Mr. President, today, I am pleased to introduce with Senator Grassley the Fraud Enforcement and Recovery Act, FERA, of 2009, a bipartisan bill that will reinvigorate our Nation's capacity to…
Mr. President, today, I am pleased to introduce with Senator Grassley the Fraud Enforcement and Recovery Act, FERA, of 2009, a bipartisan bill that will reinvigorate our Nation'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.
Our Nation is in the midst of its most serious economic crisis since the Great Depression. With each passing week, tens of thousands more Americans lose their jobs to layoffs, and many thousands have already lost their homes to foreclosure. We learn more and more each day about the causes of this debacle, and it is now clear that unscrupulous mortgage brokers and Wall Street financiers were among the principle contributors of this economic collapse.
As the crisis worsened last fall, I called upon Federal law enforcement to track down and punish those whose conduct went beyond mere negligence or incompetence and who were directly responsible for the corporate and mortgage frauds that helped make the economic downturn far worse than anyone predicted. With the new tools and resources in this bill, it will be easier to ensure that all of those responsible for these financial crimes are held accountable.
While the full scope of the fraud that triggered this economic crisis is still unknown, we have already learned a great deal about what went wrong. As banks and private mortgage companies relaxed their standards for loans, approving ever riskier mortgages with less and less due diligence, they created an environment that invited fraud. Private mortgage brokers and
lending businesses came to dominate the home housing market, and these companies were not subject to the kind of banking oversight and internal regulations that had traditionally helped to prevent fraud. We are now seeing the results of this lax supervision and accountability.
In the last six years, suspicious activity reports alleging mortgage fraud that have been filed with the Treasury Department have increased more than tenfold, from about 5,400 in 2002 to more than 60,000 in 2008. In the last three years, the number of criminal mortgage fraud investigations opened by the FBI has more than doubled, and the FBI anticipates a new wave of cases that may double that number yet again. Despite the increase, the FBI currently has fewer than 250 special agents nationwide assigned to financial fraud cases. At current levels, they cannot even begin to investigate the more than 5,000 fraud allegations they receive from the Treasury Department each month.
Of course, the problem is not limited to mortgage frauds. As is so common in today's financial markets, home mortgages were packaged together and turned into securities that were bought and sold in largely unregulated markets on Wall Street. Here again, the environment invited fraud. As the value of the mortgages started to decline with falling housing prices, Wall Street financiers began to see these mortgage-backed securities unravel. Unfortunately, some were not honest about these securities, leading to even more fraud, and victimizing investors nationwide.
All of this fraud has contributed to an unprecedented collapse in the mortgage-backed securities market. In the past year, banks and financial institutions in the United States alone have suffered more than $500 billion in losses associated with the sub-prime mortgage industry. Some of our Nation's largest and most venerable financial institutions collapsed as a result. The list of publicly-traded companies that declared bankruptcy or have been taken over by the Federal Government because of the mortgage-backed securities market collapse include Fannie Mae, Freddie Mac, Bear Stearns, IndyMac, and Lehman Brothers.
As we take steps to make sure this kind of collapse cannot happen again, we must reinvigorate our anti-fraud measures and give law enforcement the tools and resources they need to root out fraud so that it can never again place our financial system at risk. Taxpayers, who bear the burden of this financial downturn, deserve to know that government is doing all it can to hold responsible those who committed fraud in the run-up to this collapse. This bill will do just that.
This bipartisan legislation begins by providing the resources needed for law enforcement to uncover and go after these frauds. The bill authorizes $155 million a year for hiring fraud prosecutors and investigators at the Justice Department for fiscal years 2010 and 2011. This includes $65 million a year for the FBI to bring on 190 additional special agents and more than 200 professional staff and forensic analysts to rebuild its ``white collar'' investigation program. With this funding, the FBI can double the number of its mortgage fraud task forces nationwide--from 26 to more than 50--that target fraud in the hardest hit areas in our Nation. This also includes $50 million a year for U.S. Attorneys' offices to staff those strike forces and $40 million for the criminal, civil, and tax divisions at the Justice Department to provide special litigation and investigative support to those efforts. The bill also authorizes $60 million a year for fiscal years 2010 and 2011 for investigators and analysts at the U.S. Postal Inspection Service and the Office of Inspector General for the Housing and Urban Development Department to combat fraud against Federal assistance programs and financial institutions.
Of course, the economic recovery legislation includes new appropriations of $75 million for FBI salaries and $2 million for the Inspector General for the Treasury Department, yet certainly far more needs to be done to address the full scope of these enforcement issues now and in the future.
The Fraud Enforcement and Recovery Act also makes a number of straightforward, important improvements to fraud and money laundering statutes to strengthen prosecutors' ability to combat this growing wave of fraud. Specifically, the bill amends the definition of ``financial institution'' in the criminal code in order to extend Federal fraud laws to mortgage lending businesses that are not directly regulated or insured by the Federal Government. These companies were responsible for nearly half the residential mortgage market before the economic collapse, yet they remain largely unregulated and outside the scope of traditional Federal fraud statutes. This change will apply the Federal fraud laws to private mortgage businesses like Countrywide Home Loans and GMAC Mortgage, just as they apply to federally insured and regulated banks.
The bill would also amend the major fraud statute to protect funds expended under the Troubled Asset Relief Program and the economic stimulus package, including any government purchases of preferred stock in financial institutions. The U.S. Government has provided extraordinary economic support to our banking system, and we need to make sure that none of those funds are subject to fraud or abuse. This change will give Federal prosecutors and investigators the explicit authority they need to protect taxpayer funds.
The legislation would amend the Federal securities statute to cover fraud schemes involving commodities futures and options, including derivatives involving the mortgage-backed securities that caused such damage to our banking system.
This bill will also strengthen one of the core offenses in so many fraud cases--money laundering--which was significantly weakened by a recent Supreme Court case. In United States v. Santos, the Supreme Court misinterpreted the money laundering statutes, limiting their scope to only the ``profits'' of crimes, rather than the ``proceeds'' of the offenses. The Court's mistaken decision was contrary to Congressional intent and will lead to financial criminals escaping culpability simply by claiming their illegal scams had not made a profit. This erroneous decision must be corrected immediately, as dozens of money laundering cases have already been dismissed.
Lastly, FERA improves one of the most potent civil tools we have for rooting out waste and fraud in government--the False Claims Act. The effectiveness of the False Claims Act has recently been undermined by court decisions which limit the scope of the law and allow sub- contractors paid with government money to escape responsibility for proven frauds. The False Claims Act must quickly be corrected and clarified in order to protect from fraud the Federal assistance and relief funds expended in response to our current economic crisis.
The Federal Government has spent hundreds of billions of dollars to stabilize our banking system, and Congress will soon spend even more to restart our economic recovery. But to date, we have paid far too little attention to investigating and prosecuting the mortgage and corporate frauds that has so dramatically contributed to this economic collapse.
Congress should move quickly to pass this legislation so the American taxpayers can be confident that those who are criminally responsible for contributing to this economic disaster are caught and held fully accountable and to ensure that the money we are now spending to restore America is protected from fraud in the future.
Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.