What is Check Kiting?
Perhaps you have heard of check kiting in the movies or your favorite crime shows. If you weren’t quite sure what it meant, don’t worry – you’re not alone. The definition can be a bit tricky because there are many examples of check kiting. However, in the simplest terms, it is bank fraud to get money by writing bad checks before the funds are collected from the account.
Think of it as the shell game. But, instead of passing the ball under the shells, you are transferring money between accounts. When someone participates in check kiting, the fraudster writes checks from a bank account with insufficient funds to cover the amount on the check. Then, they deposit the bad checks into another account to obtain cash. By taking advantage of the time it takes banks to process the transaction, they remain undetected. However, the game ends when the money stops moving or the financial institution discovers the insufficient balance.
Check kiting is highly illegal and severely prosecuted by state and federal authorities. Banking regulations clearly state that the funds in the account must be available in the specified time. So, while it is possible to accidentally write a bad check, check kiting involves behaviors intended to deceive the financial institution(s) for personal gain.
4 Examples of Check Kiting
Scammers and fraudsters have adapted this practice to get money in several different ways. Sometimes it is the result of people trying to take advantage of gray areas in the law to get quick cash to pay the bills. Yet, other times it is intentional fraud for personal financial gain. Here are four examples of check kiting which are most frequently performed and prosecuted.
1. Getting a short-term loan.
The most common reason people practice check kiting is to get a short-term loan when they need money fast. By writing a check from an insufficient account then cashing it the next day, you can get cash right away. Then, you have 2-3 days for the transaction to be processed to transfer funds into the account. Although the money is technically in the account at the time of the withdrawal, it is still illegal to write checks from an underfunded account.
2. Floating checks until payday.
Another way you could unknowingly be partaking in check kiting is if you post-date or ‘float’ your checks to get you to payday. In this instance, you are writing checks that can’t be cashed until the future date written on the check. Despite the fact that you have a direct deposit scheduled into the account, floating checks is illegal since you are making a transaction before the money is actually in your account.
3. Getting Funds to Cover Payroll.
This is one of the examples of check kiting performed by a business or corporation. When a company doesn’t have the funds to cover payroll, its employees may do some creative accounting to come up with the cash.
If the business holds accounts at two different banks, they may try to write checks between the accounts to buy time to obtain the funds. First, they deposit the amount from one account into the other. Then they get instant money by cashing the check the next day. The loophole exists because the federal law indicates they can legally access their funds the following business day. Even if the transaction hasn’t been processed, the bank has to cash the check. If the scammer performs it over a holiday or weekend, it could take even longer to discover the fraud.
4. Intentionally Committing Bank Fraud.
Finally, there are some people out there who are intentionally looking to deceive the financial institution by committing bank fraud. They utilize a variety of schemes that transfer funds between accounts to get cash and take advantage of the window of time it takes to process the checks. Sometimes it is a simple scheme with checks from a single bank. Other operations are more elaborate, including several different branches or banks.
What are the Consequences of Check Kiting?
The federal government considers check kiting a serious crime. In fact, they enforce the penalties for check kiting more strictly than other white-collar crimes. If you partake in this crime, you could find yourself facing fines totaling more than $500,000 or over 20 years in jail.
Offenders also face both state and federal charges since the federal government regulates and enforced check kiting laws. If convicted, you would likely receive a misdemeanor for smaller amounts. However, if you are guilty of stealing larger amounts or writing multiple checks, the judge may decide it warrants a felony and jail time. Additionally, criminals could have civil charges brought against them if the victims decide to sue for damages alongside criminal charges filed by the federal authorities.
The American justice system shows little leniency for first-time offenders who often face severe penalties and fines. Although many people often assume that only individuals commit these types of crimes, many corporations and businesses have also attempted the scheme. When this is the case, the guilty parties will receive even harsher penalties.
What Do You Do When Accused of Check Kiting?
If you have inadvertently committed check kiting, it is very unlikely that the authorities will pick you up for questioning. The federal government is more focused on identifying patterns of behavior that indicate that someone has been intentionally committing fraud. They don’t typically get involved unless there are serious damages and injuries or repeated patterns of fraud.
Most isolated incidents rarely draw attention since they are usually accidental or isolated incidents. However, if you have knowingly taken part in check kiting, you should seek expert advice and legal counsel. It is also a good idea to become familiar with both local and federal laws governing the enforcement of check kiting laws. Check kiting is a serious crime, not the answer for getting quick cash when you’re in a bind.