March 5, 2009
By Brian W. Walsh and Tiffany M. Joslyn
As the saying goes, if the only tool you have is a hammer, every
problem looks like a nail. Case in point: Congress and the current
On March 4, the Senate Judiciary Committee could approve for a
full Senate vote two bills -- the Public Corruption Prosecution
Improvements Act and the Fraud Enforcement and Recovery Act -- with
criminalization provisions that are unnecessary, duplicative of
existing law, and, in some cases, so broad and vague as to cast
serious doubt on their constitutionality.
Among other problems, the criminal provisions in the Public
Corruption Prosecution Improvements Act would further expand the
already dangerously broad federal criminal offense of "honest
services fraud." This offense has been used to prosecute allegedly
unscrupulous behavior that has nothing to do with the federal
interest and that should not even be deemed criminal.
The faulty premise of the Fraud Enforcement and Recovery Act
(FERA), co-sponsored by Sens. Patrick Leahy (D-Vt.) and Charles
Grassley (R-Iowa), is that criminal activity caused the financial
mess we're in and that prosecution can fix it.
Congress responds to almost every crisis by adding to the more
than 4,400 federal criminal offenses now on the books and
increasing what are often already harsh federal criminal penalties.
So, not surprisingly, some senators are bent on "solving" the
subprime meltdown and the resulting financial crisis by adding more
criminal offenses to the currently monstrous federal criminal
To their credit, three federal law enforcement officials who
testified on FERA at a recent Judiciary Committee hearing didn't
exactly buy into Congress's gambit that more and harsher federal
criminal law is necessary. As good bureaucrats, all three -- the
Justice Department's Rita Glavin, the FBI's John Pistole, and the
Treasury Department's new special inspector for the TARP program,
Neil Barofsky -- eagerly confirmed their respective agency's desire
for the additional manpower and financial resources the bill
promises. But they made it clear that the existing federal law is
more than adequate to punish actual mortgage fraud and related
These witnesses also offered a highly sensible recommendation
crucial to the federal government's efficient use of existing --
and increasingly precious -- manpower and money. To prosecute past
financial crimes and prevent the next Bernard Madoff, the key will
be more and better coordination among federal, state and local
law-enforcement officials. Pistole emphasized this in his written
testimony. "One of the best tools the FBI has in its arsenal for
combating mortgage fraud," Pistole wrote, "is its long-standing
partnership with other federal, state and local law enforcement
Congress should follow practical recommendations such as this,
which make the best use of scarce federal resources, and forgo
overwrought indignation and simple-minded "tough on crime"
politics. Although law enforcement agencies have historically been
territorial, over the past few years, federal, state and local
law-enforcement officials have become increasingly successful at
inter-agency coordination and cooperation.
Such cooperation has helped U.S. law enforcement agencies thwart
post-9/11 attacks, and the results have been similar in the
financial arena. By June 2008, law enforcement collaboration had
already yielded 144 mortgage fraud cases in which 406 defendants
were charged. Officials allege that these mortgage fraud schemes
caused over $1 billion in losses nationwide.
Is there really a need for more and harsher federal criminal
FBI and Justice Department officials have independently
confirmed that, when it comes to criminal charging statutes, they
have what they need to prosecute any criminal activity associated
with the financial crisis.
For example, the top federal prosecutor in New York's Eastern
District, headquartered in Brooklyn, an area hit hard by the
subprime mortgage crisis, has had a mortgage-fraud task force in
place since early 2008. In discussing the types of criminal
activity his prosecutors are encountering, he stated that the
crimes "are fundamentally familiar to us" and are being adequately
investigated and prosecuted under existing federal law.
Similarly, the FBI has identified nine federal statutes,
encompassing twice that many criminal offenses, that it can and
does use to investigate and prosecute precisely the sort of conduct
that constitutes mortgage fraud.
Further, federal law enforcement's two most popular criminal
offenses for prosecuting fraud -- the federal mail and wire fraud
statutes -- are so exceedingly broad they can cover an almost
unimaginable range of financial wrongdoing. Law professors John
Coffee at Columbia University and Charles Whitehead at Boston
University have explained that these two statutes have long served
as a virtually unlimited charter for federal courts "to decide,
retroactively, what forms of unfair or questionable conduct . . .
should be deemed criminal."
At Leahy's hearing, Glavin, the Acting Assistant Attorney
General for the Justice Department's Criminal Division, testified
that even though some areas of the financial industry may be
considered unregulated, "it doesn't mean that we can't prosecute
[crimes in those areas], and it doesn't mean that we don't." She
cited the existing federal mail and wire fraud statutes as the key
to such prosecutions.
The reach of these statutes is surpassed only by the lengthy
sentences they provide. The maximum penalties for mail and wire
fraud are steep -- up to 20 years in federal prison. If the fraud
affects a financial institution (and what mortgage does not?), the
maximum penalty increases to 30 years. By comparison, the maximum
federal sentences for voluntary manslaughter and attempted murder
are, respectively, just 15 and 20 years.
Members of Congress should resist the temptation to clog federal
criminal law with new, unnecessary offenses simply to show that
they are "doing something." Back in 2006, then-Sen. Barack Obama
told The New York Times how common it was for members of the
Illinois state legislature to decide when and by how much to
increase criminal penalties to best increase their chances for
re-election. Back in 1998, an American Bar Association task force
reported that because lawmakers consider new and harsher federal
crimes to be so popular, some will not vote against such
legislation "even if it is misguided, unnecessary, and . . .
It's time for Congress to end its addiction to scapegoating and
easy criminalization. Unless and until it is demonstrated that a
new and heretofore unidentified form of criminality has caused the
financial crisis, Congress should devote its time and energy to
understanding and resolving the fundamental economic causes of the
current financial crisis.
Walshis Senior Legal Research Fellow in the Center for Legal
and Judicial Studies at The Heritage Foundation, and Tiffany M.
Joslyn is Research Counsel for the White Collar Crime Project at
the National Association of Criminal Defense Lawyers.
First Appeared in RealClearPolitics
As the saying goes, if the only tool you have is a hammer, every problem looks like a nail. Case in point: Congress and the current financial crisis.
Brian W. Walsh
Senior Legal Research Fellow
Read More >>
Tiffany M. Joslyn
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