White collar crimes are serious offenses in South Carolina (SC) and throughout the United States (US). A white collar bank fraud or mortgage fraud criminal conviction can have life altering consequences for those defendants convicted of the same. If a client is under investigation for, or has been indicted or otherwise charged with, the white collar crime of bank fraud or mortgage fraud, a practitioner should be familiar with the basics of bank fraud and mortgage fraud jurisprudence.

The Federal Bank Fraud Statute, 18 U.S.C. 1344, generally provides that whoever knowingly executes, or attempts to execute, a scheme or artifice to defraud a financial institution or 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, shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

While the two subsections of 18 U.S.C. 1344 proscribe slightly different conduct, a person may commit bank fraud by violating either subsection. Courts have ruled that the two subsections of 18 U.S.C. 1344 are in the disjunctive, so that an individual may commit bank fraud under the first provision by defrauding a financial institution without making the false or fraudulent representations required by the second provision.

The criminal law elements of a violation of Section One of the Federal Bank Fraud Statute which must be contained in an indictment and must be proved by the government beyond a reasonable doubt are as follows:

(1) The defendant knowingly executed or attempted to execute a scheme or artifice to defraud;
(2) The defendant did defraud or attempt to defraud the financial institution;
(3) The defendant used a material misrepresentation or concealment of a material fact as part of the scheme or attempted scheme;
(4) The financial institution was insured or chartered by the federal government.

Federal courts have reversed bank fraud convictions for failure of the indictment to allege the element of a material misrepresentation of fact.

The criminal law elements of a bank fraud violation of Section Two of Federal Bank Fraud Statute which must be contained in an indictment and must be proved by the government beyond a reasonable doubt are as follows:

(1) The defendant knowingly executed or attempted to execute a scheme or artifice to obtain the money (or other property) owned by, or under the custody or control of, a financial institution;
(2) The defendant used materially false or fraudulent pretenses, representations, or promises in the execution or attempted execution of the scheme;
(3) The financial institution was insured or chartered by the federal government.

The Supreme Court has defined a matter as “material” if a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question. The Second Circuit Court of Appeals has defined a material misrepresentation as one capable of influencing a bank’s actions. While the issue of materiality used to be considered a legal question, federal courts have now ruled that materiality is a question which must be submitted to the jury and not decided by the judge.

With regard to the Federal Bank Fraud Statute, a “financial institution” includes an FDIC insured depository bank institution, a federally insured credit union, a federal home loan bank or a member, a Farm Credit Bank, a small business investment company, and a Federal Reserve bank.

The government is not required to prove an actual loss to the financial institution so long as there is evidence that the defendant intended to expose the institution to such a loss.

The term “scheme or artifice to defraud” includes a scheme or artifice to deprive another of the intangible right of honest services, and the phrase has been broadly construed by the courts. It generally requires that the defendant act with the specific intent to deceive or cheat a bank for the purpose of getting financial gain for one’s self or causing financial loss to the bank. The term ’scheme to defraud,’ however, is not capable of precise definition. Fraud instead is measured in a particular case by determining whether the scheme demonstrated a departure from fundamental honesty, moral uprightness, or fair play and candid dealings in the general life of the community.”). Depending on how a bank fraud is charged in an indictment, a scheme involving checks may or may not constitute a bank fraud. United States v. Brandon, 298 F.3d 307 (4th Cir. 2002) (stolen and forged checks constituted bank fraud); United States v. Celesia, 945 F.2d 756 (4th Cir. 1991) (check kiting scheme constituted bank fraud); United States v. Orr, 932 F.2d 330 (4th. Cir. 1991) (check cashed on insufficient funds account did not constitute bank fraud).

An attempt or conspiracy to commit bank fraud is subject to the same criminal penalties as the substantive bank fraud. 18 U.S.C. 1349 provides as follows: Any person who attempts or conspires to commit any offense under this chapter shall be subject to the same penalties as those prescribed for the offense, the commission of which was the object of the attempt or conspiracy.

The statute of limitations for a federal bank fraud case is 10 years.

There are a number of other federal statutes prohibiting fraud against banks or other similar financial institutions, including, but not necessarily limited to, the following: 18 U.S.C. 1004 Certification of checks; 18 U.S.C. 1005 Bank entries, reports and transactions; 18 U.S.C. 1006 Federal credit institution entries, reports and transactions; 18 U.S.C. 1007 Federal Deposit Insurance Corporation transactions; 18 U.S.C. 1013 Farm loan bonds and credit bank debentures; 18 U.S.C. 1014 Loan and credit applications, renewals, discounts and crop insurance; 18 U.S.C. 1029 Fraud and related activity in connection with access devices; and, 18 U.S.C. 1032 Concealment of assets from conservator, receiver, or liquidating agent of financial institution.

Sentencing regarding federal bank fraud violations is generally governed by the statutory factors set forth in 18 U.S.C. 3553(a), and Section 2B1.1 of the United States Sentencing Guidelines, which are now considered advisory and not mandatory. The statutory factors a federal court must consider in imposing a sentence are the nature and circumstances of the offense and the history and characteristics of the defendant, the need for the sentence imposed to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense, the need to afford adequate deterrence to criminal conduct, the need to protect the public from further crimes of the defendant, the need to provide the defendant with needed educational or vocational training, medical care, or other correctional treatment in the most effective manner, the kinds of sentences available, the sentence recommended by the Sentencing Guidelines and any applicable guidelines or policy statement therein, the need to avoid sentence disparities, and the need for restitution. Generally, Section 2B1.1 of the Sentencing Guidelines, bank fraud sentences are tied to the amount of money lost, or the intended loss, pursuant to the bank fraud scheme. Usually, the more money which is lost in a bank fraud scheme, the longer the sentence of imprisonment.

There is a South Carolina bank fraud statute which parallels the federal statute. South Carolina prohibits bank fraud, which is a Class E felony with a penalty of up to ten years imprisonment and/or up to a $10,000 fine. S.C. Code Section 34-3-110 provides as follows: (A) A person knowingly may not execute, or attempt to execute, a scheme or artifice to: (1) defraud a federally chartered or insured financial institution; or (2) obtain monies, funds, credits, assets, securities, or other property owned by or under the custody or control of a federally chartered or insured financial institution by means of false or fraudulent pretenses, representations, or promises. (B) A person who violates the provisions of subsection (A) is guilty of a felony and, upon conviction, must be fined not more than ten thousand dollars or imprisoned for not more than five years, or both.

The criminal law elements of a bank fraud in violation of South Carolina Code Section 34-3-110 which must be contained in an indictment and must be proved by the government beyond a reasonable doubt are as follows: The defendant knowingly executes or attempt to execute a scheme or artifice to defraud; or to obtain by false or fraudulent pretenses or promises assets or other property owned by or under the control of a federally chartered or insured financial institution.

A white collar criminal defense attorney must have an understanding of the basics of the federal and South Carolina bank fraud statutes and case law precedents in order to adequately represent clients who have been charged with bank fraud violations.

© 2010 Joseph P. Griffith, Jr.

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