We believe that the activities you described would be considered check kiting, and they also may be considered to constitute “bank fraud” in violation of federal and Illinois law. We cannot comment on a specific customer, but the definitions below will be helpful in determining whether to report these activities.
In an October 2007 SAR Activity Review, FinCEN provided its definition of check kiting as follows: “A practice in which an individual with accounts at two or more financial institutions intentionally utilizes the delay in the check clearing process to write checks from one account to deposit into the second account, all the while knowing that the first account does not have collected funds. The subject continues this cycle, moving checks between accounts, to make it appear as if funds are available and using the balance in the accounts for expenditures.”
FinCEN also refers to the United States Criminal Code, which defines “bank fraud” as follows:
“(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 financial institution, by means of false or fraudulent pretenses, representations, or promises.”
In addition, under the Illinois Criminal Code, it is a criminal “deceptive practice” to pay for property or services with a check with the knowledge that the check will not be paid. Certain circumstances will give rise to an inference that a drawer has the required knowledge that the check will not be paid: First, if the drawer issued the check when the drawer did not have sufficient funds or credit with the bank to pay the check. Second, if a single check is “presented for payment and dishonored on each of 2 occasions at least 7 days apart.” 720 ILCS 5/17-1(B)(1).