S. 386: Fraud Enforcement and Recovery Act of 2009
Summary
Senate Bill 386, recently approved by the Senate Judiciary Committee and now pending before the full Senate, amends several provisions of the U.S. criminal code and the civil False Claims Act to enhance the government’s ability to prosecute fraud in mortgage lending programs that affect interstate commerce, options and futures trading in commodities markets, TARP, and economic stimulus programs. Money laundering statutes are also expanded. The bill also provides $245 million per year for FY 2010 and 2011 for additional investigators and prosecutors.
These amendments clarify and confirm the applicability of existing criminal statutes to recently adopted federal economic legislation and to those additional measures still being formulated by Congress and the Administration. On the civil side, the reach of the False Claims Act is expanded substantially. Virtually all forms of federal assistance—loans, grants, guarantees, stock purchases, and many others—will fall within the reach of these anti-fraud statutes.
Mortgage lending
- The definition of “financial institution” in 18 U.S.C. §20 is expanded to include a mortgage lending business, defined (in a new provision, 18 U.S.C. §27) 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 commerce.”
- The current provision criminalizing false statements in loan and credit applications, 18 U.S.C. §1014, is revised to include specifically false statements made to influence any action by a mortgage lending businesses. Coupled with the definitional changes, this amendment clarifies that the statute will extend beyond its current reach of frauds affecting federal agencies, banks and credit unions to include those affecting private mortgage brokers and companies.
TARP, Economic stimulus programs
- Fraud against the government statute (18 U.S.C. § 1031) is amended to include fraud associated with any grants, contracts, subsidies, loans, guarantees, insurance or other form of federal assistance, through TARP, economic stimulus programs, recovery or rescue plans, or the government’s purchase of preferred stock in any company.
Commodities fraud
- The securities fraud statute is expanded to include fraud involving commodities options or futures, which the Committee report notes have included derivatives and other financial products that contributed to the current financial crisis.
Money Laundering
- The money laundering statute is revised to reverse the Supreme Court’s Santosdecision that suggested that “proceeds” of unlawful activity included only actual profits. The definition of “proceeds” is amended to confirm that it includes the entire gross receipts of illegal activity, not just the “profit” component.
- Movement of money across international borders in furtherance of tax evasion is now subject to money laundering statute.
Civil False Claims Act (FCA)
- The current FCA is expanded to reach any request or demand for payment that is presented to contractors, grantees or others if the money is to be spent or used on the government’s behalf, or “to advance a government program or interest” if the U.S. has provided any portion of the money or will reimburse the recipient.
- Treble damages actions can now be based on the use of any false records or statements that are “material to” the submission of a false claim. Previously the FCA reached only those false statements “made or used” to get a false claim paid, a narrower category of actionable false statements.
- These amendments are designed to reverse the effects of the Supreme Court’s decision in Allison Engine Co. v. U.S. ex rel. Sanders, holding that the government must prove that a defendant specifically intended that the government itself would pay a claim, and the D.C. Circuit decision in United States ex rel. Totten v. Bombardier Corp., which held that false claims liability required presentment of a claim to an officer or employee of the government and not to a grantee. Such direct presentment is no longer required.
- The “reverse” false claims provision is revised by adding a section that includes any action designed to conceal, avoid, or decrease a payment obligation to the government, expanding the current provision that reaches only the making, use, or causing the use of a false record. “Obligations” of the government are now defined to include not only fixed but also contingent obligations, codifying existing Department of Justice policy. A specific statement is added that retention of overpayments is an “obligation” for purposes of the FCA.
- The conspiracy provision of the FCA is expanded to include conspiracies to violate any requirement of the statute, not only conspiracy to get a false claim paid as provided in the current version.
- The existing scienter standard is retained:
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- Liability will attach for the “knowing” submission of a false claim, use of a false statement or record in making a claim or in reducing an amount otherwise owed, or retention of money due and owing to the government.
- “Knowing” is defined as a person acting, with respect to information, with actual knowledge that the information is false, or with deliberate ignorance or reckless disregard of the truth or falsity of the information.
- No specific intent to defraud is required.