Federal Bank Fraud Under 18 U.S.C. 1344: What You Face.

Section 1344 contains two alternative grounds for bank fraud liability. The first applies if the defendant executed or attempted to execute a scheme or artifice to defraud a financial institution, or to obtain, by means of false or fraudulent pretenses, representations, or promises, or for consideration, money or property owned by a federally insured institution. The second applies if the defendant executed or attempted to execute a scheme to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.

Section 1344 expressly criminalizes attempted execution of a bank fraud scheme: “Whoever knowingly executes, or attempts to execute, a scheme . . ..” 18 U.S.C. 1344. . .. As a result, bank fraud does not require the scheme to succeed. In such cases, the prosecutor bears the additional burden of establishing the defendant’s intent to perpetrate a fraud against a financial institution.

While there is nothing in Section 1344 to suggest that “losses” cannot be immaterial, prosecutors will not pursue bank fraud cases that involve immaterial losses. If losses are immaterial, the defendant’s conduct may not constitute “execution” or an “attempt to execute” bank fraud. For this reason, determining loss calculation is a central issue in bank fraud cases.

What is the Maximum Sentence for Bank Fraud?

Bank fraud carries a maximum statutory sentence of thirty years’ imprisonment and a fine of $1,000,000 for each violation of Section 1344.

How Long Do Federal Authorities Have to File Charges for Bank Fraud?

Congress enacted the federal bank fraud statute in 1984 and amended its penalty section in 1989 and again in 1990. Congress amended 18 U.S.C. 3293 to provide for a ten-year limitations period for bank fraud. This is twice as long as the ordinary federal criminal limitations period of five years. Failure to raise this defense can constitute a waiver of the limitations defense.

What must the government prove to convict someone of bank fraud?

What Does Section 1344(1) Criminalize?

Section 1344(1) expressly criminalizes knowingly executing schemes to “defraud a financial institution.” As a result, prosecution under Section 1344(1) requires the government to prove the defendant’s “intent to defraud the financial institution.” While, as discussed above, this intent may be proven by showing that the defendant intended to “knowingly execute” his scheme to defraud the financial institution, intent to defraud is an indispensable element of bank fraud.

What Does Section 1344(2) Criminalize?

Section 1344(2) criminalizes “knowingly executing” schemes to obtain by means of false or fraudulent representations, pretenses, or promises “any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution.” A U.S. Supreme Court decision in 2014 reaffirmed the principle that Section 1344(2) does not require intent to defraud a bank, nor does it require that the bank’s property be obtained through a loss to the bank. Rather, the issue in cases involving Section 1344(2) is whether the accused intended to obtain money, property, or other assets from the bank.

As a result, even if the fraud was unsuccessful, the government may still prosecute under Section 1344(2). The defendant’s “intent to execute” fraudulent representations with the intent to obtain the bank’s property may be enough to warrant prosecution. However, the prosecution cannot prevail if the defendant lacked the required intent to defraud or obtain assets from the financial institution.

What Does Loughrin Require to Prove Bank Fraud?

In Loughrin, the U.S. Supreme Court found the defendant was guilty under Section 1344(2), even though he had no intent to defraud the bank. However, the court held that Section 1344(2) still required “a genuine causal connection” between the deceptive representations and the bank’s property.

Ordinary seller fraud does not become bank fraud simply because payment uses checks drawn on bank accounts. The fraudulent misrepresentations need not be made to a representative of the financial institution or directly to the bank; it is enough that the false statement is the means by which the defendant obtains money or property owned by, or under the custody or control of, the financial institution. As a result, even in cases of unsuccessful frauds and attempted bank fraud, there must be some evidence of the alleged unlawful representations of the defendant and, in some cases, evidence of direct or indirect contact between the defendant and the bank’s representative or agent.

The evidence to sustain a bank fraud conviction must also clearly demonstrate that the defendant intended to perpetrate a bank fraud. While proving fraudulent intent is generally challenging, an investigation will often reveal a certain level of financial distress or a clear motive for committing fraud, particularly in cases where financial records are available.

Can a Defendant be Convicted of Attempting to Commit Bank Fraud?

Section 1344 contains express criminal liability for attempting to commit bank fraud. For example, submitting a knowingly false loan application may constitute an attempt to commit bank fraud before a decision has been made on the application and the applicant may not yet be facing any legal or financial jeopardy as a result of the false representations. However, simply intending to commit a crime does not constitute an attempt. The execution of an “overt act” is required to execute the crime of attempted bank fraud.

Execution of a scheme can also be established by circumstantial evidence, including evidence of the defendant’s communications, use of computers, and other electronic devices and evidence of any alleged fraudulent representations.

How Can a Defendant Fight Against a Bank Fraud Charge?

Does the bank have to lose money for bank fraud charges?

Does a Financial Institution Need to Suffer an Actual Loss for a Bank Fraud Conviction?

No, a financial institution need not suffer an actual loss to be charged with bank fraud. A financial institution may not have suffered an actual loss, but may have suffered a loss of control over its funds. As the U.S. Supreme Court explained, “There is no requirement that a financial institution incur an actual loss in order for bank fraud to occur, or for a bank to suffer a loss.” Shaw v. United States, 580 U.S. 63 (2016). The court explained that the bank’s funds were misappropriated by unlawful means.

Does repaying a fraudulently obtained loan eliminate liability?

Repaying a loan does not necessarily eliminate liability for criminal bank fraud. As the defendant in Shaw did, repaying a fraudulently obtained loan can be relevant in defense, especially in order to argue that the financial institution did not suffer a financial loss. Nevertheless, it can either be argued that the bank continues to be at risk of a financial loss, but repayment of the loan may affect charging negotiations and sentencing for bank fraud offenses.

What does the decision of Shaw imply for Sections 1344(1) and 1344(2)?

In Shaw, the U.S. Supreme Court held that a scheme to misappropriate a bank’s funds from a customer’s account is a scheme to defraud the bank and therefore falls within the scope of Section 1344(1). The court noted that the bank “has a rightful and ownership interest in the funds, even if not all of its property is held in the names of the depositors.”

The U.S. Supreme Court recognized that the banks’ ownership interest would only be extinguished upon the unlawful transfer of the property to the customer or the defendant. Shaw also rejected the need to prove a defendant intends to make a financial loss. Instead, it held that the government just needs to prove that “a person takes money or property by means of false pretenses or representations with knowledge of their falsity.” Shaw, 580 U.S. at 67.

As a result, bank fraud under Section 1344(2) may result even if the financial institution does not incur any loss, provided the defendant’s representations were false. The bank’s loss may be borne entirely by the victim or by third parties and this would still allow for bank fraud charges against the accused.

As a result, the U.S. Supreme Court opinion in Shaw reaffirmed the criminal nature of bank fraud for all financial institutions, regardless of the actual financial loss suffered. In Shaw, the defendant’s conduct was enough to meet the requirements to satisfy the essential elements for a bank fraud conviction.

Can a Good-Faith Mistake Defeat a Federal Bank Fraud Charge?

The government does not need to prove a defendant knew that his or her actions were illegal under Section 1344. To hold otherwise would allow many defendants to claim ignorance of the law. However, a genuine factual mistake made by a defendant may negate the criminal knowledge required to convict him or her. For example, if the defendant believed that the representations he or she made were true, then the government has not met its burden of proving “knowledge” or “intent to defraud.”

Similarly, relying in good faith on the information provided to a defendant by an accountant or lawyer may undermine the government’s attempt to prove that he or she had “intent to defraud” or “knowingly” attempted to commit bank fraud. If the defendant genuinely believed that a certain representation he or she made to a bank was true based on the advice he or she received from his or her accountant, then a good-faith mistake might be a complete defense.

Does the Alleged Misrepresentation Need to Be Material?

Although Section 1344 never expressly mentions “materiality,” it remains a necessary element in order to secure a conviction for bank fraud. A misrepresentation is “material” if it is “capable of influencing” the financial institution’s action. If, in other words, the false statement is minor and does not significantly impact the financial institution’s decision or risk assessment, then it is immaterial. As we mentioned above, immaterialities alone are not enough to establish bank fraud under Section 1344.

What if the Financial Institution Did Not Actually Rely on the False Misrepresentation?

The fact that the financial institution did not actually rely on the false statement made by the defendant does not necessarily shield the defendant from criminal liability. However, the government must still show that the statement had the potential to influence the bank’s or financial institution’s decision to either approve a loan or grant other funds, property, or securities.

Do Immaterial Inaccuracies Support a Bank Fraud Charge?

Immaterial inaccuracies do not satisfy federal bank fraud charges. If the misrepresentations are not material, they are insufficient to establish federal bank fraud under Section 1344. This underscores the importance of proving a material misrepresentation that is capable of influencing the bank’s or financial institution’s decision.

Todd Spodek is the managing partner of Spodek Law Group, a second generation criminal defense firm that has been practicing since 1976.

What counts as a “financial institution” under the federal bank fraud statute?

Section 1344 incorporates the definition of “financial institution” provided in Section 20 of Title 18. “Financial institution” is a broad term encompassing “insured banks, insured credit unions, and other institutions of savings, as defined in 20 U.S.C. 123(a) or in 17 C.F.R. 315, and the institutions of the Federal Reserve System.” 18 U.S.C. 20.

Although Section 1344 is commonly associated with fraud involving FDIC-insured banks, this particular type of institution represents only a fraction of the institutions covered under Section 1344. While, by no means is it an exhaustive list, other types of financial institutions included under Section 20 include:

Insured Credit Unions, Federal Reserve Institutions, Savings and Loan Institutions, and Mortgage Lenders

As long as the bank is federally insured or falls under the scope of any other statutory definition of a financial institution, then it falls under Section 1344. For instance, a company that labels itself as a mortgage lender is considered a financial institution under 18 U.S.C. 20, provided the company provides a mortgage loan. At the same time, it is not sufficient to call oneself a “bank” or “financial institution” if no evidence of lending is available to show that it qualifies as one under Section 1344.

Farm Credit System Institutions and Foreign Banks

Certain companies that operate in the agricultural sector, as well as foreign banks, also fall under Section 20 if they meet certain conditions. These include “a System institution of the Farm Credit System, as defined in section 5.35(3) of the Farm Credit Act of 1971,” “a branch or agency of a foreign bank (as such terms are defined in paragraphs (1) and (3) of section 1(b) of the International Banking Act of 1978),” or “institutions, associations, companies, or operations of any foreign bank, foreign insurance company, or other entity.” 18 U.S.C. 20.

By including both domestic and foreign banks, the bank fraud statute continues to expand its reach to target fraud involving a number of different types of institutions.

How do the federal sentencing guidelines calculate a bank fraud sentence?

In United States v. Booker (2005), the U.S. Supreme Court held that the federal sentencing guidelines are advisory in nature. As a result, federal district judges are no longer bound by a strict application of the federal sentencing guidelines. While judges must still consider the guidelines and take all relevant circumstances into account when determining a defendant’s sentence, they are not required to abide by the guidelines’ suggested range in all cases.

For cases involving allegations of bank fraud, United States Sentencing Guidelines Section 2B1.1 ordinarily governs calculations. Under this section, bank fraud has a base offense level of seven. Of course, it is possible for additional factors to lead to a different base offense level. Nonetheless, Section 2B1.1 establishes a base level and provides for adjustments based on the guidelines’ “guideline loss.”

The amount of guideline loss calculation can substantially increase sentencing ranges under Section 2B1.1’s table. For example, if the guideline loss is between $9,500 and $25,000, the base offense level increases by 6 levels (to 13 total). For a guideline loss of $5,000,000, the base offense level increases by 18 levels. Guideline loss accounts for both actual loss and intended loss, and it selects the one that is greater: “In determining the amount of loss . .. use the greater of (1) the actual loss . .. or (2) the intended loss.” U.S.S.G. §2B1.1, Application Note 3(B).

What counts as a loss for the purposes of bank fraud sentencing?

Actual loss is the total pecuniary loss to the victim, taking into account anything returned or gained. Intended loss is defined as “the pecuniary harm that the offense would have caused if it had been successful.” U.S.S.G. §2B1.1, Application Note 3(B)(ii).

As the bank fraud statute allows for the prosecution of failed schemes, the loss amount involved in the attempted scheme does not relieve the defendant of criminal liability; however, it can significantly affect the defendant’s sentence. This means that intended loss is always assessed, but actual loss is only assessed where the fraud has been executed.

U.S.S.G. §2B1.1 generally credits the value returned by a defendant to the victims before detection of the fraud against the actual loss calculation. However, this does not impact the intended loss calculation, which is not influenced by any repayments the defendant makes. A defendant may also obtain an offense-level reduction of 2 or 3 levels by accepting responsibility under U.S.S.G. §3E1.1. This can happen through entering a guilty plea, making a timely plea offer to the court, or admitting to a particular role. This is also relevant for sentencers, as it could bring down the sentencing range of the defendant.

What fines and penalties follow a conviction for federal bank fraud?

Under Section 1344, the statutory maximum fine is $1,000,000, but “the court may impose a fine of up to twice the gross gain or loss resulting from the offense” in certain circumstances. 18 U.S.C. 3571(d)(1). As a result, a defendant convicted of bank fraud may face substantial fines.

Also, the Mandatory Victim Restitution Act (MVRA), 18 U.S.C. §3663A, requires the court to order restitution in federal fraud cases where the offense results in an identifiable pecuniary loss to the victim. Along with restitution, the government may also pursue forfeiture of any proceeds that the defendant acquired from committing the fraud. For example, if a defendant withdrew $50,000 from a bank fraudulently and kept the $50,000 for personal use, it is subject to forfeiture.

Additionally, bank fraud is a Class B felony under 18 U.S.C. §3559(a)(2). It is prohibited to sentence a defendant to probation for a Class B felony. Section 1101(a)(43)(M)(i) of the Immigration and Nationality Act lists fraud offenses resulting in pecuniary losses exceeding $10,000 as aggravated felonies that could make a foreign national inadmissible to the United States. Finally, while sentencing for federal offenses can involve various punishments, courts are generally able to impose both imprisonment and criminal fines.

How does bank fraud compare to other fraud offenses?

Bank fraud is an intentional unlawful offense that is a criminal offense. It requires fraud against a financial institution, which is different from mortgage fraud, which is a type of property fraud. Bank fraud is a federal offense, but wire fraud can be either federal or state. Mail fraud is also similar to bank fraud, but it does not require a financial institution to be the victim.

The federal bank fraud statute only includes federal financial institutions that are covered under 18 U.S.C. §20(a). This means that fraud against non-federally insured institutions can be a state crime. State banks do not receive federal insurance and are therefore not covered under 18 U.S.C. §20(a) unless they meet other specific criteria.

When can someone face criminal bank fraud charges for unsuccessful frauds?

One of the key features of the federal bank fraud statute is its broad scope. Because it is possible to criminalize not only attempted schemes but also the actual execution of fraud, even if that execution does not lead to actual financial loss, bank fraud prosecution does not require fraud to be successfully executed. As discussed earlier, the statute also applies to fraudulent attempts to obtain money and property owned, custody, or control of any federally insured bank, whether the fraud succeeds or not.

Talk to Spodek Law Group

Every case turns on its own facts, and general information is no substitute for advice about yours. Todd Spodek, managing partner of Spodek Law Group, and the firm's attorneys defend federal criminal and white collar matters nationwide. Reach the firm at 212-300-5196.