Westfall v. United States

Background

Westfall was convicted under two indictments after a State bank branch manager — for a bank that was a member of the Federal Reserve System — issued a fraudulent $10,000 certificate of deposit and paid it out from bank funds. One charge said Westfall aided and procured the manager to misapply the bank’s funds; the other charged a conspiracy with others to do the same. The Sixth Circuit asked whether a provision of the Federal Reserve Act subjects member banks and their officers to the penalties of an older federal criminal statute, Revised Statute §5209, and whether that provision is constitutional.

Reasoning

The Court noted that Revised Statute §5209, if applicable, punishes the bank manager and those who aided him. The main argument against the law was that Congress could not punish offenses against the property rights of state-chartered banks. The Court rejected that objection, explaining that when a state bank chooses to join the Federal Reserve System the United States may punish acts that harm the System. The opinion reasons that frauds like this weaken a member bank and therefore weaken the System, that Congress may make laws that reach beyond the precise harm to prevent a broader evil, and that Congress may use state corporations with their consent as instrumentalities and make frauds that impair their efficiency crimes.

Real world impact

The Court answered the certified question “Yes,” which means federal criminal penalties can apply to officers, agents, employees, and those who aid them at state banks that join the Federal Reserve System. Acts may still be punishable under both federal and state law.