Financial Institution Fraud (FIF): Criminal Defense Overview - Dallas Justice Blog (2024)

Posted on May 24, 2022 by Michael Lowe.

Federal investigations involving crimes of financial institution fraud (“FIF”), as a general rule, will focus upon professionals who have had little if any experience with law enforcement or the criminal justice system in their entire lives, aside from the occasional traffic ticket. These are people dedicated to the pursuit of a white-collar career; they may have more than one college degree and years of experience in their chosen field. The sudden introduction of federal agents (think FBI) into their lives can be almost unbelievable and certainly overwhelming and stressful.

Accordingly, it is of vital importance that these individuals understand not only the federal laws surrounding Financial Institution Fraud allegations but the enthusiastic intensity with which the federal prosecutors at the Office of the Attorney General for the United States (“AUSAs”) and the agency investigators at the Federal Bureau of Investigation (“FBI”) work to convict both individuals and business entities on FIF charges. A swift allegiance with an experienced federal FIF criminal defense attorney in these situations is never unwarranted.

What is Financial Institution Fraud?

The FBI provides the following definition for Financial Institution Fraud, or “FIF,” as follows:

Financial institution fraud (FIF) is the class of criminal schemes targeting traditional retail banks, credit unions, and other federally-insured financial institutions. Many FIF schemes involve the compromise of customers’ accounts or personal identifying information (PII); when identities are stolen, both the financial institution and customers are considered victims.

FIF can be categorized as either external—when perpetrators have no affiliation with the victim institution—or internal—when bank employees use their access to accounts and systems and knowledge of policies to commit fraud.

Commonly investigated external FIF schemes include stolen or counterfeit checks, account holder impersonation, access device fraud (misuse/unauthorized use of debit cards), credit card scams, and email hacking leading to loss. Unfortunately, as technology creates increased convenience and accessibility for customers, it also creates opportunity for criminal actors.

Embezzlement and misapplication of funds are two of the most common internal FIF schemes encountered in FBI investigations. And when the fraud is egregious enough, it can lead to the complete failure of the federally-insured financial institution.

What is a federally-insured financial institution?

For a federal FIF charge, the federal government must be involved in insuring the institution’s accounts in some way. For instance, Federal Reserve banks, member banks, and national banks can be involved as well as any institution whose deposits are insured by the Federal Deposit Insurance Corporation (18 U.S.C. § 656) or those whose deposits are insured by the Federal Savings and Loan Insurance Corporation (now the Office of Thrift Supervision) or the National Credit Union Administration(18 U.S.C. § 657).

Federal charges alleging FIF can involve a variety of federal criminal laws. There is no single, umbrella “financial institution fraud” criminal statute that has been passed by Congress. Instead, the FBI and the AUSA will try and build cases based upon any one or more of the following FIF laws – and they will try and find other related criminal charges to put into the indictment as well.

FIF charges may be combined with things like money laundering, wire fraud, RICO, and more. The AUSA will likely reference the DOJ’s Financial Institution Fraud Federal Prosecution Manual (1994) (“FIF Manual”) during this process. In some of these matters, the Market Integrity and Major Frauds Unit(“MIMF”) of the Department of Justice may be involved.

Section 9-40.000 of the Department of Justice Criminal Manual for the Office of the Attorney General (“DOJ Criminal Manual”) provides the following litany of potential FIF statutes that may be included in a FIF indictment (this is not a complete list):

• Embezzlement, Abstraction, Purloining or Willful Misapplication – 18 U.S.C. §§ 656, 657
• False Statements – 18 U.S.C. § 1014
• False Entries – 18 U.S.C. §§ 1005, 1006
• Bank Fraud – 18 U.S.C. § 1344
• Bank Bribery – 18 U.S.C. §215.

The FBI’s online discussion of Financial Institution Fraud delves into a particular type of FIF involving commercial and residential mortgages. Mortgage fraud is a very popular type of FIF within the current sights of federal investigators, particularly those in the Texas federal districts.

Mortgage Fraud as a Sub-Category of FIF

The FBI considers mortgage fraud to be a “sub-category of FIF,” where “… some type of material misstatement, misrepresentation, or omission in relation to a mortgage loan which is then relied upon by a lender.”

The FBI distinguishes two (2) types of mortgage fraud: fraud for profit and fraud for housing.In fraud for profit mortgage fraud, the FIF involves industry insiders like bank officers; real estate appraisers; mortgage brokers; attorneys; and other professionals colluding together to “misuse the mortgage lending process to steal cash and equity from lenders or homeowners.” In fraud for housing FIF matters, the borrower alters information provided to the financial institution in order to get ownership of real estate (usually residential housing).

Federal FIF Investigations and FIF Defendants

FIF defendants can be individuals as well as corporate entities. Federal investigations can result in criminal charges being filed against individuals, such as bank officers; stock brokers; appraisers; etc. as well as banks; credit unions; stockbrokerages; and others who have allegedly committed fraudulent acts involving federally insured financial institutions. As defined by 18 U.S.C. §1344, financial institution fraud occurs anytime there is an attempt or plan or scheme “…to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.”

FIF can be external or internal. A single individual may be the culprit, or the mastermind of a combined organization where both people and corporate entities interplay in the enterprise.

Range of Punishment: Financial Institution Fraud Conviction

Federal fraud laws come with felony punishments upon conviction. For those convicted under 18 U.S.C. §1344, sentencing can involve monetary fines of up to One Million Dollars ($1,000,000) and up to thirty years (30 years) imprisonment in a federal facility.

Sentencing will be done pursuant to the United States Sentencing Guidelines propounded by the United States Sentencing Commission. The federal judge will be required to follow the directives contained within the 2021 USSG Manual.

• For more on how the Sentencing Guidelines work, read Federal Sentencing Guidelines and Loss Amounts in Federal Sentences: Calculating Economic and Financial Losses in Federal Felonies.

Criminal Defense Complexities: FIFCharges

The defense of individuals or corporate entities facing federal charges of financial institution fraud can be complex representations with multi-faceted defense strategies. In some instances, convictions may be lessened in plea negotiations or plea agreements, and charges may be lowered or dismissed before trial commences.

1. Flaws and Errors in the Federal FIF Prosecution File

Initially, the FIF criminal defense attorney will not only undertake an independent investigation of the entire situation but simultaneously scrutinize each aspect of the federal prosecutor’s file that builds the case against the accused. This involves a review of each witness statement and every document that either serves as evidence or was used to find evidence for legal and procedural integrity. Hearsay cannot support a conviction and must be suppressed upon motion of the defense, for instance.

It also entails a review of the investigatory process itself: how was this file compiled? Were any constitutional rights ignored or disrespected during the investigation? For instance, was there an illegal search or a seizure that violates federal due process? Overzealous activity by federal agents can result in exclusion of otherwise admissible evidence with a defense motion to the judge.

2. Honest Mistakes Are Not Criminal Acts

Of importance here is to find each alleged criminal act within the AUSA’s case and determine whether or not facts exist that explain the circ*mstances as being within the law. Mistakes in business judgment are not crimes. There is no criminal intent behind accounting errors. Losing money in the marketplace is not an automatic signal of a criminal motivation on the part of the accused. If the AUSA cannot prove each element of the FIF criminal statute then that count cannot withstand judicial scrutiny. The defense can move the court for these allegations to be dropped or dismissed.

3. DPAs and NPAs in FIF Cases

If a case remains after defense review of the matter, an aggressive and experienced FIF criminal defense attorney may be able to enter into plea negotiations with the federal prosecutor that result in something called “deferred prosecution agreements” (“DPAs”) or “non-prosecution agreements” (“NPAs”). Both DPAs and NPAs are resolutions of criminal matters before the AUSA where financial institution fraud charges are resolved in a matter that essentially is a form of probation for the accused. They are legally binding contracts between the accused and the federal government.

NPAs are plea deals where no formal criminal charges are filed in the public record. DPAs occur after formal criminal charges are filed but the AUSA agrees not to move forward in their prosecution as long as the terms of the deal are not breached.

While many NPAs and DPAs involve corporate defendants, individuals are eligible for these types of plea deals as well. Each federal case is evaluated on its own particular circ*mstances before any FIF charges result in either a NPA or DPA. Key here: the AUSA may require disclosure of potentially incriminating information before entering into a NPA or DPA.

For more, read the executed and filed DPA entered into between America Online, Inc. (“AOL”); and the United States Attorney’s Office for the Eastern District of Virginia and the United States Department of Justice, Criminal Division (collectively the “Department of Justice”) executed on December 14, 2004, as published online by the DOJ.

Why would the federal government agree to forego pursuit of a FIF case against an individual or corporate defendant after investigators and brought cases to the AUSA for prosecution? The defense may be able to help the AUSA see how the NPA or DPA best serves the interests of justice from a bigger perspective than going after a courtroom conviction.

From the DOJ Manual comes the following explanation, regarding a corporate entity accused of FIF:

[W]here the collateral consequences of a corporate conviction for innocent third parties would be significant, it may be appropriate to consider a non-prosecution or deferred prosecution agreement with conditions designed, among other things, to promote compliance with applicable law and to prevent recidivism. Such agreements are a third option, besides a criminal indictment, on the one hand, and a declination, on the other. Declining prosecution may allow a corporate criminal to escape without consequences. Obtaining a conviction may produce a result that seriously harms innocent third parties who played no role in the criminal conduct.

Under appropriate circ*mstances, a deferred prosecution or non-prosecution agreement can help restore the integrity of a company’s operations and preserve the financial viability of a corporation that has engaged in criminal conduct, while preserving the government’s ability to prosecute a recalcitrant corporation that materially breaches the agreement. Such agreements achieve other important objectives as well, like prompt restitution and other compensationfor victims.

However, when considering whether to enter into a deferred prosecution or non-prosecution agreement with the defendant, prosecutors should consider the interests of any victims and be aware of any impact on the Crime Victims Fund, as further discussed in the Comment toJM 9-28.1400. The appropriateness of a criminal charge against a corporation, or some lesser alternative, must be evaluated in a pragmatic and reasoned way that produces a fair outcome, taking into consideration, among other things, the Department’s need to promote and ensure respect for the law.

Also read: Restitution Under Federal And Texas Law: Criminal Defense Overview and Prosecutors Have Standards To Follow: The Federal Principles Of Prosecution.

FIF Criminal Defense in Texas

For anyone who suspects that they, or their organization, has become the targets of a federal investigation into financial institution fraud (FIF) here in Texas, it is wise to seek out experienced federal criminal defense advocacy as soon as possible for support.

How will you know you are being investigated for FIF crimes? Often, federal agents will notify you that you are under investigation. You may get a letter in the mail that provides you with notice.

• For more, read our discussion in: Federal Investigations: Target Letters, Proffers, and Plea Deals.

However, some individuals are savvy enough to suspect that federal authorities are turning their sights upon their company or upon them personally even before any formal notice arrives. No criminal defense lawyer will disrespect a client’s “gut call” — and that early intuition may well serve for an early and zealous defense to any potential FIF charges.

To learn more on Texas criminal defense of white-collar crimes, read:

• Bankruptcy Fraud: Texas Criminal Defense Overview
• The Federal Computer Fraud and Abuse Act, 18 U.S.C. § 1030, and the 2021 SCOTUS Limitation on Arrests and Prosecutions
• White Collar Crime: Indictments Of Texas Professionals
• Credit Card Fraud Is Very Profitable and Easy to Do, No Wonder Credit Card Crimes Are Happening All Over the Country
• North Texas Banks, Drug Cartels, and Money Laundering in Dallas
• Bank Executives Alert: Feds Focusing Upon Bankers in Money Laundering and Tax Fraud Investigations Involving Overseas Bank Accounts – and U.S. Bankers May Be Facing Federal Indictments.

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For more information, check out ourweb resources,readMichael Lowe’s Case Results,and read his in-depth articles,”Pre-Arrest Criminal Investigations”and“10 Questions to Ask Before You Hire a Criminal Defense Lawyer.“