Officials seek more resources to fight mortgage and corporate fraud
Number of cases being investigated by the FBI and the Treasury Department has jumped during the economic crisis.
Law enforcement and oversight agencies need more funding to tackle an escalating number of mortgage and financial fraud cases, witnesses told members of a Senate panel on Wednesday.
The number of open FBI mortgage fraud investigations jumped from 881 in fiscal 2006 to more than 1,600 in fiscal 2008, said John Pistole, the agency's deputy director, during a Senate Judiciary Committee hearing. In addition, the bureau has more than 530 open corporate fraud investigations, including 38 directly related to the financial crisis.
"The increasing mortgage, corporate fraud and financial institutional failure case inventory is straining the FBI's limited white-collar crime resources," Pistole said.
On Feb. 5, Sens. Patrick Leahy, D-Vt., chairman of the Judiciary Committee, and Charles Grassley, R-Iowa, introduced a bill that would authorize $40 million to hire additional fraud prosecutors and investigators in the criminal, civil and tax divisions of the Justice Department; $50 million for U.S. attorneys offices; $65 million for the FBI; $30 million for the Housing and Urban Development Department inspector general's office; and $30 million for the U.S. Postal Inspection Service.
The 2009 Fraud Enforcement and Recovery Act would extend the 1863 False Claims Act to any fraudulent claim for government money or property, regardless of whether it was presented to a government official or employee, the government had physical custody of the money, or the defendant intended to defraud the government.
"Just as we did after the savings and loan crisis nearly two decades ago, we need to rebuild and strengthen the Justice Department's ability to enforce federal fraud laws to recover the billions lost in real estate and securities schemes," Leahy said on Wednesday. "We also need to prevent these same schemes in the future. We need to ensure against the diversion of money intended to rebuild our economy and provide jobs."
Grassley added that the legislation "will help send a message to those that have defrauded homeowners and mortgage lenders and will send an even stronger message to those that are thinking about committing a future fraud."
Budget constraints have prevented the HUD inspector general from operating a stand-alone mortgage fraud task force, although the office has assigned agents to conduct specific investigations.
The Treasury Department, meanwhile, has reported that more than 60,000 cases alleging mortgage fraud were filed in 2008 -- 10 times as many as were reported in 2002.
Rita Glavin, acting assistant attorney general in the Justice Department's criminal division, told lawmakers that additional staff would allow her office to recover more funds under the False Claims Act and initiate new prosecutions.
"To meet these imminent demands and to effectively prosecute the crimes that have come to light as a result of the current crisis, the department requires a concomitant increase in resources," Glavin said.
The risk of waste and fraud has increased exponentially as a result of Treasury's $700 billion Troubled Asset Relief Program and Federal Reserve programs to revitalize lending to investors and businesses, according to Neil Barofsky, the special inspector general for TARP.
"We stand on the precipice of the largest infusion of government funds over the shortest period of time in our nation's history," Barofsky said. "Unfortunately, history teaches us that an outlay of so much money in such a short period of time will inevitably draw those seeking to profit criminally … To fully address this potential criminal vulnerability, it is essential that the appropriate resources be dedicated to meet the challenges of deterring and prosecuting fraud in connection with these programs."