Due to devastating effects of the massive fraud committed within the financial sector over the years leading to the 2008 financial meltdown, bank fraud is now considered by the Government to be one of its most serious priorities.
Under Section 1344 of Title 18, United States Code, the Government must prove three essential elements to establish bank fraud: 1) a knowingly executing or attempting to execute a scheme to defraud; 2) the scheme to defraud was material; and 3) the financial institution was insured by the Federal Deposit Insurance Corporation. As of June 2014, the U.S. Supreme Court ruled that the Government has no duty to establish intent to defraud.
$1,744 Billion Lost in Bank Fraud
According to the American Bankers Association’s 2013 Deposit Account Fraud Survey, fraud against bank accounts in 2012 cost the banking industry $1,744 billion in losses. More than half (54%) of those losses were attributed debit card fraud while 37% of the losses were attributed to check fraud. The remaining losses (9%) were attributed to online banking and electronic transactions.
On the upside, the fraud prevention measures employed by banks thwarted approximately $13 billion in fraudulent transactions in 2012.
American Don’t Trust Government or Banks
Embedded in these figures is the reason that most Americans do not trust—and, in fact, seriously dislike—the banking industry. These Americans, as a whole, generally believe that banks were responsible for the near total collapse of the national economy in 2008. There has been sufficient credible information put in the public marketplace to, at a minimum, justify the widely held belief that the banking and mortgage industries engaged in blatant intentional fraud, so much so that it brought the world economy to its knees.
Systemic Break Down in Accountability and Ethical Behavior
For example, as New York U.S. District Court Judge Jed S. Rakoff wrote last year in THE NEW YORK REVIEW OF BOOKS, the Financial Crisis Inquiry Commission—one of several governmental entities asked to examine the “financial meltdown”—used variants of the word “fraud” no fewer than 157 times in describing what led to the meltdown. Judge Rakoff noted that the Inquiry Commission’s final report concluded there was a “systemic breakdown” in both accountability and ethical behavior.
While big banks like JP Morgan Chase, Bank of America and Wells Fargo have been civilly fined billions of dollars—most of which are tax deductible—, not one of their executives has been indicted, much less prosecuted, for fraud (or any other type of criminal wrongdoing) associated with the financial meltdown. This should not be surprising. Multiple sources—most notably the Transactional Records Access Clearinghouse at Syracuse University (TRAC)—have reported that bank fraud prosecutions under the Obama administration are dramatically lower than in previous years.
Government Remiss in Investigating Improprieties of Nation’s Largest Banks
For example, in 2011 alone, the federal government undertook less than 1400 prosecutions for financial institution fraud. TRAC told the HUFFINGTON POST that the decrease in such fraud prosecutions did not necessarily reflect a decrease in financial institution fraud itself. The POST pointed out that while the government had prosecuted a number of small financial institutions in 2011, “critics say it has been remiss in investigating possible improprieties among the nation’s largest banks in the years leading up to the mortgage crisis.”
But, Don’t Forge a Check!
That’s what makes the case of Salt Lake City, Utah resident Kevin Loughrin so disturbing. In 2009, he cashed six stolen or altered checks at a local Target store in the amount of $1,000. Only one of those checks was actually submitted to a bank for payment. The Federal government indicted him on six counts of bank fraud and two counts of aggravated identity theft. He was convicted and given a 3-year prison sentence and an additional five years of supervised release. That’s 3 years in prison, followed by 5 years of supervision by the Federal government for six petty check crimes constituting a loss of less than a $1,000 to Target.
Consider that against the $22 trillion lost, according to the General Accountability Office, during the 2007-09 financial crisis. Yet not one of the big bank CEOs or Wall Street executive responsible for that incomprehensible loss has ever been indicted for any kind of fraud associated with that crisis. But the Government saw fit to expend thousands of dollars to prosecute and send off to prison Kevin Loughrin. It certainly does not take a law school grad to know there is something fundamentally flawed about the Government’s policy on bank fraud prosecutions.