Stronger Tools And Better Watchdogging Needed To Protect Public From Housing, Financial And Bailout Fraud

By:  Senator Patrick Leahy
Rutland Herald

The following guest column by Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) about the Fraud Enforcement and Recovery Act was originally published in the Rutland Herald (Vermont) on April 22, 2009.  The Senate this week is debating the Leahy-authored anti-fraud measure.

This week the Senate is nearing a vote on legislation to strengthen the ability of law enforcement agencies to investigate and prosecute the kinds of financial frauds that have severely undermined our economy and have especially hurt countless hard-working investors and homeowners.

One of the invisible underpinnings of the remarkable and resilient engine of the American economy is confidence -- the public’s, investors’ and indeed the world’s confidence in the American marketplace.  That confidence comes in part from the belief that someone is minding the store.   Just as we have been able to take for granted that our food, water, medicine, and consumer products are safe, we are used to taking for granted that a nearly invisible infrastructure is helping to keep our housing and financial markets open, honest and transparent.  We have a justice system that is the envy of the world and regulatory and law enforcement agencies that are there to protect the integrity of the marketplace. To work as they should, we need these watchdog agencies to be sufficiently alert and agile, but not stifling. 

The crescendo of mortgage fraud that helped ignite the economic crisis, requiring bailout loans now totaling hundreds of billions of taxpayer dollars, is clear evidence that we urgently need to supplement the ranks of those who police wrongdoing in the housing sector, the financial system, and the administration of TARP funds.

To adapt a line from President Reagan, trust comes in part from verifying that the market is a transparent and level playing field for all. 

The Fraud Enforcement and Recovery Act that I have introduced with Republican Senator Grassley of Iowa will provide the resources and legal tools needed to police and deter fraud, including fraud connected with the massive recovery efforts now underway.  This is a bipartisan effort about a shared concern.

In this time of economic crisis, we need to ensure accountability for the massive wave of fraud that has undermined our economy and to protect taxpayers from ongoing scheming that threatens to slow the recovery.  In the past two weeks alone, the Justice Department announced prosecutions in mortgage and securities scams involving more than $200 million dollars in fraud.  This influx of fraud has even touched my own state of Vermont, where just last fall federal authorities uncovered a $26 million dollar mortgage scam involving more than 50 properties, being run out of the small town of Highgate. 

The victims of mortgage and financial fraud include homeowners who have been fleeced by unscrupulous mortgage brokers and retirees who have lost their life savings in stock scams and Ponzi schemes, which have come to light as the markets have fallen and corporations have collapsed.  They also include taxpayers who have invested billions of dollars to restore our economy and support our banking system.

Law enforcement agencies need these tools and fresh troops now to combat fraud effectively.  In the last three years the number of criminal mortgage fraud investigations opened by the FBI has more than doubled, and the FBI anticipates that number may double again.  Despite this increase the FBI today has fewer than 250 special agents nationwide assigned to financial fraud cases, which is only a quarter of the number the Bureau had more than a decade ago at the time of the savings and loan crisis. 

In the late 1980s and early 1990s, we faced a similar financial crisis with the collapse of the federally insured savings and loan industry.  Congress back then responded by passing legislation to hire more agents, analysts and prosecutors to catch those who took advantage to profit through fraud.  We need to do that again. 

The Fraud Enforcement and Recovery Act authorizes the resources needed by the Justice Department, the FBI and other investigative agencies to respond to this crisis by hiring more than 300  agents, more than 200 prosecutors, and another 200 forensic analysts and support staff to rebuild our nation’s “white collar” fraud enforcement efforts.  These posts are crucial to the government’s ability to fight fraud in these hard economic times.

If fraud goes unprosecuted and unpunished, victims across America lose their investments -- even their life savings.  In fact, fraud enforcement is an excellent investment for the American taxpayer.  According to the Justice Department, the government recovers on average $32 dollars for every dollar spent on criminal fraud litigation.  Strengthening criminal and civil fraud enforcement is a sound investment, it’s a confidence-building investment, and our bill not only will pay for itself but will yield a taxpayer premium. 

The Fraud Enforcement and Recovery Act also makes improvements to fraud and money laundering statutes to combat this growing wave of fraud, as well as strengthening one of the most potent civil tools we have for rooting out fraud in government, the False Claims Act, which gives inside whistleblowers a stake in rooting out fraud and corruption.  The federal government has recovered more than $11 billion using the False Claims Act since it was modernized through the work of Senator Grassley in 1986, but the statute still can be more effective. 

The Fraud Enforcement and Recovery Act has broad bipartisan support, as well as the strong backing of the Justice Department and the Obama administration.  Our bill is endorsed by the Fraternal Order of Police, the Federal Law Enforcement Officers Association, the National Association of Assistant United States Attorneys, the Association of Certified Tax Examiners, and Taxpayers Against Fraud. 

We need to reinvigorate our anti-fraud measures and give law enforcement agencies the tools and resources they need to ensure that fraud can never again put our financial system at such risk and victimize so many Americans.  Taxpayers, who bear the burden of this financial downturn, deserve to know that the government is doing all it can to hold responsible those who committed crimes in the run-up to this collapse.  The Senate should pass the common-sense Fraud Enforcement and Recovery Act without further delay.

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[Senator Patrick Leahy (D-Vt.) chairs the Senate Judiciary Committee.  He is the chief sponsor of the bipartisan Fraud Enforcement and Recovery Act.]