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Public Statements

Fraud Enforcement And Recovery Act Of 2009

Floor Speech

Location: Washington, DC


Mr. COBURN. Mr. President, nobody disputes the intent that we ought to go after the fraud that has been associated with the mortgage industry and some of the problems thereof. We passed the stimulus bill that had a lot of money for the Justice Department in it. We didn't tell them they should use the money on this. We passed an omnibus bill, none of which did we put money in. We put $10 million in for the FBI. Now we come before the Senate wanting to authorize $500 million more for a bill in a department, the Justice Department, that will end this fiscal year with over $2 billion in the bank. Since I have been a Senator, they have had over $2 billion at the end of the year. There is something unique about the Justice Department. The Justice Department is the only Federal agency that doesn't ultimately have to send its unspent money back to the Treasury. They get to keep it.

In a time where we are spending money to the tune of $112 billion a day every day we have been in session so far in this 111th Congress, to say that we ought to send another $500 million to an agency that is going to have $2 billion left over at the end of this year and the next few years to come tells us we are not good money managers, but most of the American people know that already.

On fiscal grounds, what we are doing is, we are authorizing money. And that is what will be the response to this debate: It is just an authorization. The fact is, if you are authorizing, you intend to spend it. You are going to try to get another $500 million appropriated on this bill.

Secondly, we don't have ex post facto laws. So everything this bill does has no application in terms of a statute change to any of the crimes committed, either the fraud or money laundering or anything else. It has no application. None of it will apply to misdeeds and infractions of the law that happened that got us into this crisis.

Additionally, every act that was committed that broke a law under the statutes we have today, both Federal mail fraud and wire fraud, can be prosecuted already. What is going on? What is going on is, we are going to pass a bill in reaction to a problem that Congress created in the first place by incentivizing poor behavior at Fannie Mae and Freddie Mac, by not doing oversight, and we are going to make everybody feel better because we reacted to it. We don't need new laws on the books. What we need to do is enforce the laws we have today. It may be true that the Justice Department might need additional moneys. But where is the oversight?

We released a report earlier this year that showed $10 billion over the last 5 years of waste in the Justice Department. Here is a department that has wasted $10 billion over the last 5 years, has $2 billion at the end of this year with which they could fund this. We didn't fund any of it except $10 million in the stimulus bill or the omnibus bill, and we are adding new laws to the books that we don't need to prosecute the people who broke the law. It is a typical congressional reaction when what we should be doing is enforcing the laws already on the books and supplying on a priority basis the funding for the Justice Department to prosecute that.

I see Senator Kyl is here. I will continue my comments later.

I yield the floor.


Mr. COBURN. Mr. President, I rise today to discuss S. 386, the Fraud Enforcement and Recovery Act of 2009. Although I certainly support the well-intended purpose of this bill, I have concerns about the proposal that I would like to explain today.

S. 386 aims to ``beef up'' the Government's efforts to combat fraud, particularly in the mortgage industry and Federal assistance programs. To that end, the bill creates a host of new criminal provisions and authorizes nearly half a billion dollars in spending over the next 2 years.

As a threshold matter, I am concerned about the necessity of these new criminal provisions. In my mind, Congress should have a compelling reason for adding to the already monstrous Federal criminal code. With more than 4,400 Federal offenses already on the books, it is hard to imagine there being conduct the Government cannot reach.

The Federal criminal code is often criticized for being overly broad, and legislators on both sides of the aisle have been known to bemoan its growth. Yet when ``tough-on-crime'' bills come before Congress, nobody wants to stand in their way and risk political consequences. This is a truly unfortunate trend.

Turning back the tables on over-criminalization isn't a partisan issue. Legislators from both sides of the aisle have seen first-hand the sometimes devastating unintended consequences that flow from the application of Federal law. Democrats and Republicans could be working together to reevaluate some of these provisions; instead, we are doing business as usual, responding to every crisis by further littering the criminal code.

With respect to S. 386, two prominent organizations, the National Association of Criminal Defense Lawyers (NACDL) and the Heritage Foundation, formed an unlikely alliance in opposition to the bill. Both organizations believe that S. 386 contributes to overcriminalization, and their concerns are detailed specifically in a joint letter that describes the new criminal proposals as ``redundant and risks overreaching.''It notes that within the 4,450 offenses already in criminal law, prosecutors have all the tools needed to reach crimes associated with fraud. In general, it points to the Federal mail and wire fraud statutes as being sufficiently broad to cover mortgage fraud and other related crimes. As further evidence, it references an FBI press release identifying nine existing Federal criminal statutes that can be used to prosecute mortgage fraud.

Because it is not my intention to prevent law enforcement from pursuing truly criminal conduct, I studied the issue to determine whether there are any insufficiencies within existing law that would give perpetrators of fraud safe haven. I have found no examples of conduct or entities outside the reach of current law.

It is true that not every provision of the criminal code reaches certain fraudulent acts. It is also true that not every entity in the mortgage industry is regulated by the Federal Government. It is not true, however, that the conduct or entities targeted by this bill are currently going unpunished. Prosecutors have successfully used other laws, particularly the mail and wire fraud statutes, to aggressively prosecute these crimes at the Federal level.

The FBI's recent successes serve to demonstrate this point. The FBI has handled mortgage fraud since 1989 and is actively pursuing these crimes now. It has 65 mortgage fraud task forces and working groups across the country that coordinate federal, state and local law enforcement officials. The FBI has 180 agents devoted to the sector. They are handling more than 2,000 investigations, and have opened 734 cases this year. In fiscal year 2008, they obtained 560 indictments/informations and 338 convictions. Last year, one operation resulted in the roundup of more than 400 people accused of inflicting more than $1 billion in losses, who were caught up in a nationwide sweep named Operation Malicious Mortgage.

The Secret Service has also been working hard to combat fraud directed at financial institutions. It has an established network of 35 financial crimes task forces and 24 electronic crimes task forces. The Secret Service also partners with U.S. Attorney's Offices across the country to participate in mortgage fraud working groups. In fiscal year 2008 alone, the Secret Service indicted and arrested 5,633 individuals responsible for $442 million in fraud losses.

These impressive statistics, from both the FBI and the Secret Service, suggest that Federal criminal law is more than sufficient to address crimes of fraud associated with the ongoing economic crisis.

Federal prosecutors are not alone in pursuing mortgage fraud. Just last month, the New York Times ran an article saying, ``Across the country, attorneys general have already begun indicting dozens of loan processors, mortgage brokers and bank officers. Last week alone, there were guilty pleas in Minnesota, Delaware, North Carolina and Connecticut and sentences in Florida and Vermont, all stemming from home loan scams.'' The article gave specific examples of State actions being taken to address the crisis:

State and local prosecutors, it seems, do not need the nudge. Last week, the district attorney's office in Brooklyn announced the creation of a real estate fraud unit, with 12 employees and a mandate to ``address the recent flood of mortgage fraud cases plaguing New Yorkers.'' In late February, Maryland unveiled a mortgage fraud task force, bringing together 17 agencies to streamline investigations.

As the joint letter from the Heritage Foundation and the National Association of Criminal Defense Lawyers correctly notes, States are the ``primary regulators of mortgage brokers and the insurance industry.

State governments are also closest to the people and are well-situated to detect and prosecute these crimes. Aided by the recent allocation of nearly $5 billion in Federal funding for State and local law enforcement, states should be able to continue and enhance their existing efforts to pursue mortgage fraud.

In short, both Federal and State criminal law is sufficient to combat mortgage and other financial fraud crimes. Congress should resist the temptation to overreach on this issue by enacting new criminal laws, and instead focus its efforts on enforcing existing law.

Enforcing existing law, of course, requires resources. In addition to the significant resources already being expended by the Federal Government to address fraud, S. 386 authorizes $490 million for fiscal years 2009 and 2010. CBO has scored the bill and estimates that implementing it would cost the full amount over the 2010-2014 period.

Proponents argue that the recent influx of Federal dollars into the economy is sure to invite fraud. I do not disagree, but this problem did not develop overnight. Surely Congress realized the possibility for fraud when it wrote these checks just months ago? Instead of taking time to include safeguards in the bill or otherwise ensure responsible, effective allocation of hard-earned taxpayer dollars, Congress rushed the bills out the door at break-neck speed. In doing so, Congress created an environment ripe for fraud.

The answer to this problem is, of course, to ask the taxpayers to shoulder even more of the burden. The 111th Congress has now spent more than $1.5 trillion, yet it has somehow neglected to fund a priority as important as combating fraud. The omnibus appropriations bill, passed just weeks ago, only contained $10 million for the FBI to pursue mortgage fraud. The stimulus bill, which provided $4 billion for State and local law enforcement, amid nearly $1 trillion in spending, failed to provide any money specific to fraud enforcement. Why, when opportunities to address this problem arose, did Congress not do the right thing and prioritize the funding authorized by S. 386?

In this time of economic crisis, Congress no longer has the luxury of spending money haphazardly. We must learn to set priorities and make sacrifices, and perhaps even think creatively about how to stretch limited resources to meet our needs.

For example, the Department of Justice has access to ``unobligated balances,'' which are unspent dollars that have been appropriated but not obligated during a fiscal year. Such money is typically required to be returned to the U.S. Treasury, but the Justice Department has unique authority to retain and carry over its unobligated funds for use in the following year. Fiscal year 2007, DOJ had almost $2.9 billion in unobligated balances, and it is estimated to have had nearly $2.3 billion at the end of fiscal year 2008, and to have $2 billion at the end of fiscal year 2009. This excess would be a good source of funding for priorities such as investigating and prosecuting mortgage fraud during a housing crisis.

Moreover, the Department of Justice has become infamous for its wasteful spending. Last year, I released a report titled, ``Justice Denied: Waste & Mismanagement at the Department of Justice,'' which identified more than $10 billion in wasteful spending. The Justice Department should be required to make more responsible use of the funds currently within its authority before Congress entrusts it with even more of the taxpayers' hard-earned money.

Unfortunately, many of the dollars wasted at the Department of Justice are done by way of congressional earmarks. Earmarks consume scarce resources and prevent experts at DOJ from allocating money to areas with the most pressing need. Congress should allow DOJ officials to reprogram existing earmarks so that higher priority needs, like combating mortgage fraud, can be met.

One thing is certain, the American taxpayer has already paid too high a price for irresponsible governance. Continuing ``business-as-usual,'' by funding parochial pet projects before we take care of legitimate business, cannot continue.

While I surely support the legislation's goal of addressing fraud, especially in the mortgage industry, I do not believe S. 386 is either necessary or prudent at this time of economic crisis. Our national debt is more than $11 trillion, and CBO recently set this year's deficit at $1.7 trillion, projected to rise to $1.845 trillion by year's end. I believe Government can and should prioritize spending to fulfill its responsibilities without asking more of the American people. I also believe that State and Federal criminal law are sufficient to address fraud and would father see efforts focused on enforcing those existing laws, rather than on creating new ones.


Mr. COBURN. Earlier today, I spoke for a short period of time on this bill. I wish to retrace some of that before I talk about this amendment. It is important that the American people understand what this bill is doing.

All of us wish to get rid of the fraud, the money laundering, we wish to punish the people who have, in fact, helped cause part of this problem. I would tell you the biggest person or group of people responsible for the problem we face today is the Congress, this body and the House of Representatives.

We failed to do our job on oversight. We incentivized and socialized housing, we incentivized Fannie Mae and Freddie Mac to do things that were inappropriate, to take risks they should not have done, and then we did not have the regulatory mechanisms in place, nor did we do the oversight to see what was going on.

This bill, however, is attempting to fix a problem with a statute, criminal statute. Most people know we do not need more criminal statutes. The fact is, nobody can name an act that occurred on any of this fraud or any of this money laundering that is not prosecutable under the Criminal Code we have today.

Off the record, when we asked some pertinent people from the Justice Department, they laughed when asked if we needed these new criminal statutes. The other point I would make is, none of this, with the exception of the false claim portion, has any application to what has already happened because you cannot apply a new law to a crime that already existed under our Constitution.

So what are we doing? What we are doing is trying to make the American public think we are doing something now that, in essence, does not need to be done. We may need to fund the Justice Department at a greater level because we did not do what we should have done earlier.

It is the typical knee-jerk reaction. We have plenty of laws on the books. As a matter of fact, the new penalties in some of this stuff are greater for fraud and mortgage than for manslaughter under the Federal Code.

We need to be very careful as we approach this. I am not saying we should not go after all those people. I am not saying we should not put in the resources to do that. But when we put the resource there, we ought to make sure they are used just for that.

No. 2, we ought to look at the Justice Department and how they spend money. Late last year I released a report on the $10 billion worth of waste in the Justice Department over the previous 5 years, $10 billion that was wasted over the previous 5 years.

Nobody disputed it. I mean, the Justice Department did not even answer it and say, that is not right, because they knew it was right. The fact is we refuse to make priorities.

This amendment is very simple. If we are going to appropriate a half billion dollars in increased funding to go after the fraud and money laundering associated with this financial situation that the Congress created and incentivized individuals, should we take it from the American taxpayers or should we take it out of money that we have already allocated?

The Justice Department is different than every other agency in the Federal Government, because at the end of the year, every other department's unexpended balances, unobligated balances eventually filter back to the Treasury. Not so at the Justice Department. They actually get to keep theirs. They are the only agency that gets to keep it.

Now, what have they averaged over the last 5 years in unobligated and unexpended balances? Over $2 billion a year. So here is an agency with $2 billion that they have not spent, and we are going to give them another $500 million, and their incentive is not to spend the money on the things we need to do; it is to keep it to do with what they want out of the direction of those that control the purse strings.

What this amendment says is we have already allocated money in terms of TARP funds; that if, in fact, we are going to send more money, which I do not think we should--I think we ought to spend it from the money we have--but if we are going to do it, let's take it from the money we have already taken from the American taxpayer, and it is not the American taxpayer; it is their grandkids, and let us use some of that money because the return on that money will be far greater than the return we are going to get on any TARP money.

It is very simple, very straightforward as a funding treatment. What we will use is money that has already been appropriated in the TARP funds, which they have a significant balance--in the billions--and we will take, over the next 2 years, $250 million or so to give to the Justice Department, if we agree we should be giving it to the Justice Department. Do not be fooled by the typical Washington turnaround that happens all the time up here, the sleight of hand that says: We are fixing a problem. We tend to fix problems that are not broken and not fix the problems that are broken. The mess we are in demonstrates that very straight forwardly.

We are going to have a $2 trillion deficit this year. We are going to double the national debt in 5 years. We are going to triple it in 10 under the Obama budget. Should not we be about priorities? Should not we be about holding the agencies accountable? Should not we be about making sure the money is spent properly?

If we are going to spend new money, try to get it from areas we already are not spending the money in but it has been appropriated. The American people would agree with that. I hope my colleagues will as well.


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