Legal Definitions - financial institution fraud

Financial Institution Fraud (FIF) refers to a broad category of criminal activities involving deception or theft that occur within or are directed against financial institutions, such as banks, credit unions, and other lending organizations.

Under federal law, specifically 18 U.S. Code § 1344 (the bank fraud statute), it is a serious federal crime to defraud a financial institution. Many states also have their own laws criminalizing such acts. This type of fraud can take numerous forms, all designed to illegally obtain money, assets, or services from a financial institution, or to cause it financial loss. Penalties for federally prosecuted financial institution fraud can be severe, including significant prison sentences and large fines.

Here are some examples illustrating financial institution fraud:

• Example 1: Falsified Loan Application

  A small business owner applies for a substantial business loan from a local bank. To ensure approval, they intentionally inflate their company's revenue and assets on the loan application and submit forged tax documents to support these false claims. The bank, relying on this fraudulent information, approves and disburses the loan.

  How it illustrates FIF: This is financial institution fraud because the business owner used deliberate deception (false financial statements and forged documents) to mislead the bank into providing a loan it would not have otherwise approved. The fraud is directed against the financial institution, putting its assets at risk.

• Example 2: Employee Embezzlement

  A senior manager at a regional credit union, responsible for managing dormant accounts, secretly creates a fictitious vendor account in the credit union's system. Over several months, the manager authorizes small, recurring payments from various inactive customer accounts into this fake vendor account, which is actually linked to their personal bank account.

  How it illustrates FIF: This is financial institution fraud because an employee, acting from within the financial institution, abused their position of trust and access to financial systems to embezzle funds. The deception involves creating a false vendor and diverting money belonging to the credit union or its customers for personal gain.

• Example 3: Counterfeit Securities Scheme

  An organized group prints high-quality counterfeit cashier's checks, making them appear legitimate. They then attempt to deposit these fake checks into various accounts at different banks, immediately withdrawing cash or transferring funds before the banks discover the checks are fraudulent and bounce.

  How it illustrates FIF: This constitutes financial institution fraud because the individuals are using counterfeit negotiable instruments (the fake cashier's checks) as a means of deception to illegally obtain money from multiple financial institutions. The fraud is directed against the banks, causing them direct financial losses when they honor the fake checks.