S. 386 & H.R. 1748, The Fraud Enforcement and Recovery Act of 2009

NEW! - Department of Justice 2010 FERA Report Submitted to Congress  

The Fraud Enforcement and Recovery Act of 2009 (“FERA”), S. 386 and H.R. 1748, is an attempt by Congress to increase fraud enforcement efforts in the wake of the economic downturn. FERA includes a variety of provisions ranging from expansions of current statutes, a legislative reversal of United States v. Santos, 128 S. Ct. 2020 (2008), and additional appropriations for federal law enforcement.

First, FERA amends the federal criminal code’s definition of “financial institution” to include any mortgage lending business or any person or entity that makes, in whole or in part, a federally related mortgage loan. Second, it makes several expansions to current fraud statutes, including: (1) extending the prohibition against making false statements in a mortgage application to employees and agents of a mortgage lending business; (2) expanding the concept of monetary proceeds under the current money laundering statutes to include gross receipts; (3) widening securities fraud provisions to cover fraud involving options and futures in commodities; and (4) incorporating fraudulent activities involving the Troubled Asset Relief Program (TARP) or a federal economic stimulus, recovery, or rescue plan within the prohibition against defrauding the federal government (18 U.S.C. § 1031(a)). Third, FERA expands liability under the False Claims Act and requires persons who violate the Act to reimburse the federal government for the costs of a civil action to recover penalties or damages.

FERA also allots additional appropriations to the Attorney General, U.S. Postal Service, the Inspector General for the Department of Housing and Urban Development, the U.S. Secret Service, and the Securities and Exchange Commission for investigations, prosecutions, and civil and administrative proceedings involving federal assistance programs and financial institutions. Further, it creates a Financial Crisis Inquiry Commission for the purpose of examining the causes of the current U.S. financial and economic crisis, including any role played by the fraud in and abuse of the financial sector. The Commission is required to submit its findings in a final report to President Obama on December 15, 2010.

The existing federal law was already capable of addressing the fraudulent practices that may be associated with the current financial crisis, and, for this and other reasons, NACDL actively opposed the passage of FERA. As part of that opposition, NACDL teamed up with the Heritage Foundation to circulate an opposition letter, handouts and op-ed pieces to members of Congress and the public. The primary purpose of which was to point out the flaws of the Act and stop Congress from passing another unnecessary and ineffective bill.

Of chief concern to the NACDL was FERA’s legislative override of the Supreme Court decision United States v. Santos, 128 S. Ct. 2020 (2008), which had limited the word “proceeds” in 18 U.S.C. § 1956(a) of the federal money laundering statute to mean profits and refused to include gross receipts within the statute’s scope. Under FERA, gross receipts would be incorporated in the definition of “proceeds” and would allow prosecutors to “tack on” a charge of money laundering even when such conduct was virtually indistinguishable from the underlying offense.

In addition, several different bills were introduced on the various topics covered by FERA. Of particular alarm was H.R. 1793, the Money Laundering Correction Act, which sought to reverse not only Santos, but also Cuellar v. United States, 128 S. Ct. 1994 (2008). However, NACDL’s active opposition caused H.R. 1793, along with its Senate counterpart, S.378, to stall in both houses. Please see S. 378 & H.R. 1793 for more information.

S. 386 passed both houses and President Obama signed it into law on May 20, 2009. The new law, Public Law No: 111-21, still contains the legislative reversal of the Santos decision, however, because of NACDL’s efforts, new language was added prohibiting prosecutors, from adding on a charge of money laundering if such conduct merges with the underlying offense. This prohibition is not absolute; prosecutors may charge in that manner when doing so has been authorized by one of the listed executive branch authorities. However, the law also requires the Department of Justice to report back to Congress in one year with statistics detailing the number of authorization requests, approvals, and denials, and the number of unauthorized prosecutions. While this victory may be small, it is still a positive and crucial step in preventing the “double jeopardy” situation that would result should the government be allowed to charge both the underlying offense and money laundering.

Resources on S. 386 and H.R. 1748

NEW! - Department of Justice 2010 FERA Report Submitted to Congress 

Tiffany Joslyn, FERA's Silver Lining - An Account of NACDL's Efforts Combating Overcriminalization, The Champion (August 2009)

February 26, 2009, NACDL Press Release Criticizing FERA

February 11, 2009, NACDL and the Heritage Foundation Letter Regarding FERA 

NACDL and Heritage Foundation, FERA Opposition Handout 

NACDL and Heritage Foundation, Op-Ed - "Congress's Hammer: Another Criminal Law"   

NACDL and Heritage Foundation, Web Memo - "Criminalizing Our Way out of the Financial Crisis" 

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