```

[Senate Report 111-10]
[From the U.S. Government Publishing Office]

                                                        Calendar No. 28
111th Congress                                                   Report
                                 SENATE
 1st Session                                                     111-10

======================================================================

 
               FRAUD ENFORCEMENT AND RECOVERY ACT OF 2009

                                _______
                                

                 March 23, 2009.--Ordered to be printed

                                _______
                                

Mr. Leahy, from the Committee on the Judiciary, submitted the following

                              R E P O R T

                         [To accompany S. 386]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to which was referred the 
bill (S. 386), to improve enforcement of mortgage fraud, 
securities fraud, financial institution fraud, and other frauds 
related to federal assistance and relief programs, for the 
recovery of funds lost to these frauds, and for other purposes, 
having considered the same, reports favorably thereon, with an 
amendment, and recommends that the bill, as amended, do pass.

                                CONTENTS

                                                                   Page
  I. Background and Purpose of the Fraud Enforcement and Recovery Act 
     of 2009..........................................................1
 II. History of the Bill and Committee Consideration..................5
III. Section-by-Section Summary of the Bill...........................6
 IV. Congressional Budget Office Cost Estimate.......................15
  V. Regulatory Impact Evaluation....................................17
 VI. Conclusion......................................................17
VII. Changes to Existing Law Made by the Bill, as Reported...........17

I. Background and Purpose of the Fraud Enforcement and Recovery Act of 
                                  2009

    On February 5, 2009, Chairman Leahy and Senators Grassley 
and Kaufman introduced the Fraud Enforcement and Recovery Act 
of 2009 (FERA). Senators Klobuchar and Schumer have joined as 
cosponsors. This legislation will increase accountability for 
the corporate and mortgage frauds that have contributed to the 
recent economic collapse and will help protect Americans from 
future frauds that exploit the economic assistance programs 
intended to restore and rebuild our economy.
    This legislation provides substantial funding for the 
Justice Department and other agencies to hire prosecutors, 
agents, and analysts in order to restore their capacity to 
pursue mortgage, corporate, and other financial fraud during 
this economic downturn. The bill also provides important 
clarifications to current criminal and civil fraud statutes to 
ensure that law enforcement has the tools it needs to prevent 
and punish these frauds, as well as to recover taxpayer money 
lost to these frauds.

                             A. BACKGROUND

    Our Nation is in the midst of its most serious economic 
crisis since the Great Depression. With each passing week, tens 
of thousands more Americans lose their jobs to layoffs, and 
many thousands more are losing their homes to foreclosure. As 
we learn more and more each day about the causes of this 
debacle, it is clear that unscrupulous mortgage brokers and 
Wall Street financiers were among the contributors to this 
economic collapse. With the new tools and resources in this 
bill, it will be easier to ensure that all of those responsible 
for these financial crimes are held accountable.
    While the full scope of the fraud that helped trigger the 
economic crisis is still unknown, we do know a great deal about 
what went wrong. As banks and private mortgage companies 
relaxed their standards for loans, approving ever riskier 
mortgages with less and less due diligence, they created an 
environment that invited fraud. Private mortgage brokers and 
lending businesses came to dominate the home housing market, 
and these companies were not subject to the kind of banking 
oversight and internal regulations that had traditionally 
helped to prevent fraud. We are now seeing the results of this 
lax supervision and accountability.
    In the last six years, suspicious activity reports alleging 
mortgage fraud that have been filed with the Treasury 
Department have increased nearly tenfold to more than 62,000 in 
2008. In the last three years, the number of criminal mortgage 
fraud investigations opened by the Federal Bureau of 
Investigation (FBI) has more than doubled, and the FBI 
anticipates a new wave of cases that could double that number 
yet again in coming years. Despite these increases, the FBI 
currently has fewer than 250 Special Agents nationwide assigned 
to these financial fraud cases. At current levels, they cannot 
individually review, much less thoroughly investigate, the more 
than 5,000 fraud allegations received by the Treasury 
Department each month.
    Of course, the problem is not limited to mortgage frauds. 
As is so common in today's financial markets, home mortgages 
were packaged together and turned into securities that were 
bought and sold in largely unregulated markets on Wall Street. 
Here again, the environment invited fraud. As the value of the 
mortgages started to decline with falling housing prices, Wall 
Street financiers began to see these mortgage-backed securities 
unravel. Unfortunately, some were not honest about these 
securities, leading to even more fraud and victimizing 
investors nationwide.
    All of this fraud has contributed to an unprecedented 
collapse in the mortgage-backed securities market. In the past 
year, banks and financial institutions in the United States 
alone have suffered more than $500 billion in losses associated 
with the subprime mortgage industry. Some of our Nation's 
largest and most venerable financial institutions collapsed as 
a result. The list of publicly traded companies that declared 
bankruptcy or have been taken over by the Federal Government 
because of the mortgage-backed securities market collapse 
includes Fannie Mae, Freddie Mac, Bear Stearns, IndyMac, and 
Lehman Brothers.
    To make sure this kind of collapse cannot happen again, we 
must reinvigorate our anti-fraud measures and give law 
enforcement agencies the tools and resources they need to root 
out fraud so that it can never again place our financial system 
at risk. Taxpayers, who bear the burden of this financial 
downturn, deserve to know that the Government is doing all it 
can to hold responsible those who committed fraud in the run-up 
to this collapse.

                     B. PURPOSE OF THE LEGISLATION

    This bipartisan legislation will reinvigorate our Nation's 
capacity to investigate and prosecute the kinds of financial 
frauds that have so severely undermined our financial markets 
and hurt so many hard working people in these difficult 
economic times. This legislation provides the resources and new 
tools needed for law enforcement to uncover and prosecute these 
frauds and to aggressively work to detect and prevent fraud 
related to the Government's ongoing efforts to bail out banks 
and stimulate the economy.
    The bill authorizes $165 million a year for hiring fraud 
prosecutors and investigators at the Justice Department in 
fiscal years 2010 and 2011. This includes $75 million in 2010 
and $65 million in 2011 for the FBI to hire 190 additional 
special agents and more than 200 professional staff and 
forensic analysts to nearly double the size of its mortgage and 
financial fraud program. With this funding, the FBI can expand 
the number of its mortgage fraud task forces nationwide--from 
26 to more than 50--that target fraud in the hardest hit areas 
in our Nation. This authorization also includes $50 million a 
year for U.S. Attorneys' Offices to staff those strike forces 
and $40 million for the Criminal, Civil, and Tax Divisions at 
the Justice Department to provide special litigation and 
investigative support in those efforts. In addition, the bill 
authorizes $80 million a year for fiscal years 2010 and 2011 
for investigators and analysts at the U.S. Postal Inspection 
Service, the U.S. Secret Service, and the Office of Inspector 
General for the Department of Housing and Urban Development to 
combat fraud in Federal assistance programs and financial 
institutions.
    This legislation also makes a number of important 
improvements to fraud and money laundering statutes to 
strengthen prosecutors' ability to combat this growing wave of 
fraud. Specifically, the bill amends the definition of 
``financial institution'' in the criminal code (18 U.S.C. 
Sec. 20) in order to extend Federal fraud laws to mortgage 
lending businesses that are not directly regulated or insured 
by the Federal Government. These companies were responsible for 
nearly half the residential mortgage market before the economic 
collapse, yet they remain largely unregulated and outside the 
scope of traditional Federal fraud statutes. This change would 
apply the Federal fraud laws to private mortgage businesses, 
just as they apply to federally insured and regulated banks.
    The legislation would also amend the false statements in 
mortgage applications statute (18 U.S.C. Sec. 1014) to make it 
a crime to make a materially false statement or to willfully 
overvalue a property in order to influence any action by a 
mortgage lending business. Currently, this false statements 
offense only applies to Federal agencies, banks, and credit 
associations and does not necessarily extend to private 
mortgage lending businesses, even if they are handling 
federally-regulated or federally-insured mortgages. Similar to 
expanding the definition of ``financial institution'', this 
provision would ensure that private mortgage brokers and 
companies are held fully accountable under this Federal fraud 
provision. This is a particularly important as false appraisal 
fraud has been a particularly problematic type of fraud during 
the recent financial crisis.
    The bill would amend the major fraud statute (18 U.S.C. 
Sec. 1031) to protect funds expended under the Troubled Asset 
Relief Program and the economic stimulus package, including any 
Government purchases of preferred stock in financial 
institutions. The U.S. Government has provided extraordinary 
economic support to our banking system, and we need to make 
sure that none of those funds are subject to fraud or abuse. 
This change will give Federal prosecutors and investigators the 
explicit authority they need to protect taxpayer funds.
    The legislation would amend the Federal securities statute 
(18 U.S.C. Sec. 1348) to cover fraud schemes involving 
commodities futures and options, including derivatives 
involving the mortgage-backed securities that caused such 
damage to our banking system.
    This bill would amend the Federal money laundering statutes 
(18 U.S.C. Sec. Sec. 1956, 1957) to correct an erroneous 
Supreme Court decision in 2008 that significantly weakened 
these statutes. In United States v. Santos, the Supreme Court 
misinterpreted the money laundering statutes, limiting their 
scope to only the ``profits'' of crimes, rather than the 
``proceeds'' of the offenses. 128 S. Ct. 2020 (2008). The 
Court's decision was contrary to Congressional intent and will 
lead to criminals escaping culpability simply by claiming their 
illegal scams did not make any profit. Indeed, proceeds of 
``Ponzi schemes'' like the Bernard Madoff case, which by their 
very nature do not include any profit, would be out of the 
reach of the money laundering statutes under this decision. 
This flawed decision needs to be corrected immediately, as 
dozens of significant money laundering cases have already been 
dismissed.
    Lastly, FERA improves one of the most potent civil tools 
for rooting out waste and fraud in Government--the False Claims 
Act (18 U.S.C. Sec. 3729 et seq.). The effectiveness of the 
False Claims Act has recently been undermined by court 
decisions which limit the scope of the law and, in some cases, 
allow subcontractors paid with Government money to escape 
responsibility for proven frauds. The False Claims Act must be 
corrected and clarified in order to protect from fraud the 
Federal assistance and relief funds expended in response to our 
current economic crisis.

          II. History of the Bill and Committee Consideration

                      A. INTRODUCTION OF THE BILL

    On February 5, 2009, Chairman Leahy introduced the bill, S. 
386, with Senators Grassley and Kaufman. Senators Klobuchar and 
Schumer have joined as cosponsors.

                       B. COMMITTEE CONSIDERATION

1. Committee hearing

    On February 11, 2009, the Committee held a hearing entitled 
``The Need for Increased Fraud Enforcement in the Wake of the 
Economic Downturn'' to, among other things, consider this 
legislation. At the hearing, three witnesses testified: FBI 
Deputy Director John S. Pistole; Special Inspector General for 
the Troubled Asset Relief Program (``TARP'') Neil M. Barofsky; 
and the Acting Assistant Attorney General for the Criminal 
Division of the Justice Department Rita M. Glavin. All three 
witnesses testified favorably concerning the need for this 
legislation.
    Deputy Director Pistole testified that the number of 
mortgage fraud cases opened by the FBI had more than doubled in 
the past three years, with 721 cases open in 2005 and more than 
1,800 at the end of 2008. Transcript of Hearing at 13. In his 
oral and written testimony, Pistole analogized the current 
situation to the Savings and Loan crisis of the late 1980s and 
early 1990s, when the Federal Government needed to improve 
financial fraud enforcement and did so by passing the Financial 
Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 
1989 and the Crime Control Act of 1990. Id. at 27-28; Statement 
of John S. Pistole, FBI Deputy Director at 1-2. Pistole warned, 
however, that the losses in this economic crisis dwarf those of 
the Savings and Loan debacle, and the need for more enforcement 
is even greater now than it was then. Transcript of Hearing at 
28; Statement of John S. Pistole, FBI Deputy Director at 1-2.
    Special Inspector General Barofsky described how law 
enforcement resources had understandably been diverted from 
traditional ``white collar'' crime to terrorism following the 
attacks on September 11, 2001. Transcript of Hearing at 19. 
This trend left the Justice Department's capacity to respond to 
financial and securities fraud significantly weakened, and with 
the recent trends shifting even more resources to mortgage 
frauds, other white collar efforts were even further 
``underfunded and underprosecuted.'' Id. Barofsky warned that 
with trillions of dollars being spent under TARP and other 
associated programs, ``it is essential that the appropriate 
resources be dedicated to meet the challenges of both deterring 
and prosecuting fraud.'' Id. at 20.\1\
---------------------------------------------------------------------------
    \1\Barofsky specifically commented on S. 386 as follows: ``I 
applaud the efforts of this Committee to introduce bipartisan 
legislation, such as the Chairman and Senator Kaufman's Fraud 
Enforcement [and] Recovery Act and Senator Schumer and Senator Shelby's 
Safe Markets Act. These will ensure that law enforcement has the 
necessary resources to meet the daunting challenges that [lie] ahead. 
Such measures will greatly assist us and our partners as we engage in 
this historic effort to deter and prosecute those who would seek to 
criminally profit from a national crisis.'' Transcript of Hearing at 
20.
---------------------------------------------------------------------------
    Acting Assistant Attorney General Glavin emphasized the 
need for this legislation amidst the current economic crisis. 
Id. at 22. Glavin testified that S. 386 would provide the 
Justice Department with needed tools ``to aggressively fight 
fraud in the current economic climate'' and ``provide key 
statutory enhancements that will assist in ensuring that those 
who have committed fraud are held accountable.'' Id. at 23. 
Glavin also stated that the resources in the bill were needed 
for the Justice Department to respond to fraud in the midst of 
this crisis, and S. 386 was ``an important and timely step in 
the process and we applaud the initiative of this Committee in 
proposing this Act.'' Id. at 26.
    The Committee also received written testimony supporting S. 
386 from the Kenneth M. Donohue, the Inspector General for the 
Department of Housing and Urban Development, and from William 
R. Gilligan, Jr., Acting Chief Postal Inspector.

2. Committee executive business meetings

    On February 26, 2009, the Committee held an executive 
committee business meeting to consider S. 386, and other 
measures, and the bill was held over for further consideration 
at the request of the ranking member.
    On March 5, 2009, the Committee adopted by unanimous 
consent a complete substitute to the bill offered by the 
Chairman and Senators Grassley, Schumer, Kaufman, and 
Klobuchar. The complete substitute made several technical 
corrections and clarifications to the bill requested by the 
Justice Department in the appendix to Acting Assistant Attorney 
General Glavin's written testimony and in a Justice Department 
views letter about Section 4 of the bill. The substitute also 
increased the authorized funding for the FBI by $10 million in 
fiscal year 2010 and added $20 million in fiscal year 2010 and 
2011 for the U.S. Secret Service to combat financial fraud. 
Senator Schumer also offered an amendment to add funding for 
the Securities and Exchange Commission to the bill, but 
withdrew the amendment after Senator Grassley opposed it.
    The Committee then voted to report the Fraud Enforcement 
and Recovery Act of 2009, as amended, favorably to the Senate 
by voice vote.

              III. Section-by-Section Summary of the Bill

Sec. 1. Short title

    This section provides that the legislation may be cited as 
the Fraud Enforcement and Recovery Act of 2009 (FERA).

Sec. 2(a) and 2(b). Definition of financial institution expanded to 
        include mortgage lending businesses and mortgage brokers

    At the height of the subprime lending era, independent 
mortgage companies--those that are not depository institutions 
or their subsidiaries or holding company affiliates--made 
nearly half of the higher-priced, first-lien mortgages in 
America. The loans originated by these private mortgage 
companies were not generally covered by current Federal fraud 
statutes, such as the bank fraud and bank bribery statutes. As 
a result, these Federal fraud statutes need to be updated by 
expanding the definition of ``financial institution'' to 
include mortgage lending businesses.
    The recent financial crisis has further demonstrated how 
fraudulent mortgages can affect the health of the banking 
system and the overall economy. Those who engage in frauds on 
mortgage lending businesses should be held to the same 
standards that apply to traditional financial institutions, 
given the impact of these businesses on federally-insured and 
federally-regulated institutions.
    This section amends the definition of a ``financial 
institution'' in Title 18 of the United States Code to include 
a ``mortgage lending business,'' which is defined 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 or foreign commerce. The definition also 
includes ``any person or entity that makes in whole or in part 
a federally-regulated mortgage loan as defined in 12 U.S.C. 
Sec. 2602(1).''
    These new definitions for ``financial institution'' and 
``mortgage lending business'' (18 U.S.C. Sec. Sec. 20, 27) will 
ensure that private mortgage brokers and companies are held 
fully accountable under Federal fraud laws, particularly where 
they are dealing in federally-regulated or federally-insured 
mortgages. For example, the bank fraud statute, 18 U.S.C. 
Sec. 1344, prohibits defrauding ``a financial institution,'' 
and the amendment to this definition would extend the bank 
fraud statute beyond traditional banks and financial 
institutions to private mortgage companies. This definition of 
``financial institution'' would also apply to the following 
criminal provisions: 18 U.S.C. Sec. 215 (financial institution 
bribery); 18 U.S.C. Sec. 225 (continuing financial crimes 
enterprise); 18 U.S.C. Sec. 1005 (false statement/entry/record 
for financial institution); and 18 U.S.C. Sec. 1344 (bank/
financial institution fraud). The new definition would also 
provide for enhanced penalties for mail and wire fraud 
affecting a financial institution, including a mortgage lending 
business, pursuant to 18 U.S.C. Sec. Sec. 1341 and 1343.
    Expanding the term ``financial institution'' to include 
mortgage lending businesses would also strengthen penalties for 
mortgage frauds and the civil forfeiture in mortgage fraud 
cases. It would extend the statute of limitations in 
investigations of mortgage fraud cases to be consistent with 
bank fraud investigations.
    This definition of ``financial institution'' would not 
apply to the Suspicious Activity Reports (SARs) that banks and 
other financial institutions are required to file, as 
``financial institution'' is defined separately under the Bank 
Secrecy Act, 31 U.S.C. Sec. 5312(a)(2).

Sec. 2(c). False statements and appraisals by mortgage brokers and 
        agents in loan applications

    This section would amend the false statements in mortgage 
applications statute (18 U.S.C. Sec. 1014) to make it a crime 
to make a materially false statement or to willfully overvalue 
a property in order to influence any action by a mortgage 
lending business. The current offense only applies to Federal 
agencies, banks, and credit associations and does not extend to 
private mortgage lending businesses, even if they are handling 
federally-regulated or federally-insured mortgages. Similar to 
expanding the definition of ``financial institution'' in 
Sections 2(a) and 2(b), this provision would ensure that 
private mortgage brokers and companies are held 
fullyaccountable under this Federal fraud provision. This is a 
particularly important offense as it specifically relates to false 
appraisal fraud, which has been a particularly problematic type of 
mortgage fraud during the recent financial crisis.

Sec. 2(d). Major fraud against the government amended to include 
        economic relief and Troubled Asset Relief Program funds

    This section would amend the Federal major fraud statute 
(18 U.S.C. Sec. 1031) to include ``any grant, contract, 
subcontract, subsidy, loan, guarantee, insurance or other form 
of Federal assistance, including through the Troubled Assets 
Relief Program, an economic stimulus, recovery or rescue plan 
provided by the Government, or the Government's purchase of any 
preferred stock in a company.'' This amendment will make sure 
that Federal prosecutors have jurisdiction to use one of their 
most potent fraud statutes to protect the Government assistance 
provided during the current economic crisis, including money 
from the TARP and circumstances where the Government purchased 
preferred stock in companies to provide economic relief. These 
amendments, however, only apply to major frauds against the 
Government, where the value of the contract or services is more 
than $1,000,000.

Sec. 2(e). Amending securities fraud statute to include commodities 
        fraud

    This section would amend the Federal securities fraud 
statute (18 U.S.C. Sec. 1348) to include commodities fraud, in 
addition to securities fraud. Currently, the securities fraud 
statute does not reach frauds involving options or futures, 
which include some of the derivatives and other financial 
products that contributed substantially to the current 
financial collapse.

Sec. 2(f). Amending the money laundering statute to include the 
        proceeds for specified unlawful activity

    This section would amend the criminal money laundering 
statutes (18 U.S.C. Sec. Sec. 1956, 1957) to make clear that 
the proceeds of specified unlawful activity include the gross 
receipts of the illegal activity, not just the profits from the 
illegal activity. The money laundering statutes make it an 
offense to conduct financial transactions involving the 
``proceeds'' of a crime (referred to as ``specified unlawful 
activity'' in the statutes). These statutes, however, do not 
define the term ``proceeds,'' and the term has been left to 
definition by the courts. For 22 years, since the money 
laundering statutes were enacted in 1986, most courts have 
construed ``proceeds'' to mean ``gross receipts'' and not ``net 
profits'' of illegal activity, which was consistent with the 
original intent of Congress. In United States v. Santos, 128 
S.Ct. 2020 (2008), however, the Supreme Court in a four-justice 
plurality suggested that the term ``proceeds'' was 
``ambiguous'' and as a result, under the rule of lenity the 
Court gave the term a narrower meaning. In this decision, the 
Court mistakenly limited the term ``proceeds'' to the 
``profits'' of a crime, not its receipts.
    As a result, the Supreme Court's decision has limited the 
money laundering statutes to only profitable crimes, and 
permits criminal defendants to reduce their culpability for 
money laundering by deducting the costs of their criminal 
conduct. For example, if a fraudulent mortgage broker 
intentionally overvalued the fair market value of a home for 
purposes of a mortgage, that broker could only be charged for 
money laundering related to any fees or potential profit made 
in the fraudulent transaction, not based on the full value of 
the house. Furthermore, an executive who committed securities 
fraud could not be charged with money laundering, if the fraud 
did not result in a profit, even though there was a fully 
completed financial transaction using money stolen by fraud. 
This decision is contrary to the intent of Congress in passing 
the money laundering statutes and weakens one of Federal 
Government primary tools used to recover the proceeds of 
illegal activity, including mortgage, securities, and other 
financial frauds.

Sec. 2(g). Making the international money laundering statute apply to 
        tax evasion

    This section would amend the international money laundering 
provision in the Federal money laundering statute (18 U.S.C. 
Sec. 1956(a)(2)) to make it a crime for individuals to 
transport or transfer money in and out of the United States to 
evade taxes.

Sec. 3. Funding for investigators and prosecutors for mortgage fraud, 
        securities fraud, and cases involving federal economic 
        assistance

    The economic crisis has revealed an epidemic of fraud 
related to the mortgage crisis and the resulting corporate 
collapses. The FBI and other Federal agencies will soon be 
overwhelmed with new cases. In the past year, the Treasury 
Department has received more than 62,000 Suspicious Activity 
Reports (SARs) from banks alleging mortgage fraud. The number 
of mortgage fraud SARs has gone up nearly tenfold in the last 
six years, and doubled even in the last three years. Currently, 
however, the FBI has fewer than 250 agents assigned to 
investigate these mortgage fraud allegations, even though the 
number of FBI investigations has doubled in the past three 
years, with the expectation that it will grow further in the 
coming months and years. Investigators and agents at the 
Inspector General's Office for Housing and Urban Development 
(HUD), the U.S. Secret Service, and the U.S. Postal Inspector 
Service have seen a similar rise in their investigations of 
mortgage and other corporate frauds. In addition, the U.S. 
Postal Inspection Service, traditionally one of the Nation's 
bulwarks against white collar fraud, has consistently lost 
funding and support over the years and needs substantial 
support in these times of economic crisis. The resources 
included in this bill will help the Justice Department, the 
FBI, and other investigative agencies responsible for enforcing 
mortgage and securities fraud hold accountable those 
responsible for contributing to this economic crisis, as well 
as protecting the resources being spent to stabilize the 
banking system and rebuild our economy.
    This section authorizes appropriations of $165 million a 
year to the Attorney General for fiscal years 2010 and 2011 to 
be allocated to the FBI ($75 million in 2010 and $65 million in 
2011), U.S. Attorney's offices ($50 million), and Criminal, 
Civil, and Tax Divisions of the Justice Department ($40 
million). This section also authorizes additional 
appropriations for the Postal Inspection Service ($30 million), 
the Inspector General for HUD ($30 million), and the U.S. 
Secret Service ($20 million). This section provides that the 
money authorized may only be used for fighting mortgage, 
securities, and other financial institution frauds, and frauds 
against Federal assistance and relief programs, as well as for 
recovering funds lost to those frauds, and the Justice 
Department, in consultation with the other agencies and 
departments, would have to certify that these funds were used 
for those purposes, after expended.

Sec. 4. Clarifications to the False Claims Act to reflect the original 
        intent of the law

    In response to the economic crisis, the Federal Government 
has obligated and expended more than $1 trillion in an effort 
to stabilize our banking system and rebuild our economy. 
Thesefunds are often dispensed through contracts with non-governmental 
entities, going to general contractors and subcontractors working for 
the Government. Protecting these funds from fraud and abuse must be 
among our highest priorities as we move forward with these necessary 
actions.
    One of the most successful tools for combating waste and 
abuse in Government spending has been the False Claims Act 
(FCA), which is an extraordinary civil enforcement tool used to 
recover funds lost to fraud and abuse. The effectiveness of the 
FCA has recently been undermined by court decisions limiting 
the scope of the law and allowing subcontractors and non-
governmental entities to escape responsibility for proven 
frauds. In order to respond to these decisions, certain 
provisions of the FCA must be corrected and clarified in order 
to protect the Federal assistance and relief funds expended in 
response to our current economic crisis.
    This section amends the FCA to clarify and correct 
erroneous interpretations of the law that were decided in 
Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 
2123 (2008), and United States ex. rel. Totten v. Bombardier 
Corp, 380 F.3d 488 (D.C. Cir. 2004).\2\ In Allison Engine, the 
Supreme Court held that Section 3729(a)(2) of the FCA requires 
the Government to prove that ``a defendant must intend that the 
Government itself pay the claim,'' for there to be a violation. 
128 S. Ct. at 2128. As a result, even when a subcontractor in a 
large Government contract knowingly submits a false claim to 
general contractor and gets paid with Government funds, there 
can be no liability unless the subcontractor intended to 
defraud the Federal Government, not just their general 
contractor. This is contrary to Congress's original intent in 
passing the law and creates a new element in a FCA claim and a 
new defense for any subcontractor that are inconsistent with 
the purpose and language of the statute. Similarly, in Totten, 
the Court of Appeals for the District of Columbia Circuit held 
that liability under the FCA can only attach if the claim is 
``presented to an officer or employee of the Government before 
liability can attach.'' 380 F. 3d at 490. Known as the 
``presentment clause,'' the D.C. Circuit interpreted this 
clause to limit recovery for frauds committed by a Government 
contractor when the funds are expended by a Government grantee, 
such as Amtrak. The Totten decision, like the Allison Engine 
decision, runs contrary to the clear language and congressional 
intent of the FCA by exempting subcontractors who knowingly 
submit false claims to general contractors and are paid with 
Government funds.
---------------------------------------------------------------------------
    \2\The provisions in Section 4 were drawn, in significant part, 
from the Committee's previous work on S. 2041, the False Claims Act 
Corrections Act of 2008, in the 110th Congress. S. 2041 was favorably 
reported from Committee and a detailed Committee report was filed on S. 
2041 outlining the conflicting interpretations and providing 
significant background on why the Committee chose to make the 
amendments contained in the bill. The Committee feels that the report 
to S. 2041, S. Rpt. 110-507, should be read as a complement to this 
report due to a number of similar changes contained in S. 386.
---------------------------------------------------------------------------
    As the bill makes a number of changes to the liability 
provisions compared to the current statute, this report will 
outline the new clarifications to the law by topic.
            A. Fraud against government contractors and grantees
    Following the decision in Totten a number of courts have 
held that the FCA does not reach false claims that are (1) 
presented to Government grantees and contractors, and (2) paid 
with Government grant or contract funds.\3\ These cases are 
representative of the types of frauds the FCA was intended to 
reach when it was amended in 1986. This section of the bill 
clarifies that liability under section 3729(a) attaches 
whenever a person knowingly makes a false claim to obtain money 
or property, any part of which is provided by the Government 
without regard to whether the wrongdoer deals directly with the 
Federal Government; with an agent acting on the Government's 
behalf; or with a third party contractor, grantee, or other 
recipient of such money or property. The bill explicitly 
excludes from liability requests or demands for money or 
property that the Government has paid to an individual as 
compensation for Federal employment or has received as an 
income subsidy, such as Social Security benefits.
---------------------------------------------------------------------------
    \3\380 F.3d 488 (D.C. Cir. 2005); see, e.g. United States, ex rel., 
Atkins v. McInteer, 345 F. Supp. 2d 1302 (N.D. Ala. 2004), aff'd on 
other grounds, 470 F.3d 1350 (11th Cir. 2006); United States, ex rel., 
Rafizadeh v. Continental Common, Inc., 2006 WL 980676 (E.D. La. April 
10, 2006); United States v. City of Houston, 2006 WL 2382327 (S.D. Tex. 
Aug. 16, 2006); United States, ex rel., Rutz v. Village of River 
Forest, 2007 WL 3231439 (N.D. Ill. Oct. 25, 2007); United States, ex 
rel., Arnold v. CMC Engineering, 2007 WL 442237 (W.D. Pa. Feb. 7, 
2007).
---------------------------------------------------------------------------
    As some defendants have argued that Totten and Atkins 
restrict FCA liability from attaching to Medicaid claims, the 
bill clarifies the position taken by the Committee in 1986 that 
the FCA reaches all false claims submitted to State 
administered Medicaid programs. By removing the offending 
language from section 3729(a)(1), which requires a false claim 
be presented to ``an officer or employee of the Government, or 
to a member of the Armed Forces,'' the bill clarifies that 
direct presentment is not required for liability to attach. 
This is consistent with the intent of Congress in amending the 
definition of ``claim'' in the 1986 amendments to include ``any 
request or demand * * * for money or property which is made to 
a contractor, grantee, or other recipient if the United States 
Government provides any portion of the money or property which 
is requested or demanded, or if the Government will reimburse 
such contractor, grantee, or other recipient for any portion of 
the money or property which is requested or demanded.'' 31 
U.S.C. Sec. 3729(c) (2000).\4\
---------------------------------------------------------------------------
    \4\See also S. Rpt. No. 99-345, at 5282-5301 (providing section-by-
section analysis explaining that a false claim includes claims 
submitted to grantees and contractors if the payment ultimately results 
in a loss to the Government).
---------------------------------------------------------------------------
    This section differs also addresses the Supreme Court's 
decision in Allison Engine, 128 S. Ct. 2123 (2008). In Allison 
Engine, the Court held that the FCA contained an intent 
requirement in sections 3729(a)(2) and (a)(3) that had not 
previously been required to prove for FCA liability to attach. 
The Allison Engine decision created a significant question 
about the scope and applicability of the FCA to certain false 
claims, effectively limiting FCA coverage for some Government 
programs and funds. As a result, defendants across the country 
have cited Allison Engine in seeking dismissal of certain FCA 
cases claiming that the FCA no longer applies to Government 
programs traditionally covered. Further, one court has even 
gone as far as dismissing a case sua sponte.\5\
---------------------------------------------------------------------------
    \5\See United States v. Russell T. Hawley, et al., No. C06-4087-MWB 
(N.D. Iowa).
---------------------------------------------------------------------------
    To correct the Allison Engine decision, S. 386 contains 
three specific changes to existing section 3729(a)(2) and 
(a)(3). In section 3729(a)(2) the words ``to get'' were removed 
striking the language the Supreme Court found created an intent 
requirement for false claims liability under that section. In 
place of this language, the Committee inserted the words 
``material to'' a false or fraudulent claim. Further, the 
language ``paid or approved by the Government'' was removed to 
address both the decision in Allison Engine, and to prevent a 
new ``presentment'' requirement from being read into the 
section. Finally, the new term ``material'' is defined later in 
the section to mean ``having a natural tendency to influence, 
or being capable of influencing, the payment or receipt of 
money or property.'' This definition is consistent with the 
Supreme Court definition, as well as other courts interpreting 
the term as applied to the FCA.\6\
---------------------------------------------------------------------------
    \6\See Neder v. United States, 527 U.S. 1, 16 (1999); United States 
v. Bourseau, 531 F.3d 1159, 1171 (9th Cir. 2008); United States v. 
Rogan, 517 F.3d 449, 452 (7th Cir. 2008); United States ex rel. Bahrani 
v. Conagra, Inc., 465 F.3d 1189, 1204 (10th Cir. 2006); United States 
ex rel. A+ Homecare, Inc. v. Medshares Mgmt. Group, Inc., 400 F.3d 428, 
446 (6th Cir. 2005); United States ex rel. Harrison v. Westinghouse 
Savannah River Co., 352 F.3d 908, 913, 916-917 (4th Cir. 2003); United 
States ex rel. Cantekin v. University of Pittsburgh, 192 F.3d 402, 415-
416 (3d Cir. 1999).
---------------------------------------------------------------------------
    The other change responding to Allison Engine is in current 
section 3729(a)(3). While this section includes further 
modifications discussed below, the words ``defraud the 
Government by getting a false or fraudulent claim allowed or 
paid'' were removed to specifically address the intent 
requirement read into the section by the Court in Allison 
Engine. As a result, the provision now just extends FCA 
liability to those who conspire to commit a violation of any 
substantive section of 3729(a).
            B. Fraud against funds administered by the United States
    The Committee included provisions in the bill to address a 
recent decision involving funds administered by the U.S. 
Government during the reconstruction of Iraq. In United States 
ex rel. DRC, Inc. v. Custer Battles, LLC, a district court set 
aside a jury award finding that Iraqi funds administered by the 
U.S. Government on behalf of the Iraqi people were not U.S. 
Government funds within the scope of the FCA. 376 F. Supp. 2d 
617 (E.D. Va. 2006). The Committee believes this result is 
inconsistent with the spirit and intent of the FCA.
    When the U.S. Government elects to invest its resources in 
administering funds belonging to another entity, or providing 
property to another entity, it does so because use of such 
investments for their designated purposes will further the 
interest of the United States.\7\ False claims made against 
Government-administered funds harm the ultimate goals and U.S. 
interests and reflect negatively on the United States. The FCA 
should extend to these administered funds to ensure that the 
bad acts of contractors do not harm the foreign policy goals or 
other objectives of the Government. Accordingly, this bill 
includes a clarification to the definition of the term 
``claim'' in new Section 3729(b)(2)(A) and attaches FCA 
liability to knowingly false requests or demands for money and 
property from the U.S. Government, without regard to whether 
the United States holds title to the funds under its 
administration.
---------------------------------------------------------------------------
    \7\See, e.g., United States ex rel. Haynes v. CMC Electronics, 
Inc., 297 F.Supp.2d 734 (D.N.J. 2003) (discussing sales of equipment to 
foreign governments under the Arms Export Control Act).
---------------------------------------------------------------------------
            C. Conspiracy
    As noted above, the current FCA contains a provision that 
subjects those who knowingly conspire to defraud the Government 
by getting a false or fraudulent claim allowed or paid. Some 
courts have interpreted this provision narrowly.\8\ The current 
FCA conspiracy provision does not explicitly impose liability 
on those who conspire to violate other provisions of the FCA, 
such as delivery of less Government property than that promised 
or making false statements to conceal an obligation to pay 
money to the Government. See 31 U.S.C. Sec. Sec. 3729(a)(4-6) 
(2000). Because of the confusion and uncertainty surrounding 
the application of the conspiracy provision, the bill amends 
current section 3729(a)(3) to clarify that conspiracy liability 
can arise whenever a person conspires to violate any of the 
provisions in Section 3729 imposing FCA liability.
---------------------------------------------------------------------------
    \8\See, e.g., United States ex rel. Huangyan Import & Export Corp. 
v. Nature's Farm Products, Inc., 370 F. Supp. 2d 993 (N.D. Cal. 2005) 
(holding that section 3729(a)(3) does not extend to conspiracies to 
violate section 3729(a)(7)).
---------------------------------------------------------------------------
            D. Wrongful possession, custody or control of government 
                    property
    Section 3729(a)(4) of the FCA has remained unchanged since 
enactment of the FCA in 1863. This provision establishes FCA 
liability upon an individual that has ``possession, custody, or 
control of property or money used, or to be used, by the 
Government, and, intending to defraud the Government or 
willfully to conceal the property, delivers, or causes to be 
delivered, less property than the amount for which the person 
receives a certificate of receipt.'' 31 U.S.C. 
Sec. 3729(a)(4)(2000). This section allows the Government to 
recover losses that are incurred because of conversion of 
Government assets. However, because this section has remained 
unchanged from the original act that was drafted in 1863, the 
archaic language has made recoveries under a conversion theory 
contingent upon the individual receiving an actual receipt for 
the property. The new section, renumbered as Section 
3729(a)(1)(D) in the bill, updates this provision by retaining 
the core conversion principle while redrafting it in a more 
straightforward manner and removing the receipt requirement. 
Where knowing conversion of Government property occurs, it 
should make no difference whether the person receives a valid 
receipt from the Government.
            E. ``Reverse'' false claims
    Section 3729(a)(7) of the FCA currently imposes liability 
on any person who ``knowingly makes, uses, or causes to be made 
or used, a false record or statement to conceal, avoid, or 
decrease an obligation to pay or transmit money or property to 
the Government.'' 31 U.S.C. Sec. 3729(a)(7)(2000). This 
provision is commonly referred to as creating ``reverse'' false 
claims liability because it is designed to cover Government 
money or property that is knowingly retained by a person even 
though they have no right to it. This provision is similar to 
the liability established under 3729(a)(2) for making ``false 
records or statements to get false or fraudulent claims paid or 
approved.'' 31 U.S.C. Sec. 3729(a)(2)(2000). However, the 
provision does not capture conduct described in 3729(a)(1), 
which imposes liability for actions to conceal, avoid, or 
decrease an obligation directly to the Government. This 
legislation closes this loophole and incorporates an analogous 
provision to 3729(a)(1) for ``reverse'' false claims liability.
    Further, this legislation addresses current confusion among 
courts that have developed conflicting definitions of the term 
``obligation'' in Section 3729(a)(7).\9\ The term 
``obligation'' is now defined under new Section 3729(b)(3) and 
includes fixed and contingent duties owed to the Government--
including fixed liquidated obligations such as judgments, and 
fixed, unliquidated obligations such as tariffs on imported 
goods.\10\ It is also noteworthy to restate that while the new 
definition of ``obligation'' expressly includes contingent, 
non-fixed obligations, the Committee supports the position of 
the Department of Justice that current section 3729(a)(7) 
``speaks of an `obligation,' not a `fixed obligation.'\11\ By 
including contingent obligations such as, ``implied 
contractual, quasi-contractual, grantor-grantee, licensor-
licensee, fee-based, or similar relationship,'' this new 
section reflects the Committee's view, held since the passage 
of the 1986 Amendments,\12\ that an ``obligation'' arises 
across the spectrum of possibilities from the fixed amount debt 
obligation where all particulars are defined\13\ to the 
instance where there is a relationship between the Government 
and a person that ``results in a duty to pay the Government 
money, whether or not the amount owed is yet fixed.''\14\
---------------------------------------------------------------------------
    \9\See, e.g., United States ex rel. Prawer & Co. v. Verrill & Dana, 
946 F. Supp. 87, 93-95 (D. Me. 1996) (discussing the definition of 
``obligation'' at length); Am. Textile Mfr's Inst., Inc. v. The 
Limited, Inc., 190 F.3d 729, 736 (6th Cir. 1999) (discussing definition 
of ``obligation'').
    \10\The new definition of the term ``obligation'' in S. 386 does 
not include specific reference to ``customs duties for mismarking 
country of origin,'' which was a singular type of obligation referred 
to in S. 2041. The Committee originally included this language in S. 
2041 in response to the decision in American Textile Manufacturers 
Institute, Inc. v. The Limited, Inc. where the Sixth Circuit Court of 
Appeals narrowly defined the term ``obligation'' to apply reverse false 
claims to only fixed obligations and dismissing a claim for false 
statements made by importers to avoid paying customs duties. See 190 
F.3d 729 (6th Cir. 1999). After subsequent discussion with the 
Department of Justice, the Committee decided to remove the ``customs 
duties'' language in S. 386, as the Committee believes that customs 
duties clearly fall within the new definition of the term 
``obligation'' absent an express reference and any such specific 
language would be unnecessary.
    \11\Brief for United States at 23, United States v. Bourseau No. 
06-56741, 06-56743 (9th Cir. July 14, 2008).
    \12\See S. Rpt. No. 99-345 at 5283.
    \13\See, e.g., Am. Textile Mfrs. Inst. v. The Limited, Inc., 190 
F.3d 729 (6th Cir. 1999); United States v. Q Int'l Courier, Inc., 131 
F.3d 770 (8th Cir. 1997).
    \14\Brief for United States at 24, United States v. Bourseau No. 
06-56741, 06-56743 (9th Cir. July 14, 2008) (citing United States ex 
rel. Bahrani v. Conagra, Inc., 465 F.3d 1189, 1201 (10th Cir. 2006), 
mot. for reh'g pending, (10th Cir. 2007)); United States v. Pemco 
Aeroplex, Inc., 195 F.3d 1234, 1237-38 (11th Cir. 1999) (en banc).
---------------------------------------------------------------------------
    The Committee also notes that the reverse false claims 
provision and amendments to that provision do not include any 
new language that would incorporate or should otherwise be 
construed to include a presentment requirement. This is 
consistent with various court decisions that have held that the 
current reverse false claims provision does not contain a 
presentment requirement.\15\
---------------------------------------------------------------------------
    \15\See, e.g., United States ex rel. Bahrani, 465 F.3d 1189, 1208 
(10th Cir. 2006); United States ex rel. Koch v. Koch Indus., 57 
F.Supp.2d 1122, 1144 (N.D. Okla. 1999).
---------------------------------------------------------------------------
    The new definition of ``obligation'' includes an express 
statement that an obligation under the FCA includes ``the 
retention of an overpayment.'' The Department of Justice 
supported the inclusion of this provision and provided 
technical advice that the proper place to include overpayments 
was in the definition of obligation.\16\ This new definition 
will be useful to prevent Government contractors and others who 
receive money from the Government incrementally based upon cost 
estimates from retaining any Government money that is overpaid 
during the estimate process. Thus, the violation of the FCA for 
receiving an overpayment may occur once an overpayment is 
knowingly and improperly retained, without notice to the 
Government about the overpayment. The Committee also recognizes 
that there are various statutory and regulatory schemes in 
Federal contracting that allow for the reconciliation of cost 
reports that may permit an unknowing, unintentional retention 
of an overpayment. The Committee does not intend this language 
to create liability for a simple retention of an overpayment 
that is permitted by a statutory or regulatory process for 
reconciliation, provided the receipt of the overpayment is not 
based upon any willful act of a recipient to increase the 
payments from the Government when the recipient is not entitled 
to such Government money or property. Moreover, any action or 
scheme created to intentionally defraud the Government by 
receiving overpayments, even if within the statutory or 
regulatory window for reconciliation, is not intended to be 
protected by this provision. Accordingly, any knowing and 
improper retention of an overpayment beyond or following the 
final submission of payment as required by statute or 
regulation--including relevant statutory or regulatory periods 
designated to reconcile cost reports, but excluding 
administrative and judicial appeals--would be actionable under 
this provision.
---------------------------------------------------------------------------
    \16\Letter from Brian Benczkowski, Principal Deputy Assistant 
Attorney General, United States Department of Justice, to Senator 
Patrick Leahy, Chairman, Senate Committee on the Judiciary Appendix 3 
(Feb. 21, 2008).
---------------------------------------------------------------------------
    S. 386 also includes the term ``statutory'' to the 
definition of ``obligation''. This term was included to ensure 
that duties created by a statutory authority that may not be an 
express or implied contract or other relation are included as 
these statutory relationships confer a duty upon the recipient 
of Government funds regardless of the existence of a contract.

             IV. Congressional Budget Office Cost Estimate

    The Committee sets forth, with respect to the bill, S. 386, 
the following estimate and comparison prepared by the Director 
of the Congressional Budget Office under section 402 of the 
Congressional Budget Act of 1974:

                                                    March 18, 2009.
Hon. Patrick J. Leahy,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 386, the Fraud 
Enforcement and Recovery Act of 2009.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Mark 
Grabowicz.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

S. 386--Fraud Enforcement and Recovery Act of 2009

    Summary: S. 386 would broaden the coverage of current laws 
against financial crimes, including fraud affecting mortgages, 
securities, and federal assistance and relief programs. The 
bill would authorize the appropriation of $245 million for each 
of fiscal years 2010 and 2011 for the Department of Justice 
(DOJ), the Postal Inspection Service, and other federal 
agencies to investigate and prosecute violators of the bill's 
provisions. S. 386 also would amend certain provisions of the 
False Claims Act (FCA), which allows private individuals with 
knowledge of past or present fraud committed against the 
government to file claims against federal contractors.
    CBO estimates that implementing S. 386 would cost $490 
million over the 2010-2014 period, assuming appropriation of 
the authorized amounts. S. 386 could affect direct spending and 
revenues; CBO has no basis for estimating the timing or 
magnitude of any such effects, but we estimate that they would 
have no net costs over both the 2010-2014 and 2010-2019 
periods.
    S. 386 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 386 is shown in the following table. The 
costs of this legislation fall within budget functions 370 
(commerce and housing credit), 450 (community and regional 
development), and 750 (administration of justice).

----------------------------------------------------------------------------------------------------------------
                                                                 By fiscal year, in millions of dollars--
                                                         -------------------------------------------------------
                                                            2010     2011     2012     2013     2014   2010-2014
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Authorization Level.....................................      245      245        0        0        0       490
Estimated Outlays.......................................      211      240       32        5        2       490
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted during fiscal year 2009, that the 
authorized amounts will be appropriated each year, and that 
spending will follow historical patterns for the authorized 
activities.

Spending subject to appropriation

    S. 386 would authorize the appropriation of $245 million 
for each of fiscal years 2010 and 2011 for investigations and 
prosecutions relating to financial crimes. For each of those 
years the bill would authorize:
           $75 million for the Federal Bureau of 
        Investigation;
           $90 million for offices of the United States 
        Attorneys and the DOJ criminal, civil, and tax 
        divisions;
           $30 million for the Postal Inspection 
        Service;
           $30 million for the Inspector General for 
        the Department of Housing and Urban Development; and
           $20 million for the United States Secret 
        Service.

Revenues and direct spending

    CBO estimates that the provisions relating to the FCA 
would, on net, increase civil fines and recoveries collected by 
the federal government because it would likely lead to the 
initiation of additional claims under FCA. S. 386 also could 
increase collections of civil and criminal fines for violations 
of the bill's other provisions.
    Recoveries from FCA cases would be recorded as offsetting 
receipts (a credit against direct spending). Civil fines are 
recorded as revenues and deposited in the U.S. Treasury. 
Criminal fines are recorded as revenues, deposited in the Crime 
Victims Fund, and subsequently spent without further 
appropriation.
    CBO has no basis for estimating the magnitude of any 
additional recoveries and collections of civil and criminal 
fines. However, we estimate that any such effects would have no 
net costs over both the 2010-2014 and 2010-2019 periods.
    Intergovernmental and private-sector impact: S. 386 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would not affect the budgets of state, 
local, or tribal governments.
    Estimate prepared by: Federal Costs: Mark Grabowicz and 
Leigh Angres; Impact on State, Local, and Tribal Governments: 
Melissa Merrell; Impact on the Private Sector: Paige Piper/
Bach.
    Estimate approved by: Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                    V. Regulatory Impact Evaluation

    In compliance with rule XXVI of the Standing Rules of the 
Senate, the Committee finds that no significant regulatory 
impact will result from the enactment of S. 386.

                             VI. Conclusion

    The Federal Government has obligated and spent more than $1 
trillion to stabilize our banking system and to rebuild our 
economy. But to date, we have paid far too little attention to 
investigating and prosecuting the mortgage and corporate frauds 
that have so dramatically contributed to this economic collapse 
and to deterring those who would seek to take advantage of the 
economic assistance provided to correct it. This legislation, 
S. 386, will address these serious and immediate problems by 
providing the resources and new tools necessary for the Justice 
Department and other investigative agencies to restore our 
Nation's capacity to combat and prosecute mortgage and other 
financial frauds. The Committee believes that Congress, as it 
did during the Savings and Loan crisis more than two decades 
ago, should take action to rebuild and strengthen our fraud 
enforcement efforts by passing S. 386 without delay.

       VII. Changes to Existing Law Made by the Bill, as reported

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 386, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                           UNITED STATES CODE

                TITLE 18--CRIMES AND CRIMINAL PROCEDURE

PART I--CRIMES

           *       *       *       *       *       *       *

                     CHAPTER 1--GENERAL PROVISIONS

Sec.

           *       *       *       *       *       *       *

24.  Definitions related to Federal health care offense.
25.  Use of minors in crimes of violence.
26.  Definition of seaport.
27.  Mortgage lending business defined.

           *       *       *       *       *       *       *

Sec. 20. Financial institution defined.

    As used in this title, the term ``financial institution'' 
means--

           *       *       *       *       *       *       *

          (8) an organization operating under section 25 or 
        section 25(a) of the Federal Reserve Act; [or]
          (9) a branch or agency of a foreign bank (as such 
        terms are defined in paragraphs (1) and (3) of section 
        1(b) of the International Banking Act of 1978)[.]; or
          (10) a mortgage lending business (as defined in 
        section 27 of this title) or any person or entity that 
        makes in whole or in part a federally-related mortgage 
        loan as defined in 12 U.S.C. Sec. 2602(1).

           *       *       *       *       *       *       *

Sec. 27. Mortgage lending business defined

    As used in this title, the term ``mortgage lending 
business'' means an organization which finances or refinances 
any debt secured by an interest in real estate, including 
private mortgage companies and any subsidiaries of such 
organizations, and whose activities affect interstate or 
foreign commerce.

           *       *       *       *       *       *       *

CHAPTER 47--FRAUD AND FALSE STATEMENTS

           *       *       *       *       *       *       *

Sec. 1014. Loan and credit applications generally; renewals and 
                    discounts; crop insurance

    Whoever knowingly makes any false statement or report, or 
willfully overvalues any land, property or security, for the 
purpose of influencing in any way the action of the Federal 
Housing Administration, the Farm Credit Administration, Federal 
Crop Insurance Corporation or a company the Corporation 
reinsures, the Secretary of Agriculture acting through the 
Farmers Home Administration or successor agency, the Rural 
Development Administration or successor agency, any Farm Credit 
Bank, production credit association, agricultural credit 
association, bank for cooperatives, or any division, officer, 
or employee thereof, or of any regional agricultural credit 
corporation established pursuant to law, or a Federal land 
bank, a Federal land bank association, a Federal Reserve bank, 
a small business investment company, as defined in section 103 
of the Small Business Investment Act of 1958 (15 U.S.C. 662), 
or the Small Business Administration in connection with any 
provision of that Act, a Federal credit union, an insured 
State-chartered credit union, any institution the accounts of 
which are insured by the Federal Deposit Insurance Corporation, 
the Office of Thrift Supervision, any Federal home loan bank, 
the Federal Housing Finance Board, the Federal Deposit 
Insurance Corporation, the Resolution Trust Corporation, the 
Farm Credit System Insurance Corporation, or the National 
Credit Union Administration Board, a branch or agency of a 
foreign bank (as such terms are defined in paragraphs (1) and 
(3) of section 1(b) of the International Banking Act of 1978), 
[or] an organization operating under section 25 or section 
25(a) of the Federal Reserve Act, or a mortgage lending 
business whose activities affect interstate or foreign 
commerce, or any person or entity that makes in whole or in 
part a federally-related mortgage loan as defined in 12 U.S.C. 
Sec. 2602(1) upon any application, advance, discount, purchase, 
purchase agreement, repurchase agreement, commitment, loan, or 
insurance agreement or application for insurance or a 
guarantee, or any change or extension of any of the same, by 
renewal, deferment of action or otherwise, or the acceptance, 
release, or substitution of security therefor, shall be fined 
not more than $1,000,000 or imprisoned not more than 30 years, 
or both. The term ``State-chartered credit union'' includes a 
credit union chartered under the laws of a State of the United 
States, the District of Columbia, or any commonwealth, 
territory, or possession of the United States.

           *       *       *       *       *       *       *

Sec. 1031. Major fraud against the United States

    (a) Whoever knowingly executes, or attempts to execute, any 
scheme or artifice with the intent--
          (1) to defraud the United States; or
          (2) to obtain money or property by means of false or 
        fraudulent pretenses, representations, or promises, in 
        any grant, contract, subcontract, subsidy, loan, 
        guarantee, insurance or other form of Federal 
        assistance, including through the Troubled Assets 
        Relief Program, an economic stimulus, recovery or 
        rescue plan provided by the Government, or the 
        Government's purchase of any preferred stock in a 
        company, or in any procurement of property or services 
        as a prime contractor with the United States or as a 
        subcontractor or supplier on a contract in which there 
        is a prime contract with the United States, if the 
        value of [the contract, subcontract] such grant, 
        contract, subcontract, subsidy, loan, guarantee, 
        insurance or other form of Federal assistance, or any 
        constituent part thereof, for such property or services 
        is $1,000,000 or more shall, subject to the 
        applicability of subsection (c) of this section, be 
        fined not more than $1,000,000, or imprisoned not more 
        than 10 years, or both.

           *       *       *       *       *       *       *

            CHAPTER 63--MAIL FRAUD AND OTHER FRAUD OFFENSES

Sec.

           *       *       *       *       *       *       *

1346.  Definition of ``scheme or artifice to defraud''
1347.  Health care fraud
1348.  Securities and commodities fraud
1349.  Attempt and conspiracy
1350.  Failure of corporate officers to certify financial 
reports.

           *       *       *       *       *       *       *

Sec. 1348. Securities and commodities fraud

    Whoever knowingly executes, or attempts to execute, a 
scheme or artifice--
          (1) to defraud any person in connection with any 
        commodity for future delivery, or any option on a 
        commodity for future delivery, or any security of an 
        issuer with a class of securities registered under 
        section 12 of the Securities Exchange Act of 1934 (15 
        U.S.C. 78l) or that is required to file reports under 
        section 15(d) of the Securities Exchange Act of 1934 
        (15 U.S.C. 78o(d)); or
          (2) to obtain, by means of false or fraudulent 
        pretenses, representations, or promises, any money or 
        property in connection with the purchase or sale of any 
        commodity for future delivery, or any option on a 
        commodity for future delivery, or any security of an 
        issuer with a class of securities registered under 
        section 12 of the Securities Exchange Act of 1934 (15 
        U.S.C. 78l) or that is required to file reports under 
        section 15(d) of the Securities Exchange Act of 1934 
        (15 U.S.C. 78o(d));
shall be fined under this title, or imprisoned not more than 25 
years, or both.

           *       *       *       *       *       *       *

CHAPTER 95--RACKETEERING

           *       *       *       *       *       *       *

Sec. 1956. Laundering of monetary instruments

           *       *       *       *       *       *       *

    (a)(2)(A) Whoever transports, transmits, or transfers, or 
attempts to transport, transmit, or transfer a monetary 
instrument or funds from a place in the United States to or 
through a place outside the United States or to a place in the 
United States from or through a place outside the United 
States--
    (A)(i) with the intent to promote the carrying on of 
specified unlawful activity; or
    (ii) with the intent to engage in conduct constituting a 
violation of section 7201 or 7206 of the Internal Revenue Code 
of 1986; or
    (B) knowing that the monetary instrument or funds involved 
in the transportation, transmission, or transfer represent the 
proceeds of some form of unlawful activity and knowing that 
such transportation, transmission, or transfer is designed in 
whole or in part--
          (i) to conceal or disguise the nature, the location, 
        the source, the ownership, or the control of the 
        proceeds of specified unlawful activity; or
          (ii) to avoid a transaction reporting requirement 
        under State or Federal law, shall be sentenced to a 
        fine of not more than $500,000 or twice the value of 
        the monetary instrument or funds involved in the 
        transportation, transmission, or transfer, whichever is 
        greater, or imprisonment for not more than twenty 
        years, or both. For the purpose of the offense 
        described in subparagraph (B), the defendant's 
        knowledge may be established by proof that a law 
        enforcement officer represented the matter specified in 
        subparagraph (B) as true, and the defendant's 
        subsequent statements or actions indicate that the 
        defendant believed such representations to be true.

           *       *       *       *       *       *       *

    (c) As used in this section--

           *       *       *       *       *       *       *

          (8) the term ``State'' includes a State of the United 
        States, the District of Columbia, and any commonwealth, 
        territory, or possession of the United States[.]; and
          (9) the term ``proceeds'' means any property derived 
        from or obtained or retained, directly or indirectly, 
        through some form of unlawful activity, including the 
        gross receipts of such activity.

           *       *       *       *       *       *       *

Sec. 1957. Engaging in monetary transactions in property derived from 
                    specified unlawful activity

           *       *       *       *       *       *       *

    (f) As used in this section--

           *       *       *       *       *       *       *

          (3) the terms ``specified unlawful activity'' and 
        ``proceeds'' shall have [has] the meaning given those 
        [that] terms in section 1956 of this title.

           *       *       *       *       *       *       *

                      TITLE 31--MONEY AND FINANCE

                           CHAPTER 37--CLAIMS

Subchapter III--Claims Against the United States Government

           *       *       *       *       *       *       *

Sec. 3729. False claims

    (a) Liability for Certain Acts.[--Any person who]--
          (1) In general.--Subject to paragraph (2), any person 
        who--
                  (A) knowingly presents, or causes to be 
                presented, [to an officer or employee of the 
                United States Government or a member of the 
                Armed Forces of the United States] a false or 
                fraudulent claim for payment or approval;
                  [(2)](B) knowingly makes, uses, or causes to 
                be made or used, a false record or statement 
                material to [get] a false or fraudulent claim 
                [paid or approved by the Government];
                  [(3)](C) conspires to [defraud the Government 
                by getting a false or fraudulent claim allowed 
                or paid] commit a violation of subparagraph 
                (A), (B), (D), (E), (F), or (G);
                  [(4)](D) has possession, custody, or control 
                of property or money used, or to be used, by 
                the Government and[, intending to defraud the 
                Government or willfully to conceal the 
                property,] knowingly delivers, or causes to be 
                delivered, less [property than the amount for 
                which the person receives a certificate or 
                receipt] than all of that money or property;
                  [(5)](E) is authorized to make or deliver a 
                document certifying receipt of property used, 
                or to be used, by the Government and, intending 
                to defraud the Government, makes or delivers 
                the receipt without completely knowing that the 
                information on the receipt is true;
                  [(6)](F) knowingly buys, or receives as a 
                pledge of an obligation or debt, public 
                property from an officer or employee of the 
                Government, or a member of the Armed Forces, 
                who lawfully may not sell or pledge the 
                property; or
                  [(7)](G) knowingly makes, uses, or causes to 
                be made or used, a false record or statement 
                material to [conceal, avoid, or decrease] an 
                obligation to pay or transmit money or property 
                to the Government, or knowingly conceals or 
                knowingly and improperly avoids or decreases an 
                obligation to pay or transmit money or property 
                to the Government,
        is liable to the United States Government for a civil 
        penalty of not less than $5,000 and not more than 
        $10,000, as adjusted by the Federal Civil Penalties 
        Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note; 
        Public Law 104-410), plus 3 times the amount of damages 
        which the Government sustains because of the act of 
        that person. [except that if the court finds that]
          [(A)](2) Reduced damages.--If the court finds that--
                  (A) the person committing the violation of 
                this subsection furnished officials of the 
                United States responsible for investigating 
                false claims violations with all information 
                known to such person about the violation within 
                30 days after the date on which the defendant 
                first obtained the information;
                  (B) such person fully cooperated with any 
                Government investigation of such violation; and
                  (C) at the time such person furnished the 
                United States with the information about the 
                violation, no criminal prosecution, civil 
                action, or administrative action had commenced 
                under this title with respect to such 
                violation, and the person did not have actual 
                knowledge of the existence of an investigation 
                into such violation[;], the court may assess 
                not less than 2 times the amount of damages 
                which the Government sustains because of the 
                act of [the] that person.
          (3) Costs of civil actions.--A person violating this 
        subsection shall also be liable to the United States 
        Government for the costs of a civil action brought to 
        recover any such penalty or damages.
    (b) [Knowing and Knowingly Defined]. Definitions.--For 
purposes of this section[,]--
          (1) the terms ``knowing'' and ``knowingly''--
                  (A) mean that a person, with respect to 
                information--
                          [(1)](i) has actual knowledge of the 
                        information;
                          [(2)](ii) acts in deliberate 
                        ignorance of the truth or falsity of 
                        the information; or
                          [(3)](iii) acts in reckless disregard 
                        of the truth or falsity of the 
                        information; and
                  (B) require no proof of specific intent to 
                defraud [is required].
          [(c)](2) [Claim Defined.--For purposes of this 
        section,] the term ``claim''--
                  (A) means [includes] any request or demand, 
                whether under a contract or otherwise, for 
                money or property and whether or not the United 
                States has title to the money or property, 
                that--
                          (i) is presented to an officer, 
                        employee, or agent of the United 
                        States; or
                          (ii) [which] is made to a contractor, 
                        grantee, or other recipient if the 
                        money or property is to be spent or 
                        used on the Government's behalf or to 
                        advance a Government program or 
                        interest, and if the United States 
                        Government--
                                  (I) provides or has provided 
                                any portion of the money or 
                                property [which is] requested 
                                or demanded, or
                                  (II) [if the Government] will 
                                reimburse such contractor, 
                                grantee, or other recipient for 
                                any portion of the money or 
                                property which is requested or 
                                demanded, and
                  (B) does not include requests or demands for 
                money or property that the Government has paid 
                to an individual as compensation for Federal 
                employment or as income subsidy with no 
                restrictions on that individual's use of the 
                money or property; and
          (3) the term ``obligation'' means a fixed duty, or a 
        contingent duty arising from an express or implied 
        contractual, quasi-contractual, grantor-grantee, 
        licensor-licensee, statutory, fee-based, or similar 
        relationship, and the retention of overpayment; and
          (4) the term ``material'' means having a natural 
        tendency to influence, or be capable of influencing, 
        the payment or receipt of money or property.
      [(d)] (c) Exemption From Disclosure.--Any information 
furnished pursuant to [subparagraphs (A) through (C) of 
subsection (a)] subsection (a)(2) shall be exempt from 
disclosure under section 552 of title 5.
      [(e)] (d) Exclusion.--This section does not apply to 
claims, records, or statements made under the Internal Revenue 
Code of 1986.

                                  

```