Senate Report 111-10 - FRAUD ENFORCEMENT AND RECOVERY ACT OF 2009

[Senate Report 111-10]
[From the U.S. Government Publishing Office]

Calendar No. 28
111th Congress Report
SENATE
1st Session 111-10

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FRAUD ENFORCEMENT AND RECOVERY ACT OF 2009

_______

March 23, 2009.--Ordered to be printed

_______

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

R E P O R T

[To accompany S. 386]

[Including cost estimate of the Congressional Budget Office]

The Committee on the Judiciary, to which was referred the
bill (S. 386), 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,
having considered the same, reports favorably thereon, with an
amendment, and recommends that the bill, as amended, do pass.

CONTENTS

Page
I. Background and Purpose of the Fraud Enforcement and Recovery Act
of 2009..........................................................1
II. History of the Bill and Committee Consideration..................5
III. Section-by-Section Summary of the Bill...........................6
IV. Congressional Budget Office Cost Estimate.......................15
V. Regulatory Impact Evaluation....................................17
VI. Conclusion......................................................17
VII. Changes to Existing Law Made by the Bill, as Reported...........17

I. Background and Purpose of the Fraud Enforcement and Recovery Act of
2009

On February 5, 2009, Chairman Leahy and Senators Grassley
and Kaufman introduced the Fraud Enforcement and Recovery Act
of 2009 (FERA). Senators Klobuchar and Schumer have joined as
cosponsors. This legislation will increase accountability for
the corporate and mortgage frauds that have contributed to the
recent economic collapse and will help protect Americans from
future frauds that exploit the economic assistance programs
intended to restore and rebuild our economy.
This legislation provides substantial funding for the
Justice Department and other agencies to hire prosecutors,
agents, and analysts in order to restore their capacity to
pursue mortgage, corporate, and other financial fraud during
this economic downturn. The bill also provides important
clarifications to current criminal and civil fraud statutes to
ensure that law enforcement has the tools it needs to prevent
and punish these frauds, as well as to recover taxpayer money
lost to these frauds.

A. BACKGROUND

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 more are losing their homes to foreclosure. As
we learn more and more each day about the causes of this
debacle, it is clear that unscrupulous mortgage brokers and
Wall Street financiers were among the contributors to this
economic collapse. 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 helped trigger the
economic crisis is still unknown, we do know 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 nearly tenfold to more than 62,000 in
2008. In the last three years, the number of criminal mortgage
fraud investigations opened by the Federal Bureau of
Investigation (FBI) has more than doubled, and the FBI
anticipates a new wave of cases that could double that number
yet again in coming years. Despite these increases, the FBI
currently has fewer than 250 Special Agents nationwide assigned
to these financial fraud cases. At current levels, they cannot
individually review, much less thoroughly investigate, the more
than 5,000 fraud allegations received by 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 subprime 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
includes Fannie Mae, Freddie Mac, Bear Stearns, IndyMac, and
Lehman Brothers.
To make sure this kind of collapse cannot happen again, we
must reinvigorate our anti-fraud measures and give law
enforcement agencies 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 the Government is doing all it
can to hold responsible those who committed fraud in the run-up
to this collapse.

B. PURPOSE OF THE LEGISLATION

This bipartisan legislation will reinvigorate our Nation's
capacity to investigate and prosecute the kinds of financial
frauds that have so severely undermined our financial markets
and hurt so many hard working people in these difficult
economic times. This legislation provides the resources and new
tools needed for law enforcement to uncover and prosecute these
frauds and to aggressively work to detect and prevent fraud
related to the Government's ongoing efforts to bail out banks
and stimulate the economy.
The bill authorizes $165 million a year for hiring fraud
prosecutors and investigators at the Justice Department in
fiscal years 2010 and 2011. This includes $75 million in 2010
and $65 million in 2011 for the FBI to hire 190 additional
special agents and more than 200 professional staff and
forensic analysts to nearly double the size of its mortgage and
financial fraud program. With this funding, the FBI can expand
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 authorization 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 in those efforts. In addition, the bill
authorizes $80 million a year for fiscal years 2010 and 2011
for investigators and analysts at the U.S. Postal Inspection
Service, the U.S. Secret Service, and the Office of Inspector
General for the Department of Housing and Urban Development to
combat fraud in Federal assistance programs and financial
institutions.
This legislation also makes a number of 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 (18 U.S.C.
Sec. 20) 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 would
apply the Federal fraud laws to private mortgage businesses,
just as they apply to federally insured and regulated banks.
The legislation would also amend the false statements in
mortgage applications statute (18 U.S.C. Sec. 1014) to make it
a crime to make a materially false statement or to willfully
overvalue a property in order to influence any action by a
mortgage lending business. Currently, this false statements
offense only applies to Federal agencies, banks, and credit
associations and does not necessarily extend to private
mortgage lending businesses, even if they are handling
federally-regulated or federally-insured mortgages. Similar to
expanding the definition of ``financial institution'', this
provision would ensure that private mortgage brokers and
companies are held fully accountable under this Federal fraud
provision. This is a particularly important as false appraisal
fraud has been a particularly problematic type of fraud during
the recent financial crisis.
The bill would amend the major fraud statute (18 U.S.C.
Sec. 1031) 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
(18 U.S.C. Sec. 1348) 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 would amend the Federal money laundering statutes
(18 U.S.C. Sec. Sec. 1956, 1957) to correct an erroneous
Supreme Court decision in 2008 that significantly weakened
these statutes. 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. 128 S. Ct. 2020 (2008). The
Court's decision was contrary to Congressional intent and will
lead to criminals escaping culpability simply by claiming their
illegal scams did not make any profit. Indeed, proceeds of
``Ponzi schemes'' like the Bernard Madoff case, which by their
very nature do not include any profit, would be out of the
reach of the money laundering statutes under this decision.
This flawed decision needs to be corrected immediately, as
dozens of significant money laundering cases have already been
dismissed.
Lastly, FERA improves one of the most potent civil tools
for rooting out waste and fraud in Government--the False Claims
Act (18 U.S.C. Sec. 3729 et seq.). The effectiveness of the
False Claims Act has recently been undermined by court
decisions which limit the scope of the law and, in some cases,
allow subcontractors paid with Government money to escape
responsibility for proven frauds. The False Claims Act must be
corrected and clarified in order to protect from fraud the
Federal assistance and relief funds expended in response to our
current economic crisis.

II. History of the Bill and Committee Consideration

A. INTRODUCTION OF THE BILL

On February 5, 2009, Chairman Leahy introduced the bill, S.
386, with Senators Grassley and Kaufman. Senators Klobuchar and
Schumer have joined as cosponsors.

B. COMMITTEE CONSIDERATION

1. Committee hearing

On February 11, 2009, the Committee held a hearing entitled
``The Need for Increased Fraud Enforcement in the Wake of the
Economic Downturn'' to, among other things, consider this
legislation. At the hearing, three witnesses testified: FBI
Deputy Director John S. Pistole; Special Inspector General for
the Troubled Asset Relief Program (``TARP'') Neil M. Barofsky;
and the Acting Assistant Attorney General for the Criminal
Division of the Justice Department Rita M. Glavin. All three
witnesses testified favorably concerning the need for this
legislation.
Deputy Director Pistole testified that the number of
mortgage fraud cases opened by the FBI had more than doubled in
the past three years, with 721 cases open in 2005 and more than
1,800 at the end of 2008. Transcript of Hearing at 13. In his
oral and written testimony, Pistole analogized the current
situation to the Savings and Loan crisis of the late 1980s and
early 1990s, when the Federal Government needed to improve
financial fraud enforcement and did so by passing the Financial
Institutions Reform, Recovery, and Enforcement Act (FIRREA) of
1989 and the Crime Control Act of 1990. Id. at 27-28; Statement
of John S. Pistole, FBI Deputy Director at 1-2. Pistole warned,
however, that the losses in this economic crisis dwarf those of
the Savings and Loan debacle, and the need for more enforcement
is even greater now than it was then. Transcript of Hearing at
28; Statement of John S. Pistole, FBI Deputy Director at 1-2.
Special Inspector General Barofsky described how law
enforcement resources had understandably been diverted from
traditional ``white collar'' crime to terrorism following the
attacks on September 11, 2001. Transcript of Hearing at 19.
This trend left the Justice Department's capacity to respond to
financial and securities fraud significantly weakened, and with
the recent trends shifting even more resources to mortgage
frauds, other white collar efforts were even further
``underfunded and underprosecuted.'' Id. Barofsky warned that
with trillions of dollars being spent under TARP and other
associated programs, ``it is essential that the appropriate
resources be dedicated to meet the challenges of both deterring
and prosecuting fraud.'' Id. at 20.\1\
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\1\Barofsky specifically commented on S. 386 as follows: ``I
applaud the efforts of this Committee to introduce bipartisan
legislation, such as the Chairman and Senator Kaufman's Fraud
Enforcement [and] Recovery Act and Senator Schumer and Senator Shelby's
Safe Markets Act. These will ensure that law enforcement has the
necessary resources to meet the daunting challenges that [lie] ahead.
Such measures will greatly assist us and our partners as we engage in
this historic effort to deter and prosecute those who would seek to
criminally profit from a national crisis.'' Transcript of Hearing at
20.
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Acting Assistant Attorney General Glavin emphasized the
need for this legislation amidst the current economic crisis.
Id. at 22. Glavin testified that S. 386 would provide the
Justice Department with needed tools ``to aggressively fight
fraud in the current economic climate'' and ``provide key
statutory enhancements that will assist in ensuring that those
who have committed fraud are held accountable.'' Id. at 23.
Glavin also stated that the resources in the bill were needed
for the Justice Department to respond to fraud in the midst of
this crisis, and S. 386 was ``an important and timely step in
the process and we applaud the initiative of this Committee in
proposing this Act.'' Id. at 26.
The Committee also received written testimony supporting S.
386 from the Kenneth M. Donohue, the Inspector General for the
Department of Housing and Urban Development, and from William
R. Gilligan, Jr., Acting Chief Postal Inspector.

2. Committee executive business meetings

On February 26, 2009, the Committee held an executive
committee business meeting to consider S. 386, and other
measures, and the bill was held over for further consideration
at the request of the ranking member.
On March 5, 2009, the Committee adopted by unanimous
consent a complete substitute to the bill offered by the
Chairman and Senators Grassley, Schumer, Kaufman, and
Klobuchar. The complete substitute made several technical
corrections and clarifications to the bill requested by the
Justice Department in the appendix to Acting Assistant Attorney
General Glavin's written testimony and in a Justice Department
views letter about Section 4 of the bill. The substitute also
increased the authorized funding for the FBI by $10 million in
fiscal year 2010 and added $20 million in fiscal year 2010 and
2011 for the U.S. Secret Service to combat financial fraud.
Senator Schumer also offered an amendment to add funding for
the Securities and Exchange Commission to the bill, but
withdrew the amendment after Senator Grassley opposed it.
The Committee then voted to report the Fraud Enforcement
and Recovery Act of 2009, as amended, favorably to the Senate
by voice vote.

III. Section-by-Section Summary of the Bill

Sec. 1. Short title

This section provides that the legislation may be cited as
the Fraud Enforcement and Recovery Act of 2009 (FERA).

Sec. 2(a) and 2(b). Definition of financial institution expanded to
include mortgage lending businesses and mortgage brokers

At the height of the subprime lending era, independent
mortgage companies--those that are not depository institutions
or their subsidiaries or holding company affiliates--made
nearly half of the higher-priced, first-lien mortgages in
America. The loans originated by these private mortgage
companies were not generally covered by current Federal fraud
statutes, such as the bank fraud and bank bribery statutes. As
a result, these Federal fraud statutes need to be updated by
expanding the definition of ``financial institution'' to
include mortgage lending businesses.
The recent financial crisis has further demonstrated how
fraudulent mortgages can affect the health of the banking
system and the overall economy. Those who engage in frauds on
mortgage lending businesses should be held to the same
standards that apply to traditional financial institutions,
given the impact of these businesses on federally-insured and
federally-regulated institutions.
This section amends the definition of a ``financial
institution'' in Title 18 of the United States Code to include
a ``mortgage lending business,'' which is defined as ``an
organization * * * which finances or refinances any debt
secured by an interest in real estate, including private
mortgage companies and any subsidiaries'' whose activities
affect interstate or foreign commerce. The definition also
includes ``any person or entity that makes in whole or in part
a federally-regulated mortgage loan as defined in 12 U.S.C.
Sec. 2602(1).''
These new definitions for ``financial institution'' and
``mortgage lending business'' (18 U.S.C. Sec. Sec. 20, 27) will
ensure that private mortgage brokers and companies are held
fully accountable under Federal fraud laws, particularly where
they are dealing in federally-regulated or federally-insured
mortgages. For example, the bank fraud statute, 18 U.S.C.
Sec. 1344, prohibits defrauding ``a financial institution,''
and the amendment to this definition would extend the bank
fraud statute beyond traditional banks and financial
institutions to private mortgage companies. This definition of
``financial institution'' would also apply to the following
criminal provisions: 18 U.S.C. Sec. 215 (financial institution
bribery); 18 U.S.C. Sec. 225 (continuing financial crimes
enterprise); 18 U.S.C. Sec. 1005 (false statement/entry/record
for financial institution); and 18 U.S.C. Sec. 1344 (bank/
financial institution fraud). The new definition would also
provide for enhanced penalties for mail and wire fraud
affecting a financial institution, including a mortgage lending
business, pursuant to 18 U.S.C. Sec. Sec. 1341 and 1343.
Expanding the term ``financial institution'' to include
mortgage lending businesses would also strengthen penalties for
mortgage frauds and the civil forfeiture in mortgage fraud
cases. It would extend the statute of limitations in
investigations of mortgage fraud cases to be consistent with
bank fraud investigations.
This definition of ``financial institution'' would not
apply to the Suspicious Activity Reports (SARs) that banks and
other financial institutions are required to file, as
``financial institution'' is defined separately under the Bank
Secrecy Act, 31 U.S.C. Sec. 5312(a)(2).

Sec. 2(c). False statements and appraisals by mortgage brokers and
agents in loan applications

This section would amend the false statements in mortgage
applications statute (18 U.S.C. Sec. 1014) to make it a crime
to make a materially false statement or to willfully overvalue
a property in order to influence any action by a mortgage
lending business. The current offense only applies to Federal
agencies, banks, and credit associations and does not extend to
private mortgage lending businesses, even if they are handling
federally-regulated or federally-insured mortgages. Similar to
expanding the definition of ``financial institution'' in
Sections 2(a) and 2(b), this provision would ensure that
private mortgage brokers and companies are held
fullyaccountable under this Federal fraud provision. This is a
particularly important offense as it specifically relates to false
appraisal fraud, which has been a particularly problematic type of
mortgage fraud during the recent financial crisis.

Sec. 2(d). Major fraud against the government amended to include
economic relief and Troubled Asset Relief Program funds

This section would amend the Federal major fraud statute
(18 U.S.C. Sec. 1031) to include ``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.'' This amendment will make sure
that Federal prosecutors have jurisdiction to use one of their
most potent fraud statutes to protect the Government assistance
provided during the current economic crisis, including money
from the TARP and circumstances where the Government purchased
preferred stock in companies to provide economic relief. These
amendments, however, only apply to major frauds against the
Government, where the value of the contract or services is more
than $1,000,000.

Sec. 2(e). Amending securities fraud statute to include commodities
fraud

This section would amend the Federal securities fraud
statute (18 U.S.C. Sec. 1348) to include commodities fraud, in
addition to securities fraud. Currently, the securities fraud
statute does not reach frauds involving options or futures,
which include some of the derivatives and other financial
products that contributed substantially to the current
financial collapse.

Sec. 2(f). Amending the money laundering statute to include the
proceeds for specified unlawful activity

This section would amend the criminal money laundering
statutes (18 U.S.C. Sec. Sec. 1956, 1957) to make clear that
the proceeds of specified unlawful activity include the gross
receipts of the illegal activity, not just the profits from the
illegal activity. The money laundering statutes make it an
offense to conduct financial transactions involving the
``proceeds'' of a crime (referred to as ``specified unlawful
activity'' in the statutes). These statutes, however, do not
define the term ``proceeds,'' and the term has been left to
definition by the courts. For 22 years, since the money
laundering statutes were enacted in 1986, most courts have
construed ``proceeds'' to mean ``gross receipts'' and not ``net
profits'' of illegal activity, which was consistent with the
original intent of Congress. In United States v. Santos, 128
S.Ct. 2020 (2008), however, the Supreme Court in a four-justice
plurality suggested that the term ``proceeds'' was
``ambiguous'' and as a result, under the rule of lenity the
Court gave the term a narrower meaning. In this decision, the
Court mistakenly limited the term ``proceeds'' to the
``profits'' of a crime, not its receipts.
As a result, the Supreme Court's decision has limited the
money laundering statutes to only profitable crimes, and
permits criminal defendants to reduce their culpability for
money laundering by deducting the costs of their criminal
conduct. For example, if a fraudulent mortgage broker
intentionally overvalued the fair market value of a home for
purposes of a mortgage, that broker could only be charged for
money laundering related to any fees or potential profit made
in the fraudulent transaction, not based on the full value of
the house. Furthermore, an executive who committed securities
fraud could not be charged with money laundering, if the fraud
did not result in a profit, even though there was a fully
completed financial transaction using money stolen by fraud.
This decision is contrary to the intent of Congress in passing
the money laundering statutes and weakens one of Federal
Government primary tools used to recover the proceeds of
illegal activity, including mortgage, securities, and other
financial frauds.

Sec. 2(g). Making the international money laundering statute apply to
tax evasion

This section would amend the international money laundering
provision in the Federal money laundering statute (18 U.S.C.
Sec. 1956(a)(2)) to make it a crime for individuals to
transport or transfer money in and out of the United States to
evade taxes.

Sec. 3. Funding for investigators and prosecutors for mortgage fraud,
securities fraud, and cases involving federal economic
assistance

The economic crisis has revealed an epidemic of fraud
related to the mortgage crisis and the resulting corporate
collapses. The FBI and other Federal agencies will soon be
overwhelmed with new cases. In the past year, the Treasury
Department has received more than 62,000 Suspicious Activity
Reports (SARs) from banks alleging mortgage fraud. The number
of mortgage fraud SARs has gone up nearly tenfold in the last
six years, and doubled even in the last three years. Currently,
however, the FBI has fewer than 250 agents assigned to
investigate these mortgage fraud allegations, even though the
number of FBI investigations has doubled in the past three
years, with the expectation that it will grow further in the
coming months and years. Investigators and agents at the
Inspector General's Office for Housing and Urban Development
(HUD), the U.S. Secret Service, and the U.S. Postal Inspector
Service have seen a similar rise in their investigations of
mortgage and other corporate frauds. In addition, the U.S.
Postal Inspection Service, traditionally one of the Nation's
bulwarks against white collar fraud, has consistently lost
funding and support over the years and needs substantial
support in these times of economic crisis. The resources
included in this bill will help the Justice Department, the
FBI, and other investigative agencies responsible for enforcing
mortgage and securities fraud hold accountable those
responsible for contributing to this economic crisis, as well
as protecting the resources being spent to stabilize the
banking system and rebuild our economy.
This section authorizes appropriations of $165 million a
year to the Attorney General for fiscal years 2010 and 2011 to
be allocated to the FBI ($75 million in 2010 and $65 million in
2011), U.S. Attorney's offices ($50 million), and Criminal,
Civil, and Tax Divisions of the Justice Department ($40
million). This section also authorizes additional
appropriations for the Postal Inspection Service ($30 million),
the Inspector General for HUD ($30 million), and the U.S.
Secret Service ($20 million). This section provides that the
money authorized may only be used for fighting mortgage,
securities, and other financial institution frauds, and frauds
against Federal assistance and relief programs, as well as for
recovering funds lost to those frauds, and the Justice
Department, in consultation with the other agencies and
departments, would have to certify that these funds were used
for those purposes, after expended.

Sec. 4. Clarifications to the False Claims Act to reflect the original
intent of the law

In response to the economic crisis, the Federal Government
has obligated and expended more than $1 trillion in an effort
to stabilize our banking system and rebuild our economy.
Thesefunds are often dispensed through contracts with non-governmental
entities, going to general contractors and subcontractors working for
the Government. Protecting these funds from fraud and abuse must be
among our highest priorities as we move forward with these necessary
actions.
One of the most successful tools for combating waste and
abuse in Government spending has been the False Claims Act
(FCA), which is an extraordinary civil enforcement tool used to
recover funds lost to fraud and abuse. The effectiveness of the
FCA has recently been undermined by court decisions limiting
the scope of the law and allowing subcontractors and non-
governmental entities to escape responsibility for proven
frauds. In order to respond to these decisions, certain
provisions of the FCA must be corrected and clarified in order
to protect the Federal assistance and relief funds expended in
response to our current economic crisis.
This section amends the FCA to clarify and correct
erroneous interpretations of the law that were decided in
Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct.
2123 (2008), and United States ex. rel. Totten v. Bombardier
Corp, 380 F.3d 488 (D.C. Cir. 2004).\2\ In Allison Engine, the
Supreme Court held that Section 3729(a)(2) of the FCA requires
the Government to prove that ``a defendant must intend that the
Government itself pay the claim,'' for there to be a violation.
128 S. Ct. at 2128. As a result, even when a subcontractor in a
large Government contract knowingly submits a false claim to
general contractor and gets paid with Government funds, there
can be no liability unless the subcontractor intended to
defraud the Federal Government, not just their general
contractor. This is contrary to Congress's original intent in
passing the law and creates a new element in a FCA claim and a
new defense for any subcontractor that are inconsistent with
the purpose and language of the statute. Similarly, in Totten,
the Court of Appeals for the District of Columbia Circuit held
that liability under the FCA can only attach if the claim is
``presented to an officer or employee of the Government before
liability can attach.'' 380 F. 3d at 490. Known as the
``presentment clause,'' the D.C. Circuit interpreted this
clause to limit recovery for frauds committed by a Government
contractor when the funds are expended by a Government grantee,
such as Amtrak. The Totten decision, like the Allison Engine
decision, runs contrary to the clear language and congressional
intent of the FCA by exempting subcontractors who knowingly
submit false claims to general contractors and are paid with
Government funds.
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\2\The provisions in Section 4 were drawn, in significant part,
from the Committee's previous work on S. 2041, the False Claims Act
Corrections Act of 2008, in the 110th Congress. S. 2041 was favorably
reported from Committee and a detailed Committee report was filed on S.
2041 outlining the conflicting interpretations and providing
significant background on why the Committee chose to make the
amendments contained in the bill. The Committee feels that the report
to S. 2041, S. Rpt. 110-507, should be read as a complement to this
report due to a number of similar changes contained in S. 386.
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As the bill makes a number of changes to the liability
provisions compared to the current statute, this report will
outline the new clarifications to the law by topic.
A. Fraud against government contractors and grantees
Following the decision in Totten a number of courts have
held that the FCA does not reach false claims that are (1)
presented to Government grantees and contractors, and (2) paid
with Government grant or contract funds.\3\ These cases are
representative of the types of frauds the FCA was intended to
reach when it was amended in 1986. This section of the bill
clarifies that liability under section 3729(a) attaches
whenever a person knowingly makes a false claim to obtain money
or property, any part of which is provided by the Government
without regard to whether the wrongdoer deals directly with the
Federal Government; with an agent acting on the Government's
behalf; or with a third party contractor, grantee, or other
recipient of such money or property. The bill explicitly
excludes from liability requests or demands for money or
property that the Government has paid to an individual as
compensation for Federal employment or has received as an
income subsidy, such as Social Security benefits.
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\3\380 F.3d 488 (D.C. Cir. 2005); see, e.g. United States, ex rel.,
Atkins v. McInteer, 345 F. Supp. 2d 1302 (N.D. Ala. 2004), aff'd on
other grounds, 470 F.3d 1350 (11th Cir. 2006); United States, ex rel.,
Rafizadeh v. Continental Common, Inc., 2006 WL 980676 (E.D. La. April
10, 2006); United States v. City of Houston, 2006 WL 2382327 (S.D. Tex.
Aug. 16, 2006); United States, ex rel., Rutz v. Village of River
Forest, 2007 WL 3231439 (N.D. Ill. Oct. 25, 2007); United States, ex
rel., Arnold v. CMC Engineering, 2007 WL 442237 (W.D. Pa. Feb. 7,
2007).
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As some defendants have argued that Totten and Atkins
restrict FCA liability from attaching to Medicaid claims, the
bill clarifies the position taken by the Committee in 1986 that
the FCA reaches all false claims submitted to State
administered Medicaid programs. By removing the offending
language from section 3729(a)(1), which requires a false claim
be presented to ``an officer or employee of the Government, or
to a member of the Armed Forces,'' the bill clarifies that
direct presentment is not required for liability to attach.
This is consistent with the intent of Congress in amending the
definition of ``claim'' in the 1986 amendments to include ``any
request or demand * * * for money or property which is made to
a contractor, grantee, or other recipient if the United States
Government provides any portion of the money or property which
is requested or demanded, or if the Government will reimburse
such contractor, grantee, or other recipient for any portion of
the money or property which is requested or demanded.'' 31
U.S.C. Sec. 3729(c) (2000).\4\
---------------------------------------------------------------------------
\4\See also S. Rpt. No. 99-345, at 5282-5301 (providing section-by-
section analysis explaining that a false claim includes claims
submitted to grantees and contractors if the payment ultimately results
in a loss to the Government).
---------------------------------------------------------------------------
This section differs also addresses the Supreme Court's
decision in Allison Engine, 128 S. Ct. 2123 (2008). In Allison
Engine, the Court held that the FCA contained an intent
requirement in sections 3729(a)(2) and (a)(3) that had not
previously been required to prove for FCA liability to attach.
The Allison Engine decision created a significant question
about the scope and applicability of the FCA to certain false
claims, effectively limiting FCA coverage for some Government
programs and funds. As a result, defendants across the country
have cited Allison Engine in seeking dismissal of certain FCA
cases claiming that the FCA no longer applies to Government
programs traditionally covered. Further, one court has even
gone as far as dismissing a case sua sponte.\5\
---------------------------------------------------------------------------
\5\See United States v. Russell T. Hawley, et al., No. C06-4087-MWB
(N.D. Iowa).
---------------------------------------------------------------------------
To correct the Allison Engine decision, S. 386 contains
three specific changes to existing section 3729(a)(2) and
(a)(3). In section 3729(a)(2) the words ``to get'' were removed
striking the language the Supreme Court found created an intent
requirement for false claims liability under that section. In
place of this language, the Committee inserted the words
``material to'' a false or fraudulent claim. Further, the
language ``paid or approved by the Government'' was removed to
address both the decision in Allison Engine, and to prevent a
new ``presentment'' requirement from being read into the
section. Finally, the new term ``material'' is defined later in
the section to mean ``having a natural tendency to influence,
or being capable of influencing, the payment or receipt of
money or property.'' This definition is consistent with the
Supreme Court definition, as well as other courts interpreting
the term as applied to the FCA.\6\
---------------------------------------------------------------------------
\6\See Neder v. United States, 527 U.S. 1, 16 (1999); United States
v. Bourseau, 531 F.3d 1159, 1171 (9th Cir. 2008); United States v.
Rogan, 517 F.3d 449, 452 (7th Cir. 2008); United States ex rel. Bahrani
v. Conagra, Inc., 465 F.3d 1189, 1204 (10th Cir. 2006); United States
ex rel. A+ Homecare, Inc. v. Medshares Mgmt. Group, Inc., 400 F.3d 428,
446 (6th Cir. 2005); United States ex rel. Harrison v. Westinghouse
Savannah River Co., 352 F.3d 908, 913, 916-917 (4th Cir. 2003); United
States ex rel. Cantekin v. University of Pittsburgh, 192 F.3d 402, 415-
416 (3d Cir. 1999).
---------------------------------------------------------------------------
The other change responding to Allison Engine is in current
section 3729(a)(3). While this section includes further
modifications discussed below, the words ``defraud the
Government by getting a false or fraudulent claim allowed or
paid'' were removed to specifically address the intent
requirement read into the section by the Court in Allison
Engine. As a result, the provision now just extends FCA
liability to those who conspire to commit a violation of any
substantive section of 3729(a).
B. Fraud against funds administered by the United States
The Committee included provisions in the bill to address a
recent decision involving funds administered by the U.S.
Government during the reconstruction of Iraq. In United States
ex rel. DRC, Inc. v. Custer Battles, LLC, a district court set
aside a jury award finding that Iraqi funds administered by the
U.S. Government on behalf of the Iraqi people were not U.S.
Government funds within the scope of the FCA. 376 F. Supp. 2d
617 (E.D. Va. 2006). The Committee believes this result is
inconsistent with the spirit and intent of the FCA.
When the U.S. Government elects to invest its resources in
administering funds belonging to another entity, or providing
property to another entity, it does so because use of such
investments for their designated purposes will further the
interest of the United States.\7\ False claims made against
Government-administered funds harm the ultimate goals and U.S.
interests and reflect negatively on the United States. The FCA
should extend to these administered funds to ensure that the
bad acts of contractors do not harm the foreign policy goals or
other objectives of the Government. Accordingly, this bill
includes a clarification to the definition of the term
``claim'' in new Section 3729(b)(2)(A) and attaches FCA
liability to knowingly false requests or demands for money and
property from the U.S. Government, without regard to whether
the United States holds title to the funds under its
administration.
---------------------------------------------------------------------------
\7\See, e.g., United States ex rel. Haynes v. CMC Electronics,
Inc., 297 F.Supp.2d 734 (D.N.J. 2003) (discussing sales of equipment to
foreign governments under the Arms Export Control Act).
---------------------------------------------------------------------------
C. Conspiracy
As noted above, the current FCA contains a provision that
subjects those who knowingly conspire to defraud the Government
by getting a false or fraudulent claim allowed or paid. Some
courts have interpreted this provision narrowly.\8\ The current
FCA conspiracy provision does not explicitly impose liability
on those who conspire to violate other provisions of the FCA,
such as delivery of less Government property than that promised
or making false statements to conceal an obligation to pay
money to the Government. See 31 U.S.C. Sec. Sec. 3729(a)(4-6)
(2000). Because of the confusion and uncertainty surrounding
the application of the conspiracy provision, the bill amends
current section 3729(a)(3) to clarify that conspiracy liability
can arise whenever a person conspires to violate any of the
provisions in Section 3729 imposing FCA liability.
---------------------------------------------------------------------------
\8\See, e.g., United States ex rel. Huangyan Import & Export Corp.
v. Nature's Farm Products, Inc., 370 F. Supp. 2d 993 (N.D. Cal. 2005)
(holding that section 3729(a)(3) does not extend to conspiracies to
violate section 3729(a)(7)).
---------------------------------------------------------------------------
D. Wrongful possession, custody or control of government
property
Section 3729(a)(4) of the FCA has remained unchanged since
enactment of the FCA in 1863. This provision establishes FCA
liability upon an individual that has ``possession, custody, or
control of property or money used, or to be used, by the
Government, and, intending to defraud the Government or
willfully to conceal the property, delivers, or causes to be
delivered, less property than the amount for which the person
receives a certificate of receipt.'' 31 U.S.C.
Sec. 3729(a)(4)(2000). This section allows the Government to
recover losses that are incurred because of conversion of
Government assets. However, because this section has remained
unchanged from the original act that was drafted in 1863, the
archaic language has made recoveries under a conversion theory
contingent upon the individual receiving an actual receipt for
the property. The new section, renumbered as Section
3729(a)(1)(D) in the bill, updates this provision by retaining
the core conversion principle while redrafting it in a more
straightforward manner and removing the receipt requirement.
Where knowing conversion of Government property occurs, it
should make no difference whether the person receives a valid
receipt from the Government.
E. ``Reverse'' false claims
Section 3729(a)(7) of the FCA currently imposes liability
on any person who ``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.'' 31 U.S.C. Sec. 3729(a)(7)(2000). This
provision is commonly referred to as creating ``reverse'' false
claims liability because it is designed to cover Government
money or property that is knowingly retained by a person even
though they have no right to it. This provision is similar to
the liability established under 3729(a)(2) for making ``false
records or statements to get false or fraudulent claims paid or
approved.'' 31 U.S.C. Sec. 3729(a)(2)(2000). However, the
provision does not capture conduct described in 3729(a)(1),
which imposes liability for actions to conceal, avoid, or
decrease an obligation directly to the Government. This
legislation closes this loophole and incorporates an analogous
provision to 3729(a)(1) for ``reverse'' false claims liability.
Further, this legislation addresses current confusion among
courts that have developed conflicting definitions of the term
``obligation'' in Section 3729(a)(7).\9\ The term
``obligation'' is now defined under new Section 3729(b)(3) and
includes fixed and contingent duties owed to the Government--
including fixed liquidated obligations such as judgments, and
fixed, unliquidated obligations such as tariffs on imported
goods.\10\ It is also noteworthy to restate that while the new
definition of ``obligation'' expressly includes contingent,
non-fixed obligations, the Committee supports the position of
the Department of Justice that current section 3729(a)(7)
``speaks of an `obligation,' not a `fixed obligation.'\11\ By
including contingent obligations such as, ``implied
contractual, quasi-contractual, grantor-grantee, licensor-
licensee, fee-based, or similar relationship,'' this new
section reflects the Committee's view, held since the passage
of the 1986 Amendments,\12\ that an ``obligation'' arises
across the spectrum of possibilities from the fixed amount debt
obligation where all particulars are defined\13\ to the
instance where there is a relationship between the Government
and a person that ``results in a duty to pay the Government
money, whether or not the amount owed is yet fixed.''\14\
---------------------------------------------------------------------------
\9\See, e.g., United States ex rel. Prawer & Co. v. Verrill & Dana,
946 F. Supp. 87, 93-95 (D. Me. 1996) (discussing the definition of
``obligation'' at length); Am. Textile Mfr's Inst., Inc. v. The
Limited, Inc., 190 F.3d 729, 736 (6th Cir. 1999) (discussing definition
of ``obligation'').
\10\The new definition of the term ``obligation'' in S. 386 does
not include specific reference to ``customs duties for mismarking
country of origin,'' which was a singular type of obligation referred
to in S. 2041. The Committee originally included this language in S.
2041 in response to the decision in American Textile Manufacturers
Institute, Inc. v. The Limited, Inc. where the Sixth Circuit Court of
Appeals narrowly defined the term ``obligation'' to apply reverse false
claims to only fixed obligations and dismissing a claim for false
statements made by importers to avoid paying customs duties. See 190
F.3d 729 (6th Cir. 1999). After subsequent discussion with the
Department of Justice, the Committee decided to remove the ``customs
duties'' language in S. 386, as the Committee believes that customs
duties clearly fall within the new definition of the term
``obligation'' absent an express reference and any such specific
language would be unnecessary.
\11\Brief for United States at 23, United States v. Bourseau No.
06-56741, 06-56743 (9th Cir. July 14, 2008).
\12\See S. Rpt. No. 99-345 at 5283.
\13\See, e.g., Am. Textile Mfrs. Inst. v. The Limited, Inc., 190
F.3d 729 (6th Cir. 1999); United States v. Q Int'l Courier, Inc., 131
F.3d 770 (8th Cir. 1997).
\14\Brief for United States at 24, United States v. Bourseau No.
06-56741, 06-56743 (9th Cir. July 14, 2008) (citing United States ex
rel. Bahrani v. Conagra, Inc., 465 F.3d 1189, 1201 (10th Cir. 2006),
mot. for reh'g pending, (10th Cir. 2007)); United States v. Pemco
Aeroplex, Inc., 195 F.3d 1234, 1237-38 (11th Cir. 1999) (en banc).
---------------------------------------------------------------------------
The Committee also notes that the reverse false claims
provision and amendments to that provision do not include any
new language that would incorporate or should otherwise be
construed to include a presentment requirement. This is
consistent with various court decisions that have held that the
current reverse false claims provision does not contain a
presentment requirement.\15\
---------------------------------------------------------------------------
\15\See, e.g., United States ex rel. Bahrani, 465 F.3d 1189, 1208
(10th Cir. 2006); United States ex rel. Koch v. Koch Indus., 57
F.Supp.2d 1122, 1144 (N.D. Okla. 1999).
---------------------------------------------------------------------------
The new definition of ``obligation'' includes an express
statement that an obligation under the FCA includes ``the
retention of an overpayment.'' The Department of Justice
supported the inclusion of this provision and provided
technical advice that the proper place to include overpayments
was in the definition of obligation.\16\ This new definition
will be useful to prevent Government contractors and others who
receive money from the Government incrementally based upon cost
estimates from retaining any Government money that is overpaid
during the estimate process. Thus, the violation of the FCA for
receiving an overpayment may occur once an overpayment is
knowingly and improperly retained, without notice to the
Government about the overpayment. The Committee also recognizes
that there are various statutory and regulatory schemes in
Federal contracting that allow for the reconciliation of cost
reports that may permit an unknowing, unintentional retention
of an overpayment. The Committee does not intend this language
to create liability for a simple retention of an overpayment
that is permitted by a statutory or regulatory process for
reconciliation, provided the receipt of the overpayment is not
based upon any willful act of a recipient to increase the
payments from the Government when the recipient is not entitled
to such Government money or property. Moreover, any action or
scheme created to intentionally defraud the Government by
receiving overpayments, even if within the statutory or
regulatory window for reconciliation, is not intended to be
protected by this provision. Accordingly, any knowing and
improper retention of an overpayment beyond or following the
final submission of payment as required by statute or
regulation--including relevant statutory or regulatory periods
designated to reconcile cost reports, but excluding
administrative and judicial appeals--would be actionable under
this provision.
---------------------------------------------------------------------------
\16\Letter from Brian Benczkowski, Principal Deputy Assistant
Attorney General, United States Department of Justice, to Senator
Patrick Leahy, Chairman, Senate Committee on the Judiciary Appendix 3
(Feb. 21, 2008).
---------------------------------------------------------------------------
S. 386 also includes the term ``statutory'' to the
definition of ``obligation''. This term was included to ensure
that duties created by a statutory authority that may not be an
express or implied contract or other relation are included as
these statutory relationships confer a duty upon the recipient
of Government funds regardless of the existence of a contract.

IV. Congressional Budget Office Cost Estimate

The Committee sets forth, with respect to the bill, S. 386,
the following estimate and comparison prepared by the Director
of the Congressional Budget Office under section 402 of the
Congressional Budget Act of 1974:

March 18, 2009.
Hon. Patrick J. Leahy,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 386, the Fraud
Enforcement and Recovery Act of 2009.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Mark
Grabowicz.
Sincerely,
Douglas W. Elmendorf.
Enclosure.

S. 386--Fraud Enforcement and Recovery Act of 2009

Summary: S. 386 would broaden the coverage of current laws
against financial crimes, including fraud affecting mortgages,
securities, and federal assistance and relief programs. The
bill would authorize the appropriation of $245 million for each
of fiscal years 2010 and 2011 for the Department of Justice
(DOJ), the Postal Inspection Service, and other federal
agencies to investigate and prosecute violators of the bill's
provisions. S. 386 also would amend certain provisions of the
False Claims Act (FCA), which allows private individuals with
knowledge of past or present fraud committed against the
government to file claims against federal contractors.
CBO estimates that implementing S. 386 would cost $490
million over the 2010-2014 period, assuming appropriation of
the authorized amounts. S. 386 could affect direct spending and
revenues; CBO has no basis for estimating the timing or
magnitude of any such effects, but we estimate that they would
have no net costs over both the 2010-2014 and 2010-2019
periods.
S. 386 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would not affect the budgets of state, local, or tribal
governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of S. 386 is shown in the following table. The
costs of this legislation fall within budget functions 370
(commerce and housing credit), 450 (community and regional
development), and 750 (administration of justice).

----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------
2010 2011 2012 2013 2014 2010-2014
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Authorization Level..................................... 245 245 0 0 0 490
Estimated Outlays....................................... 211 240 32 5 2 490
----------------------------------------------------------------------------------------------------------------

Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted during fiscal year 2009, that the
authorized amounts will be appropriated each year, and that
spending will follow historical patterns for the authorized
activities.

Spending subject to appropriation

S. 386 would authorize the appropriation of $245 million
for each of fiscal years 2010 and 2011 for investigations and
prosecutions relating to financial crimes. For each of those
years the bill would authorize:
$75 million for the Federal Bureau of
Investigation;
$90 million for offices of the United States
Attorneys and the DOJ criminal, civil, and tax
divisions;
$30 million for the Postal Inspection
Service;
$30 million for the Inspector General for
the Department of Housing and Urban Development; and
$20 million for the United States Secret
Service.

Revenues and direct spending

CBO estimates that the provisions relating to the FCA
would, on net, increase civil fines and recoveries collected by
the federal government because it would likely lead to the
initiation of additional claims under FCA. S. 386 also could
increase collections of civil and criminal fines for violations
of the bill's other provisions.
Recoveries from FCA cases would be recorded as offsetting
receipts (a credit against direct spending). Civil fines are
recorded as revenues and deposited in the U.S. Treasury.
Criminal fines are recorded as revenues, deposited in the Crime
Victims Fund, and subsequently spent without further
appropriation.
CBO has no basis for estimating the magnitude of any
additional recoveries and collections of civil and criminal
fines. However, we estimate that any such effects would have no
net costs over both the 2010-2014 and 2010-2019 periods.
Intergovernmental and private-sector impact: S. 386
contains no intergovernmental or private-sector mandates as
defined in UMRA and would not affect the budgets of state,
local, or tribal governments.
Estimate prepared by: Federal Costs: Mark Grabowicz and
Leigh Angres; Impact on State, Local, and Tribal Governments:
Melissa Merrell; Impact on the Private Sector: Paige Piper/
Bach.
Estimate approved by: Theresa Gullo, Deputy Assistant
Director for Budget Analysis.

V. Regulatory Impact Evaluation

In compliance with rule XXVI of the Standing Rules of the
Senate, the Committee finds that no significant regulatory
impact will result from the enactment of S. 386.

VI. Conclusion

The Federal Government has obligated and spent more than $1
trillion to stabilize our banking system and to rebuild our
economy. But to date, we have paid far too little attention to
investigating and prosecuting the mortgage and corporate frauds
that have so dramatically contributed to this economic collapse
and to deterring those who would seek to take advantage of the
economic assistance provided to correct it. This legislation,
S. 386, will address these serious and immediate problems by
providing the resources and new tools necessary for the Justice
Department and other investigative agencies to restore our
Nation's capacity to combat and prosecute mortgage and other
financial frauds. The Committee believes that Congress, as it
did during the Savings and Loan crisis more than two decades
ago, should take action to rebuild and strengthen our fraud
enforcement efforts by passing S. 386 without delay.

VII. Changes to Existing Law Made by the Bill, as reported

In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
S. 386, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):

UNITED STATES CODE

TITLE 18--CRIMES AND CRIMINAL PROCEDURE

PART I--CRIMES

* * * * * * *

CHAPTER 1--GENERAL PROVISIONS

Sec.

* * * * * * *

24. Definitions related to Federal health care offense.
25. Use of minors in crimes of violence.
26. Definition of seaport.
27. Mortgage lending business defined.

* * * * * * *

Sec. 20. Financial institution defined.

As used in this title, the term ``financial institution''
means--

* * * * * * *

(8) an organization operating under section 25 or
section 25(a) of the Federal Reserve Act; [or]
(9) a branch or agency of a foreign bank (as such
terms are defined in paragraphs (1) and (3) of section
1(b) of the International Banking Act of 1978)[.]; or
(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. Sec. 2602(1).

* * * * * * *

Sec. 27. Mortgage lending business defined

As used 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.

* * * * * * *

CHAPTER 47--FRAUD AND FALSE STATEMENTS

* * * * * * *

Sec. 1014. Loan and credit applications generally; renewals and
discounts; crop insurance

Whoever knowingly makes any false statement or report, or
willfully overvalues any land, property or security, for the
purpose of influencing in any way the action of the Federal
Housing Administration, the Farm Credit Administration, Federal
Crop Insurance Corporation or a company the Corporation
reinsures, the Secretary of Agriculture acting through the
Farmers Home Administration or successor agency, the Rural
Development Administration or successor agency, any Farm Credit
Bank, production credit association, agricultural credit
association, bank for cooperatives, or any division, officer,
or employee thereof, or of any regional agricultural credit
corporation established pursuant to law, or a Federal land
bank, a Federal land bank association, a Federal Reserve bank,
a small business investment company, as defined in section 103
of the Small Business Investment Act of 1958 (15 U.S.C. 662),
or the Small Business Administration in connection with any
provision of that Act, a Federal credit union, an insured
State-chartered credit union, any institution the accounts of
which are insured by the Federal Deposit Insurance Corporation,
the Office of Thrift Supervision, any Federal home loan bank,
the Federal Housing Finance Board, the Federal Deposit
Insurance Corporation, the Resolution Trust Corporation, the
Farm Credit System Insurance Corporation, or the National
Credit Union Administration Board, a branch or agency of a
foreign bank (as such terms are defined in paragraphs (1) and
(3) of section 1(b) of the International Banking Act of 1978),
[or] an organization operating under section 25 or section
25(a) of the Federal Reserve Act, 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.
Sec. 2602(1) upon any application, advance, discount, purchase,
purchase agreement, repurchase agreement, commitment, loan, or
insurance agreement or application for insurance or a
guarantee, or any change or extension of any of the same, by
renewal, deferment of action or otherwise, or the acceptance,
release, or substitution of security therefor, shall be fined
not more than $1,000,000 or imprisoned not more than 30 years,
or both. The term ``State-chartered credit union'' includes a
credit union chartered under the laws of a State of the United
States, the District of Columbia, or any commonwealth,
territory, or possession of the United States.

* * * * * * *

Sec. 1031. Major fraud against the United States

(a) Whoever knowingly executes, or attempts to execute, any
scheme or artifice with the intent--
(1) to defraud the United States; or
(2) to obtain money or property by means of false or
fraudulent pretenses, representations, or promises, in
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 in any procurement of property or services
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, if the
value of [the contract, subcontract] such grant,
contract, subcontract, subsidy, loan, guarantee,
insurance or other form of Federal assistance, or any
constituent part thereof, for such property or services
is $1,000,000 or more shall, subject to the
applicability of subsection (c) of this section, be
fined not more than $1,000,000, or imprisoned not more
than 10 years, or both.

* * * * * * *

CHAPTER 63--MAIL FRAUD AND OTHER FRAUD OFFENSES

Sec.

* * * * * * *

1346. Definition of ``scheme or artifice to defraud''
1347. Health care fraud
1348. Securities and commodities fraud
1349. Attempt and conspiracy
1350. Failure of corporate officers to certify financial
reports.

* * * * * * *

Sec. 1348. Securities and commodities fraud

Whoever knowingly executes, or attempts to execute, a
scheme or artifice--
(1) to defraud any person in connection with any
commodity for future delivery, or any option on a
commodity for future delivery, or any security of an
issuer with a class of securities registered under
section 12 of the Securities Exchange Act of 1934 (15
U.S.C. 78l) or that is required to file reports under
section 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78o(d)); or
(2) to obtain, by means of false or fraudulent
pretenses, representations, or promises, any money or
property in connection with the purchase or sale of any
commodity for future delivery, or any option on a
commodity for future delivery, or any security of an
issuer with a class of securities registered under
section 12 of the Securities Exchange Act of 1934 (15
U.S.C. 78l) or that is required to file reports under
section 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78o(d));
shall be fined under this title, or imprisoned not more than 25
years, or both.

* * * * * * *

CHAPTER 95--RACKETEERING

* * * * * * *

Sec. 1956. Laundering of monetary instruments

* * * * * * *

(a)(2)(A) Whoever transports, transmits, or transfers, or
attempts to transport, transmit, or transfer a monetary
instrument or funds from a place in the United States to or
through a place outside the United States or to a place in the
United States from or through a place outside the United
States--
(A)(i) with the intent to promote the carrying on of
specified unlawful activity; or
(ii) with the intent to engage in conduct constituting a
violation of section 7201 or 7206 of the Internal Revenue Code
of 1986; or
(B) knowing that the monetary instrument or funds involved
in the transportation, transmission, or transfer represent the
proceeds of some form of unlawful activity and knowing that
such transportation, transmission, or transfer is designed in
whole or in part--
(i) to conceal or disguise the nature, the location,
the source, the ownership, or the control of the
proceeds of specified unlawful activity; or
(ii) to avoid a transaction reporting requirement
under State or Federal law, shall be sentenced to a
fine of not more than $500,000 or twice the value of
the monetary instrument or funds involved in the
transportation, transmission, or transfer, whichever is
greater, or imprisonment for not more than twenty
years, or both. For the purpose of the offense
described in subparagraph (B), the defendant's
knowledge may be established by proof that a law
enforcement officer represented the matter specified in
subparagraph (B) as true, and the defendant's
subsequent statements or actions indicate that the
defendant believed such representations to be true.

* * * * * * *

(8) the term ``State'' includes a State of the United
States, the District of Columbia, and any commonwealth,
territory, or possession of the United States[.]; and
(9) the term ``proceeds'' means any property derived
from or obtained or retained, directly or indirectly,
through some form of unlawful activity, including the
gross receipts of such activity.

* * * * * * *

Sec. 1957. Engaging in monetary transactions in property derived from
specified unlawful activity

* * * * * * *

(f) As used in this section--

* * * * * * *

(3) the terms ``specified unlawful activity'' and
``proceeds'' shall have [has] the meaning given those
[that] terms in section 1956 of this title.

* * * * * * *

TITLE 31--MONEY AND FINANCE

CHAPTER 37--CLAIMS

Subchapter III--Claims Against the United States Government

* * * * * * *

Sec. 3729. False claims

(a) Liability for Certain Acts.[--Any person who]--
(1) In general.--Subject to paragraph (2), any person
who--
(A) knowingly presents, or causes to be
presented, [to an officer or employee of the
United States Government or a member of the
Armed Forces of the United States] a false or
fraudulent claim for payment or approval;
[(2)](B) knowingly makes, uses, or causes to
be made or used, a false record or statement
material to [get] a false or fraudulent claim
[paid or approved by the Government];
[(3)](C) conspires to [defraud the Government
by getting a false or fraudulent claim allowed
or paid] commit a violation of subparagraph
(A), (B), (D), (E), (F), or (G);
[(4)](D) has possession, custody, or control
of property or money used, or to be used, by
the Government and[, intending to defraud the
Government or willfully to conceal the
property,] knowingly delivers, or causes to be
delivered, less [property than the amount for
which the person receives a certificate or
receipt] than all of that money or property;
[(5)](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;
[(6)](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 the
property; or
[(7)](G) knowingly makes, uses, or causes to
be made or used, a false record or statement
material to [conceal, avoid, or decrease] an
obligation to pay or transmit money or property
to the Government, or knowingly conceals or
knowingly and improperly 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. [except that if the court finds that]
[(A)](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 [the] that person.
(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.
(b) [Knowing and Knowingly Defined]. Definitions.--For
purposes of this section[,]--
(1) the terms ``knowing'' and ``knowingly''--
(A) mean that a person, with respect to
information--
[(1)](i) has actual knowledge of the
information;
[(2)](ii) acts in deliberate
ignorance of the truth or falsity of
the information; or
[(3)](iii) acts in reckless disregard
of the truth or falsity of the
information; and
(B) require no proof of specific intent to
defraud [is required].
[(c)](2) [Claim Defined.--For purposes of this
section,] the term ``claim''--
(A) means [includes] 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) [which] is made to a contractor,
grantee, or other recipient if the
money or property is to be spent or
used on the Government's behalf or to
advance a Government program or
interest, and if the United States
Government--
(I) provides or has provided
any portion of the money or
property [which is] requested
or demanded, or
(II) [if the Government] 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 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, statutory, fee-based, or similar
relationship, and the retention of overpayment; and
(4) the term ``material'' means having a natural
tendency to influence, or be capable of influencing,
the payment or receipt of money or property.
[(d)] (c) Exemption From Disclosure.--Any information
furnished pursuant to [subparagraphs (A) through (C) of
subsection (a)] subsection (a)(2) shall be exempt from
disclosure under section 552 of title 5.
[(e)] (d) Exclusion.--This section does not apply to
claims, records, or statements made under the Internal Revenue
Code of 1986.