The Supreme Court Affirms Expansive Reading Of The Bank Fraud Act
On December 12, 2016, the Supreme Court of the United States unanimously affirmed the conviction of Lawrence Shaw under Section 1 of the Bank Fraud Act of 1984, 18 U.S.C. § 1344(1), holding that a defendant can be guilty of bank fraud even where the defendant intends only to defraud a bank’s customer, and not the bank itself. Shaw v. United States, No. 15-5991, 580 U.S. __ (Dec. 12, 2016). While the holding was an entirely unsurprising result, it reaffirmed that the bank fraud statute (like the mail and wire fraud statutes) is interpreted broadly — a position also supported by the Ninth Circuit’s previous decision in Shaw’s case. United States v. Shaw, 781 F.3d 1130 (9th Cir. 2015), cert. granted, 136 S. Ct. 1711, 194 L. Ed. 2d 809 (2016), and vacated, No. 15-5991, 2016 WL 7182235 (U.S. Dec. 12, 2016).
According to the Ninth Circuit’s opinion, the facts of the case involved a scheme by Shaw to fraudulently obtain funds from the bank account of a specific bank customer, Stanley Hsu. Shaw had discovered Hsu’s bank account number, and then used a PayPal account to transfer approximately $307,000 from Hsu’s bank account to Shaw’s own account at another bank. Shaw was convicted under Section 1 of the Bank Fraud Act and appealed on the grounds that Section 1 did not apply to his scheme because Shaw intended to harm Hsu, not the bank.
Under Section 1, it is a crime to “knowingly” execute a scheme “to defraud a financial institution.” Shaw argued that his conviction should be overturned because, among other things, he claimed that Hsu’s funds were not the bank’s property and, even if the bank did have a property interest in Hsu’s funds, Shaw did not know about that interest and thus could not have intended to defraud the bank of its property. Indeed, more broadly, Shaw claimed that based on the language of the statute, he could only be convicted if the government proved that his specific intent – that is, his purpose – was to defraud the bank.
The Supreme Court rejected each of Shaw’s arguments. First, the Court held that the bank had a property interest in the funds that Shaw obtained, observing that, even if the funds belonged to the bank’s depositor, the bank could for instance use the funds to make loans. Second, the Court held that Shaw’s lack of any specific intent to harm the bank was irrelevant because the Bank Fraud Act does not require a showing of intent to cause a financial loss – rather, it requires only an intent to defraud. As a corollary, the Court held that Shaw properly could be found guilty of bank fraud as long as the jury found that Shaw knew that he was entering into a scheme to defraud the bank, even if he was unaware of the bank’s property interest in the cash in Hsu’s account. The Court explained that the Bank Fraud Act – in contrast to certain statutes involving fraud against the government – does not require the government to establish that the defendant’s purpose is to defraud the affected financial institution; it only requires the government to establish an intent to defraud and knowledge that the scheme to defraud would likely harm the institution’s interests.
Although not a surprising result, the Supreme Court’s decision is an important reminder that fraud statutes will be read broadly. As the Court wrote, “[m]any years ago Judge Learned Hand pointed out that ‘[a] man is none the less cheated out of his property, when he is induced to part with it by fraud,’ even if ‘he gets a quid pro quo of equal value.’ That is because ‘[i]t may be impossible to measure his loss by the gross scales available to a court, but he has suffered a wrong; he has lost,’ for example, ‘his chance to bargain with the facts before him.’” Shaw, Slip Op. at 3-4 (quoting United States v. Rowe, 56 F.2d 747, 749 (2nd Cir. 1932)).