Check kiting is a crime that involves one or more individuals who utilize checking accounts at two or more financial institutions. The purpose of using two or more institutions is for the systematic exchange of checks written in similar amounts. The individual uses the lag time that it takes to clear checks through the Federal Reserve System to use and collect the money. The individual in essence obtains money that he actually does not have in his account. Often times the individual will have the money in his account in a few days, but in the mean time is able to basically obtain an interest free loan from the financial institutions involved in his scheme.

In October 2004 Congress passed a new law that substantially cut the lag time it takes for a check to clear. The rationale behind passing the federal law was to prevent check kiting schemes.

An individual or individuals may be charged with check kiting as well as wire, mail, and bank fraud depending upon the facts of the case involved. An individual connected to a financial institution that participates in such a scheme may also be subject to federal prosecution under several other statutes

Improper Personal Loans to Bank Officers

It is illegal for an officer of one financial institution to obtain a personal loan from another financial institution at a preferential rate of interest where there is a corresponding deposit of funds belonging to the officer's financial institution into the lending institution. The deposit into the lending institution constitutes a misapplication of funds.

Overdrafts

An overdraft is an interest free extension of credit from the payor financial institution to the financial institution's customer who has drawn the check. Criminal liability may exist with respect to overdrafts where the customer is also an insider of the payor financial institution. However, overdrafts in and of themselves do not constitute misapplication unless the overdraft was accompanied by evidence of fraud.

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