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Kiting

Definition

A crime involving writing a check on an account, Account A, with insufficient funds and depositing it in another account, Account B, and then writing a check on Account B and depositing it in Account A to cover the first check written on Account A. Kiting takes advantage of the time it takes banks to clear checks. Before the bank in which Account B is held has time to clear the check written on Account A, the kiter has already written a second check on Account B and deposited it in Account A, making it appear as though the bank in which Account A is held has sufficient funds. The bank in which Account B is held then honors the check written on Account A. Through kiting, the kiter obtains an illegal, interest-free loan. Also called check-kiting and check-flashing.

Illustrative caselaw

See, e.g. Williams v. United States, 458 U.S. 279 (1982).

See also

Definition from Nolo’s Plain-English Law Dictionary

Illegally taking advantage of the time it takes checks or other instruments to clear (the float), by writing bad checks between different accounts. Because a bank doesn't realize that there are insufficient funds in the account, it may honor a bad check. Also called check kiting.

Definition provided by Nolo’s Plain-English Law Dictionary.

August 19, 2010, 5:18 pm

 

Sally opens checking accounts at Bank A and Bank B. Initially, she deposits $500 in Bank A and $0 in Bank B. She then writes a $10,000 check on her account at Bank A and deposits it in Bank B. Unaware that Sally has insufficient funds in her account at Bank A, Bank B immediately gives her credit on her account. During the three business days it takes Bank B to clear the check on her account at Bank A, Sally writes a $10,000 check on her account at Bank B and deposits it in Bank A to cover her first $10,000 check. Bank A immediately gives her credit on her account, and Bank B clears Sally's first $10,000 check. 

Sally continues writing bad checks between her accounts. By doing so, she illegally obtains a $10,000 interest-free loan.

'As the Government explains, a check-kiting scheme typically works as follows:

"The check-kiter opens an account at Bank A with a nominal deposit. He then writes a check on that account for a large sum, such as $50,000. The check-kiter then opens an account at Bank B and deposits the $50,000 check from Bank A in that account. At the time of deposit, the check is not supported by sufficient funds in the account at Bank A. However, Bank B, unaware of this fact, gives the check-kiter immediate credit on his account at Bank B. During the several-day period that the check on Bank A is being processed for collection from that bank, the check-kiter writes a $50,000 check on his account at Bank B and deposits it into his account at Bank A. At the time of the deposit of that check, Bank A gives the check-kiter immediate credit on his account there, and on the basis of that grant of credit pays the original $50,000 check when it is presented for collection."

"By repeating this scheme, or some variation of it, the check-kiter can use the $50,000 credit originally given by Bank B as an interest-free loan for an extended period of time. In effect, the check-kiter can take advantage of the several-day period required for the transmittal, processing, and payment of checks from accounts in different banks. . . ."'

 

Williams v. United States, 458 U.S. 279, FN 1 (1982)