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What is the crime of providing a “False Statement”?
False Statement to a Bank
This involves presenting financial information to a bank when requesting a loan. It is a federal crime for anyone to willfully make a false statement to a federally insured financial institution. Lending institutions rely upon a company’s financial statements in extending credit or granting a loan. An individual must intentionally make the false statement to the financial institution in order to secure some form of financial rights (such as a loan or guarantee). The statement must relate to a material fact or consideration that the individual knows to be false. A fact is material if it is an important consideration in the determination of whether or not to extend a financial benefit.
False Statement to a Federal Agency
The US Code makes it a federal crime for an individual to willfully and knowingly make a false or fraudulent statement to a department or agency of the United States. The false statement must be material in nature. Making a materially false statement to another person with knowledge that it will be transmitted to a federal agency is also a crime.
- Note: Federal appellate courts recognize the “exculpatory no” exception for simple denials made in response to government questioning as part of a criminal investigation. This type of reaction to government questioning will not lead to charges of making a false statement.
Discussion: How does a false statement to a financial institution compare to a false statement to a governmental agency? Does criminal liability for a false statement to a governmental agency implicate the 1st Amendment?
- A false statement to a financial institution would likely constitute fraud, if the necessary elements are present. A false statement to a governmental agency is criminal without the intent to gain personal value. Remember, the 1st Amendment allows for freedom of speech. Criminalizing speech that is untrue still has implications for an individual’s 1st Amendment rights.
Practice Question: Donnie needs capital to run his business. He goes to the local bank and talks with a loan officer. As part of the loan application process, Donnie must submit his business’s financial history. Donnie makes up some financial statements with false information about the business’s operations and sales. The bank relies on these statements in loaning $30,000 to Donnie’s business. Donnie’s business takes off and is successful. He is easily able to repay the loan. Has Donnie committed a crime?
- The law requires that all statements supplied to lending institutions that have the capacity to influence those institutions be accurate or at least not knowingly false. In this regard the false statement may have the capacity to influence not only at inception but also over the life of the loan with respect to extending the loan, deferring action upon it or modifying it. The elements of the offense of making a false statement are:
- Making a false statement or willfully overvaluing property or security knowing the same to be false.
- For the purpose of influencing in any way the action
- Of the enumerated agencies and organizations.
Morrison, Steven R., When is Lying Illegal? When Should it Be? A Critical Analysis of the Federal False Statements Act (2009). John Marshall Law Review, Vol. 43, p. 111, 2009. Available at SSRN: https://ssrn.com/abstract=1687446
Hecker, Edwin W., Criminal Law – Federal Fraud and False Statements Act – Federal Bureau of Investigation Covered (August 18, 1968). Wayne Law Review, Vol. 14, p. 642, 1968. Available at SSRN: https://ssrn.com/abstract=2131817