[House Report 109-473]
[From the U.S. Government Publishing Office]



109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     109-473

======================================================================

 
EMERGENCY AND DISASTER ASSISTANCE FRAUD PENALTY ENHANCEMENT ACT OF 2005

                                _______
                                

  May 19, 2006.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 4356]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on the Judiciary, to whom was referred the bill 
(H.R. 4356) to amend title 18, United States Code, with respect 
to fraud in connection with major disaster or emergency funds, 
having considered the same, reports favorably thereon without 
amendment and recommends that the bill do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     1
Background and Need for the Legislation..........................     2
Hearings.........................................................     3
Committee Consideration..........................................     3
Vote of the Committee............................................     3
Committee Oversight Findings.....................................     3
New Budget Authority and Tax Expenditures........................     3
Congressional Budget Office Cost Estimate........................     3
Performance Goals and Objectives.................................     4
Constitutional Authority Statement...............................     5
Section-by-Section Analysis and Discussion.......................     5
Agency Views.....................................................     7
Changes in Existing Law Made by the Bill, as Reported............     9
Markup Transcript................................................    11

                          Purpose and Summary

    In response to concerns that the current provisions of 
title 18, United States Code do not adequately address or deter 
fraud in connection with emergency and disaster assistance, 
Chairman Sensenbrenner introduced H.R. 4356, the ``Emergency 
and Disaster Assistance Fraud Penalty Enhancement Act of 
2005,'' on November 17, 2005. H.R. 4356 creates a new criminal 
penalty specifically targeted at fraud in connection with major 
disaster or emergency benefits, increases criminal penalties 
for engaging in mail or wire fraud during and in relation to a 
major disaster or emergency, and directs the United States 
Sentencing Commission to promulgate guidelines to provide for 
increased penalties for persons convicted of disaster or 
emergency benefit fraud.

                Background and Need for the Legislation

    Congress has appropriated approximately $62.3 billion in 
disaster assistance in the wake of Hurricanes Katrina, Rita and 
Wilma. As of March 8, 2006, the Federal Emergency Management 
Agency's (FEMA) allocations for Katrina and Rita-related relief 
from the Disaster Assistance Fund totaled approximately $29.8 
billion. Of this amount, $13.45 billion has been allocated to 
human services including: unemployment assistance; crisis 
counseling; housing assistance; and various other needs of the 
victims. The remainder, approximately $16.4 billion, has been 
allocated for infrastructure, mitigation, general operations 
and the administration of field operations. These costs include 
expenditures for relief worker salaries, travel and 
transportation, as well as contracts for facilities, equipment, 
utilities, and other required services.
    Almost immediately after FEMA began making disaster 
assistance available to victims of the hurricanes, reports of 
fraud, misuse and abuse began to surface. These reports 
included allegations that recipients of disaster assistance had 
misused funds to purchase luxury goods, that non-eligible 
persons had applied for and received benefits, and that 
criminals had established phony Katrina-related websites to 
exploit those who wished to contribute to legitimate disaster 
assistance efforts.
    In response to increased instances of fraud following the 
hurricanes, the Attorney General announced the formation of the 
Hurricane Katrina Fraud Task Force. The Task Force is comprised 
of representatives from the Departments of Justice, Homeland 
Security, and Treasury, the Federal Bureau of Investigation, 
Federal Trade Commission, Securities and Exchange Commission, 
other Federal partners, as well as representatives of State and 
local law enforcement. As of the beginning of February 2006, 23 
United States Attorneys had charged 212 people with various 
hurricane-fraud related crimes, including fraud, identity 
theft, theft of Federal funds and public corruption, and 
obtained 40 guilty pleas.
    Although many of the cases prosecuted by the Task Force 
involved false or fraudulent claims for a few thousand dollars 
in FEMA benefits, other more elaborate and costly schemes have 
surfaced. For instance, the United States Attorney for the 
Northern District of Texas charged a Red Cross volunteer and 
his sister with theft of over 100 Red Cross debit cards used to 
obtain over $230,000 in benefits from the charity intended for 
Katrina Victims. The defendants used proceeds from these debit 
cards to purchase vehicles, jewelry and clothing for 
themselves, family members and friends. In another case, a 
grand jury in the Southern District of Texas returned a 39-
count indictment against the owner of a Galveston, Texas hotel 
charging him with filing fraudulent claims with FEMA for over 
$232,000 in Short-Term Lodging reimbursements. According to the 
indictment, the fraudulent conduct included filing claims for 
payment for rooms in the name of hurricane evacuees who had 
never stayed at the hotel, rooms in the name of supposed 
evacuees when the rooms were occupied by paying guests with 
different names, and multiple rooms in the name of a single 
guest when the guest occupied fewer rooms than billed.
    Despite efforts by Federal, State and local law enforcement 
to prosecute emergency and disaster benefits schemes wherever 
and whenever they occur, it is clear that current criminal 
penalties are insufficient to deter disaster fraud. In February 
2006 alone, the Department of Justice announced 15 indictments, 
three guilty pleas, and two convictions for Hurricane Katrina 
or Rita-related disaster fraud. In March 2006, the Department 
charged or indicted another 14 individuals for Katrina-related 
fraud and obtained four guilty pleas. To strengthen efforts by 
the Department of Justice to conduct disaster fraud 
prosecutions, on November 17, 2005, Chairman Sensenbrenner 
introduced H.R. 4356, the ``Emergency and Disaster Assistance 
Fraud Penalty Enhancement Act of 2005.'' The Department of 
Justice announced its support for this legislation by letter to 
the Committee from Assistant Attorney General William E. 
Moschella, Jr. on Monday, February 27, 2006.

                                Hearings

    The Committee on the Judiciary held no hearings on H.R. 
4356.

                        Committee Consideration

    On Thursday, March 2, 2006, the Committee on the Judiciary 
met in open session and ordered favorably reported the bill 
H.R. 4356, by a voice vote, a quorum being present.

                         Vote of the Committee

    In compliance with clause 3(b) of Rule XIII of the Rules of 
the House of Representatives, the Committee notes that there 
were no recorded votes during the Committee consideration of 
H.R. 4356.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of Rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of Rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of Rule XIII of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority or increased tax 
expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of Rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 4356, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 14, 2006.
Hon. F. James Sensenbrenner, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4356, the 
``Emergency and Disaster Assistance Fraud Penalty Enhancement 
Act of 2005.''
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Mark 
Grabowicz, who can be reached at 226-2860.
            Sincerely,
                                          Donald B. Marron,
                                           Acting Director.

Enclosure

cc:
        Honorable John Conyers, Jr.
        Ranking Member
H.R. 4356--Emergency and Disaster Assistance Fraud Penalty Enhancement 
        Act of 2005.
    CBO estimates that implementing H.R. 4356 would have no 
significant cost to the federal government. Enacting the bill 
could affect direct spending and revenues, but CBO estimates 
that any such effects would not be significant. H.R. 4356 
contains no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act and would not 
affect the budgets of State, local, or tribal governments.
    H.R. 4356 would establish a new federal crime for the 
commission of certain fraudulent acts relating to benefits 
distributed after major disasters or emergencies. Because the 
bill would establish a new offense, the government would be 
able to pursue cases that it otherwise would not be able to 
prosecute. We expect that H.R. 4356 would apply to a relatively 
small number of offenders, however, so any increase in costs 
for law enforcement, court proceedings, or prison operations 
would not be significant. Any such costs would be subject to 
the availability of appropriated funds.
    Because those prosecuted and convicted under H.R. 4356 
could be subject to criminal fines, the federal government 
might collect additional fines if the legislation is enacted. 
Criminal fines are recorded as revenues, then deposited in the 
Crime Victims Fund and later spent. CBO expects that any 
additional revenues and direct spending would not be 
significant because of the small number of cases likely to be 
affected.
    The CBO staff contact for this estimate is Mark Grabowicz, 
who can be reached at 226-2860. This estimate was approved by 
Peter H. Fontaine, Deputy Assistant Director for Budget 
Analysis.

                    Performance Goals and Objectives

    The Committee states that pursuant to clause 3(c)(4) of 
Rule XIII of the Rules of the House of Representatives, H.R. 
4356 is intended to further the goal of deterring instances of 
emergency and disaster assistance fraud by creating a new crime 
and increasing criminal penalties found in current law.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of Rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in art. I, Sec. 8 of the Constitution.

               Section-by-Section Analysis and Discussion

    The following discussion describes the bill as reported by 
the Committee.
Sec. 1. Short title.
    Section 1 provides that the short title of the bill is the 
``Emergency and Disaster Assistance Fraud Penalty Enhancement 
Act of 2005.''
Section 2. Fraud In Connection With Major Disaster Or Emergency 
        Benefits.
    Section 2 creates a new 18 U.S.C. Sec. 1039, which would 
provide for a new crime of fraud in connection with major 
disaster or emergency benefits. Section 1039 would prohibit 
fraud in any matter involving any benefit authorized, 
transported, transmitted, transferred, disbursed or paid in 
connection with a major disaster or emergency declaration, or 
in connection with any Federal Government contract related to 
such declarations, as long as the benefit was authorized or 
paid in interstate commerce, transported in the mail, or is a 
record, payment, money or other thing of value of the United 
States. Violations of this section would be punishable by fines 
up to $250,000 for an individual or $500,000 for an 
organization, imprisonment of up to 30 years, or both.
Section 3. Increased Criminal Penalties For Engaging In Wire, Radio, 
        And Television Fraud During And Relation To A Presidentially 
        Declared Major Disaster Or Emergency.
    Section 3 increases the penalties available for wire fraud 
that occur in connection with major disaster or emergency 
declarations. Under current law, violations of the wire fraud 
statute (18 U.S.C. Sec. 1343) are punishable by fines up to 
$250,000 for an individual or $500,000 for an organization, or 
up to 20 years in prison, unless the violation involves a 
financial institution. In financial institutions cases, the 
maximum penalty is increased to 30 years. Section 3 adds frauds 
occurring ``in relation to, or involving any benefit 
authorized, transported, transmitted, transferred, disbursed or 
paid in connection with a presidentially declared major 
disaster or emergency'' to the 30-year maximum now applicable 
only to financial institution fraud.
Section 4. Increased Criminal Penalties For Engaging In Mail Fraud 
        During And Relation To A Presidentially Declared Major Disaster 
        or Emergency.
    Section 4 increases the penalties available for mail fraud 
that occur in connection with major disaster or emergency 
declarations. Under current law, violations of the mail fraud 
statute (18 U.S.C. Sec. 1341) are punishable by fines up to 
$250,000 for an individual or $500,000 for an organization, or 
up to 20 years in prison, unless the violation involves a 
financial institution. In financial institutions cases, the 
maximum penalty is increased to 30 years. Section 3 adds frauds 
occurring ``in relation to, or involving any benefit 
authorized, transported, transmitted, transferred, disbursed or 
paid in connection with a presidentially declared major 
disaster or emergency'' to the 30-year maximum penalty.
Section 5. Directive To Sentencing Commission.
    Section 5 directs the United States Sentencing Commission 
to promulgate sentencing guidelines, or amend the existing 
guidelines to provide for increased penalties for fraud or 
theft offenses in connection emergency and major disaster 
declarations. Section 5 also directs the Commission to submit 
any guidelines changes to the Committees on the Judiciary, 
along with any additional policy recommendations the Commission 
may have for combating emergency or disaster fraud.

                              Agency Views


         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italics and existing law in which no change is 
proposed is shown in roman):

TITLE 18, UNITED STATES CODE

           *       *       *       *       *       *       *


PART I--CRIMES

           *       *       *       *       *       *       *


                 CHAPTER 47--FRAUD AND FALSE STATEMENTS

Sec.
1001.    Statements or entries generally.
     * * * * * * *
1039.    Fraud in connection with major disaster or emergency benefits.

           *       *       *       *       *       *       *


Sec. 1039. Fraud in connection with major disaster or emergency 
                    benefits

    (a) Whoever, in a circumstance described in subsection (b) 
of this section, knowingly--
            (1) falsifies, conceals, or covers up by any trick, 
        scheme, or device any material fact; or
            (2) makes any materially false, fictitious, or 
        fraudulent statement or representation, or makes or 
        uses any false writing or document knowing the same to 
        contain any materially false, fictitious, or fraudulent 
        statement or representation,
in any matter involving any benefit authorized, transported, 
transmitted, transferred, disbursed, or paid in connection with 
a major disaster declaration under section 401 of the Disaster 
Relief Act of 1974, or an emergency declaration under section 
501 of the Disaster Relief Act of 1974, or in connection with 
any procurement of property or services related to any 
emergency or disaster declaration as a prime contractor with 
the United States or as a subcontractor or supplier on a 
contract in which there is a prime contract with the United 
States, shall be fined under this title, imprisoned for not 
more than 30 years, or both.
    (b) The circumstance to which subsection (a) of this 
section refers is that--
            (1) the authorization, transportation, 
        transmission, transfer, disbursement, or payment of the 
        benefit is in or affects interstate or foreign 
        commerce;
            (2) the benefit is transported in the mail at any 
        point in the authorization, transportation, 
        transmission, transfer, disbursement, or payment of 
        that benefit; or
            (3) the benefit is a record, voucher, payment, 
        money, or thing of value of the United States, or of 
        any department or agency thereof.
    (c) In this section, the term ``benefit'' means any record, 
voucher, payment, money or thing of value, good, service, 
right, or privilege provided by the United States, State or 
local government, or other entity.

           *       *       *       *       *       *       *


CHAPTER 63--MAIL FRAUD

           *       *       *       *       *       *       *


Sec. 1341. Frauds and swindles

    Whoever, having devised or intending to devise any scheme 
or artifice to defraud, or for obtaining money or property by 
means of false or fraudulent pretenses, representations, or 
promises, or to sell, dispose of, loan, exchange, alter, give 
away, distribute, supply, or furnish or procure for unlawful 
use any counterfeit or spurious coin, obligation, security, or 
other article, or anything represented to be or intimated or 
held out to be such counterfeit or spurious article, for the 
purpose of executing such scheme or artifice or attempting so 
to do, places in any post office or authorized depository for 
mail matter, any matter or thing whatever to be sent or 
delivered by the Postal Service, or deposits or causes to be 
deposited any matter or thing whatever to be sent or delivered 
by any private or commercial interstate carrier, or takes or 
receives therefrom, any such matter or thing, or knowingly 
causes to be delivered by mail or such carrier according to the 
direction thereon, or at the place at which it is directed to 
be delivered by the person to whom it is addressed, any such 
matter or thing, shall be fined under this title or imprisoned 
not more than 20 years, or both. If the violation occurs in 
relation to, or involving any benefit authorized, transported, 
transmitted, transferred, disbursed, or paid in connection 
with, a presidentially declared major disaster or emergency, or 
affects a financial institution, such person shall be fined not 
more than $1,000,000 or imprisoned not more than 30 years, or 
both.

           *       *       *       *       *       *       *


Sec. 1343. Fraud by wire, radio, or television

    Whoever, having devised or intending to devise any scheme 
or artifice to defraud, or for obtaining money or property by 
means of false or fraudulent pretenses, representations, or 
promises, transmits or causes to be transmitted by means of 
wire, radio, or television communication in interstate or 
foreign commerce, any writings, signs, signals, pictures, or 
sounds for the purpose of executing such scheme or artifice, 
shall be fined under this title or imprisoned not more than 20 
years, or both. If the violation occurs in relation to, or 
involving any benefit authorized, transported, transmitted, 
transferred, disbursed, or paid in connection with, a 
presidentially declared major disaster or emergency, or affects 
a financial institution, such person shall be fined not more 
than $1,000,000 or imprisoned not more than 30 years, or both.

           *       *       *       *       *       *       *


                           Markup Transcript



                            BUSINESS MEETING

                        THURSDAY, MARCH 2, 2006

                  House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:00 a.m., in 
Room 2141, Rayburn House Office Building, the Honorable F. 
James Sensenbrenner, Jr. (Chairman of the Committee) presiding.
    [Intervening business.]
    Chairman Sensenbrenner. Pursuant to notice, I now call up 
the bill H.R. 4356, the ``Emergency and Disaster Assistance 
Fraud Penalty Enhancement Act of 2005,'' for purposes of markup 
and move its favorable recommendation to the House. Without 
objection, the bill will be considered as read and open for 
amendment at any point.
    [The bill, H.R. 4356, follows:]
      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


    Chairman Sensenbrenner. The Chair recognizes himself for 5 
minutes to make a brief statement.
    Following Hurricanes Katrina and Rita, there have been a 
number of recorded instances of fraud in an attempt to 
illegally get monies that had been appropriated for hurricane 
relief. In September of last year, the Attorney General 
established a Hurricane Fraud Task Force, and since its 
formation there have been 23 U.S. Attorneys who have charged 
212 people with various criminal activities and obtained 40 
guilty pleas or convictions.
    Despite these efforts, it's clear that the current criminal 
penalties are insufficient to deter disaster fraud. Last month 
alone, the DOJ announced 15 new indictments, 3 guilty pleas, 
and 2 convictions for hurricane-related disaster fraud. The 
current law provides an insufficient deterrent against those 
who would attempt to make a quick buck and keep the profits out 
of the hands of the truly needy.
    What this bill does is it creates a specific new criminal 
penalty to prohibit fraud in connection with any emergency or 
disaster benefit, including Federal assistance or private 
charitable contributions.
    Second, the bill amends the Federal mail and wire fraud 
statutes to add emergency and disaster benefits fraud to the 
30-year enhanced penalties for those statutes.
    Finally, the bill directs the Sentencing Commission to 
review existing penalties for disaster assistance fraud, to 
amend the Sentencing Guidelines as necessary, and report back 
to the two Judiciary Committees.
    I would note for the record that DOJ has sent a letter to 
the Committee dated February 27 expressing its strong support 
for the bill. I urge the Members to support it and recognize 
the gentleman from Michigan, Mr. Conyers.
    Mr. Conyers. Well, Mr. Chairman, this is a bill that I 
think all of us really want to see moved as quickly as 
possible, favorably reported this morning, amending title 18 of 
the United States Code to further establish criminal penalties 
for fraud associated with natural disasters and other 
emergencies.
    Like most of you, I was appalled to learn of the rampant 
schemes to illegally benefit others for whom these benefits 
were not intended from Government funding intended for the 
victims, including reports of even fraudulently obtained $2,000 
relief cards and contractors claiming payment for work in New 
Orleans and Gulfport that was never performed. Individuals 
should be held accountable for attempting to fleece disaster 
relief, which tens of thousands of victims face such immediate 
and critical needs, and still do.
    And so I support the legislation and urge my colleagues to 
do the same, and I return the----
    Mr. Scott. Would the gentleman yield?
    Mr. Conyers. Yes, I will yield to the gentleman from 
Virginia.
    Mr. Scott. Thank you, and I appreciate the gentleman 
yielding.
    Mr. Chairman, I think this is--I speak in support of the 
legislation. Taking advantage of this situation I think is 
particularly egregious because our agencies, charitable or 
governmental agencies, really in these situations have a 
choice: they can go through the normal auditing process, 
making--checking people out before they get their benefits, or 
they can really relax their standards in order to quickly get 
the assistance when it is desperately needed.
    We had situations in my area where the agencies had a 
choice on food stamps. You can ask for all the validation and 
everything that's necessary, or you can give the people the 
food stamps right then and there while they are hungry and make 
themselves vulnerable to fraud, which is the subject of this 
situation.
    I think it is particularly egregious for somebody to take 
advantage of the fact that we're really trying to help people 
in an emergency and take advantage of that to scheme and 
defraud. And I think this enhanced punishment is certainly 
appropriate, and I thank the gentleman for yielding.
    Mr. Conyers. Thank you, Mr. Scott.
    And I return my time, Mr. Chairman.
    Chairman Sensenbrenner. Are there amendments?
    [No response.]
    Chairman Sensenbrenner. Without objection, by the way, all 
Members may put opening statements in the record at this point.
    Are there amendments? If there are no amendments, a 
reporting quorum is present. The question occurs on the motion 
to report the bill H.R. 4356 favorably. All in favor, say aye? 
Opposed, no?
    The ayes appear to have it. The ayes have it. The motion to 
report favorably is agreed to.
    Without objection, the staff is directed to make any 
technical and conforming changes, and all Members will be given 
2 days, as provided by the rules, in which to submit 
additional, dissenting, supplemental, or minority views.
    [Intervening business.]
    The business noticed on today's schedule having been 
concluded, without objection, the Committee stands adjourned.
    [Whereupon, at 11:01 a.m., the Committee was adjourned.]

                                  
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