Fraud and Financial Services Law

Congress often includes criminal offenses and penalties in legislation regulating the financial services industry and other major industries with significant business components, such as the healthcare industry. These criminal offenses typically cover conduct characterized as fraudulent or forms of bribes and kickbacks. Congress will often attach criminal penalties to the regulations enacted under this type of legislation. NACDL works to educate members of Congress on the problems with including criminal offenses and penalties in such legislation and, where appropriate, advocates against the legislation. While many of the bills in this area that NACDL works on have problems, occasionally a bill is introduced that would improve a particular area of business activity. Below are a few of the bills that NACDL has worked to defeat, improve, or, in those rare instances, support.

Related Legislation

The Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Act, passed in response to the Great Recession, brought the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression. The final bill made changes to the entire financial system and all agencies that regulate federal financial law. 

The Fraud Enforcement and Recovery Act of 2009

S. 386 and H.R. 1748, the “Fraud Enforcement and Recovery Act of 2009” (FERA)

FERA is an attempt by Congress to increase fraud enforcement efforts in the wake of the economic downturn of 2008. 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.

Strengthening Enforcement for Health Care Fraud Crimes Act

S. 1843, the “Strengthening Enforcement for Health Care Fraud Crimes Act of 2009”

The Strengthening Enforcement for Health Care Fraud Crimes Act seeks to amend the federal criminal code to revise the elements of the crime of health care fraud and impose a mandatory minimum penalty of six months imprisonment in cases where the alleged fraud results in losses of $100,000 or more.

The Money Laundering Control Enhancement Act & The Money Laundering Correction Act

S. 378 & H.R. 1793, the "Money Laundering Control Enhancement Act of 2009” & the “Money Laundering Correction Act of 2009"

The Money Laundering Control Enhancement Act of 2009 & The Money Laundering Correction Act of 2009 seek to expand the scope of 18 U.S.C. § 1956, the current money laundering statute, by amending the term “proceeds” to include the gross receipts of a criminal activity. Additionally, the House bill modifies the statute to no longer require the defendant to have purposely concealed ill-gotten money, but rather to make evidence that the money was hidden sufficient for a conviction. 

Why These Bills Matter

The Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Act is a textbook example embodying the central problems identified in NACDL's joint report entitled “Without Intent: How Congress is Eroding the Criminal Intent Requirement in Federal Law.” Prior to its passage, the Act contained over two dozen new and troubling federal criminal offenses that would further explode the federal criminal code. The bill was never referred to either chamber’s Judiciary Committee before its enactment and, thus, none of these criminal offenses were considered by a full Judiciary Committee.

The bill allows un-elected officials to enact new, broad regulations for the financial sector, many of which will be directly tied to criminal enforcement provisions and thus will be criminally punishable. In addition, and perhaps most troubling, the overwhelming majority of the criminal offenses contained in the bill lack adequate mens rea, or criminal intent, requirements and, consequently, will fail to protect innocent or inadvertent actors from being criminally prosecuted or punished. Additional in-depth analysis is available here.

The Fraud Enforcement and Recovery Act of 2009

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.

FERA also 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)).

Lastly, 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.

Strengthening Enforcement for Health Care Fraud Crimes Act

The Sentencing Guideline in this area, U.S.S.G. § 2B1.1, already provides for far longer sentences, starting at 18 months in the case of health care fraud involving more than $70,000, than the proposed mandatory minimum. No evidence has been brought forward to show that these current punishments are ineffective or in need of revision. 

The Money Laundering Control Enhancement Act & The Money Laundering Correction Act

These bills are an attempt to legislatively reverse two Supreme Court decisions, U.S. v. Santos, 128 S. Ct. 2020 (2008), which limited the word "proceeds" in § 1956(a) to profits and not gross receipts, and Cuellar v. U.S., 128 S. Ct. 1994 (2008), which held that the mere secretive transportation of cash is not sufficient for conviction under § 1956 without proof that the purpose of the transport was to conceal the nature, location, or ownership of the criminal proceeds.

NACDL’s Position on Fraud and Financial Services Focused Legislation

NACDL Opposes the Dodd-Frank Wall Street Reform and Consumer Protection Act

NACDL opposes this Act because it epitomizes the phenomenon of overcriminalization. This Act adds over two dozen new criminal offenses to the federal code, facilitates the addition of more through regulatory criminalization, and in most instances these offenses are poorly drafted with weak criminal intent requirements. In-depth analysis and advocacy is available online here.

NACDL Opposes the Fraud Enforcement and Recovery Act of 2009

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.

NACDL Opposes the Strengthening Enforcement for Health Care Fraud Crimes Act

NACDL opposes S. 1843 and believes that the proposed mandatory minimum is an ineffective and costly perpetuation of unjust sentencing. By eliminating judicial discretion in the sentencing process for yet another class of criminal offenses, S. 1843 further perpetuates the adoption of a “one-size-fits-all” approach to criminal punishment and prevents the consideration of factors such as the individual’s role in the offense, actual blameworthiness, motive, and level of cooperation. As a result, the bill’s mandatory minimum will produce many sentences that are longer than the interests of justice demand, remove greater numbers of productive citizens from society, and unnecessarily imprison them at taxpayers’ expense.

NACDL Opposes The Money Laundering Control Enhancement Act & the Money Laundering Correction Act

NACDL believes that reversing the Cuellar decision would cast the money laundering net far too wide and result in convictions of persons who were carrying the alleged proceeds without any direct proof that the money came from drugs or other specified crimes. Furthermore, granting the government the ability to charge for both the underlying offense and money laundering for the gross receipts of the underlying offense would be “tantamount to double jeopardy.” Santos, 128 S. Ct. at 2022. For these reasons, NACDL opposes the expansion of the federal money laundering statute as proposed by S. 378 and H.R. 1793.

Status of These Bills

The Dodd-Frank Wall Street Reform and Consumer Protection Act

This bill, introduced as H.R. 4173, passed Congress and was signed into law in July 2010. The new law, Public Law No. 111-203, was not improved prior to enactment.

The Fraud Enforcement and Recovery Act of 2009

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.

Strengthening Enforcement for Health Care Fraud Crimes Act

S. 1843 was introduced to the Senate by Senator Arlen Specter on October 22, 2009 and was referred to the Senate Committee on the Judiciary. On December 2, 2009, Senator Specter filed Amendment 2787, which includes text identical to S. 1843, to the Senate healthcare bill. NACDL and our allies successfully kept this amendment from moving forward and it did not become part of the final health care bill passed out of the Senate.

The Money Laundering Control Enhancement Act & The Money Laundering Correction Act

S. 378 was introduced by Senator Evan Bayh on February 4, 2009.  The bill was referred to the Judiciary Committee. H. 1793 was introduced by Representative Daniel Lungren on March 30, 2009.  The bill was referred to the Judiciary Committee and was later moved to the Crime, Terrorism, and Homeland Security Subcommittee. NACDL's active opposition to FERA and the broadening of the money laundering statute caused H.R. 1793 and S. 378 to stall in both houses. 

How to Get Involved

Please use NACDL’s Contact Congress function to call or e-mail your U.S. Representative or Senator to encourage them to re-introduce, co-sponsor, or generally support similar legislation in the 113th Congress. 

Click HERE to find and contact your elected officials in Washington

Resources

The Dodd-Frank Wall Street Reform and Consumer Protection Act

In-Depth Analysis of the Act 

The Fraud Enforcement and Recovery Act (FERA)

Department of Justice FERA Reports: 

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"  

The Money Laundering Control Enhancement Act & Money Laundering Correction Act

NACDL, Money Laundering Opposition Handout 

The Strengthening Enforcement for Health Care Fraud Crimes Act

NACDL and Heritage Foundation, Mandatory Minimum Opposition Handout 

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