Bank Fraud · Evidence

Can a Fintech Transaction Be Federal Bank Fraud?

A fintech brand alone does not establish bank fraud. The analysis turns on the covered institution, the property at issue and the alleged scheme.

By Heath Hyde · East Texas and statewide

Mr. Heath Enix ‘Heath’ Hyde
Eligible to Practice in Texas
Attorney at Law
Bar Card Number: 00796807
TX License Date: 11/01/1996

Primary Practice Location: Sulphur Springs, TX and Dallas, TX
214 Connally St Ste A
Sulphur Spgs, TX 75482-2612

Yes. Using a payment app does not put a transaction outside the federal bank-fraud statute. Nor does the app’s name prove a crime. The charge still has to meet the requirements of the applicable part of 18 U.S.C. § 1344. For subsection (2), that includes a scheme to obtain property of a covered financial institution, or property in its custody or control, by false or fraudulent means.

Identify the entities and the accounts

The name on the app may be only one name in the file. Identify the platform, sponsor bank, lender, payment processor, merchant, account custodian, and customer. Use the records below to put each participant on the transaction diagram.

In Shaw v. United States, the money came from a customer’s bank account. The case involved subsection (1). Shaw argued that he had meant to cheat the depositor, rather than the bank. The Supreme Court rejected that argument: the bank also had a property interest in the deposits. Shaw knew the bank held the funds and misled it to get them. Those facts matter when applying the decision to a payment app. A bank’s distant involvement in a transaction is not enough to prove the whole charge.

Match each count to the property

Take the counts one at a time. Which institution does this count name, and did it qualify under the statute on the alleged offense date? Identify the money or other property being claimed. Counsel also needs the prosecution’s explanation of how the false statement brought about the transfer. Mark the account holding the funds separately from the party that ultimately paid the loss. Those may be different entities.

Read the agreement that applied at the time

A banking-as-a-service agreement may give one company operational control and another the underwriting work. It may separately allocate fraud losses and obligations to customers. A provision making the platform pay chargebacks therefore does not necessarily answer who held the money at the time of the alleged offense.

Get the contract version that was in force on the transaction date. If a bank witness offers a compliance summary, compare it with that agreement. Someone familiar with the settlement process should be able to explain what actually happened in the accounts.

When requesting those records, name the account ledger, the agreement and the date range that show the institution’s role. Ask that other customers’ information be redacted. Complexity alone does not defeat a prosecution. The point of tracing the payment is to see whether the evidence proves the required elements.