Before diving into federal fraud offenses, you should understand what constitutes fraud. It is any intentional deception or misrepresentation that someone uses to harm another person and obtain a benefit for themselves. Typically, fraud results in a financial loss for one person or business and a financial gain for another, though the crime does not have to center on money. Federal law does not ban fraud generally. Instead, there are numerous fraud-related statutes that prohibit specific activities.
Fraud can be prosecuted at multiple levels
There are several levels of criminal laws in the U.S. At the lowest level is local law, which applies to visitors and residents to a certain municipality. County or city ordinances can prohibit certain behavior, and if you violate it, the city or county law prescribes the penalty.
State law applies to all residents and visitors within that state’s borders. It also is state law that determines the penalty when that law is broken.
At the highest level is federal law, which applies to everyone within the U.S. Because federal law encompasses everyone, there are rules and customs surrounding when someone is charged with a violation of federal law versus state law.
“Federal prosecution of fraud is more likely than state prosecution where the fraud is complex, large scale financial fraud. Often the federal security laws are a key component of the alleged violations,” according to criminal defense attorney Fred Hafetz, a partner of Hafetz & Necheles LLP. “However, in urban areas with sophistication in white collar prosecution, such as in Manhattan, state prosecutors will sometimes investigate and prosecute large scale fraud that might otherwise be prosecuted by the federal government.”
Common federal fraud crimes
Many types of deceptive behavior are illegal when they give a person an undeserved economic gain, including:
- Tax fraud: This encompasses all kinds of behavior, but in the end, it is about a person or business illegally minimizing or avoiding their tax liability. Offenders may underreport their income, overestimate business expenses or include costs that are not lawful business expenses. It also is called tax evasion.
- Securities fraud: The federal government takes a number of steps to protect the stock market, which is why it is illegal to commit fraud in relation to any securities or commodities. Securities fraud can include pyramid schemes, investment scams, embezzlement, insider trading, and more.
- Wire fraud: People cannot use the mail or any wire communications (like the Internet) to commit a fraudulent scheme. Because of the generic definitions of wire fraud and mail fraud, this law is used to charge a number of types of schemes. It is often an additional charge related to other crimes. “The most common federal fraud charge is under the mail or wire fraud statutes,” said Mr. Hafetz. “These are the most elastic of all federal charges and embrace all species of frauds.”
- Embezzlement: It is illegal for a person in a position of trust, who has access to another person or business’s funds or property, to take control of those funds or property for themselves and without permission.
- Money laundering: This offense occurs when individuals take money that was illegally obtained and run it through false transactions that look legitimate in order to “clean” the money.
- Healthcare fraud: Many people within the healthcare industry try to fraudulently increase the reimbursements they receive from Medicaid, Medicare, or other federal health care programs by filing inaccurate or entirely false claims.
- Identity theft: This occurs whenever one person uses another individual’s personal information, without permission, for their own gain. For instance, they may use a person’s name, address, and Social Security Number to obtain a personal loan.
- RICO: The Racketeer Influence and Corrupt Organization Act allows prosecutors to charge individuals for crimes committed as, for, or by an organized criminal organization, including fraud offenses.
Federal fraud crime penalties
An individual convicted of a federal fraud offense can expect imprisonment, probation, fines, restitution, and civil forfeiture of property. The fines and length of imprisonment depend on multiple factors.
“There are no typical penalties for federal fraud convictions,” said Mr. Hafetz. “Sentencing for fraud cases is generally driven by the amount of financial loss. Federal sentencing guidelines, no longer mandatory but still influential in determining the sentence, are ratcheted up so that the greater the loss, the higher the guideline calculation.”
The statute of limitations on federal fraud crimes
How long a federal prosecutor has to bring charges based on a federal fraud crime depends on the specific offense.
“The mail and wire fraud statutes of limitations is generally five years from the date of the offense,” said Mr. Hafetz. “However, in recent years, Congress, responding to highly publicized financial scandals, has expanded the statute of limitations for certain types of fraud, such as those in which banks are victims. Also, if the RICO statute is utilized to prosecute fraud charges, the statute of limitations can go back 10 years provided the prosecution includes at least one prosecutable offense committed within the last five years.”