Court’s Strict Interpretation of Bank Fraud Law May Rein In Prosecutors

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A recent interpretation of the federal bank fraud statute by the United States Court of Appeals for the Second Circuit may prove to be a useful check to overreaching by federal prosecutors, who have tended to use that statute in the past as a catch-all law enforcement tool.

In United States v. Nkansah, the Court reviewed the conviction of a defendant for bank fraud and other crimes arising from a scheme in which the defendant and others stole identification information and used that information to file fraudulent tax returns from which they obtained tax refunds. The depositing of the refund checks involved forgery of endorsements and/or the use of false identification.

On appeal, the defendant challenged his bank fraud conviction on the ground that the government had failed to carry its burden of proof that he intended to victimize the banks, as opposed to the U.S. Treasury that issued the refund checks. Defendant argued that no such evidence of intent to defraud a bank was presented, nor did the government prove that the banks themselves actually lost any money.

The court agreed. In its opinion reversing the bank fraud conviction, the appeals court noted that “the bank fraud statute is not an open-ended, catch-all statute encompassing every fraud involving a transaction with a financial institution” but rather “a specific intent crime requiring proof of an intent to victimize a bank by fraud.” For this reason, the court specifically held that “[t]he government had to prove beyond a reasonable doubt that appellant intended to expose the banks to losses,” and noted that, if that intent were proved, there was no need for proof of actual or even possible loss.

The court noted that the evidence upon which the government relied – conversations among the participants about avoiding detection by the banks – was not sufficient to satisfy this required element of proof. The court acknowledged that, in some cases, the fact that a bank may suffer a loss based on the negotiation of a check with a forged endorsement permits an inference of intent. But, in this case, given that the checks at issue were genuine Treasury checks, the actual exposure of a bank to losses is “unclear, remote, or non-existent” because the banks could be deemed to be holders in due course of the checks, with the risk of loss borne entirely by the Treasury. Under such circumstances, the permissible inference urged by the government was far from sufficient to constitute proof beyond a reasonable doubt of the defendant’s intent.

The Second Circuit’s holding in this case is significant because of federal prosecutors’ frequent use of bank fraud charges when banks were part of the transactions included in the allegedly wrongful conduct but were not the intended victims of that conduct. Prosecutors like the bank fraud statute because it carries a hefty maximum statutory sentence of 30 years imprisonment. Bank fraud can also form the predicate (as it did in Nkansah) for other charges such as aggravated identity theft – a crime for which probation is prohibited and for which a defendant must receive a consecutive sentence to the punishment he receives for conviction of any other offense. By holding prosecutors to the strict requirements of the bank fraud statute, the Second Circuit may limit the ability of federal law enforcement to use that statute as leverage in its prosecutions.

 

Topics:  Bank Fraud, Burden of Proof

Published In: Criminal Law Updates, Finance & Banking Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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