Legal Definitions - kiting

Kiting, also known as check-kiting, is an illegal financial scheme where an individual or entity manipulates the banking system to temporarily access funds they do not actually possess. This practice typically involves writing checks from one bank account that has insufficient funds and depositing them into another account, often at a different bank. The person engaging in kiting exploits the time delay (known as the "float") it takes for banks to process checks and verify the availability of funds.

During this processing window, the deposited check might temporarily appear as available funds in the second account, allowing the kiter to withdraw money that isn't truly there. Essentially, kiting creates an unauthorized, unsecured, and interest-free "loan" at the expense of the banks involved, putting them at significant financial risk. This practice is a form of bank fraud and carries serious legal consequences.

Here are a few examples illustrating how kiting works:

• Example 1: Small Business Cash Flow

  A small business owner, Sarah, is struggling with tight cash flow. She has two business checking accounts: one at "Main Street Bank" and another at "Community Savings." On Monday, she needs to pay a supplier $3,000 but only has $500 in her Main Street Bank account and $200 in her Community Savings account. To make the payment, Sarah writes a check for $3,000 from her Main Street Bank account (knowing it's unfunded) and deposits it into her Community Savings account. Before Main Street Bank can process the check and realize it's bad, Sarah quickly issues the $3,000 payment to her supplier from the Community Savings account, which now temporarily shows a balance of $3,200 due to the pending deposit. Sarah hopes to deposit customer payments into Main Street Bank before the original check bounces. This is kiting because Sarah created artificial funds by moving a bad check between accounts, exploiting the processing delay to access money she didn't possess, thereby putting Community Savings at risk.

• Example 2: Covering Personal Expenses

  Mark unexpectedly needs to pay $1,500 for an emergency home repair. He has two personal checking accounts, one with "Big City Bank" and another with "Online Financial." Neither account has enough money to cover the expense; Big City Bank has $300, and Online Financial has $100. Mark writes a check for $1,500 from his Big City Bank account and deposits it into his Online Financial account. Within hours, before the check from Big City Bank has fully cleared, Mark uses his Online Financial debit card to pay for the $1,500 repair. He is relying on the temporary, inflated balance in his Online Financial account. This is a clear instance of kiting, as Mark is using a check from an account with insufficient funds to create a false balance in another account, allowing him to spend money he doesn't genuinely have and exposing Online Financial to potential losses.

• Example 3: Multi-Bank Scheme

  A sophisticated individual, Robert, operates three checking accounts across different institutions: "First National," "Regional Bank," and "Global Trust." He needs to make a large payment of $10,000 but only has a total of $1,000 spread across all three accounts. Robert begins by writing a $5,000 check from his First National account (which has $500) and deposits it into his Regional Bank account. The next day, he writes a $5,000 check from his Regional Bank account (which now *appears* to have $5,500 due to the pending deposit) and deposits it into his Global Trust account. He then immediately withdraws $10,000 from the Global Trust account. Robert is creating a chain of bad checks, using the float time between multiple banks to make it seem like he has sufficient funds in each subsequent account, ultimately withdrawing money that doesn't exist in any of his accounts. This complex maneuver is a classic example of kiting, as Robert is intentionally exploiting the check processing delays across several institutions to gain access to funds he doesn't own, placing all three banks at risk.