The harrowing robbery of Kim Kardashian in Paris, Jesse James’ historical bank heists and even notorious bank robber Willie Sutton played into U.S. Supreme Court arguments on Tuesday as the justices wrestled with the level of intent needed to prove federal bank fraud.
The justices heard arguments in Shaw v. United States on the second day of the new term, but the first day of actual arguments. The high court officially opened the new term on Monday but recessed for the Jewish new year Rosh Hashanah after swearing in new members of the Supreme Court bar.
That extra day, and even a little help from the Kardashian, James and Sutton experiences, did little to clarify whether a key section of the 1984 bank fraud statute requires proof of intent to cause harm to a bank or financial institution, or simply to deceive it.
The section in focus simply states that “whoever knowingly executes, or attempts to execute, a scheme or artifice (1) to defraud a financial institution…shall be fined not more than $1 million or imprisoned not more than 30 years or both.”
Deputy federal public defender Koren Bell, representing Lawrence Shaw, argued that the intent to defraud a financial institution must include intent to harm it financially.
“The bank must bear the loss of the scheme,” Bell told the justices.
But assistant to the solicitor general Anthony Yang countered that a scheme to defraud a bank “only requires intent to deceive the bank for the purpose of obtaining something of value.”
Bell’s client, Shaw, lived with the daughter of a Taiwanese businessman, Stanley Hsu, who had opened a Bank of America account while working temporarily in the United States. When Hsu returned to Taiwan, he arranged for his bank statements and related correspondence to go to his daughter. Shaw, while checking the mail, discovered the bank statements and devised a scheme to remove money from the bank account to another account he controlled.
Shaw ultimately took about $307,000 before his scheme was discovered. He was convicted of 14 counts of bank fraud. The U.S. Court of Appeals for the Ninth Circuit affirmed his conviction. The bank returned about $131,000 to Hsu, and PayPal, a conduit of the scheme, returned about $106,000. Hsu lost about $170,000 by failing to notify the bank within 60 days of Shaw’s transactions.
Several justices pressed Bell on whether the bank did bear a loss—a possessory right in the money—in Shaw’s scheme. But she argued that a scheme is a plan with a purpose. “The only thing that matters is what the defendant intends,” she said, and Shaw’s intent was to defraud Hsu, not the bank.
Justice Ruth Bader Ginsburg asked Yang why the government didn’t charge Yang under the second section of the statute, which criminalizes schemes to obtain money—by fraudulent pretenses—that is owned by, or under the control of, a financial institution.
“Because you have to prove a false representation, and crimes on the Internet cause some problems with that,” Yang said.
In 2014, the Supreme Court in Loughrin v. United States held that the second section of the statute does not require proof of intent to cause loss to a bank.
“A decision that holds the bank fraud statute criminalizes any fraudulent scheme that includes, somewhere as part of the crime, an act of deceit aimed at a bank risks wildly expanding the threat of federal prosecution,” said former federal prosecutor Matthew Schwartz of Boies, Schiller & Flexner, who is not involved in the case.
The circuit courts are divided on the intent question. Nine appellate courts have sided with Shaw’s intent-to-harm the financial institution argument; three have held the opposite.