Financial Institutions Fraud
Crawford, Daniel A., Schwartz, Matthew, Vora, Sonia, American Criminal Law Review
This article reviews three methods by which the federal government may take action in cases involving financial institutions. The first section discusses federal prosecutions of financial institutions fraud under section 1344 of Title 18 of the United States Code,(1) the basic provision under which such crimes are charged. The second section explores the framework by which the federal government brings claims against officers, directors and third party fiduciaries who fraudulently manage defunct financial institutions. Specifically, this section discusses the application of the doctrine of "adverse domination," which has been used to toll the statute of limitations provided by the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).(2) The final section discusses the role of the Bank Secrecy Act (BSA)(3) in preventing deceptive financial transactions. In particular, this section focuses on methods of preventing individuals from deliberately "structuring" transactions in order to evade the BSA's reporting requirements.
1. Bank Fraud: Section 1344
This section addresses federal prosecutions of bank fraud under 18 U.S.C. [sections] 1344. Crimes which constitute bank fraud under section 1344 require that the perpetrator engage in a scheme to defraud a financial institution of its own assets or of assets within its control.(4)
A. Potential Scope
Although broadly written, section 1344 does not reach all crimes relating to banks. Money laundering(5) and bribery of bank officials(6) fall outside its scope. Similarly, section 1344 does not protect a bank customer defrauded of funds legally withdrawn from an account if those funds were no longer under the "custody or control"(7) of a financial institution when the fraud occurred.(8) Because section 1344 requires that the intended victim be a bank, it does not apply to fraud committed by a bank on its customers.(9)
Recent developments further suggest that Congress did not intend section 1344 to cover every kind of banking crime.(10) Although the original version of section 1344 defined a financial institution as a "federally chartered or insured financial institution,"(11) it also contained a catch-all provision suggesting a broader interpretation of the term.(12) The definitional subsection of the original section 1344 was eliminated in the 1989 amendments to section 1344 contained in FIRREA.(13) Although the difference in definitions is largely due to the dissolution of the Savings and Loan Insurance Corporation, FIRREA's version does not include a catch-all provision, which suggests a limitation on the application of section 1344.
B. Legislative History
Increasing political pressure and concern over white collar crime in general and the savings and loan scandal in particular(14) forced Congress to adopt measures to control bank fraud. When Congress decided to bail out the savings and loan industry, most members of Congress who addressed the causes of the crisis singled out bank fraud as a primary factor.(15)
While there was vigorous debate concerning many aspects of the $166 billion bailout plan,(16) there was little opposition to a dramatic increase in both civil(17) and criminal(18) penalties for violations of the bank fraud statute. Substantially increasing criminal penalties was one of the principal purposes of FIRREA.(19) Congress took further action one year after FIRREA by passing the Crime Control Act of 1990.(20) The Crime Control Act provided for further increases in penalties(21) and granted substantial new powers to the government to aid in the prosecution of violators.(22)
Congress also lengthened the statute of limitations for bank fraud and related crimes to ten years.(23) The government now has five more years within which to discover and prosecute bank frauds, adding further to the scope of the amendment.
The enactment of section 1344 facilitated prosecutions for bank fraud by effecting a unified attack on most types of offenses, which previously had been prosecuted under separate statutes. …