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March 5, 2009

Congress's Hammer: Another Criminal Law

By and

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.

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 law.

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 crimes.

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 [agencies]."

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 laws?

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 . . . harmful."

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.

Brian W. 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

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