[Congressional Record Volume 155, Number 23 (Thursday, February 5, 2009)]
[Senate]
[Pages S1681-S1684]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LEAHY (for himself, Mr. Grassley, and Mr. Kaufman):
  S. 386. A bill to improve enforcement of mortgage fraud, securities 
fraud, financial institution fraud, and other frauds related to federal 
assistance and relief programs, for the recovery of funds lost to these 
frauds, and for other purposes; to the Committee on the Judiciary.
  Mr. LEAHY. 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

[[Page S1682]]

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.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 386

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Fraud Enforcement and 
     Recovery Act of 2009'' or ``FERA''.

     SEC. 2. AMENDMENTS TO IMPROVE MORTGAGE, SECURITIES, AND 
                   FINANCIAL FRAUD RECOVERY AND ENFORCEMENT.

       (a) Definition of Financial Institution Amended to Include 
     Mortgage Lending Business.--Section 20 of title 18, United 
     States Code, is amended--
       (1) in paragraph (8), by striking ``or'' after the 
     semicolon;
       (2) in paragraph (9), by striking the period and inserting 
     ``; or''; and

[[Page S1683]]

       (3) by inserting at the end the following:
       ``(10) a mortgage lending business (as defined in section 
     27 of this title) or any person or entity that makes in whole 
     or in part a federally-related mortgage loan as defined in 12 
     U.S.C. 2602(1).''.
       (b) Mortgage Lending Business Defined.--
       (1) In general.--Chapter 1 of title 18, United States Code, 
     is amended by inserting after section 26 the following:

     ``Sec. 27. Mortgage lending business defined

       ``In this title, the term `mortgage lending business' means 
     an organization which finances or refinances any debt secured 
     by an interest in real estate, including private mortgage 
     companies and any subsidiaries of such organizations, and 
     whose activities affect interstate or foreign commerce.''.
       (2) Chapter analysis.--The chapter analysis for chapter 1 
     of title 18, United States Code, is amended by adding at the 
     end the following:

``27. Mortgage lending business defined.''.

       (c) False Statements in Mortgage Applications Amended to 
     Include False Statements by Mortgage Brokers and Agents of 
     Mortgage Lending Businesses.--Section 1014 of title 18, 
     United States Code, is amended by--
       (1) striking ``or'' after ``the International Banking Act 
     of 1978),''; and
       (2) inserting after ``section 25(a) of the Federal Reserve 
     Act'' the following: ``or a mortgage lending business whose 
     activities affect interstate or foreign commerce, or any 
     person or entity that makes in whole or in part a federally-
     related mortgage loan as defined in 12 U.S.C. 2602(1)''.
       (d) Major Fraud Against the Government Amended to Include 
     Economic Relief and Troubled Asset Relief Program Funds.--
     Section 1031(a) of title 18, United States Code, is amended 
     by--
       (1) inserting after ``or promises, in'' the following: 
     ``any grant, contract, subcontract, subsidy, loan, guarantee, 
     insurance or other form of Federal assistance, including 
     through the Troubled Assets Relief Program, an economic 
     stimulus, recovery or rescue plan provided by the Government, 
     or the Government's purchase of any preferred stock in a 
     company, or''; and
       (2) striking ``the contract, subcontract'' and inserting 
     ``such grant, contract, subcontract, subsidy, loan, 
     guarantee, insurance or other form of Federal assistance,''.
       (e) Securities Fraud Amended to Include Fraud Involving 
     Options and Futures in Commodities.--
       (1) In general.--Section 1348 of title 18, United States 
     Code, is amended--
       (A) in the caption, by inserting ``and commodities'' after 
     ``Securities'';
       (B) by inserting ``any commodity for future delivery, or 
     any option on a commodity or a commodity for future delivery, 
     or'' after ``any person in connection with'' ; and
       (C) by inserting ``any commodity for future delivery, or 
     any option on a commodity or a commodity for future delivery, 
     or'' after ``in connection with the purchase or sale of''.
       (2) Chapter analysis.--The item for section 1348 in the 
     chapter analysis for chapter 63 of title 18, United States 
     Code, is amended by inserting ``and commodities'' after 
     ``Securities''.
       (f) Money Laundering Amended to Define Proceeds of 
     Specified Unlawful Activity.--Section 1956(c) of title 18, 
     United States Code, is amended--
       (1) in paragraph (8), by striking the period and inserting 
     ``; and''; and
       (2) by inserting at the end the following:
       ``(9) the term `proceeds' means any property derived from 
     or obtained or retained, directly or indirectly, through the 
     commission of a specified unlawful activity, including the 
     gross receipts of such specified unlawful activity.''.
       (g) Making the International Money Laundering Statute Apply 
     to Tax Evasion.--Section 1956(a)(2)(A) of title 18, United 
     States Code, is amended by--
       (1) inserting ``(i)'' before ``with the intent to 
     promote''; and
       (2) adding at the end the following:
       ``(ii) with the intent to engage in conduct constituting a 
     violation of section 7201 or 7206 of the Internal Revenue 
     Code of 1986; or''.

     SEC. 3. ADDITIONAL FUNDING FOR INVESTIGATORS AND PROSECUTORS 
                   FOR MORTGAGE FRAUD, SECURITIES FRAUD, AND OTHER 
                   CASES INVOLVING FEDERAL ECONOMIC ASSISTANCE.

       (a) In General.--
       (1) Authorization.--There is authorized to be appropriated 
     to the Attorney General, to remain available until expended, 
     $155,000,000 for each of the fiscal years 2010 and 2011, for 
     the purposes of investigations, prosecutions, and civil 
     proceedings involving federal assistance programs and 
     financial institutions, including financial institutions to 
     which this Act and amendments made by this Act apply.
       (2) Allocations.--With respect to fiscal years 2010 and 
     2011, the amount authorized to be appropriated under 
     paragraph (1) shall be allocated as follows:
       (A) Federal Bureau of Investigation: $65,000,000.
       (B) The offices of the United States Attorneys: 
     $50,000,000.
       (C) The criminal division of the Department of Justice: 
     $20,000,000.
       (D) The civil division of the Department of Justice: 
     $15,000,000.
       (E) The tax division of the Department of Justice: 
     $5,000,000.
       (b) Additional Appropriations for the Postal Inspection 
     Service.--There is authorized to be appropriated to the 
     Postal Inspection Service of the United States Postal 
     Service, $30,000,000 for each of the fiscal years 2010 and 
     2011 for investigations involving federal assistance programs 
     and financial institutions, including financial institutions 
     to which this Act and amendments made by this Act apply.
       (c) Additional Appropriations for the Inspector General for 
     the Housing and Urban Development Department.--There is 
     authorized to be appropriated to the Inspector General of the 
     Department of Housing and Urban Development, $30,000,000 for 
     each of the fiscal years 2010 and 2011 for investigations 
     involving Federal assistance programs and financial 
     institutions, including financial institutions to which this 
     Act and amendments made by this Act apply.
       (d) Use of Funds.--The funds authorized to be appropriated 
     under subsections (a), (b), and (c), shall be limited to 
     cover the costs of each listed agency or department for 
     investigating possible criminal, civil, or administrative 
     violations and for prosecuting criminal, civil, or 
     administrative proceedings involving financial crimes and 
     crimes against Federal assistance programs, including 
     mortgage fraud, securities fraud, financial institution 
     fraud, and other frauds related to Federal assistance and 
     relief programs
       (e) Report to Congress.--Following the final expenditure of 
     all funds appropriated under this section that were 
     authorized by subsections (a), (b), and (c), the Attorney 
     General, in consultation with the United States Postal 
     Inspection Service and the Inspector General for the 
     Department of Housing and Urban Development, shall submit a 
     joint report to Congress identifying--
       (1) the amounts expended under subsections (a), (b), and 
     (c) and a certification of compliance with the requirements 
     listed in subsection (d); and
       (2) the amounts recovered as a result of criminal or civil 
     restitution, fines, penalties, and other monetary recoveries 
     resulting from criminal, civil, or administrative proceedings 
     and settlements undertaken with funds authorized by this Act.

     SEC. 4. CLARIFICATIONS TO THE FALSE CLAIMS ACT TO REFLECT THE 
                   ORIGINAL INTENT OF THE LAW.

       (a) Clarification of the False Claims Act.--Section 3729 of 
     title 31, United States Code, is amended--
       (1) by striking subsection (a) and inserting the following:
       ``(a) Liability for Certain Acts.--
       ``(1) In general.--Subject to paragraph (2), any person 
     who--
       ``(A) knowingly presents, or causes to be presented, a 
     false or fraudulent claim for payment or approval;
       ``(B) knowingly makes, uses, or causes to be made or used, 
     a false record or statement to get a false or fraudulent 
     claim paid or approved;
       ``(C) conspires to commit a violation of subparagraph (A), 
     (B), (D), (E), (F), or (G) or otherwise to get a false or 
     fraudulent claim paid or approved;
       ``(D) has possession, custody, or control of property or 
     money used, or to be used, by the Government and knowingly 
     delivers, or causes to be delivered, less than all of that 
     money or property;
       ``(E) is authorized to make or deliver a document 
     certifying receipt of property used, or to be used, by the 
     Government and, intending to defraud the Government, makes or 
     delivers the receipt without completely knowing that the 
     information on the receipt is true;
       ``(F) knowingly buys, or receives as a pledge of an 
     obligation or debt, public property from an officer or 
     employee of the Government, or a member of the Armed Forces, 
     who lawfully may not sell or pledge property; or
       ``(G) knowingly makes, uses, or causes to be made or used, 
     a false record or statement to conceal, avoid, or decrease an 
     obligation to pay or transmit money or property to the 
     Government, or knowingly conceals, avoids, or decreases an 
     obligation to pay or transmit money or property to the 
     Government,

     is liable to the United States Government for a civil penalty 
     of not less than $5,000 and not more than $10,000, as 
     adjusted by the Federal Civil Penalties Inflation Adjustment 
     Act of 1990 (28 U.S.C. 2461 note; Public Law 104-410), plus 3 
     times the amount of damages which the Government sustains 
     because of the act of that person.
       ``(2) Reduced damages.--If the court finds that--
       ``(A) the person committing the violation of this 
     subsection furnished officials of the United States 
     responsible for investigating false claims violations with 
     all information known to such person about the violation 
     within 30 days after the date on which the defendant first 
     obtained the information;
       ``(B) such person fully cooperated with any Government 
     investigation of such violation; and
       ``(C) at the time such person furnished the United States 
     with the information about the violation, no criminal 
     prosecution, civil action, or administrative action had 
     commenced under this title with respect to such violation, 
     and the person did not have actual knowledge of the existence 
     of an investigation into such violation,

     the court may assess not less than 2 times the amount of 
     damages which the Government sustains because of the act of 
     that person.

[[Page S1684]]

       ``(3) Costs of civil actions.--A person violating this 
     subsection shall also be liable to the United States 
     Government for the costs of a civil action brought to recover 
     any such penalty or damages.'';
       (2) by striking subsections (b) and (c) and inserting the 
     following:
       ``(b) Definitions.--For purposes of this section--
       ``(1) the terms `knowing' and `knowingly' mean that a 
     person, with respect to information--
       ``(A) has actual knowledge of the information;
       ``(B) acts in deliberate ignorance of the truth or falsity 
     of the information; or
       ``(C) acts in reckless disregard of the truth or falsity of 
     the information, and no proof of specific intent to defraud 
     is required;
       ``(2) the term `claim'--
       ``(A) means any request or demand, whether under a contract 
     or otherwise, for money or property and whether or not the 
     United States has title to the money or property, that--
       ``(i) is presented to an officer, employee, or agent of the 
     United States; or
       ``(ii) is made to a contractor, grantee, or other recipient 
     if the United States Government--

       ``(I) provides or has provided any portion of the money or 
     property requested or demanded; or
       ``(II) will reimburse such contractor, grantee, or other 
     recipient for any portion of the money or property which is 
     requested or demanded; and

       ``(B) does not include requests or demands for money or 
     property that the Government has paid to an individual as 
     compensation for Federal employment or as an income subsidy 
     with no restrictions on that individual's use of the money or 
     property; and
       ``(3) the term `obligation' means a fixed duty, or a 
     contingent duty arising from an express or implied 
     contractual, quasi-contractual, grantor-grantee, licensor-
     licensee, fee-based, or similar relationship, and the 
     retention of any overpayment.'';
       (3) by redesignating subsections (d) and (e) as subsections 
     (c) and (d), respectively; and
       (4) in subsection (c), as redesignated, by striking 
     ``subparagraphs (A) through (C) of subsection (a)'' and 
     inserting ``subsection (a)(2)''.

  Mr. KAUFMAN. Mr. President, as we struggle to restore growth and hope 
to our economy, we must continue to repair the weaknesses in our legal 
and regulatory system weaknesses that contributed to the crisis we face 
today. A lot of what has happened to our economy was the result of 
greed and incompetence. But too much of it can be traced to fraud, 
insider deals, and other acts that are illegal, and to actions that 
should be illegal.
  That is why I am joining today with Senator Leahy and Senator 
Grassley to introduce the Fraud Enforcement and Recovery Act of 2009. 
As we survey the damage to every aspect of our economy from 
manufacturing to retail, from construction to services we can trace the 
origins of this disaster to the real estate market and the financing 
that drove a bubble that finally burst.
  We now know that behind the explosion in housing values, and the 
explosion in the secondary market for mortgages, were 
misrepresentations, false reporting, insider deals, and other forms of 
fraud. Many of these actions clearly broke existing financial 
regulations and consumer protection laws. Others took place in so-
called ``shadow'' financial markets that are outside of our existing 
laws.
  The legislation we are introducing today will provide the Justice 
Department with the resources it needs to prosecute the crimes that 
played a part in precipitating the crisis we are now facing. The FBI 
has been overwhelmed by reports of mortgage fraud, now running at over 
ten times the pace of a few years ago.
  The bill authorizes $155 million a year for hiring fraud prosecutors 
and investigators at the Justice Department for 2010 and 2011, 
including $65 million a year for 190 additional FBI special agents and 
more than 200 professionals to fight white collar crime.
  In addition, this bill exposes some of the ``shadow'' financial 
systems to the fraud laws that apply today in the better regulated 
sectors of our banking industry. It also extends antifraud protections 
to the money we are sending out under the Troubled Asset Relief Program 
and the economic stimulus package. It also amends Federal securities 
laws to cover fraud schemes involving commodities futures and options, 
including so-called derivatives involving the mortgage-backed 
securities that caused such damage to our banking system.
  Further, this legislation will strengthen one of the most effective 
tools to combat waste and fraud in government the False Claims Act. We 
will need these improvements so that we can protect the taxpayer 
dollars we are using to respond to the economic crisis.
  I hope we can move this legislation quickly. It moves against the 
root causes of this economic crisis and improves protections for the 
taxpayer funds we are committing to fight it.
                                 ______