The conduct may constitute fraud where fraudulent means are used to induce the bank to hand over funds, forgery where fabricated or forged documents are submitted, or a cybercrime where the misappropriation is carried out using card data or by hacking electronic systems. It may also fall within the scope of offences against public funds where the specific conditions prescribed by the Penal Code are satisfied.
Accordingly, proper legal characterization begins by identifying the status of the bank, the method by which the funds were obtained, the capacity of the offender, the means used, and the nature of the funds constituting the subject matter of the offence.
When Does Obtaining Bank Funds Constitute Fraud?
Article 336 of the Penal Code regulates the offence of fraud, and a mere false statement or failure to perform a financial obligation is not sufficient to establish it.
The offence requires the use of one of the fraudulent means specified by law in a manner that deceives the victim and, as a result of such deception, induces the victim to hand over the funds.
Accordingly, the offence of fraud may arise where a person uses fabricated documents or artificial external appearances to persuade the bank of the existence of a business activity, collateral, or financial position that is not genuine, and where such means induce the bank to disburse financing or hand over funds.
However, the mere fact that a customer obtains a loan and subsequently defaults on repayment is not sufficient in itself to establish fraud. The circumstances existing at the time the financing was obtained must be examined to determine whether fraudulent means preceded or accompanied the delivery of the funds.
What Is Meant by Fraudulent Means?
The Court of Cassation has consistently held that mere false statements and claims – regardless of how strongly the person making them insists on their truth – are not sufficient by themselves to constitute the fraudulent means required for the offence of fraud. Rather, they must be accompanied by material acts or external appearances capable of inducing the victim to believe in their truth.
Accordingly, fabricated documents, false financial statements, forged collateral, the creation of sham companies or transactions, and other external appearances are important in determining whether the conduct has gone beyond mere falsehood and reached the level of fraudulent means required by law.
Obtaining a Loan Using Forged Documents
If an applicant for financing submits forged or fabricated documents to present fictitious solvency, collateral, or business activity, multiple offences may arise depending on the circumstances.
An offence of forgery or use of a forged document may be established where its legal elements are satisfied, and the use of such documents may also constitute one of the fraudulent means required for the offence of fraud if they induced the bank to hand over the funds.
Nevertheless, the existence of both offences should not be presumed automatically merely because an error appears in one of the documents in the file. The forgery of the document, the user’s knowledge of it, and its connection to the decision to grant financing must be established.
Are the Funds of All Banks Considered Public Funds?
No. This is one of the most important issues of legal characterization in cases involving misappropriation of bank funds.
The fact that the victim is a «bank» is not sufficient for its funds to be regarded as public funds for the purposes of the offences contained in Chapter Four of Book Two of the Penal Code. Reference must instead be made to Article 119 of the Penal Code to determine whether the funds are owned by one of the entities whose funds the law considers public funds, or by an entity in which one of those entities holds an interest in the manner specified by the provision.
Accordingly, the legal position of a bank owned by or connected to a public entity may differ from that of a private bank whose funds do not satisfy the statutory conditions.
Misappropriation of Public Funds and Facilitating Their Misappropriation
If the bank’s funds constitute public funds within the meaning of Article 119, and the accused is a public official or a person treated by law as a public official pursuant to Article 119 bis, the conduct may – depending on its form – fall within the offences of embezzlement, misappropriation, or facilitating the misappropriation of public funds under the Penal Code.
Embezzlement of public funds differs from facilitating their misappropriation by another person. In embezzlement, the funds have entered the possession of the employee by reason of their position and the employee then intends to deal with them as an owner. In the case of facilitating misappropriation, the employee exploits their position to enable another person to obtain the funds unlawfully, provided that the remaining elements of the offence are satisfied.
Accordingly, the mere involvement of a bank employee in the incident is not sufficient to apply the provisions governing public funds; the nature of the funds and the employee’s legal status must first be established, followed by identification of the employee’s actual role in the misappropriation.
Collusion Between a Bank Employee and a Customer
Investigations may reveal collusion between a bank employee and a customer to obtain financing or transfer funds contrary to the truth. Depending on the circumstances, examples may include processing documents the employee knows to be forged, deliberately bypassing credit approvals, fabricating data within the system, or facilitating disbursement despite knowing that the recipient is not entitled to the funds.
However, liability does not arise merely because the employee participated administratively in the financing procedures. It must be established whether the employee knew of the scheme, what act they committed or facilitated, and whether they possessed actual authority that enabled the offence to occur.
The criminal characterization also varies depending on whether the funds involved are public or private funds.
Misappropriation Using Electronic Systems
If the attack is carried out using electronic banking services, provisions of Anti-Cyber and Information Technology Crimes Law No. 175 of 2018 may apply alongside the Penal Code.
One of the principal examples is Article 23 of that Law, which criminalizes unauthorized access to numbers or data relating to bank cards, services, and electronic payment instruments, and increases the penalty where the purpose is to obtain funds or services and again where actual acquisition occurs.
Other provisions may apply where systems or accounts are hacked or where data is destroyed or altered. Accordingly, the expression «manipulation of the electronic system» is not, by itself, a sufficient legal characterization; the specific technical act and the provision criminalizing it must be identified.
Unlawful Bank Transfers
Misappropriation may occur through issuing false transfer instructions, acquiring a customer’s authentication credentials, hacking the customer’s account, or intervention by an authorized employee within the system to transfer funds to another account.
The legal characterization differs in each case. The conduct may involve a cybercrime, forgery, fraud, breach of trust, or one of the offences against public funds, depending on how possession of the money was obtained, the capacity of the offender, and the nature of the system attacked.
Accordingly, banking system logs, access records, authentication methods, transfer instructions, and the path through which the funds moved are among the most important forms of evidence in such cases.
A Cheque Without Sufficient Funds Is Not Automatically a Form of Banking Fraud
Issuing a cheque without sufficient funds should not automatically be classified as an offence involving misappropriation of bank funds. A cheque is governed by an independent legal regime, and the drawee bank is not necessarily the victim in the incident.
Cheques may form part of a fraudulent scheme in certain circumstances, but in such case the fraudulent means, the funds handed over, and the relationship between the cheque and those means must be identified rather than characterizing the incident as banking fraud merely because a cheque is involved.
Is Damage Required in Every Form of the Offence?
There is no single answer; it depends on the offence charged.
For fraud, there must be a causal relationship between the fraudulent conduct and the victim’s delivery of the funds. Certain cybercrime offences, however, criminalize conduct at a stage preceding actual misappropriation, such as unauthorized access to payment card data, and then increase the penalty where the offender intends to obtain funds and again where actual acquisition occurs.
There are also offences in the field of public office where the existence of danger or an attempt to obtain a benefit may be sufficient under the conditions of the relevant provision, without requiring the same result demanded by another offence.
Accordingly, the statement that «electronic misappropriation is a crime even without damage» always requires identification of the specific criminal provision intended.
Does Default on a Loan Constitute Fraud?
No. As a general rule, a loan or financing relationship is contractual, and a customer may default for economic or commercial reasons without any criminal offence having occurred.
The matter enters the criminal sphere where acts exist that satisfy an independent criminal model, such as the use of fraudulent means from the outset, knowingly submitting forged documents, colluding to misappropriate funds, or deliberately tampering with banking systems.
This distinction is important to prevent a mere debt or default dispute from being transformed into a criminal accusation without satisfaction of its legal elements.
The Role of Know Your Customer Rules and Anti-Money Laundering Requirements
Banks are required to apply customer identification rules, verify customer identities and beneficial owners, understand the nature of the banking relationship, and monitor transactions according to the level of risk, within the framework of the Anti-Money Laundering Law and the regulatory instructions issued by the Central Bank of Egypt and the Anti-Money Laundering and Terrorist Financing Unit.
There are also obligations to report transactions suspected of being connected with money laundering or terrorist financing in accordance with the applicable legal framework.
However, these preventive obligations do not mean that every banking fraud incident constitutes money laundering, or that the mere unusual nature of a transaction is sufficient to establish an offence. Each legal regime has its own requirements and elements.
Liability of the Bank Toward the Customer in Fraudulent Transactions
Where the misappropriated funds belong to the customer rather than the bank, a different issue arises concerning the extent of the bank’s liability for executing the transaction.
There is no rule making the bank automatically liable for every transaction denied by the customer, nor automatically exempting it from liability. The method by which the transaction was authenticated, the verification measures used, compliance with security rules, the customer’s conduct, the timing of notification, and the source of the breach must all be examined.
The incident may result from the customer disclosing a verification code, compromise of the customer’s device, a security deficiency at a service provider, or internal manipulation. Each scenario has a different effect on civil and regulatory liability.
What Are the Essential Forms of Evidence in Banking Fraud Cases?
- Financing file: Including applications, documents, assessments, and approvals.
- Original documents: To verify their authenticity and source.
- Account records: To trace the movement of funds after disbursement or transfer.
- Electronic system logs: To identify the account, device, time, and permissions used.
- Credit committee decisions: Where the misappropriation is connected to financing or a banking facility.
- Internal correspondence: To determine employees’ knowledge and the nature of each person’s role.
- Technical examination reports: Where electronic systems, cards, or digital accounts were used.
- Flow of funds: Including beneficiary accounts and subsequent transfers.
- Status of the bank and the funds: Where the accusation is based on offences against public funds.
Judicial Jurisdiction Varies According to the Legal Characterization of the Offence
It is not correct to state that all fraud offences against banks fall within the jurisdiction of the Economic Courts merely for that reason.
Jurisdiction is determined by the legal provision on which the proceedings are based. Offences arising from the application of the Anti-Cyber and Information Technology Crimes Law or certain economic laws may fall within the jurisdiction of the Economic Courts, while ordinary fraud offences under the Penal Code or felonies involving attacks on public funds are subject to their respective jurisdictional rules.
Accordingly, the offence must first be identified before determining the competent court.
Key Preventive Measures within Banks and Companies
- Verify the identity of the customer and beneficial owner: In accordance with the regulatory rules in force.
- Examine documents and their sources: Particularly in high-value financing transactions.
- Segregate duties: So that one employee does not independently create, approve, and execute the transaction.
- Monitor unusual transactions: According to the nature of the customer’s activity and risk level.
- Enable strong authentication methods: For electronic banking transactions.
- Record transactions and access permissions: In a manner that allows identification of the system user and the time of intervention.
- Review financing after disbursement: To verify compliance with the financing purpose and approval conditions where required.
- Prompt internal reporting: Of indicators suggesting collusion, forgery, or misappropriation.
Conclusion
Misappropriation of bank funds and banking fraud do not constitute a single criminal characterization. The conduct may amount to fraud, forgery, a cybercrime, an offence against public funds, or several interconnected offences where the elements of each are satisfied.
Not every non-performing loan constitutes fraud, the funds of every bank are not public funds, and the involvement of a bank employee is not sufficient to apply the provisions governing public office offences. Likewise, the use of an electronic means does not, by itself, determine the criminal characterization.
Accordingly, proper legal assessment begins with four questions: Who owns the funds? How did the accused obtain them? What means were used? And what was the role of each person involved? The answers to these questions determine the applicable criminal provision, the penalty, and the competent judicial authority.