Check kiting is a form of fraud where an illegal act of leveraging the natural delay in bank processing occurs. Basically, some makes use of nonexistent funds before the bank discovers that the check is invalid.
In the past, this type of theft occurred when someone cashed a check at a bank. With the advent of more efficient computer tracking systems, check kiting is less prevalent today. Now, kiting happens when someone exchanges a worthless check for goods and services.
While a civil action against check kiting is easy to prove, in comparison, criminal action carries stronger results. A court may grant a plaintiff triple damages in a civil suit. Corresponding criminal charges can present more challenges to prove. This is because mens rea or intent, also known as knowledge, must be proven.
Particularly in white collar crimes, it is very difficult for prosecutors to establish this point of the law. This is because a longer time period passes as this crime is completed. Therefore, it can be difficult to isolate when the accused’s intent was formed when only circumstantial evidence is part of the case.
The person who received the worthless check typically has little contact with the accused. Therefore, proving knowledge is extremely difficult. Furthermore, very few circumstantial facts exist that a prosecutor can use that will establish knowledge.
What Check Kiting Looks Like in Practice
In its simplest form, check kiting happens when a person writes a check from one bank account with insufficient funds. He or she then deposits that check into another account at a different bank, which also lacks funds to cover the check.
Before the check is processed by first bank, where it will be rejected for insufficient funds, money is withdrawn from the second bank. This leaves the bank at a loss.
Kiting may also occur on a larger scale with more than two banks. Some struggling businesses use check kiting to generate cash flow revenues. The most common, however, is individual depositors with low-balance accounts.
How Banks Detect Check Kiting
There are several methods that a bank can use to detect check kiting instances. Ranging from observation to advanced computer systems, banks can identify tell-tale signs that an account holder is committing check kiting. Some signs include:
• Using a check to cover overdrafts
• Depositing checks often
• Account holders make multiple deposits and withdrawals on the same day
• Exact amounts are written on checks
• Using different branches or ATMs to avoid face-to-face transactions when making deposits
Individually, these signs do not prove that an account holder is kiting checks. However, engaging in several of these activities can draw suspicion from a bank representative or law enforcement.
Legal Penalties for Check Kiting
The fact that check kiting is not always easy to prove does not diminish the fact that it is a very serious crime. As one of the most strictly enforced white collar crimes, check kiting carries stiff penalties even for first offenders.
Bank fraud charges are used to prosecute check kiting. Under 18 U.S. Code section 1344, anyone is prohibited from using false or fraudulent pretenses, or defrauding a financial institution. It is also illegal to use false promises or representations to obtain a financial instrument under custody or control of a financial institution such as:
• Money
• Funds
• Credits
• Assets
• Securities
Penalties for this crime are the same that a defendant receives for a bank fraud conviction: 30 years in prison and/or up to a $1 million fine. Not only does the offender face criminal charges, but civil charges may also be filed the bank wants to sue for its losses.
Legal penalties are greater if corporations or large businesses are found guilty of check kiting.
Call a Check Kiting Lawyer for This Very Serious White Collar Crime
The larger the scheme of check kiting, the more complex the case becomes, which leads to more severe penalties. Spodek Law Group, PC fully understands the complex nature of cases involving check kiting. We help clients build a good defense from the start.
That is why contacting legal counsel as soon as possible is critical for anyone or business entity that is charged. Our firm will recommend defense strategies such as you did not knowingly plan to defraud the bank based on the evidence in your case.