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Check Kiting

Check Kiting - Title 18 U.S. Code § 1344

Check kiting (also known as "floating" checks between banks) is a serious federal offense identified as a form of bank fraud. Most cases of check-kiting are prosecuted under Title 18 U.S. Code 1344.

If proven, accusations of check-kiting can lead to severe penalties. These include substantial fines and a potential 30-year federal prison sentence, the severity of which is determined by the extent of the offense.

Check Kiting - Title 18 U.S. Code § 1344
Check-kiting is covering a bad check from one bank account to another and is prosecuted under the federal bank fraud law.

Kiting or check-kiting is the practice of covering a bad check from one bank account to another. People with multiple bank accounts use this advantage because it takes multiple days to process checks.

The check that has been deposited increases the funds available. Kiting is illegal, and to counter kiting activities, many financial institutions have a waiting period before checks are deposited.

In the Sixth Circuit, the Court defined check-kiting as drawing checks on an account from one bank and depositing them in an account in the other bank when both bank accounts have insufficient money to cover the amounts drawn.

The Court in United States v. Flowers decreed that kiting is an offense where the offender tricks two or more banks into inflating account balances by drawing money from insufficiently funded bank accounts. 

The court stated that the offender, in essence, will be giving themselves unauthorized, unsecured, and interest-free loans, putting banks at risk for funds and shortening the banks' assets. In United States v. Norton, the Court stated that check kiting could violate the federal bank fraud statute if the victim is a federally insured financial institution.

What is Check Kiting?

Check kiting is a type of financial fraud that occurs when someone exploits the time it takes banks to process checks to create artificial funds-effectively giving themselves an illegal, no-interest loan.

This scheme typically involves writing checks from one bank account without sufficient funds to cover them and depositing those checks into another account. Before the check clears the first bank, the individual withdraws money from the second account, thereby "floating" funds that don't actually exist.

Check-kiting is deceptive because it creates the illusion of available funds while the account holder is, in reality, overdrawing their accounts. This fraudulent activity not only results in financial losses for the banks involved but also undermines the integrity of the banking system, underscoring the need for vigilance.

What Does the Law 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 Under Title 18 U.S. Code 1344

Check kiting is prosecuted under the federal statute for bank fraud, 18 U.S.C. 1344. This statute makes it illegal to knowingly execute, or attempt to execute, a scheme to:

  1. Defraud a financial institution, or
  2. Obtain the money, funds, credits, assets, or property under the custody or control of a financial institution through false or fraudulent pretenses, representations, or promises.

Because check kiting involves creating false funds and deceiving banks, it falls squarely within the definition of bank fraud outlined in this statute. What makes this statute particularly severe is its broad reach. It applies not just to successful schemes but also to attempts.

This means that even if the kiting scheme fails or is discovered early, a person can still be prosecuted under this law.

Elements of Check Kiting as a Crime

To prove the crime of check kiting under 18 U.S.C. 1344, federal prosecutors must establish specific elements of bank fraud. These include:

  • Intent to Defraud: The accused must have acted with the intent to deceive or cheat a financial institution. Intent is a central element of this crime, as it distinguishes deliberate fraud from honest mistakes or mismanagement of funds.
  • False or Fraudulent Pretenses: The individual must have used false information, such as writing checks without sufficient funds or creating fictitious deposits, to carry out the scheme. This deception must be material, meaning it has the potential to influence the bank's decisions.
  • Targeting a Financial Institution: The scheme must involve a federally insured financial institution, such as a bank or credit union. Federal jurisdiction is triggered because such institutions operate under the protection of federal laws.

What are Related Federal Laws?

18 U.S. Code Chapter 63 Part I, mail fraud and other fraud offenses have several related federal statutes, including the following:

  • 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 Check Kiting?

If you are convicted of check kiting under 18 U.S.C. 1344, the penalties can be quite severe. The statute provides for:

  • Fines of up to $1 million (the exact amount will depend on the extent of the financial harm caused and the specifics of the case) and/or
  • Imprisonment for up to 30 years.

Sentences can vary depending on the specifics of the offense, including the amount of money involved, the defendant's level of involvement, and whether the accused has a prior criminal history.

What are the Common Legal Defenses Against Check Kiting Charges?

If you are accused of check-kiting, the stakes are high, considering the possible penalties. Still, a skilled federal criminal defense attorney can employ some key defense strategies to counter the charges. Some of these common defenses include:

  • Lack of Intent: Intent is a required element of bank fraud charges. If your attorney can provide evidence that you had no intent to defraud the bank, it can weaken the prosecution's case. For instance, errors in managing your bank accounts or honest oversights may not qualify as fraud.
  • Mistake or Error: Clerical errors, a misunderstanding of your account balance, or other accidental actions leading to check floating could provide a legitimate defense.
  • Duress or Coercion: If you were forced or coerced into participating in the scheme-for example, under threat of imminent harm to you or your loved ones-this may be a valid defense. However, you will need strong evidence to substantiate this claim.

For additional information, contact Eisner Gorin LLP, our federal criminal defense law firm based in Los Angeles, California.

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