Senate Approves Anti-Financial Fraud Legislation

The Senate has passed legislation authored by Senator Patrick Leahy (D-Vt.) to bolster existing tools and increase resources available to federal prosecutors to combat fraud.  The Fraud Enforcement and Recovery Act (“FERA”), S. 386,  will help both to protect Americans from fraud and recover taxpayers’ money lost to fraud.

Leahy introduced the bipartisan legislation on February 5, 2009.  The Senate Judiciary Committee, which Leahy chairs, reported the measure on March 5,  2009.

By way of background, FERA contains the following features:

•  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 improves to fraud and money laundering statutes to strengthen prosecutors’ ability to combat the growing wave of fraud.

•  FERA amends the federal criminal fraud statute to specifically include “mortgage lending business,” as defined by the bill.

•  FERA expands the scope of money laundering crimes to cover all of the proceeds of illegal activity (i.e., gross receipts), not just the profits.

•  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.

Further, FERA authorizes the resources necessary for the Department of Justice (“DOJ”), the Federal Bureau of Investigation (“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 the country’s “white collar” fraud enforcement efforts.

In his closing statement delivered at the Senate session on April 28, 2009, Leahy said, “ 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. …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 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.”

The engrossed bill as passed by the Senate will now go to the House of Representatives for its approval.

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