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
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
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
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
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more updates on the American Reinvestment and Recovery Act.