Check kiting

From Free net encyclopedia

Check kiting is any sort of fraud that involves drawing out money from one bank account that does not have sufficient funds to cover the check. Most check kiting schemes are achieved with the use of two bank accounts.

Check kiters typically write a check on one account, then deposit into their second bank account (this type of check is referred to as a kite). Just before the check is submitted to the first bank for payment, the kiter then deposits a check written off the second bank account, which also has insufficient funds. This is possible due to the delay created by the collection of funds by one bank from the other (known as float time), which creates an artificial balance. In accounts with interest that compounds frequently, this can provide a significant amount of profit for interest over time on top of other funds.

Such a circular scheme is nearly impossible to get out of and requires perpetuation if not expansion of the fraud in order to avoid detection. Simpler check kiting schemes are detected by the banks computers based on the repetition of transactions. With the advent of electronic checks, float time is being significantly reduced, because banks are no longer required to mail paper checks from one institution to another. Also because a check may be closed out the same business day, a check kiter may have a check bounce if they are even slightly careless, and may not benefit from interest where it is based on end-of-day balances.

Check kiting is one of the many bank frauds perpetrated by Frank Abagnale, who wrote a book about his escapades, which was later made into a movie called Catch Me If You Can.

The terms, first used in the mid 1800s, comes from "kite flying".

Check kiting is illegal in the United States. The Banking industry is heavily regulated and even insured by the Federal government. According to the United States Department of Justice check kiting can be prosecuted under several existing laws including Bank Fraud (18 U.S.C. § 1344), Misapplication (18 U.S.C. § 656), or as a violation under 18 U.S.C. § 1005 (required entries). It can draw a fine of up to $1,000,000.00, imprisonment for up to 30 years, or both. In addition to the Federal Remedies, State Law often provides for alternate civil and criminal consequences.