Summary

Although criminal fraud, often involving real estate, has been a factor in the failure of many financial institutions, the Justice Department has not done all that it could with the authority it has to strengthen the government's financial institution fraud program. Fraud committed by officers, directors, and customers at banks and thrifts across the country has resulted in scores of failed financial institutions and heavy dollar losses. In "land flips," for example, related parties transferred land between themselves to inflate its value. They then used the fraudulently overvalued land as collateral to obtain loans, which typically greatly exceeded the land's actual value. The Attorney General has pledged to beef up the federal government's attack on bank and thrift fraud, and Congress has passed two major bills supporting the government's effort. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and the Crime Control Act of 1990 provided the Justice Department with additional powers and resources to investigate and prosecute financial institution fraud. This report provides an overview of the government's efforts, with a particular focus on the implementation of certain provisions of the Crime Control Act, Justice's local enforcement efforts against criminal bank and thrift fraud, and the progress achieved to date.

GAO found that: (1) the Attorney General has made criminal financial institutional fraud the top enforcement priority; (2) DOJ has established the Financial Institutions Fraud Unit to supervise and coordinate financial institution fraud matters within DOJ, ensure adequate resources are available for investigation and prosecution, and coordinate the overall investigative approach with other federal agencies; (3) the Special Counsel's ability to control response to financial institution fraud was inhibited by DOJ and the federal government's decentralized structure, the lack of resources to investigate and prosecute cases, and a lack of authority over non-DOJ personnel involved in bank and thrift fraud activities; (4) non-DOJ staff were often unavailable to give needed expertise because of competing priorities and demands on their resources; (5) DOJ has failed to adequately strengthen the financial institution fraud program, create multiagency task forces, or acquire interagency agreements to ensure proper staffing levels, (6) of 2,603 total convictions, 1,700 were sentenced to prison and federal courts ordered restitution and fines payments totalling over $846 million, however, the government collected only 4.5 percent of this total; and (7) DOJ has not set sufficient goals to measure accomplishments and evaluate the overall effectiveness of its efforts.