June 5, 2009
On May 20, 2009, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009 (FERA). The new law is intended to expand the federal government’s capability to prosecute mortgage fraud, securities and commodities fraud, and other frauds related to federal assistance and relief programs, such as the Troubled Assets Relief Program (TARP). A brief discussion of some of FERA’s anti-fraud provisions appears below.
Additionally, FBI Director Robert Mueller recently stated that the FBI is discussing with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) the issue of requiring the private sector to take a more proactive approach to combating mortgage fraud. There are reports that one proposal would extend current anti-money laundering (AML) requirements to compel non-bank mortgage lenders to submit Suspicious Activity Reports (SARs).
The Fraud Enforcement and Recovery Act of 2009 (FERA)
Prosecuting Mortgage Fraud Cases as Bank Fraud
By amending the definition of “financial institution” to include a “mortgage lending business,” FERA gives the Justice Department the capability to prosecute mortgage fraud cases as bank fraud and to seek enhanced penalties under the mail and wire fraud statutes. As a result, convictions for mortgage fraud can now carry a 30-year maximum prison sentence or a maximum $1 million fine, or both. Even more importantly, mortgage fraud cases will now have a 10-year statute of limitations, as opposed to the 5-year statute of limitations for other frauds, which will give federal prosecutors much more time to develop such cases.
The new definition of “financial institution” does not alter current AML reporting requirements because the Bank Secrecy Act has its own definition of that term. However, as noted above, the government is apparently considering whether to extend AML reporting requirements to non-bank mortgage lenders.
Prosecuting Mortgage Fraud Cases for False Statements
FERA extends the reach of the statute concerning false statements in mortgage applications to include false statements intended to influence any action by a mortgage lending business. Before the enactment of FERA, the false statements statute only applied to false statements intended to influence the action of federal agencies, banks, and credit associations. This statute also carries a 30-year maximum prison sentence or a maximum $1 million fine, or both.
Prosecuting Schemes to Falsely Obtain Economic Recovery Funds as Major Frauds Against the United States
FERA amends the statute concerning major fraud against the United States to add schemes to falsely obtain $1 million or more of TARP funds or other funds constituting federal assistance, such as those available through the economic stimulus plan and the federal government’s purchase of preferred stock in companies. The statute carries a 10-year maximum prison sentence or a maximum $1 million fine, or both.
Prosecuting Schemes in Connection with Commodities
The securities fraud statute is amended by FERA to include frauds involving commodities for future delivery or options on commodities for future delivery. The statute carries a 25-year maximum prison sentence or a maximum $250,000 fine, or both.
Extending the Reach of the Money Laundering Statutes
In response to United States v. Santos, FERA amends the money laundering statutes to provide that it is unlawful money laundering to conceal the gross receipts of the specified crimes, and not just the profits from those crimes. FERA also makes it a crime for individuals to transport or transfer money in and out of the United States to evade taxes.
Clarifying the False Claims Act
Fraud against government contractors and grantees
FERA clarifies that liability under the False Claims Act (FCA) attaches whenever a person knowingly makes a false claim to obtain government money or property regardless of whether the person deals directly with the federal government, an agent acting on the government’s behalf, or a third party contractor, grantee, or other recipient of federal funds.
Fraud against funds administered by the United States
In order to ensure that the FCA encompasses false claims for funds that belong to another entity but which are administered by the United States, such as Iraqi funds administered by the federal government on behalf of the Iraqi people, FERA amends the definition of “claim.” FCA liability will now attach for knowing false requests or demands for money and property from the federal government regardless of whether the United States holds title to the funds under its administration.
FERA clarifies that conspiracy liability under the FCA can arise whenever a person conspires to violate any of the provisions imposing FCA liability.
Wrongful possession, custody or control of government property
FERA updates the conversion section of the FCA by eliminating the archaic certificate of receipt requirement.
“Reverse” false claims
FERA closes a loophole in connection with “reverse” false claims, which refer to government money or property that is knowingly retained by a person even though they have no right to it. Previously, a “reverse” false claim required the making of a false record or statement. Liability will now additionally attach for a person’s actions to conceal or avoid an obligation to pay the government.
Authorizing Additional Funding to Combat Fraud
To ramp up investigations of mortgage fraud, securities and commodities fraud, and other frauds involving federal economic assistance, FERA authorizes appropriations of almost $250 million for fiscal years 2010 and 2011, most of which is authorized to the Department of Justice. Other federal agencies receiving authorization under FERA include the Postal Inspection Service, the Inspector General for the Department of Housing and Urban Development, and the Secret Service.
Creating the Financial Crisis Inquiry Commission
FERA establishes, within the legislative branch, the Financial Crisis Inquiry Commission “to examine the causes, domestic and global, of the current financial and economic crisis in the United States.” The Commission, which is given subpoena power, may refer any person to the Justice Department for violations of federal law. It is tasked with submitting a report in late 2010 to the President and the Congress, and its authorization expires 60 days after the report is submitted.
McGuireWoods’ Government Investigations group has experience in the defense of fraud-related criminal investigations, the handling of internal investigations into these types of matters, and the establishment, review and revision of corporate compliance programs, including anti-money laundering compliance and investigation matters. For more information about McGuireWoods’ capabilities and resources in connection with government investigations and compliance programs, please contact the authors or any other McGuireWoods attorney. Please visit our Stimulus Package section for more updates on the American Reinvestment and Recovery Act.