Fraud Enforcement and Recovery Act of 2009

Floor Speech

FRAUD ENFORCEMENT AND RECOVERY ACT OF 2009 -- (Senate - April 27, 2009)

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Mr. WHITEHOUSE. Madam President, I rise in strong support of S. 386, the Fraud Enforcement and Recovery Act, and I congratulate Chairman Leahy for introducing this important piece of legislation. If enacted, this bill will enhance our ability to combat fraud and help bring justice to those injured by misconduct that contributed to our current financial crisis.

The bill has several important aims. First, it provides badly needed additional funds for fraud-fighting efforts at the FBI, the Department of Justice, and other agencies. It also makes critical changes to our existing criminal fraud statutes, so they capture the malfeasance in the mortgage and financial markets that we hear about every day. Last, certainly not least, it strengthens the False Claims Act to facilitate actions against Government contractors or their subcontractors for wasting Government money.

First, I want to say a few words about the additional resources authorized by this bill. In recent years, the number of fraud cases has ballooned. Last month, the Director of the FBI, Robert Mueller, told the Judiciary Committee that his agency's caseload of active mortgage fraud cases, for example, has almost tripled in the past 3 years.

The FBI, along with Department of Justice and other agencies, has struggled with allocating their scarce resources. As Director Mueller testified, ``these cases are straining the FBI's resources....... [W]e have had to shift resources from other criminal programs to address the current financial crisis.''

The Fraud Enforcement and Recovery Act provides essential money for investigating and prosecuting fraud. Both in the last Congress and earlier this Congress, Senator Snowe and I had introduced legislation, which also would have temporarily increased resources at the FBI to fight white-collar crime because we recognized that our law enforcers do not have the resources they need to fight the ever-growing caseload of fraud cases. S. 386 serves the same important end by providing $245 million a year to the Justice Department, the FBI, and other investigative agencies.

S. 386 does more than just provide money, though; it aims to fight fraud
in a comprehensive, far-reaching manner by amending criminal laws. The changes in the Fraud Enforcement and Recovery Act will give Federal law enforcement agencies the tools they need to address some of the most nefarious criminal activity in the financial world.

As we have seen in recent years, many of our vulnerabilities in the financial sector originated from bad mortgages and dangerous derivatives. The companies in the center of the storm are the names you hear every night on the news. Of course, not every person in those companies has acted criminally. But some have. These the actors who were able to exploit holes in the regulatory system or identify problems with oversight--often with intentional disregard for the health of the economy. Unfortunately, our present laws don't neatly capture some the criminal acts that are at the heart of financial crisis.

To that end, this bill will amend the definition of ``financial institution'' to extend the fraud laws to private mortgage-lending businesses that were not directly regulated or insured by the Federal Government. It will also amend the law to cover mortgage-backed derivatives--so intentional, fraudulent acts related to those instruments can be prosecuted.

The Fraud Enforcement and Recovery Act also changes the law to better capture Ponzi schemes. As it stands now, courts have held that the perpetrators of those schemes are liable only for ``profits'' they earned--rather than being liable for all the ``proceeds'' they received over the course of time.

Furthermore, the bill puts the money expended through the Troubled Asset Relief Program, the American Recovery and Reinvestment Act, and other stimulus bills under the ambit of the fraud statutes. By making this change now, we hopefully will deter the type of intentional, criminal activity that has contributed to the present financial crisis.

There is also another way we can protect the TARP and ARRA money--by strengthening civil fraud enforcement. The Fraud Enforcement and Recovery Act makes overdue changes to the False Claims Act, so that the Federal Government can recover money lost due to contractor abuse and fraud.

Through Senator Grassley's efforts since the 1980s, the False Claims Act has become the powerful tool that it is today. Individuals, on behalf of the Government, or the Government itself can sue to recover money from contractors who have abused their access to Government funds. We have seen in the Iraq war context that when contractors have access to large tranches of Government money, fraud and abuse will often follow.

Yet some of the False Claims Act cases decided by courts in the last decade have made the False Claims Act less effective. One line of cases determined that fraudulent actions by subcontractors are not subject to the False Claims Act. A change in the Fraud Enforcement and Recovery Act plugs this hole in the existing law.

It is too late to turn back the clock and prevent today's financial crisis from happening. But we can hold the bad actors accountable now by prosecuting the perpetrators to the fullest extent of the law. The provisions of the Fraud Enforcement and Recovery Act will help ensure that our enforcement resources match the gravity of the situation before us.

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