When someone uses a financial document or instrument fraudulently, they are said to be kiting. One can use the document, such as a check to gain access to unauthorized credit.
Kiting occur when one alters the value of a financial instrument such as a check in order to gain financial leverage or when one issues a check for an account with insufficient funds.
A Little More on What is Kiting
If a security firm fails to offer securities in timely manner, usually before the settlement period of three days expires, kiting may occur. The firm that was meant to receive the securities will have buy them from on the open market and charge the firm that failed to deliver. If the security firm that fails does not buy the securities, delays delivering or is engaged in activities other than those stipulated by SEC, the firm is considered to be kiting.
A while ago, checks would take a long time to cash out. Due to this, individuals would write checks with insufficient funds and deposit them waiting for the lengthy period before the check cashed. Nowadays, banks have reduced the time it takes to cash a check and have also reduces acts of kiting by charging return checks.
All acts of kiting are illegal.
References for Kiting
Academic Research on Kiting
- Check Kiting: The Inadequacy of the Uniform Commercial Code, Lucie, S. A. (1986). Duke LJ, 728. This paper gives an example of a kiting practice and how a kiter might be able to get away with the act of kiting. The author shows that while banks have enhanced their systems to reduce kiting, there are still cases in which computer systems cannot monitor all active accounts as the bank processes checks. It shows the inadequacies of the Uniform Commercial Code and offers a simple model under which kiting can be eliminated.
- Allocation of Check Kiting Losses Under the UCC, Regulation CC, and the Bankruptcy Code: Reconciling the Standards, Overby, A. B. (2009). Wake Forest L. Rev., 44, 59. This paper analyzes the losses that financial institutions experience due to check kiting. It specifically examines Regulation CC and how it can help financial institutions mitigate losses. For kiting to reduce, the author suggests that the Regulation CC must be reexamined.
Grounding Check Kiting with Check 21: The Civil and Criminal Ramifications of Check Kiting in the 21st Century, McCurnin, T. E., & Frandsen, P. A. (2008). Banking LJ, 125, 295. The author in this paper looks at the different methods kiters use to fraudulently access credit using checks. The paper also offers suggestions on how banks and financial institutions can mitigate kiting and how the institutions can claim losses from kiters and insurance bond. The paper also examines bankruptcy ramifications, such as Check 21, have reduced kiting.
What Goes Up Must Come Down: Check Kiting, the UCC and the Trustee’s Avoiding Powers, Reilly, M. T. (2003). Am. Bankr. LJ, 77, 333. This paper explains what kiting is and how banks are affected by it. It also shows how creditors try to clean up the mess when a kite crashes. In this case, the trustee of a bankrupt debtor will try to augment the estate through avoiding powers. This is where there is a crash between bankruptcy and no bankruptcy laws that this paper examines.
Check-kiting at the House Bank: How it worked, how it didn’t., Kuntz, P. (1992). Congressional Quarterly Weekly Report, 50(9), 446-451. This article examines different cases of Check kiting, how these cases have succeeded and how they were mitigated to bring sanity into the system.
Check Kiting: Detection, Prosecution, and Prevention, Turner Jr, J. S., & Albrecht, W. S. (1993). FBI L. Enforcement Bull., 62, 12. The paper gives a real example of a kiting case, how banks were not able to detect or prosecute the cases. It shows how kiting schemes have become better with more banks and creditors losing money to kiters. Due to the increased kiting system, the FBI developed the Check Kite Analysis System, CKAS, which is a computer system meant to reduce the bulk of kiting investigations and to prove the intentions of the kiter to defraud.
Check Kiting, Meyerowitz, S. A. (2008). Banking LJ, 125, 293. This paper shows that despite the implementation of acts and banks tightening their systems, kiting is still a problem in the US. The paper discusses how banks can detect kiting and check the history of kiting from past transactions and how banks can collect losses from customers and from insurance bonds. In conclusion, the author examines the criminal aspects of kiting including how to prosecute and defend.
A Legal Look at the Check Kiting Problem, Savord, C. (1982). Simon Greenleaf L. Rev., 2, 146. There are different acts that have been implemented to eliminate kiting but even these have not been able to mitigate the practice. This paper examines these acts and how effective they have been at curtailing the practice and in areas they have failed in reducing kiting. It examines how to prosecute kiting, kiting defense and other legal issues related to kiting.
Cheque kiting? I have an idea!!, Ilter, C. (2018). .Journal of Financial Crime, 25(2), 589-597. The aim of this paper is to offer a model which can be used to mitigate kiting practices. It starts by showing how kiting occurs, including how fake balances are created on the balance sheet. It starts by comparing the check clearance system in the US and in Turkey and offers an accounting application that financial institutions can use to reduce issues of balance misrepresentation. The author observes that unless the current accounting system is changed, kiting cannot be stopped. He also observes that financial statements are very vital for creditors, government, investors and businesses. The conventional check clearance system is not transparent enough and thus needs changing. The author created this paper after his experiences in Turkey and after studying the US check clearance system.
After the Crash: Banking and the Criminal Implications of Check Kiting, Grindle, D. J. (2010). Fed. Law., 57, 22. This paper looks at cases of kiting and how they have affected the banking system. It starts by showing cases where kiters have been prosecuted and what this has done to the kiting practice. The author then looks at the kiting practice in details and the acts that have been placed in place to stop the practice.
CHECK-KITING AND HABITUAL OVERDRAWING DEPOSITORS, Morehouse, W. R. (1928). Bankers’ Magazine (1896-1943), 117(2), 232. This paper is an examination of the kiting practice and how the kiters have developed different schemes to enhance their act. It shows the various ways kiters have devised to defraud banks and other financial institutions.
CHECK FRAUD AND KITING, MARSH, Q., American Soc for Industrial Security, & United States of America. (1974). SECURITY MANAGEMENT, 18(2), 13-16. This paper is an analysis of kiting and how it is used by defrauders. The author looks at different instances through which kiters defraud banks. It looks at the regulations that have been set in place to safeguard the security of banks and mitigate losses banks experience.