Check Kiting Under Federal Law
Check kiting, also called "floating" checks between banks, is a serious federal offense classified as bank fraud. Most check-kiting cases are prosecuted under Title 18 U.S. Code 1344.
If proven, accusations can result in heavy penalties, including significant fines and a possible 30-year federal prison sentence, depending on the offense's severity.
Kiting involves covering a bad check by transferring it from one bank account to another, often exploited by individuals with multiple accounts because check processing takes several days.
Deposited checks increase available funds. Kiting is illegal, and to prevent it, many financial institutions impose a waiting period before processing checks.
The Court described check kiting as writing checks on one bank account and depositing them into another, even when both accounts lack sufficient funds to cover the checks.
What Exactly is Check Kiting?
Check kiting is a form of financial fraud where a person exploits the delay in bank check processing to artificially inflate their funds, essentially obtaining an illegal, zero-interest loan.
The common tactic involves writing checks on an account with insufficient funds and depositing them into a different account.
Before the initial check clears, the person withdraws money from the second account, creating a temporary illusion of available funds that aren't actually there.
Check kiting is misleading because it gives the false impression of sufficient funds while the account holder is actually overdrawing.
This fraudulent practice causes financial losses for banks and damages the trustworthiness of the banking system, highlighting the importance of careful monitoring.
What Does Section 1344 Say?
Title 18 U.S. Code 1344 - Bank fraud says, "Whoever knowingly executes, or attempts to execute, a scheme or artifice-
(1) to defraud a financial institution; or
(2) to obtain any of the money, 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."
Prosecuting Check Kiting
Check kiting is prosecuted under the federal bank fraud statute, 18 U.S.C. 1344. This law prohibits intentionally carrying out or trying to carry out a scheme to:
- Defraud a financial institution, or
- Acquire money, funds, credits, assets, or property held by a financial institution through deceptive or fraudulent claims, representations, or promises.
Check kiting, which involves generating fake funds and deceiving banks, clearly qualifies as bank fraud under this law.
Its severity is amplified by its wide scope, covering both completed schemes and attempts. Consequently, even if the kiting scheme fails or is detected early, the individual can still face prosecution.
What Must Be Proven?
To demonstrate the crime of check kiting under 18 U.S.C. § 1344, federal prosecutors must prove certain elements of bank fraud. These elements include:
- Intent to Defraud: The accused must have intentionally aimed to deceive or cheat a financial institution. The presence of intent is crucial for this crime, as it differentiates deliberate fraud from honest errors or mismanagement of funds.
- False Pretenses: The individual must have engaged in deception by using false information, such as writing checks without enough funds or making up fake deposits, to execute the scheme. This deception must be material, meaning it could influence the bank's decision-making.
- Target a Financial Institution: The scheme must include a federally insured financial institution, like a bank or credit union. Federal jurisdiction applies because these institutions operate under federal laws.
What are Related Federal Statutes?
Chapter 63 of Title 18 U.S. Code covers mail fraud and related federal fraud offenses, including the following statutes.
- 18 U.S.C. 1341 - Frauds and swindles.
- 18 U.S.C. 1342 - Fictitious name or address.
- 18 U.S.C. 1343 - Fraud by wire, radio, or television.
- 18 U.S.C. 1344 - Bank fraud.
- 18 U.S.C. 1345 - Injunctions against fraud.
- 18 U.S.C. 1346 - Definition of scheme or artifice to defraud.
- 18 U.S.C. 1347 - Health care fraud.
- 18 U.S.C. 1348 - Securities and commodities fraud.
- 18 U.S.C. 1349 - Attempt and conspiracy.
- 18 U.S.C. 1350 - Failure of corporate officers to certify financial reports.
- 18 U.S.C. 1351 - Fraud in foreign labor contracting.
- 18 U.S.C. 1352 - Demands by foreign officials for bribes.
What are the Penalties for a Conviction?
If convicted of check kiting under U.S.C. 1344, the penalties can be quite severe. The statute provides for:
- Fines could reach up to $1 million, depending on the severity of the financial harm and case details, and/or
- Imprisonment lasting up to 30 years.
Sentences may differ based on the details of the offense, such as the amount of money involved, the defendant's level of involvement, and whether the defendant has prior criminal history.
What are the Typical Legal Defenses?
If you're accused of check kiting, the penalties can be serious. However, a skilled federal criminal defense attorney can use effective strategies to challenge the charges. Some common defenses include:
- Lack of Intent: Intent is a necessary component for bank fraud charges. If your lawyer can demonstrate that you lacked the intent to defraud, it can weaken the prosecution's case. For example, mistakes in handling your bank accounts or honest oversights might not be considered fraud.
- Mistake: Clerical errors, misunderstandings of your account balance, or other accidental actions that result in a check floating could serve as valid defenses.
- Duress: If you were compelled or pressured into joining the scheme—such as by threatening harm to you or your loved ones-this could serve as a valid defense. However, you'll need solid evidence to support this assertion.
For more details, reach out to Cron, Israels & Stark in Los Angeles, California.