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SCOTUS: Federal bank fraud statute doesn’t require intent to defraud bank

Lawrence Shaw v. United States, USSC No. 15-5991, 2016 WL 7182235 (December 12, 2016), vacating and remanding United States v. Shaw, 781 F.3d 1130 (9th Cir. 2015); Scotusblog page (including links to briefs and commentary)

A unanimous Supreme Court holds that to be found guilty of bank fraud under 18 U.S.C. § 1344(1), which prohibits “knowingly execut[ing] a scheme … to defraud a financial institution” does not require proof the defendant intended that the financial institution—rather than, say, one of its depositors—be the principal victim of the fraud.

Shaw obtained account numbers of a customer of Bank of America and used them to transfer money from the customer’s account to accounts Shaw controlled. He argued the words “scheme to defraud a financial institution” in § 1344(1) require the Government to prove that the defendant had a specific intent not only to deceive, but also to cheat, the bank, rather than a non-bank third party. Not so, says the Court, for these reasons:

  • If the statute requires an intent to affect the financial institution’s property rights, as Shaw argues, the institution has property rights in the funds deposited in customers’ accounts. (Slip op. at 2-3). And the statute doesn’t require proof he knew about the bank’s property rights. (Slip op. at 4-5).
  • Even if Shaw did not intend to cause the bank financial harm, that intent is not required under the statute; it requires only a scheme to defraud, not a showing of loss or a specific purpose or intent to cause a loss of the bank’s property. (Slip op. at 3-4, 5-6).
  • The language of § 1344(2), which prohibits “knowingly execut[ing] a scheme … to obtain” property owned by, or under the custody of, a bank “by means of false or fraudulent pretenses,” doesn’t preclude the application of sub. (1) to facts like those in Shaw’s case. (Slip op. at 6-8).

This case will be of interest to federal practitioners. Other circuits have agreed with the arguments Shaw was making, including the Seventh Circuit, in United States v. Higgins, 270 F.3d 1070, 1073-74 (7th Cir. 2001), which held that “[i]n order to support a conviction under §1344(1), the government must prove that the defendant engaged in a pattern or course of conduct designed to deceive a financial institution with the intent to cause actual or potential loss.” (Emphasis added). Looks like Higgins doesn’t survive this decision.

Note that Shaw also argued the jury instructions were flawed because they could have allowed the jury to convict him simply by finding that he had intended to deceive the bank, without more, when in fact he must have intended to both deceive the bank and deprive it of something of value. The Court didn’t decide the merits of this claim, but sent the case back for the lower court to resolve. (Slip op. at 8-9).

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