Prepared Statement of Senator Chuck Grassley of Iowa
Senate Floor Debate on Fraud Enforcement and Recovery Act
Monday, April 20, 2009
I'm 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 amounts of taxpayer dollars that are being expended to shore up banks and financial institutions, corporations, Fannie Mae and Freddie Mac. On top of that, the economic stimulus bill handed out nearly $1 trillion in new spending. Whether a member supported or opposed these expenditures, he or she must agree that we simply cannot allow unscrupulous individuals to defraud the government and rip off taxpayers.
This legislation ensures that our law enforcement officials and prosecutors have the tools necessary to enforce our laws and the resources to hunt down these bad actors. It makes minor revisions to our criminal fraud laws to ensure that bad actors aren't outside the scope of federal jurisdiction. Further, it amends the civil False Claims Act to ensure that taxpayer money lost to fraud, waste, or 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 many of these bad players to commit fraud against homeowners, lenders, and businesses across the country. For example, the Financial Crimes Enforcement Network released an updated report outlining filing trends in mortgage loan fraud suspicious activity reports (SARs). This most recent report shows that SARs have continued to increase and for the last year ending in June 2008, there were more than 62,000 SARs filed related to mortgage fraud alone. While this is raw data that simply represents investigative leads, it represents a 44 percent increase in suspicious activity from the preceding year. We need to act now to stomp out new claims of fraud to send a message that the American taxpayers won't be taken for a ride.
This rise in the number of SARs reported has also increased the need to investigate leads from SARs. As a result, we need to make sure that there are resources available so that our law enforcement agencies can follow these leads. During the height of the savings and loan crisis in the late 1980's and early 1990's, the FBI had more than 1,000 agents and experts working mortgage fraud cases. Today, the FBI has 180 agents dedicated to mortgage fraud investigations, a significant decrease compared to the S&L crisis. While this number represents an effort to combat the fraud, it is a significant decrease when you consider the hundreds of millions of dollars in write downs during the S&L crisis are 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, HUD Inspector General, and the Postal Inspection Service, to procure the funding necessary to combat complex financial crimes.
I think it is important to note that this bill recognizes the important work of a number of federal law enforcement agencies that work to combat and prevent financial crimes. We don't often think about the Secret Service when we think of mortgage fraud, but the dedicated men and women at the Secret Service have been on the front line in combating mortgage fraud since the S&L crisis and continue to unravel complex financial crimes. The Postal Inspection Service and the Inspector General for the Department of Housing and Urban Development also continue to make significant contributions to stamping out mortgage frauds that abuse federal government programs and utilize the mail to commit these frauds.
In addition to authorizing funding for law enforcement and prosecutors, the bill makes some necessary changes to federal criminal laws. The bill redefines "financial institution" to include mortgage lending businesses—a category that is currently missing from that definition. It also amends the statute to make it illegal to make false statements on mortgage applications and appraisals. Further, it ensures that economic relief funds and TARP funds are included in criminal laws prohibiting fraud against the government, and it adds commodities futures to the securities fraud statute.
The bill also makes two important clarifications to the anti-money 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 gains. This is an incredibly important provision—especially given the recent concerns about outbound bulk cash smuggling at the Southwest Border. 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 IRS to clamp down on tax cheats and evaders who move money offshore to avoid paying taxes.
Finally, and perhaps most importantly, the legislation makes important changes to the Federal False Claims Act (FCA). The False Claims Act is the government's premier tool to recover government money lost to fraud and abuse. The government has used the FCA to recover more than $22 billion since 1986, when I introduced legislation that amended it. This legislation will ensure that the law adheres original intent of the FCA. Specifically, these amendments address a loophole that was created in the FCA by the Supreme Court decision in Allison Engine 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 FCA cases dismissed based upon this decision, and 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 who are thinking about committing a future fraud. I hope my colleagues will join in supporting this legislation to make sure that taxpayer dollars are protected.
I also want to take an opportunity to do 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 who may not understand the motivation behind the False Claims Act of 1986.
There was tremendous fraud, particularly in defense contracting, that caused me as a first-term senator to be very concerned. We made proper amendments to the False Claims Act to use whistle-blower information to bring forward cases.
The motivation behind the False Claims Act may be for philosophical reasons, but it's important because the Justice Department might want to not pursue a case or maybe their workload is heavy and that certain case might have a lower priority. It gives the individual citizen in qui-tam type suits the opportunity to bring cases, in a sense, as a citizen prosecutor. Now, of course, if that person isn't a lawyer, they would hire lawyers to represent them. But, as a motivation for doing it, they get a percent of the money that's recovered.
Remember, $22 billion have been recovered since this law was passed. That may not be a lot of money over a period of years, but it sure is one big hunk of money that we wouldn't have if it wasn't for whistleblowers willing to pursue cases to the Nth degree, bring people to justice and at the same time bring back the taxpayers' money.
I'm sure somebody's going to try to make a case that when some whistle-blower gets a million dollars, that it's too much money in return for information which brought back tens or even hundreds of millions of dollars. The point is that we would not have the case or the money returned if it wasn't for the information of the whistleblower.
A lot of people will make a judgment, that if you are connected to a government program that it's your duty to report. Well, that's exactly what a lot of people have done without knowing about the False Claims law. A lot of whistle-blowers have brought attempts at fraud or actual fraud to the attention of people higher up in the government and gotten nowhere.
Everybody assumes that the only reason the whistleblower brought it up is because they knew about the False Claims Act. People think that the whistleblowers say "Well, I can make a case out of this and get large award for bringing this to peoples' attention." Most of the whistleblowers I know about, didn't even know about whistleblower protection laws and False Claims laws until they get into the middle of it. Then, they find out there is a law that protects them and encourages them to move forward.
So the point is this. The government can't always do its job of recovering fraud or doesn't even know about it. Both the $22 billion that has come back to the federal treasury, as well as the fraud prevented by this law are good. You can't measure how much fraud is prevented, but the law probably does more good than evidenced by the $22 billion. That's why this law should not be challenged.
This law has been on the books over 20 years and defense contractors during the late 1980's into the 1990's tried to gut this legislation through amendments on appropriations bills and through other means. When the defense contractors couldn't do it, they got people in the health care industry to try to gut it for them. For 20 years we've 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 coming to the surface once again. So my colleagues, particularly the new colleagues, I'd like to make you aware of this: you're going to find those same special interests that have been around for the last 20 years, trying to gut this legislation. Why? Because it's one of the most effective tools against fraud.
You will find them surfacing. Not necessarily in amendments that are very transparent -- that there's a special interest behind them. But let me inform my colleagues about the experience I've had defending this legislation over the last 20 years. They're there and they don't like the False Claims Act. I don't mean that these interests are about doing fraud. But they don't want an effective overseer like the False Claims Act. They don't want the encouragement for whistleblowers to report if something's wrong.
So I hope that my colleagues, as 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 that this legislation has had on it. I haven't heard it surface a lot, but it is there.
But remember this was a piece of legislation that was originally intended to go after military contract fraud. It's also one of the best tools to get at health care fraud, which is sometimes where the impetus for the crippling amendments is coming from.
Keep that in the back of your mind as we consider this legislation or at least this part dealing with the False Claims Act.
I surely thank Senator Leahy for including this in the bill. Bringing this back to its original intent makes it an 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'm sure happy that we have a president who is also interested in doing that. I yield the floor.
______________________________
Here's a New York Times editorial from Saturday, April 18, 2009.
Fraud Factor
Published: April 18, 2009
While Washington is spending billions to shore up the financial system, it is doing far too little to strengthen the federal government's ability to investigate and prosecute the sort of corporate and mortgage frauds that helped cause the economic collapse.
Those efforts — never fully adequate — have suffered in recent years as money and people were shifted from white-collar fraud to anti-terrorist activities. Over time, the ranks of fraud investigators and prosecutors were dramatically thinned, leaving the F.B.I. and the larger Justice Department ill prepared to keep pace with a skyrocketing number of serious fraud allegations.
Now they are ill equipped to police the vast infusion of federal money into the economy.
A bipartisan measure newly approved by the Senate Judiciary Committee and now coming before the full Senate would begin to close the enforcement gap.
Sponsored by Senators Patrick Leahy of Vermont and Edward Kaufman of Delaware, both Democrats, and Senator Charles Grassley, Republican of Iowa, the Fraud Enforcement and Recovery Act of 2009 would significantly expand the number of prosecutors, agents and analysts devoted to pursuing financial crimes.
It would strengthen existing federal fraud and money-laundering provisions, updating the definition of "financial institution" in federal fraud statutes to include largely unregulated mortgage businesses, for example, and reversing flawed court decisions that have undermined the effectiveness of the False Claims Act, one of the most potent weapons against government fraud.
The measure envisions spending $490 million over the next two fiscal years. Like a similar enforcement buildup in response to the savings and loan crisis of the 1980s, this one will contribute far more than it costs to the federal Treasury through restitutions and asset recoveries, according to the Congressional Budget Office forecast. Senators should not be asking if the expenditure is affordable, but whether it is enough.