05.19.09

Leahy-Authored Anti-Fraud Legislation Clears Final Hurdle, Headed To President’s Desk For Signature

WASHINGTON (Tuesday, May 19, 2009) – Legislation authored by Vermont Senator Patrick Leahy (D) to strengthen tools and increase resources available to federal prosecutors to combat fraud cleared a final hurdle in Congress Monday when the House of Representatives approved the Fraud Enforcement and Recovery Act.  On May 14, the Senate unanimously passed the amended bipartisan legislation. The bill will now head to the President’s desk to be signed into law.  The  Fraud Enforcement and Recovery Act (FERA) will help both to protect Americans from fraud and recover taxpayers’ money lost to fraud.

“The Fraud Enforcement and Recovery Act is a major step toward holding accountable those who have caused so much damage to our economy,” Leahy said.  “It will also help protect our economic recovery efforts from the scourge of fraud.  This is and has been bipartisan legislation.  No one should want to see taxpayer money intended to fund economic recovery efforts diverted by fraud.  No one should want to see those who engaged in mortgage fraud escape accountability.  I look forward to the President signing this bill into law.”

Leahy is the chairman of the Senate Judiciary Committee, and shepherded the legislation through the Senate.  He introduced the legislation on February 5, and the Judiciary Committee reported the measure on March 5.

Reports of mortgage and corporate fraud are at an all-time high, and law enforcement expects a significant increase in fraud in connection with the economic recovery efforts.  The Fraud Enforcement and Recovery Act will rebuild the nation’s capacity to investigate and prosecute the mortgage and corporate frauds that have undermined the economy and hurt working people.

    * FERA provides resources for the Department of Justice, the Federal Bureau of Investigation, the U.S. Postal Inspection Service, the U.S. Secret Service, and the Inspector General for the Department of Housing and Urban Development to hire additional fraud agents, analysts, investigators, prosecutors, and support staff to combat fraud.
    * FERA makes important improvements to fraud and money laundering statutes to strengthen prosecutors’ ability to combat the growing wave of fraud.
    * FERA strengthens the False Claims Act, one of the best civil tools available to root out fraud in government.  From 2000-2008, the Justice Department recovered more than $15 billion in fraud for the government using the False Claims Act.
    * FERA establishes a Financial Crisis Inquiry Commission to examine the domestic and global causes of the financial and economic crisis.

The bipartisan Fraud Enforcement and Recovery Act was cosponsored by nearly 30 senators, and has received the support of the Obama administration, the Department of Justice, the Federal Bureau of Investigation, the U.S. Secret Service, the U.S Postal Inspection Service, and the Inspector General of the Department of the Housing and Urban Development.  The bill has also been endorsed by the Fraternal Order of Police, the Federal Law Enforcement Officers Association, the National Association of Assistant U.S. Attorneys, and Taxpayers Against Fraud.

Leahy’s statement on the Senate’s passage of the legislation on May 14 follows.

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Statement Of Senator Patrick Leahy (D-Vt.),
Chairman, Senate Judiciary Committee,
On Final Passage of S. 386, The Fraud Enforcement And Recovery Act Of 2009
May 14, 2009

Today, the Senate has passed the bipartisan Fraud Enforcement and Recovery Act of 2009, S.386.  The House passed this bill overwhelming just last week.  This bill is a major step toward holding accountable those who have caused so much damage to our economy.  It will also help protect our economic recovery efforts from the scourge of fraud.

Our bill will strengthen the Federal Government’s capacity to investigate and prosecute the kinds of financial frauds that have so severely undermined our economy and hurt so many hard-working people in this country.  These frauds have robbed people of their savings, their retirement accounts, their college funds for their children, and their equity and have cost too many people their homes. The bill will help provide the resources and legal tools needed to police and deter fraud and to protect taxpayer-funded economic recovery efforts now being implemented.

I want to once again commend Senator Grassley, our lead cosponsor, for his leadership at every stage in this process.  He helped to write this legislation and to manage it on the Senate floor, where it ultimately passed 92 to 4.  He also worked tirelessly to make important and difficult compromises with Senate and House leaders, which was crucial to crafting a consensus a bill that could pass both Houses.  He has once again proven his dedication to protecting taxpayer funds by deterring, investigating, and prosecuting fraud.

I thank Majority Leader Hoyer and the House leadership, as well as Chairman Conyers, Ranking Member Smith and Congressmen Berman and Scott on the House Judiciary Committee, for working with us to promptly pass this bill in the House with minimal changes and a number of helpful additions.  The new ranking member of the Senate Judiciary Committee, Senator Sessions, was also very important and supportive in those negotiations.

I thank our many cosponsors for their steadfast support for this effort.  Senators Kaufman and Klobuchar have worked particularly hard to ensure that this important fraud enforcement bill becomes law, and I thank them for their efforts.  Senator Kaufman has spoken and written about the need for fraud enforcement all year.  We have been joined by a growing bipartisan group of cosponsors that now stands at 28.  And I thank our Majority Leader and our underappreciated cloakroom and floor staff for all that they have done on this bill.

Mortgage fraud has reached near epidemic levels in this country.  Reports of mortgage fraud are up 682 percent over the past five years, and more than 2800 percent in the past decade.  And massive, new corporate frauds, like the $65 billion Ponzi scheme perpetrated by Bernard Madoff, are being uncovered as the economy has turned worse, exposing many investors to massive losses. We can now finally take action to better protect the victims of these frauds.  These victims include homeowners who have been fleeced by unscrupulous mortgage brokers who promise to help them, only to leave them unable to keep their homes and in even further debt than before.  They include 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 American taxpayers who have invested billions of dollars to restore our economy, and who expect us to protect that investment and make sure those funds are not exploited by fraud.

This legislation will immediately give Federal law enforcement agencies the tools and resources they need to combat fraud effectively.  In the last three years, the number of criminal mortgage fraud investigations opened by the Federal Bureau of Investigation (FBI) has more than doubled, and the FBI anticipates that number may double yet again.  Despite this increase, the FBI currently 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.  At the current levels, the FBI cannot even begin to investigate the more than 5000 mortgage fraud allegations referred by the Treasury Department each month.

In the late 1980s and early 1990s, Congress responded to the collapse of the federally insured savings and loan industry by passing legislation similar to the bill we consider today, to hire prosecutors and agents.  While the current financial crisis dwarfs in scale to the Savings and Loan collapse, we are poised to once again take decisive action.

At its core, the Fraud Enforcement and Recovery Act authorizes the resources necessary for the Justice Department, the FBI, and other investigative agencies to respond to this crisis.  In total, the bill authorizes $245 million a year over the next two years to hire more than 300 Federal agents, more than 200 prosecutors, and another 200 forensic analysts and support staff to rebuild our nation’s “white collar” fraud enforcement efforts.   While the number of fraud cases is now skyrocketing, we need to remember that resources were shifted away from fraud investigations after 9/11.  Today, the ranks of fraud investigators and prosecutors are drastically understocked, and thousands of fraud allegations are going unexamined each month.  We need to restore our capacity to fight fraud in these hard economic times, and this bill will do that.

Fraud enforcement is an excellent investment for the American taxpayer.  According to recent data provided by the Justice Department, the government recovers more than $20 for every dollar spent on criminal fraud litigation.  Strengthening criminal and civil fraud enforcement is a sound investment, and this legislation will not only pay for itself, but will bring in money for the Federal Government.

In addition, the Fraud Enforcement and Recovery Act makes a number of straightforward, important improvements to fraud and money laundering statutes to strengthen prosecutors’ ability to combat this growing wave of fraud.  It also strengthens one of the most potent civil tools we have for rooting out fraud in government – the False Claims Act.  The Federal Government has recovered more than $22 billion using the False Claims Act since it was modernized through the work of Senator Grassley in 1986, but this bill will make the statute still more effective.  In fact, the amendments the House made to the bill, after extensive input from Senator Grassley and Congressman Berman, strengthen the False Claims Act further still.

The Fraud Enforcement and Recovery Act has broad bipartisan support, as well as the strong backing of the Justice Department and the Obama administration.  As explained in the Statement of Administration policy: “The Administration strongly supports enactment of S. 386.  Its provisions would provide Federal investigators and prosecutors with significant new criminal and civil tools and resources that would assist in holding accountable those who have committed financial fraud.”

Strengthening fraud enforcement is a key priority for President Obama.  During the campaign, President Obama promised to “crack down on mortgage fraud professionals found guilty of fraud by increasing enforcement and creating new criminal penalties.”  And the President made good on this promise in his budget to Congress by calling for additional FBI agents “to investigate mortgage fraud and white collar crime,” as well as hiring more Federal prosecutors and civil attorneys “to protect investors, the market, and the Federal Government’s investment of resources in the financial crisis, and the American public.”  The initial Senate-passed recovery package included additional money for the FBI for this purpose, but it was cut during the negotiations that led to its passage.  This bill, the bipartisan Fraud Enforcement and Recovery Act, is our chance to authorize the necessary additional resources to detect, fight and deter fraud that robs the American people and American taxpayers of their funds.  Strong support from the President and the Justice Department has been integral to making progress on this important bill.

This is and has been bipartisan legislation. Our cosponsors and our supporters in both Houses of Congress come from across the political spectrum – Democrats, Republicans, and Independents.  What we share is a commitment to fight fraud and the horrible costs it is imposing on hard-working Americans.   I believe that our efforts are supported by most Americans.  No one should want to see taxpayer money intended to fund economic recovery efforts diverted by fraud.  No one should want to see those who engaged in mortgage fraud escape accountability.   Law enforcement agencies desperately need the resources and tools in this legislation.

During these first months of the year, the Judiciary Committee has concentrated on what we can do legislatively to assist in the economic recovery.  Already we have considered and reported this fraud enforcement bill, the patent reform bill, and worked to ensure that law enforcement assistance was included in the economic recovery legislation.

The recovery efforts are generating signs of economic progress. That is good. That is necessary. But that is not enough.  We need to make sure that we are spending our public resources wisely and that they are not being dissipated by fraud.  We need to ensure that those responsible for the downturn through fraudulent acts in financial markets and the housing market are held to account.  That is why the Fraud Enforcement and Recovery Act is so needed.

The bill has also received the support of 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.  It was strongly endorsed by an editorial in The New York Times on April 18, 2009.

I thank Senators for joining with us to take decisive action to protect American families and our economy from fraud.

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