Case Information
*2
SCHROEDER, Circuit Judge:
Congress enacted the Bank Fraud Act in 1984, and ever
since, the federal courts have grappled with whether its
provisions require proof of an intent to cause harm to the
bank itself. The Act contains two clauses: the first
criminalizes schemes “to defraud a financial institution,” and
the second schemes to obtain bank assets or property under its
control “by means of false or fraudulent pretenses,
representations, or promises.” 18 U.S.C. § 1344. Last year,
the Supreme Court held that the second clause does not
require proof that the defendant intended to defraud the bank.
Loughrin v. United States
,
The principal intended victim in this case, at least according to the defendant, was a bank customer, Stanley Hsu. The defendant, Lawrence Shaw, had access to the victim’s bank statements. The gist of Shaw’s scheme was to use PayPal, an online payment and money transfer service, to convince the banks that he wаs Hsu and thus had authority to transfer money out of Hsu’s bank accounts and into the PayPal account in Shaw’s control.
The government charged Shaw with violating § 1344(1). Shaw sought a jury instruction that, under § 1344(1), the government had to prove not only that he intended to deceive the bank, but that he also intended to target the bank as the principal financial victim of the fraud, rather than the account holder or PayPal. The district court refused to give such an instruction, concluding that clause 1 required proof only that the defendant intended to deceive the bank, not that he also intended the bank to bear the loss.
While the circuits are divided as to the requirements of
§ 1344(1), our Ninth Circuit case law answers Shaw’s
argument. We have held that, to the extent § 1344(1) requires
any intent to expоse the bank to a risk of loss, the requirement
is easily satisfied by the bank’s having to bear some potential
administrative expenses that necessarily result from being
defrauded.
See United States v. Wolfswinkel
,
These cases help define the meaning in this circuit of § 1344(1)’s element of intent “to defraud,” and establish that it does not include intent to financially victimize the bank. That result is fully consistent with the Supreme Court’s decision in , and indeed complements Loughrin ’s holding that § 1344(2) of the statute does not require any intent to defraud the bank. Section 1344(1) does require intent to defraud the bank, but neither clause requires the *4 bank to be the intended financial victim of the fraud. We therefore affirm the conviction.
BACKGROUND
The charges in this case arose from a scheme defendant Shaw devised to tаke money from bank accounts belonging to Stanley Hsu, a Taiwanese businessman. Hsu opened a Bank of America account while working in the United States. When he returned to Taiwan, he arranged for the daughter of one of his employees to receive his mail in the States and forward it to him in Taiwan. Shaw was living with the daughter and routinely checked her mail. When Hsu’s Bank of Americа statements began to arrive, Shaw opened them and learned Hsu’s account and personal information.
Shaw used the information from Hsu’s statements to execute the following scheme: he opened an email account in Hsu’s name, then used this email account and Hsu’s personal information to open a PayPal account. Shaw “linked” the PayPal acсount to Hsu’s account with Bank of America. He was able to circumvent PayPal’s security measures because of his access to the information in Hsu’s bank statements.
On June 4, 2007, Shaw opened two accounts with Washington Mutual under the name of his father, Richard Shaw, without his father’s knowledge or permission. One account was a savings account (“Tier 1” account), which Shaw linked to thе fake Hsu PayPal account. During the process of linking the Tier 1 account with the Hsu PayPal account, PayPal identified the request as suspicious. PayPal sent an email to the fake Hsu email account asking for additional information. In response, Shaw faxed PayPal a copy of Hsu’s Bank of America account statement, and a bank statement he had altered tо appear as if Hsu owned the Richard Shaw accounts. He also sent a copy of Hsu’s driver’s license, which he had altered to have a younger birth *5 6 U NITED S TATES V . S HAW date. On the basis of these falsified documents, Washington Mutual and PayPal allowed the savings account in the name of Shaw’s father and the PayPal account in Hsu’s name to be linked.
The second account Shaw opened in his father’s name was a checking account (“Tier 2” account). This account was linked to the Tier 1 savings account. Shaw’s scheme ultimately siphoned the funds into a third Washington Mutual account, a joint account which Shaw had previously opened in his and the daughter’s name, although without her knowledge.
Once the accounts were set up and linked, Shaw began to withdraw mоney from Hsu’s Bank of America account through a series of online transfers and checks written to himself. He would transfer money from the Hsu Bank of America account first to the Hsu PayPal account, then transfer it from the Hsu PayPal account to the Tier 1 savings account with Washington Mutual. Then, Shaw would transfer money from the Tier 1 account to the Tier 2 checking account, which аllowed him to write checks to himself, signing his father’s name. Finally, he would deposit those checks into the Washington Mutual joint account that he controlled.
Using this scheme, Shaw was able to convince the banks to transfer and release approximately $307,000 of Hsu’s money to Shaw between June and October 2007. Hsu’s son discovered the missing money in October 2007, reported the fraud and closed the Bank of America account.
Bank of America returned approximately $131,000 to Hsu, covering the fraudulent activity that occurred within 60 days of the reported fraud. PayPal reimbursed Bank of America for this amount. In the end, PayPal bore approximately $106,000 of the loss and Hsu over $170,000, because Hsu did not notify the banks of the losses within 60 days of many of the fraudulent transactiоns, as the parties all agree was required by standard banking practice.
DISTRICT COURT PROCEEDINGS *6 The government charged Shaw with 17 counts of bank fraud in violation of § 1344(1) and in December 2012 the case went to trial before a jury. The defense theory was that a bank fraud conviction under § 1344(1) requires fraudulent intent to expose the bank itself to monetary loss, and Shaw intended only to expose PayPal аnd Stanley Hsu to any monetary loss. Shaw argued that “intent to defraud” means intent to deceive and cheat the bank. Shaw therefore asked for jury instructions which would require the government to prove that Shaw had intended the bank to be not only the target of the deception, but to suffer an actual loss or risk of loss as the financial victim of the fraud. His requested instructions provided:
(1) The defendant knowingly carried out a scheme to defraud [the bank]; that is a scheme designed to victimize [the bank] by causing [the bank], not only Stanley Hsu, monetary loss;
(2) The defendant actively deceived [the bank] as to a material fact; that is, a fact that had a natural tendency to influence, or was capable of influencing, [the bank] to part with money or property;
(3) The defendant acted with the specific intent to defraud [the bank]; that is, with the intent to deceive and cheat [the bank] in order to expose [the bank], not only Stanley Hsu, to monetary loss.
(4) [The bank] was federally insured by the FDIC.
It is not enough for the government to prove that Mr. Shaw carried out a scheme to obtain Mr. Hsu’s money by deceiving [the bank]. In order to convict Mr. Shaw, you must find that [the bank] itself was both the targеt of his deception and an intended victim of the fraud.
The district court declined to give Shaw’s requested jury instructions. The district court concluded that risk of loss was an element that the bank fraud statute did not require, and that the bank need not be an intended financial victim of the fraud. Instead, the trial judge gave instructions based on a *7 combination of model jury instructions and instructions used in prеvious bank fraud cases in the Ninth Circuit. The judge instructed the jury that:
[i]n order for the defendant to be found guilty of bank fraud, the government must prove each of the following elements beyond a reasonable doubt:
First, the defendant knowingly executed a scheme to defraud a financial institution as to a material matter;
Second, the defendant did so with the intent to defraud the financial institution; and Third, the financial institution was insured by the Federal Deposit Insurance Corporation. . . . .
The phrase “scheme to defraud” means any deliberate plan of action or course of conduct by which someone intends to deceive, cheat, or deprive a financial institution of something of value. It is not necessary for the government to prove that a finаncial institution was the only or sole victim of the scheme to defraud. It is also not necessary for the government to prove that the defendant was actually successful in defrauding any financial institution. Finally, it is not necessary for the government to prove that any financial institution lost any money or property as a result of the scheme to defraud. . . . .
An intent to defraud is an intent to deceive or cheat.
The jury convicted Shаw of 14 counts of bank fraud on December 13, 2012, and this appeal followed.
10 U NITED S TATES V . S HAW
DISCUSSION
The bank fraud statute, 18 U.S.C. § 1344, provides: Whoever knowingly executes, or attempts to execute a scheme or artifice— (1) to defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financiаl institution, by means of false or fraudulent pretenses, representations, or promises; shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.
In
Loughrin v. United States
, the Supreme Court construed
the second clause, and held that it does not require the
government to prove that the defendant intended to defraud
the bank.
In holding that the two clauses create separate offenses,
the Court rejected the reasoning of the Third Circuit.
See id.
at 2388–89. The Third Circuit held that clauses 1 and 2
*9
conjunctively create only one offense, and thus all violations
of the statute require both the intent to defraud the bank and
that the bank be exposed to a risk of loss under the relevant
law.
United States v. Thomas
,
Shaw’s argument in this case therefore focuses on the difference between the two clаuses. He points out that the second clause covers schemes intended to obtain a third party’s property. He argues that the first clause, under which he was convicted, therefore must require that a defendant intend to obtain the bank’s property. Thus, he asks us to conclude that a conviction under § 1344(1) requires a showing that the defendant intended to expose the bank to the principal risk of loss. Such a requirement was not satisfied since, in this case, Shaw intended his principal target to have been the bank’s customer, Hsu.
Shaw thus seeks to characterize the difference between the two clauses as involving the intended financial victim of the fraud, i.e., the intended bearer of the loss. The language of neither clause of the statutе, however, refers to monetary loss or to the risk of such loss. The statutory language focuses on the intended victim of the deception, not the intended bearer of the loss. Section 1344(1) requires the intent to deceive the bank. Section 1344(2) requires false or fraudulent representations or pretenses to third parties. The Supreme Court made this point in Loughrin when it noted that the second clause was intended to broaden the scope of bank fraud to include schemes that did not involve deception of the bank directly, such as schemes to use stolen credit cards. See 134 S. Ct. at 2391–92. Section 1344(1) thus covers schemes to deceive the bank directly. Neither clause requires the government to establish the defendant intended the bank to suffer a financial loss.
Analysis of our circuit’s law before counsels the
same result. In
United States v. Bonallo
,
In Bonallo , a bank employee withdrew funds frоm his own account via the ATM, then manipulated the bank’s computer system to charge the withdrawals against other customers’ accounts. Id. at 1429–30. The defendant argued that the other customers were the intended victims of his scheme and therefore the bank was not defrauded within the meaning of the statute. We rejected this argument, finding that the bank was the target of his misrepresentation, even if the customers’ accounts were the source of the funds. See id. at 1434 n.9. In short, the defendant was guilty of bank fraud because he intended to deceive the bank.
In United States v. Wolfswinkel , 44 F.3d 782 (9th Cir. 1995), we considered whether a risk of financial loss to a bank was as an element of § 1344(1). We held that even if there were such a requirement of financial loss to the bank, it was easily satisfied. The defendant was cоnvicted of bank fraud under § 1344(1) after he engaged in a check-kiting scheme, during which he convinced a bank officer to sell him cashier’s checks paid for with insufficiently-backed checks. Id. at 784. On appeal, Wolfswinkel argued that the government had to show he exposed the bank to a risk of loss under § 1344(1), and he had not, because he provided collateral to the bank tо secure any losses for the bounced checks. Id. at 785–86.
In affirming Wolfswinkel’s conviction, we recognized a circuit split as to whether § 1344(1) requires proof of risk of loss to the bank to establish the defendant’s intent to defraud. Id. at 786. We held, however, that even assuming there were such a requirement, Wolfswinkel’s scheme satisfied it. See id. Although he had provided security for potential losses, Wolfswinkel еxposed the bank to a risk of loss in the form of administrative costs and the threat of competing creditor claims if it were forced to liquidate the collateral. Id. The defendant need not have intended the bank to bear the risk of losing the amount involved in the financial scheme itself.
The Supreme Court’s decision in does not affect the validity of our precedent, or undermine it in any way. If *11 anything, it lends credence to our reluctance to impose any risk of loss requirement in a prosecution under the bank fraud statute. Loughrin confirms our conclusion that the difference between the two clauses is which entity the defendant intended to deceive, not which entity the defendant intended to bear the financial loss. See 134 S. Ct. at 2389–90 (emphasizing that nothing in § 1344(2) requires specific intent to deceive a bank, which § 1344(1) already covers). Shaw stresses that under the applicable law, the bank, in the end, did not actually lose anything. The losses ultimately fell on Hsu for failing to spot much of the fraud within the legally required 60 days, and on PayPal, which had to reimburse the bank for the rest. Shaw therefore asks us to conclude that he could not have intended tо defraud the bank. A similar argument with respect to clause 2 was dismissed summarily in on the ground that the federal statute was intended to avoid having cases turn on the technical ramifications of banking law. Id. at 2395 n.9. In characterizing § 1344(2), the Court said that the language “appears calculated to avoid entangling courts in technical issues of banking law about whether the financial institution or, alternatively, a depositor would suffer the loss from a successful fraud.” Id. We conclude that the same legislative intent must be ascribed to § 1344(1). There is no reason to believe Congress wanted courts to become more entangled in such technical issues under the first clause than under the second clause.
We recognize that some circuits have held that risk of
financial loss to the bank is an element that must be proven
under § 1344(1).
See, e.g.
,
United States v. Staples
, 435 F.3d
860, 866–67 (8th Cir. 2006) (discussing difference of opinion
among circuits on whether intent to harm or cause the bank
a risk of loss is required). The reason given is that the
purpose of the statute is protection of the federal fisc, and that
purpose is not served if the bank faces no financial risk.
See,
e.g.
,
Thomas
, 315 F.3d at 201. Circuits adopting the
requirement citе to the legislative history of the bank fraud
statute, which shows that Congress enacted it because of the
“strong federal interest in protecting the financial integrity of
[federally insured financial] institutions.”
See, e.g.
,
id.
(quoting S. Rep. No. 98-225, at 377 (1984),
reprinted in
1984
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U.S.C.C.A.N. 3182, 3517.);
United States v. Nkansah
,
The Court in held that § 1344(2) does not require intent to defraud a bank because the plain language of that section includes no such requirement. 134 S. Ct. at 2389–2390. We similarly decline to read an additional element into § 1344(1) that Congress did not include; that does not serve the Congressional purpose; and that could needlessly entangle judges and juries in the intricacies of banking law. The district court correctly refused instructions that included such a requirement.
AFFIRMED .