Article

Criminal Fraud; False Statements

Note: When the beneficiary drew on an LC for delivery of certain replacement parts for an industrial circulating water pump, the applicant was surprised that the shipment had been made so early. Upon investigation, applicant realized that what had been delivered were four "shafts" that had been paid for previously, not the suction bells or impellers which had been listed in the drawing documents required by the LC. The applicant never received the parts indicated in the drawing documents.

Subsequently, the beneficiary was charged with and convicted of bank fraud, wire fraud, and making a materially false statement or report for the purpose of influencing the action of a federally insured institution.

On appeal, the beneficiary contended that a letter of credit is not a document encompassed within the false statement statute under 18 U.S.C. § 1014, which prohibits knowingly making a false statement in order to influence a financial institution's action "upon any application, advance, discount, purchase, purchase agreement, repurchase agreement, commitment, or loan". Beneficiary argued that because "letter of credit" is not specifically mentioned in the statute, it does not fall within the ambit of the statute.

In rejecting this literal approach, the court followed the interpretation of the Third and Seventh Circuits in recognizing that letters of credit can reasonably be read into the statute's meaning under the term "commitment". "By definition, a letter of credit is a commitment made by the bank to honor demands for payment from the beneficiary."

Comment: This case adds a new twist to the commercial meaning of the term "shafted".

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The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.