The Ultimate Guide to the Federal Bank Fraud Statute

The federal bank fraud statute, 18 U.S.C. Section 1344, is one of the shortest statutes in the U.S. Code. It is also one of the most dangerous. The federal bank fraud statute is extremely broad in scope, and it imposes penalties of up to a $1 million fine and 30 years of federal imprisonment.

As a result, when facing a federal investigation or federal charges for bank fraud, it is absolutely imperative to have a clear and comprehensive understanding of the law and its limitations. While federal prosecutors can successfully pursue bank fraud charges under a wide variety of circumstances, there are also several ways to successfully defend against a federal bank fraud prosecution. In this Ultimate Guide to the Federal Bank Fraud Statute, our federal white-collar defense lawyers explain what prosecutors need to prove, what challenges they face, and what defenses targets and defendants may have available.

The Federal Bank Fraud Statute (18 U.S.C. Section 1344): An Overview

The federal bank fraud statute is deceptively short. Codified at 18 U.S.C. Section 1344, it states, in full:

“Whoever knowingly executes, or attempts to execute, a scheme or artifice—(1) to defraud a financial institution; or (2) 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.”

One of the first things to know about the federal bank fraud statute is that while it doesn’t technically cover fraud perpetrated against all financial institutions, as a practical matter, committing fraud against any bank is likely to lead to prosecution under Section 1344. This is because, as the U.S. Department of Justice (DOJ) explains, the statute applies to all financial institutions that are either “chartered under the laws of the United States or insured by the Federal Deposit Insurance Corporation . . . or the National Credit Union Administration.”

Underscoring the federal bank fraud statute’s broad scope, the DOJ also notes that, “[p]rosecutions under Section 1344 may be analogized to the traditional use of the mail fraud statute to prosecute fraudulent conduct not otherwise the subject of specific criminal statutes.” In other words, the federal bank fraud statute is effectively a “catch-all” statute that allows the DOJ to pursue criminal charges in cases in which the more-specific prohibitions in the U.S. Code do not apply. With that said, the DOJ also views Section 1344 as “a supplement to, rather than a substitute for, other criminal provisions relating to fraud perpetrated on insured financial institutions,” and it notes that a prosecutor’s “choice of offenses charged should be based on the facts of the individual case.”

In other words, when facing federal bank fraud charges under Section 1344, targets and defendants will often need to defend against other federal charges as well. Depending on the circumstances, these may include charges for counterfeiting, embezzlement, theft, computer or internet fraud, and various other fraud-related offenses.

With this background in mind, we can now look at the specific “elements” of bank fraud under 18 U.S.C. Section 1344. To secure a bank fraud conviction, federal prosecutors must be able to prove each individual element of the offense beyond a reasonable doubt. Under Section 1344, the elements of federal bank fraud are:

1. “Knowingly Execute”

While many federal criminal statutes require prosecutors to prove the defendant’s intent, the federal bank fraud statute only requires proof that the defendant acted “knowingly.” This presents a much lower burden—although it is still a subjective element that requires an understanding of the defendant’s state of mind at the time of the alleged offense.

Like other federal criminal statutes, the federal bank fraud statute does not require knowledge that the defendant’s conduct is illegal. Rather, the knowledge element focuses on whether the defendant is aware of the conduct in which he or she is engaging.

2. “Scheme or Artifice”

The federal bank fraud statute also requires evidence that the defendant engaged in a “scheme or artifice” to defraud. As the DOJ notes, “the courts have traditionally been reluctant to offer definitions of either term except in the broadest and most general terms.” Thus, both of these terms allow for prosecution under a wide variety of scenarios, with almost any fraudulent act being sufficient to qualify as a “scheme or artifice” under the law.

What is clear, however, is that some sort of affirmative act is required. Plotting or planning to commit bank fraud is not a violation of Section 1344 (although it may justify a federal conspiracy charge under 18 U.S.C. Section 1349). Likewise, while the federal bank fraud statute requires a “successful” scheme or artifice to justify a conviction, attempting to commit bank fraud is also a federal crime under Section 1349.

3. “To Defraud a Financial Institution” or “Obtain . . . Property . . . By Means of False or Fraudulent Pretenses”

The third and final element of a federal bank fraud charge is disjunctive—prosecutors must be able to prove that the defendant engaged in a scheme or artifice to either: (i) “to defraud a financial institution;” or, (ii) to “obtain 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.”

The federal courts have defined “to defraud” as “wrongdoing one in his property rights by dishonest methods or schemes . . . [and] usually signify[ing] the deprivation of something of value by trick, chicane, or overreaching.” This, arguably, doesn’t provide much clarity, but the overarching concept is that “to defraud” under Section 1344 involves obtaining third-party money or other property without permission.

Prosecutors’ alternative for proving bank fraud—”false or fraudulent pretenses”—is a narrower concept of fraud, and is arguably repetitive as a subset of “to defraud.” As the DOJ writes, “[f]raud is defined by nontechnical standards and is not to be restricted by any common-law definition of false pretenses.” In other words, using false or fraudulent pretenses to obtain bank property or funds held in trust is simply a means of defrauding a financial institution.

Thus, while the final element of a federal bank fraud charge is disjunctive, the distinction between “defrauding” and using “false or fraudulent pretenses” is one without a difference in the majority of cases. As a practical matter, DOJ prosecutors will simply pursue charges under the entirety of Section 1344, and defendants will need to defend against whatever allegations prosecutors put forth.

Examples of Acts that Can Be Prosecuted as Bank Fraud Under 18 U.S.C. Section 1344

Given the breadth of the federal bank fraud statute, it can be difficult to discern what types of fraudulent conduct may lead to prosecution under 18 U.S.C. Section 1344. So, what constitutes bank fraud?

While there are numerous examples, some of the most common types of allegations in modern bank fraud cases include:

• Hacking into companies’ and banks’ servers and networks
• Obtaining unauthorized access to customers’ bank accounts
• Using “inside” information to embezzle funds from a financial institution
• Check fraud and credit card fraud
• Identity theft involving unauthorized access to customer accounts or employee credentials
• Mortgage or other loan fraud involving falsified documents

But, again, these are just examples. The DOJ’s prosecutors can pursue bank fraud charges under an extraordinarily broad range of circumstances, and it is not uncommon for targets and defendants to face prosecution under Section 1344 in connection with financial crimes and other white-collar offenses that only tangentially involve funds held by banks or other financial institutions.

Defenses to Federal Bank Fraud Charges Under 18 U.S.C. Section 1344

As we noted above, while the federal bank fraud statute is very broad, this breadth also opens up the possibility of asserting a variety of defenses to charges under 18 U.S.C. Section 1344. By way of example, some potential defenses to federal bank fraud charges under the statute include:

• Challenging the DOJ’s evidence of knowledge (i.e., you did not knowingly commit bank fraud)
• Challenging the DOJ’s evidence of a scheme or artifice (i.e., you did not go forward with committing bank fraud—although this defense requires care to avoid exposure to conspiracy or attempt charges)
• Challenging the DOJ’s evidence of actual fraud or false pretenses (i.e., you did not submit false information to the financial institution)
• Seeking to keep the government’s evidence out of court based on constitutional violations (i.e., an unconstitutional search or seizure, or the improper withholding of evidence that is unfavorable to the government’s case)

Speak with a Federal White-Collar Defense Lawyer in Confidence

While there are several potential defenses to federal bank fraud charges, choosing the right defenses and asserting them successfully requires a deep understanding of the law and the government’s investigative and prosecutorial tactics. If you need to defend against federal allegations of bank fraud, we encourage you to call 888-680-1745 or contact us online to arrange a free and confidential consultation.