Does the federal bank fraud statute require proof of an intent to deceive a bank as well as cheat it out of some of its funds?
The U.S. Supreme Court has agreed to answer this question in Shaw v. United States.
18 U.S.C. Section 1344 provides: "Whoever knowingly executes, or attempts to execute a scheme or artifice (1) to defraud a financial institution; or (2) to obtain any of the moneys, 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."
In 2014, the Supreme Court decided Loughrin v. United States, a case involving the second clause of the bank fraud statute. In a unanimous opinion authored by Justice Elena Kagan, the Justices held that no proof of intent to defraud the particular financial institution is required by the statute and the government must only prove that a defendant intended to obtain bank property "by means of" a false statement.
The new case involves Lawrence Shaw, who operated a scheme to take money from bank accounts belonging to Stanley Hsu, a Taiwanese businessman. Hsu opened a Bank of America account while working in the United States. When he returned to Taiwan, he arranged for the daughter of an employee to collect his mail and forward it to him. Unfortunately for Hsu, the daughter lived with Shaw, who opened Hsu's mail and learned about the bank account.
Shaw used Hsu's information to open a PayPal account that he linked to the Bank of America account. He then added other bank accounts to the PayPal account and began siphoning money from Hsu's Bank of America account into the PayPal account and then out to his own bank accounts. Shaw was able to convince the banks (using a doctored e-mail account, bank statements, and driver's license) to transfer and release over $300,000 of Hsu's money over a five-month period.
Bank of America returned approximately $130,000 to Hsu, covering the fraudulent activity that occurred within 60 days of Hsu's report. PayPal reimbursed the bank for that amount but Hsu lost over $170,000 because of his delay in notifying the banks.
The government charged Shaw with 17 counts of bank fraud in violation of Section 1344(1). At trial, Shaw requested a jury instruction that the government had to prove he not only intended to deceive the bank, but that he also intended to target the bank as a financial victim of the fraud.
A federal district court judge declined to give the requested jury instructions, ruling that the bank fraud statute did not require the bank to be an intended financial victim of the fraud. The jury convicted Shaw on 14 counts of bank fraud. He appealed.
The Ninth Circuit Court of Appeals affirmed the verdict, relying on circuit precedent that it found unaffected by the decision in Loughrin, "and indeed complements Loughrin's holding that Section 1344(1) of the statute does not require any intent to defraud the bank," the panel wrote. "Section 1344(1) does require intent to defraud the bank, but neither clause requires the bank to be the intended financial victim of the fraud."
Shaw's attempt to characterize the difference between the two clauses as involving the intended financial victim of the fraud (i.e., the bearer of the loss) did not persuade the Ninth Circuit. "The statutory language focuses on the intended victim of the deception, not the intended bearer of the loss," the court said. "Section 1344(1) requires the intent to deceive the bank. Section 1344(2) requires false or fraudulent representations to third parties," but neither clause "requires the government to establish the defendant intended the bank to suffer a financial loss."
The panel also disposed of Shaw's argument that because Bank of America did not actually suffer a loss, he could not have intended to defraud the bank. A similar argument was rejected in Loughrin with regard to the second clause of the bank fraud statute, and the Ninth Circuit elected to follow suit for the first clause.
Although the court recognized a split in the circuits on the issue of whether the risk of financial loss to the bank is an element that must be proven by the government under the bank fraud statute's first clause, the panel held fast to its position and refused "to read an additional element into Section 1344(1) that Congress did not include; that does not serve the Congressional purpose; and that could needlessly entangle judges and juries in the intricacies of banking law."
Shaw filed a petition for writ of certiorari presenting the question: "Whether [Section 1344(1)'s] 'scheme to defraud a financial institution' requires proof of a specific intent not only to deceive, but also to cheat, a bank, as nine circuits have held, and as petitioner Lawrence Shaw argued here."
The Justices granted the petition.
To read the Ninth Circuit's decision in United States v. Shaw, click here.
To read Shaw's petition for writ of certiorari, click here.
Why it matters
For the second time in three years, the U.S. Supreme Court will consider the bank fraud statute with the hopes of settling a circuit split. The Ninth Circuit is one of three federal appellate courts that only require an intent to deceive the bank. A majority of circuits, however, take the position that the government must also prove the bank was the intended financial victim of the fraud. Oral argument will be heard next term, sometime between October and June.