The Supreme Court is set to make a ruling that may substantially alter the balance of protections and penalties under the bank-fraud statute (18 U.S.C. § 1344). Section 1 of that law makes it a crime to "defraud a financial institution," which is defined broadly to cover federally insured depository institutions, credit unions, mortgage-lending businesses, and the like. Bank fraud convictions carry a higher maximum sentence and fines than many other federal fraud statutes.
On April 25, 2016 the Supreme Court granted certiorari to resolve a circuit split: whether the government must prove that the defendant intended the bank itself to be the victim of the fraud, or whether it is enough that the defendant deceived the bank while defrauding the victim. The Ninth Circuit Court of Appeals held in March 2015 that intent to deceive the bank is sufficient, and that the bank need not be the intended victim. United States v. Shaw, 781 F.3d 1130 (9th Cir. 2015). In that case, the defendant convinced a bank to transfer money from an account holder to a sham PayPal account, then to other sham bank accounts, and finally to the defendant. While the bank was deceived, the account holder was the intended victim. The Ninth Circuit nonetheless upheld the conviction, finding that intent to harm the bank is not required.
Other circuits have reached the opposite conclusion. For example, the Third Circuit held that "harm or loss to the bank must be contemplated by the wrongdoer to make out a crime of bank fraud." United States v. Thomas, 315 F.3d 190, 200 (3d Cir. 2002). The Second Circuit similarly concluded that the statute "requir[es] proof of an intent to victimize a bank by fraud." United States v. Nkansah, 699 F.3d 743, 748 (2d Cir. 2012). All told, nine circuits (the First, Second, Third, Fourth, Fifth, Seventh, Tenth, Eleventh, and D.C.) consider intent to victimize the bank, while three circuits (the Sixth, Eighth, and Ninth) do not.
The upcoming decision will resolve important issues under the bank-fraud statute and clarify the elements that the government must prove as part of its case. A decision against the defendant would strengthen the protections available to financial institutions when they are fraudulently deceived as part of a scheme, not just when they are the intended victim. Conversely, deciding for the defendant would place limitations on prosecutors' ability to use the enhanced-penalty provisions under the bank-fraud statute.
For more information on the case or on the bank-fraud statute generally, please contact Michael Long.
