U.S. Supreme Court Affirms: Defrauding Bank Customer Is Also Fraud Against Bank

On December 12, the U.S. Supreme Court issued a unanimous decision, penned by Justice Stephen Breyer, in the case of Shaw v. United States. The decision resolves a circuit split on the proof required to obtain a conviction under the bank fraud statute (18 U.S.C. § 1344) — namely, must the government prove that the defendant intended the bank itself to be the victim of the fraud, or is it enough that the defendant deceived the bank while defrauding the victim-customer? In adopting the latter interpretation, the Supreme Court altered the balance of protections and penalties in favor of the banks and the government.

Background

A jury found defendant Lawrence Shaw guilty of, among other things, bank fraud after he convinced a bank to transfer money from an account holder to a sham PayPal account, then to other sham bank accounts, and finally to himself. While the bank was inarguably deceived, the account holder was the intended victim. Shaw appealed, arguing that the bank fraud statute required proof that he intended to defraud the bank. The Ninth Circuit Court of Appeals disagreed, holding that intent to deceive the bank is sufficient, and that the bank need not be the intended victim. United States v. Shaw, 781 F.3d 1130 (9th Cir. 2015).

The Ninth Circuit's ruling, albeit consistent with the decisions of the Sixth and Eighth Circuits, espoused the minority view of the requisite intent for bank fraud, as the remaining circuits all required intent to victimize the bank. For example, the Third Circuit held that "harm or loss to the bank must be contemplated by the wrongdoer to make out a crime of bank fraud." United States v. Thomas, 315 F.3d 190, 200 (3d Cir. 2002). And the Second Circuit similarly concluded that the statute "requir[es] proof of an intent to victimize a bank by fraud." United States v. Nkansah, 699 F.3d 743, 748 (2d Cir. 2012). The Supreme Court granted certiorari to resolve the circuit split.

Intent to Victimize the Bank Is Not Required

The Shaw court unanimously held that a defendant need not intend to defraud the bank to be found guilty of bank fraud. The Court stated that "[w]hen a customer deposits funds, the bank ordinarily becomes the owner of the funds . . . (though the customer retains the right, for example, to withdraw funds)." Shaw v. United States, No. 15-5991, slip op. at 2 (Dec. 12, 2016). Because the bank and customer both have property rights in the customer's bank account, the Court found that a "scheme to cheat [the customer] was also a scheme to deprive the bank of certain bank property rights." Id. at 3.

The Court went on to state that the government need not prove that the bank suffered a financial loss, nor that the defendant even intended to cause the bank to sustain a financial loss. Rather, to convict a defendant of bank fraud, the government must prove only that "the defendant knew that the bank held the deposits, the funds obtained came from the deposit account, and the defendant misled the bank in order to obtain those funds." Id.

The Shaw decision resolves an important issue under the bank fraud statute and clarifies the elements that the government must prove as part of its case. It also strengthens the protections available to financial institutions when they are fraudulently deceived as part of a scheme, not just when they are the intended victim. Finally, prosecutors in circuits that previously required proof of intent to defraud the bank (the former majority view, now rejected) are more likely to charge under the bank fraud statute because it carries higher maximum sentences and fines than do many other federal fraud statutes.

For more information on the case or on the bank fraud statute in general, please contact Michael T.G. Long or Michael A. Kaplan.