Federal officials may file fraud charges against individuals who receive business loans that a bank should not have approved. Financial institutions, however, have the responsibility of conducting due diligence regarding the information submitted with loan applications.
As noted by BankInfoSecurity.com, auditing financial statements may reveal red flags. Not all financial institutions, however, have shown the expected consistency in their oversight procedures.
Banks generally require business background checks
Before approaching lenders, loan applicants typically create business plans and financial statements for a bank officer’s review. Most business plans include information about a company’s primary customers and the products or services offered. A bank’s due diligence may include contacting a business’s customers or suppliers to inquire about the relationship.
A bank officer may also verify information through public records and ask to tour the business’s physical location. If a business does not show sufficient proof of income or cash flow, many bank officers decide to not approve the loan.
Federal fraud charges filed against Texas loan applicant
After applying for business loans at two separate banks, a Houston resident obtained more than $1.6 million. As reported by Click2Houston.com, federal prosecutors allege he falsely represented company payroll expenses.
Instead of using the loans to pay employees as specified by their terms, he allegedly spent the proceeds on personal items and entertainment. The Department of Justice seized more than $700,000 in funds and accepted a guilty plea on charges of money laundering and wire fraud.
By failing to perform a thorough background check, a bank’s poor oversight may lead to a federal investigation. If documents submitted to a bank do not match government tax records, an applicant may face allegations of loan fraud. In some cases, a charged applicant’s plea deal may reduce the severity of the penalties.