Fraud Enforcement And Recovery Act Of 2009 - Motion To Proceed

Floor Speech

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Mr. GRASSLEY. I thank the Chair.

Mr. President, I thank the Senator from Vermont for his leadership in this area. I very much enjoy working with him. We may come from different political parties, but he has been very cooperative in a lot of the efforts I wanted to make on individual pieces of legislation. On this one, he and I are working together very closely. I thank him for the opportunity to work with him and thank him very much for including within this legislation some things both he and I have an interest in dealing with the False Claims Act.

I am pleased to be an original cosponsor of the Fraud Enforcement Recovery Act. This is a timely piece of legislation, given the current economic downturn and the unprecedented amount of taxpayer dollars that are being expended to shore up banks and financial institutions, corporations, Fannie Mae, Freddie Mac, et cetera. When taxpayer money is being injected into these corporations, there is more opportunity for fraud, and we ought to stay on top of it. We have a responsibility as Senators, as guardians of taxpayer money, to make sure fraud does not occur anytime but, more importantly, when there is taxpayer money keeping a lot of these organizations afloat that would not otherwise be there.

There can be honest differences between Senators about whether this taxpayer money should have been used in the first place. Some of that I have voted against using. But the fact is, we were in the minority. The money is being used to sustain some of these institutions and corporations and, consequently, we have every responsibility to make sure taxpayer money is protected. That is what this piece of legislation is all about.

For instance, the economic stimulus package handed out nearly $1 trillion in new spending. Whether a Member supported or opposed these expenditures, he or she must agree we simply cannot allow unscrupulous individuals defrauding the Government and ripping off the taxpayers. This legislation ensures that our law enforcement officials as well as prosecutors have the tools necessary to enforce our laws and also the resources to hunt down bad actors. It makes minor revisions to our criminal fraud laws to ensure that bad actors are not outside the scope of Federal jurisdiction. Further, it amends the civil False Claims Act to ensure that taxpayer money lost to fraud, waste, and abuse can be recovered. These changes will deter potential defrauders from attempting to scam the Government. In addition, this legislation will help instill confidence back into the housing and financial markets.

Over the last few years, unscrupulous individuals found housing and financial markets that were lax in oversight enforcement and regulation. As a result, it was easy for these unscrupulous individuals to commit fraud against homeowners, lenders, and businesses across the country. For example, the Financial Crimes Enforcement Network, referred to as FinCEN, released an updated report outlining filing trends in mortgage loan fraud suspicious activity reports. This report showed that SARs have continued to increase and for the last year ending in June 2008, there were more than 62,000 suspicious activity reports, SARs, filed related to mortgage fraud alone.

While this raw data simply represents investigative leads, it represents a 44-percent increase in suspicious activity from the preceding year. We need to act now to stamp out new fraud claims, to send a message that American taxpayers will not be taken for a ride.

This rise in the number of suspicious activity reports has also increased the need to investigate leads that come in these reports. As a result, we need to make sure there are resources available so that law enforcement agencies can follow these leads.

During the height of the savings and loan crisis in the late 1980s and early 1990s, the FBI had over 1,000 agents and experts working mortgage fraud cases. Today, it is a lot less, compared to a much bigger amount of money that is at stake. Today the FBI has 180 agents dedicated to mortgage fraud investigations, a significant decrease compared to the 1,000 agents and experts during the S&L crisis.

While this number represents an effort to combat fraud, it is a significant decrease when we consider the hundreds of millions of dollars in write-downs during the S&L crisis--in other words, small--compared to the estimated $1 trillion in write-downs that may occur as a result of the financial and housing crisis. This bill enables law enforcement agencies, including the FBI, Secret Service, the Housing and Urban Development inspector general, and the Postal Inspection Service to procure the funding necessary to make sure this fraud doesn't happen because you need this sort of joint effort to combat what will be complex financial crimes.

It is important to note this bill recognizes the important work of a number of Federal law enforcement agencies that work to combat and prevent financial crimes.

You don't often think of the Secret Service when you think of mortgage fraud, but the dedicated men and women at the Secret Service have been on the front lines in combating mortgage fraud since the S&L crisis and continue to unravel complex financial crimes. The Postal Inspection Service and the inspector general of the Department of Housing and Urban Development also continue to make significant contributions to stamping out mortgage fraud that abuses Federal Government programs and utilizes the mail to commit this fraud.

In addition to authorizing funding for law enforcement prosecutors so we get the number of people to get the job done, the bill also makes some necessary changes in Federal criminal law. The bill redefines ``financial institution'' to include mortgage lending businesses, a category currently missing in that definition. It also amends the statute to make it illegal to make false statements on mortgage applications and appraisals. It might surprise Members since common sense ought to dictate that, but common sense has not prevailed in that instance, so we will make that a crime.

Further, it ensures that economic relief funds and TARP funds are included in criminal laws prohibiting fraud against the Government. It adds commodities futures to the securities fraud statute. The bill also makes two important clarifications to the antimoney laundering laws; first, by defining the term ``proceeds'' so that a recent Supreme Court decision doesn't limit the ability to go after criminals and drug dealers who launder the proceeds of their ill-gotten gain. This is an incredibly important provision, especially given the recent concerns about the outbound bulk cash smuggling going across the border with Mexico.

Second, the bill amends the international money laundering statute to make it a crime to transport or transfer money out of the country to evade taxes. This provision is also timely given the recent efforts by the Justice Department and the Internal Revenue Service to clamp down on tax cheats and evaders who move money offshore for the sole purpose of avoiding paying taxes with no economic rationale behind it.

Finally and most importantly, the legislation makes important changes to the Federal False Claims Act. The False Claims Act is the Government's premier tool to recover Government money lost to fraud and abuse. The Government has used the False Claims Act to recover over $22 billion since 1986 when I introduced legislation that amended the previous False Claims Act. This legislation will ensure that the law adheres to the original intent of the False Claims Act.

I think I have some expertise in that area, being the author of this legislation and finding the Supreme Court's ruling contrary to congressional intent, albeit their motivation may be to interpret the law and that is the way they interpret it, but it does not keep us from going back to what we think is the original intent and saying to the courts: You got it wrong.

Specifically, these amendments address a loophole that was created in the False Claims Act by the Supreme Court decision in the Allison Engine case which could be used by fraudfeasors to evade liability by hiring subcontractors to perform work on Government contracts. Some defendants are already filing briefs in court seeking to have the false claims cases dismissed because of that decision. It needs to be addressed to protect taxpayer dollars.

This legislation could not come at a more important time. It will send a message to those who have defrauded homeowners and mortgage lenders and will send an even stronger message to those thinking about committing a future crime. I hope my colleagues will join in supporting the legislation to make sure that taxpayer dollars are protected.

I want to add a little editorial comment outside of this piece of legislation we have before us. There will be a lot of new Members coming to the Senate, maybe not understanding the motivation behind the False Claims Act of 1986. There was tremendous fraud, particularly in defense contracting, that caused me at that time, as a first-term Senator, to be concerned about it. We got proper amendments to the False Claims Act to protect whistleblowers and to use the information that whistleblowers give us to bring cases.

The motivation behind the False Claims Act is that maybe for philosophical reasons, the Justice Department might want to pursue something or maybe their workload is such that a certain case might have a lower priority. It gives the individual citizen in qui tam type suits the ability to bring cases in a sense as a citizen prosecutor. Of course, if a person is not a lawyer, they will have to hire lawyers to do that for them. But as a motivation for doing it, they get a percent of what is recovered.

Remember, $22 billion has been recovered since this law was passed. That may not be a lot of money over the period of years, but it sure is one big hunk of money that we wouldn't have access to if it wasn't for whistleblowers and people who were willing to pursue it to the nth degree to make sure that the case is made and to bring back the taxpayer money at the same time.

Consequently, I am sure somebody is going to try to make a case that when some whistleblower gets $1 million, well, isn't that an awful lot of money for information that has brought back maybe tens of millions of dollars or maybe hundreds of millions of dollars? But the point is, we would not have the case if it was not for the information from the whistleblower.

A lot of people will make a judgment: Well, if you are a public employee or connected to a government program, it is your duty to report that. Well, that is exactly what a lot of people have done without even knowing the false claims law exists. A lot of people whom I have met as whistleblowers have brought to the attention of people higher up in the Government attempts at fraud or actual fraud and got nowhere, and then everybody assumes the only reason they brought it up is because they knew: Well, I can make a case out of this, and I can get a large award for bringing this to people's attention. Most of the whistleblowers whom I know about did not even know about whistleblower protection laws, did not even know about false claims laws until they got into it. Then they find out there is some law that protects them, there is some law that encourages them to move forward.

The point I am trying to make is that when Government cannot do its job of recovering fraud or does not know about it, it seems to me both the $22 billion that has come back to the Federal Treasury as well as the nature of preventing fraud that is behind it--and that probably does much more good, but you cannot measure it, than what is evidenced by the $22 billion--should not be challenged.

Defense contractors during the late 1980s into the 1990s tried to gut this legislation through amendments on appropriations bills or through other attempts. When the defense contractors could not do it, they got people in the health care industry to front for them to try to gut it. In almost every respect, in 20 years, we have stopped various special interests in this town from gutting this legislation. But as we brought this bill forward with Senator Leahy, we have found those people kind of coming to the surface once again.

I say to my colleagues--and particularly I would like my new colleagues to be aware of this--you are going to find those same special interests that have been around for over a period of the last 20 years trying to gut this legislation because it is one of the most effective tools against fraud. You are going to find them surfacing, not necessarily in amendments that are very transparent that there is a special interest behind it. But let me tell you from the experience I have had defending this legislation over the last 20 years, they are there. They do not like the False Claims Act. I do not mean these interests are about doing fraud, but they do not want the overseer the False Claims Act is, and they do not want the encouragement to whistleblowers that if something is wrong, it might be reported.

I hope my colleagues--as the False Claims Act provisions of this bill might be countered by some of our colleagues--think in terms of this not being a new attack, this is just a return of a constant attack this legislation had on it from maybe 1986 for about 10 years. I have not heard it surface a whole lot since then. But it is there.

Remember, this was a piece of legislation that was originally intended to go after military contract fraud. But let me tell you, now it is one of the best tools to get at health care fraud. That is sometimes the impetus for some of these crippling amendments. So please keep that in the back of your mind as we consider this legislation, or at least this part of this bill dealing with the False Claims Act.

I surely thank Senator Leahy for including this in the bill, bringing this back to its original intent, so it can be even a more forceful tool to be used against false claims, since it has been weakened by some court decisions. It will help us ferret out fraud. I am sure happy we have a President who is also interested in doing that.

I yield the floor.

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