Combatting Fraud

The federal bank fraud statute is a powerful tool for combatting fraud against financial institutions. The law makes it a crime to, among other things, “knowingly . . . execute a scheme . . . to defraud a financial institution.” 18 U.S.C. 1344(1). This week, the U.S. Supreme Court decided Shaw v. United States, No. 15-5991 (December 2, 2016), in which the Court clarified the scope of the statute, rejecting arguments that would have limited its reach. The Court’s unanimous decision is an unsurprising, but nevertheless welcome development for banks, which benefit from federal enforcement of laws that target fraud directed at assets held at financial institutions.

Lawrence Shaw was convicted of violating 18 U.S.C. 1344(1) after he used fraudulent means to obtain a bank customer’s account information, and then transferred funds out of that customer’s accounts into accounts at other institutions. Challenging his conviction in the Supreme Court, Shaw made several arguments that the government had not proven that he engaged in a scheme that violated the statute. Most of those arguments boiled down to the idea that Shaw’s scheme was directed at harming the bank’s customer, not the bank. The Court rejected all of these arguments finding, among other things, that the bank held a property interest in its customer’s accounts and that the bank was cheated when Shaw misled the bank, even if Shaw did not intend to harm the bank (and even if he did not actually harm the bank).

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