Fraud Enforcement Legislation Responds To Growing Reports Of Fraud

The Senate continues to debate the Fraud Enforcement and Recovery Act, legislation that will make necessary changes to federal criminal laws, including criminal fraud, securities law, and money laundering laws; increase the funding available to the federal law enforcement agencies to combat mortgage fraud and predatory lending; and revise the False Claims Act to ensure that the government can recover taxpayer dollars lost to fraud and abuse.

The Federal Bureau of Investigation has seen a 100 percent increase in the number of fraud investigations opened since 2005.  The Treasury Department has also reported that more than 60,000 cases alleging mortgage fraud were filed in 2008, 10 times as many as were reported in 2002.

The Fraud Enforcement and Recovery Act is sponsored by Senator Patrick Leahy (D-Vt.) and Senator Chuck Grassley (R-Iowa).

Fraud Enforcement and Recovery Act (S.386)

Protecting and Recovering Taxpayer Money

Reports of mortgage and corporate fraud are at an all time high and continue to grow each year. 

  • The number of Suspicious Activity Reports (SARs) alleging mortgage fraud filed by financial institutions has increased 969 percent in the past five years – from 6,401 in 2003, to 62,084 in 2008, which is the highest number ever reported.
  • The number of SARs reported in the securities and futures industry has increased by 225 percent in the last three years – from 5,705 in 2004, to 12,881 in 2007, also the highest ever reported.   
  • The number of mortgage fraud investigations opened by the FBI has increased 218 percent in three years – from 721 in 2005, to 1570 in 2008, and that number has continued to increase.

Law enforcement expects a huge increase in fraud in connection with economy recovery efforts.

  • The Housing and Economic Recovery Act of 2008 (HERA) authorized the Federal Housing Administration (FHA) to insure up to $300 billion in mortgage loans. 
  • The Emergency Economic Stabilization Act (EESA) enabled the government to purchase risky mortgage backed securities from financial institutions under the Troubled Asset Relief Program (TARP), which may involve $700 billion in government commitments.

The increase in mortgage and corporate frauds has strained the Justice Department’s white collar investigative capacity.

  • The FBI is currently investigating over 1,800 mortgage fraud cases and more than 500 corporate fraud cases; all of these cases are complicated, and resource and time-intensive.
  • The FBI currently has fewer than 250 full time agents assigned to combat the mortgage fraud crisis and overall only have about 500 agents and analysts targeting fraud prosecutions; this is approximately half the number assigned during the Savings & Loan crisis more than a decade ago.

The Justice Department needs funding to hire additional prosecutors, agents, forensic analysts, and professional support staff to address the growing wave of fraud.

  • With funding authorized in the Fraud Enforcement and Recovery Act, federal law enforcement can hire more than 250 prosecutors and attorneys, 160 FBI agents, 200 Postal Inspectors and HUD investigators, 75 Secret Service agents, as well as 85 forensic accountants, 60 intelligence analysts and more than 200 professional support staff to rebuild its fraud enforcement program.

The Justice Department estimates that for every dollar spent to prosecute fraud at the Criminal Division, more than $20 is ordered in restitution and fines for victims and the government.

The Justice Department has recovered more than $15 billion in fraud for the government using the False Claims Act from 2000 to 2008.

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David Carle: 202-224-3693