The State of Financial Crime
Our Latest Accounting
Surveillance footage shows an FBI source and a bank vice president talking about creating fictitious businesses to launder money. “You set up the businesses, and I’ll handle the deposits,” the bank executive says.
The founder of a $7 billion hedge fund is convicted of insider trading. A drug company pleads guilty to making and selling unsafe prescription drugs to Americans. The head of a financial company admits scamming distressed homeowners who were trying to avoid foreclosure.
These recent crimes and many more like them—investigated by the FBI, in some instances along with our partner agencies—can cause great harm to the U.S economy and American consumers. That’s why financial crimes are such an investigative priority at the Bureau.
Today, we’re releasing an overview of the problem and our response to it in our latest Financial Crimes Report to the Public. The report—which covers the period from October 1, 2009, to September 30, 2011—explains dozens of fraud schemes, outlines emerging trends, details FBI accomplishments in combating financial crimes (including major cases), and offers tips on protecting yourself from these crimes.
Here’s a brief snapshot of key sections of the report:
Corporate fraud: One of the Bureau’s highest criminal priorities, our corporate fraud cases resulted in 242 indictments/informations and 241 convictions of corporate criminals during fiscal year (FY) 2011. While most of our cases involve accounting schemes designed to conceal the true condition of a corporation or business, we’ve seen an increase in the number of insider trading cases.
Securities/commodities fraud: In FY 2011, our cases resulted in 520 indictments/informations and 394 convictions. As a result of an often volatile market, we’ve seen a rise in this type of fraud as investors look for alternative investment opportunities. There have been increases in new scams—like securities market manipulation via cyber intrusion—as well as the tried-and-true—like Ponzi schemes.
Health care fraud: In FY 2011, 2,690 cases investigated by the FBI resulted in 1,676 informations/indictments and 736 convictions. Some of the more prevalent schemes included billing for services not provided, duplicate claims, medically unnecessary services, upcoding of services or equipment, and kickbacks for referring patients for services paid for by Medicare/Medicaid. We’ve seen increasing involvement of organized criminal groups in many of these schemes.
Mortgage fraud: During 2011, mortgage origination loans were at their lowest levels since 2001, partially due to tighter underwriting standards, while foreclosures and delinquencies have skyrocketed over the past few years. So, distressed homeowner fraud has replaced loan origination fraud as the number one mortgage fraud threat in many FBI offices. Other schemes include illegal property flipping, equity skimming, loan modification schemes, and builder bailout/condo conversion. During FY 2011, we had 2,691 pending mortgage fraud cases.
Financial institution fraud: Investigations in this area focused on insider fraud (embezzlement and misapplication), check fraud, counterfeit negotiable instruments, check kiting, and fraud contributing to the failure of financial institutions. The FBI has been especially busy with that last one—in FY 2010, 157 banks failed, the highest number since 181 financial institutions closed in 1992 at the height of the savings and loan crisis.
Also mentioned in the report are two recent initiatives that support our efforts against financial crime: the forensic accountant program, which ensures that financial investigative matters are conducted with the high-level expertise needed in an increasingly complex global financial system; and our Financial Intelligence Center, which provides tactical analysis of financial intelligence data, identifies potential criminal enterprises, and enhances investigations. More on these initiatives in the future.
Public Service Announcement:
Actor Michael Douglas, who played a financial titan in the 1987 movie “Wall Street,” says that while the movie was fiction the problem is all too real.