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Last Updated on: 26th July 2023, 10:10 pm
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Before the check is processed by first bank, where it will be rejected for insufficient funds, money is withdrawn from the second bank.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:
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.
Behind a seemingly innocuous act of check kiting lies a deeply embedded scheme of fraud, made possible through exploiting the time gaps in the processing of nonexistent funds by banks. As a form of theft, it is a dangerous ploy that has evolved with the advent of computerized systems, ultimately increasing its complexity and the difficulties in proving its intention. Outlined below are the intricacies of check kiting, the methods banks use to detect it, and the legal penalties for those who dare to commit it.
At its core, check kiting involves leveraging the natural delay in bank processing to make use of non-existent funds before the bank discovers the check is invalid. This illegal act usually occurs when someone exchanges a worthless check for goods and services.
In practice, check kiting happens when an individual writes a check from one bank account with insufficient funds, deposits it into another account at a different bank, which also has insufficient funds to cover the check. Before the first bank processes and rejects the check due to insufficient funds, the perpetrator withdraws money from the second bank, leaving the bank at a loss.
Check kiting can also occur on a larger scale, with struggling businesses using it to generate cash flow revenues or individual depositors with low-balance accounts.
Banks have developed several strategies, from hands-on observations to advanced computer systems, to detect check kiting instances. They can identify suspicious account activities that point towards potential check kiting, such as using a check to cover overdrafts, depositing checks frequently, and making multiple deposits and withdrawals on the same day. Other red flags include writing exact amounts on checks and using different branches or ATMs to avoid face-to-face transactions when making deposits.
While these activities do not prove outright that an account holder is kiting checks, they generate suspicion from bank representatives and law enforcement agencies.
The complexity of proving check kiting and establishing intent does not detract from the gravity of this white-collar crime. With strict enforcement policies in place, even first-time offenders can face harsh consequences.
Bank fraud charges are typically used to prosecute check kiting, and under 18 U.S. Code section 1344, it is illegal to use false or fraudulent pretences or defrauding a financial institution. Some examples of financial instruments that are held under the custody or control of a financial institution include money, funds, credits, assets and securities.
The penalties for this crime, such as for bank fraud conviction, are severe, with sentences of up to 30 years in prison and/or fines of up to $1 million. In some cases, not only will the offender face criminal charges, but civil charges may be filed if the bank decides to sue for its losses. Legal penalties are even greater if corporations or large businesses are found guilty of check kiting.
As the scale and intricacy of check kiting schemes increase, so do the complexities of the cases and the severity of the penalties. Engaging in legal counsel with specialised expertise is essential for those who find themselves charged with check kiting.
Spodek Law Group, PC fully understands the complexities of cases involving check kiting and helps clients build a solid defense from the outset. Our firm recommends defense strategies that emphasize the lack of intent to knowingly defraud the bank, based on the evidence in your case. Therefore, reaching out to legal counsel as early as possible is critical for individuals or business entities facing check kiting charges.
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