Bank and banking crimes are dealt with under a variety of federal criminal statutes. We will discuss some of the major ones here.
Embezzlement and Misapplication (18 U.S.C. §§656 and 657). These two statutes are nearly the same, except that Sect. 656 deals with banks and Sect. 657 with credit unions and savings and loan associations. Under Sect. 657, an officer or employee of the institution may not “knowingly and willfully embezzle and misapply monies and funds” of the institution. There must also be an intent to injure and defraud the institution. Embezzlement and misapplication are separate offenses: the difference is that for embezzlement, the defendant must first have lawful possession of the funds alleged to have been appropriated for his own use. The statute is limited to acts done within a person’s official capacity, unless he or she used his position to harm the bank.
Generally, to act with intent to defraud usually means to cheat, deceive, or mislead, for the purpose of causing a financial loss to someone else. The defendant must have knowledge of what he or she is doing, rather than being merely careless or reckless. However, since direct proof of fraud is often not always available, an intent may be discerned from the facts and circumstances surrounding the loss of money. “Misapplication” is intended to cover situations where bank examiners are deceived. Another statute (18 U.S.C. §371 (bank conspiracy)) is often used with the offense of misapplication. Some examples of misapplication can be the following: bad loans, dummy loans, brokered loans, bond swapping, check kiting, collusion with loan officers in approving loans, manipulation of lending limits, and compensating balances. The defense of “good faith” is often used as a defense to embezzlement or misapplication, as it tends to defeat an accusation of an intent to defraud.
False Entries (18 U.S.C. §1105 and §1106). These sections prohibit bank insiders from making false entries in the records of a federally insured banking institution with the intent to injure or defraud the bank. The false entry should be over a material matter, not an inconsequential one. Here again there needs to be an intent to injure or defraud; that is, it is a specific intent crime. Defenses to this crime include accurate reporting, the fact that the false entry may have been immaterial or de minimis, or the fact that the reporting may have been ambiguous.
False Financial Statements (18 U.S.C. §1014). This section prohibits someone from making a false statement to a federal insured banking institution for the purpose of obtaining a loan or other extension of credit. It is generally intended to apply to situations where loan applications are falsified or materially false. Under this section, a person may not knowingly make a false statement or report, or overvalue any land, property, or security, for the purpose of influencing the decisions of a banking institution. The representations may not be implied representations; they must be true or false on their face. U.S. v. Kurlemann, 736 F.3d 438 (6th Cir. 2013). A defendant can generally prevail if he can show that what he or she said was the “literal truth.” U.S. v. Sarno, 73 F.3d 1470 (9th Cir. 1995). Normally, the government need not demonstrate that the insured institution actually relied on the fraud (note how this seems to be a lower standard than the civil standard of “reliance” for nondischargeability actions in bankruptcy court).
Fraud. (18 U.S.C. §1344). Bank fraud is knowingly executing or attempting to execute a scheme to defraud a financial institution. There is a split of authority in the federal circuits as to the details of the “knowledge” requirement. The Eleventh and Fifth Circuits require specific intent; the Second Circuit requires proof of intent to harm, but permits intent to be inferred; the Fourth and Seventh Circuits hold that a scheme or willful conduct is sufficient to show intent to defraud. The victim of the alleged fraud must be a federally insured institution. Good faith is also a defense. Section 1344 covers a wide variety of situations where fraud can be found: ATM (teller machine) misuse, false representations to banks, forgery, stolen checks, credit card fraud, mortgage fraud, and false statements to induce check cashing have all been found to fall under Section 1344.
Bribery (18 U.S.C. §215). A person may not give or promise anything of value to an officer of a financial institution with the intent to corruptly influence or reward that person. Similarly, under Section 215(a)(2), a banker cannot solicit or demand anything of value with the intent of being influenced in his capacity in the bank.
Read More: Bankruptcy Crimes And Defenses