Bank fraud is a criminal act that occurs when a person uses illegal means to receive money or assets from a bank or other financial institution. Bank fraud is distinguished from bank robbery by the fact that the perpetrator keeps the crime secret, in the hope that no one notices until he has gotten away. The term bank fraud also refers to attempts by a person to obtain money from a bank’s depositors by falsely pretending to be a bank or financial institution. To explore this concept, consider the following bank fraud definition.
Definition of Bank Fraud
- The act of using illegal means to obtain money or other assets held by a financial institution.
- The act of obtaining money from people by posing as a financial institution.
1300-1350 Middle English fraude
What is Bank Fraud
The criminal offense of bank fraud is deliberately engaging in a secret scheme or deception intended to defraud a bank or financial institution, to obtain money or property owned by the bank or financial institution. Bank fraud is considered to be a white collar crime. In the United States, a criminal charge of bank fraud generally applies when an individual knowingly executes, or attempts to execute, at act (1) in order to defraud a financial institution, or (2) to receive money, assets, credits, securities, or property from a bank or financial institution using false information, pretenses, or insincere promises.
Types of Bank Fraud
There are dozens of ways in which an individual can commit bank fraud. Some of these schemes are more complex, and affect more people or institutions, garnering harsher penalties than others do. Common types of bank fraud include:
- Bank Impersonation – one or more individuals act as a financial institution, often by setting up fake companies, or creating websites, in order to lure people into depositing funds.
- Stolen Checks – fraudsters may obtain jobs that provide access to mail, such as the post office, mailbox stores, a tax authority, or corporate payroll company. After stealing checks, they open a bank account using an assumed name, and deposit the checks.
- Forgery – forgery occurs when a person alters a check by changing the name or some other information on the face. Altering the amount of the check, such as adding a zero to the end of a number, can turn a $20 check into a $200 check, putting more cash into the forger’s pocket. Forging a person’s signature in order to cash or deposit a check also falls under this category.
- Fraudulent loans – an individual who takes out a loan, knowing that he will immediately file bankruptcy, has committed bank fraud. The same is true if the borrow uses a false identity in order to become approved for a loan, or forges information on a loan application.
- Internet Fraud – as it relates to bank fraud, internet fraud occurs when someone creates a website for the purpose of posing as a bank or other financial institution, to fraudulently obtain money deposited by other people.
Bank Fraud Investigator
Although many financial institutions employ their own brank fraud investigators, and local law enforcement is often involved in investigating such crimes, it is the U.S. Secret Service that is responsible for maintaining stability and integrity of the country’s financial framework and payment systems. In its role as bank fraud investigator, the Secret Service investigates such crimes as:
- Identity Theft
- Check Fraud
- Automated Payment Systems Fraud
- Direct Deposit Fraud
- Check Forgery and Alterations
Bank Fraud Punishment
Any type of fraud subjects the perpetrator to serious penalties, the severity of which often depend on the monetary amount of the fraud, whether the fraud was committed against a protected class of person, and whether the crime is classified as a state or federal crime.
Bank fraud is almost always a federal crime. This is because most banks are protected by the Federal Deposit Insurance Corporation (“FDIC”), a federal program that protects consumers’ deposits in banks and other financial institutions. According to the FDIC laws and regulations regarding bank fraud punishment:
Anyone who “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;
faces a fine of up to $1,000,000, and may be imprisoned up to 30 years.
It is possible for some lesser charges to result in bank fraud punishment of 5 to 10 years, as well as steep fines, restitution, and probation. It is common for bank fraud punishment to include more than one form.
Owen and Nichole go in together in a scheme of stealing, altering, and cashing checks. By the time they are caught, they had swindled consumers and three different federally insured banks out of more than $220,000. While Nichole takes a plea bargain to provide information on how the two accomplished their crimes, in exchange for a lighter sentence of 8 years in federal prison, Owen holds out and goes to trial.
After being convicted of several counts of bank fraud by a jury, Owen is sentenced to 22 years in federal prison, and ordered to make restitution in the amount of $110,000, his half of the total stolen by bank fraud.
Bank Fraud Cases
One example of how perpetrators of bank fraud cases are punished is the 2003 case in which a man by the name of Marko Nikoli of Ohio appeared at the St. Paul Croatian Federal Credit Union and presented fake documents to support his loan request for $250,000. A co-conspirator that worked inside the credit union approved the loan, and the funds were deposited into Nikoli’s account. The money was then transferred almost immediately to another account in Macedonia via an international wire transfer. Two years later, Nikoli request another $250,000 loan, which was approved by the same co-conspirator, and transferred to an off-shore account. The credit union collapsed, being declared insolvent in 2010. Nikoli was arrested and in 2013, and charged with bank fraud and money laundering. After pleading guilty and avoiding trial, Marko Nikoli was sentenced to 27 months in federal prison, and ordered to pay $1 million dollars in restitution to the St. Paul Croatian Federal Credit Union.
Related Legal Terms and Issues
- Assets – Property or finances owned by an individual or entity, and regarded as having value.
- Identity Theft – The illegal acquisition and use of an individual’s personal identifying information, usually for financial gain.
- Trial – A formal presentation of evidence before a judge and jury for the purpose of determining guilt or innocence in a criminal case, or to make a determination in a civil matter.