisclosed. After the investigation uncovered substantial evidence to back these allegations of federal bank fraud, Cohen plead guilty to the charges.
• Bank fraud is frequently perpetrated in conjunction with another federal offense, identity theft. Earlier in 2018, a Chicago man was convicted of both these charges in a case that involved the use of the dark web to steal identities and use them to defraud financial institutions for credit cards and other financial windfalls.

In total, the fraud amounted to $600,000 in losses, minimal compared to other financial frauds, but the federal judge still imposed a 12-year jail sentence and required the defendant to pay over $600,000 in restitution – showing the severity of criminal punishments imposed for bank fraud and other federal, white-collar crimes.

• Federal investigators charged an Oregon man with federal bank fraud in the amount of $900,000 after uncovering a yearlong fraud involving false and fraudulent checks. The defendant was accused of recruiting others to cash counterfeit and fraudulent checks across three states. Upon conviction for the charges, the judge imposed a threeyear sentence in federal prison.

What Should You Do If Accused of Federal Bank Fraud?

In Section 1344, the federal government specifies extensive consequences if you are convicted of bank fraud. The criminal punishments include a maximum of 30 years in federal prison and/or a fine of $1,000,000. These consequences are steep, and if you are accused of bank fraud, you need to take immediate and robust actions in your defense.

Where to Start When Accused of Bank Fraud?

Even before you are formally charged with bank fraud, you should be acting for your own defense. A federal investigation can quickly turn into an arrest and arraignment, and you need to be prepared in advance.

1. Cease any and all actions that could be construed or mistaken as bank fraud by a federal investigator or federal prosecutor in your state. Don’t initiate further transactions or arrange and accept transfers from a financial institution if there is any indication of impropriety or misrepresentation.
2. Don’t let federal investigators intimidate or inform your legal business. White-collar crimes have a tendency to infiltrate other aspects of an entity or business, but you don’t have any obligation to provide information, especially your confidential documents and proprietary information, without a warrant from law enforcement or investigators.
3. You have the right to remain silent, whether you are under investigation or under arrest. You don’t have to speak with federal investigators or law enforcement without a lawyer or representative present, and you don’t have to provide testimony without a subpoena.
4. Contact a bank fraud lawyer as soon as you learn of a federal investigation for bank fraud. Every accusation of bank fraud happens under unique circumstances, but only a bank fraud lawyer will have direct experience defending cases similar to yours.

How to Hire a Bank Fraud Defense Lawyer

Irrespective of the actions or circumstances that led to an investigation, charges, or federal trial for bank fraud, you have the right to a defense. This right shouldn’t be squandered.

A bank fraud defense lawyer will do more than speak for you in court. As your legal representative throughout the criminal justice process and procedures, a bank fraud lawyer will ensure your rights are respected and upheld, collect evidence that contradicts and builds doubt as to the federal government’s case, and provide an explanation of the law and criminal process, as is needed.