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U.S. Department of Justice Federal Bureau of Investigation
WhiteCo11ar Crime A Report to the Public LOLLECTVfl ERSTt
A10207 107927
TABLE OF CONTENTS
A Message from the Director
3 Government Fraud
4 Environmental Crimes
12 Public Corruption
15 Financial Crimes
22 White-Collar Crime Program Statistical Achievements
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A MESSAGE FROM THE DIRECTOR The investigation of white-collar crime remains one of the top national priorities of the Federal Bureau of Investigation (FBI). More FBI resources are dedicated to this crime problem than any other criminal program within our jurisdiction. Approximately 1,600 Special Agents have been tasked to address over 17,000 investigations nationwide to combat a wide variety of illegal activity bearing on the financial well being of the United States Government and the citizens and institutions it serves. The FBI categorizes white-collar crimes as those illegal acts which are characterized by deceit, concealment, or violation of trust and which are not dependent upon the application or threat of physical force or violence. These acts are committed by individuals and organizations to obtain money, property, or services; to avoid the payment or loss of money or services; or to secure personal or business advantage. FBI jurisdiction in white-collar crime matters is derived by law, based upon actions of the Congress of the United States to promote legislation making certain activity a violation of the laws of the United States. Congress, through the budget process, also funds the personnel and equipment to allow the FBI to perform its white-collar crime mission. The FBI is charged with the duty of identifring and collecting evidence of such crimes and presenting this evidence to a Federal prosecutor for a determination as to whether the matter warrants prosecution. During Fiscal Year 1988, FBI White-Collar Crime Program investigations were funded with approximately $174,563,000. During this same time period, fines, recoveries, and restitutions achieved as a result of these investigations totaled $684,199,826. Thus, for every dollar funded, $3.90 was recovered or ordered returned. Due to budgetary constraints, the FBI cannot possibly address all the white-collar crime investigations within our jurisdiction. Therefore, a considerable effort is expended to ensure that priority white-collar crime
cases are addressed in an expeditious and thorough manner, thereby leading to the successful prosecution of those responsible. This effort includes frequent evaluations of how our Special Agent resources are being expended. We measure our success based not on statistics alone, but also take into consideration the impact and deterrent effect of a successful investigation. Over the years, the FBI’s White-Collar Crime Program has developed through an evolutionary process and has, based upon changing crime trends, technology and law, adapted in order to meet contemporary crime problems. We continuously seek and implement new methods of investigation to efficiently combat crime based upon the opportunity caused by rapid changes in technology. Also, in order to ensure the most productive use of limited resources, the FBI encourages joint whitecollar crime investigations with other law enforcement and regulatory agencies at the local, state, and Federal level. The purpose of this report is to explain the FBI’s role in the investigation of white-collar crime. It describes and defines investigative areas of Government Fraud, Environmental Crimes, Public Corruption and Financial Crimes. Case examples and statistical information are included to inform and illustrate this mission. White-collar crime is responsible for the loss of billions of dollars annually to government, business, and citizens nationwide. The continued support of Congress and the cooperation of the American public will ensure the FBI continues to address this crime problem in a timely and effective manner.
William S. Sessions
GOVERNMENT FRAUD N-
FBI jurisdiction in this criminal area predicates the initiation of investigations which address allegations of fraudulent acts involving federally funded programs, or the bribery and/or conflict of interest on the part of those individuals in the Executive Branch of Government. In accordance with this mandate, the FBI endeavors to investigate and seek prosecutions of those individuals or corporations who, through deceit or
dishonesty, attempt to interfere with the lawful functioning of Federal agencies, programs, or projects. Fraud Against the Government has been identified by the Presidential administration and the United States Department of Justice as a top priority for investigation and prosecution. In accordance with this mandate, the FBI has designated Government Fraud as the top priority within its White-Collar Crime Program.
Department-of-Defense-Fraud
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The Department of Defense spends $620 million every day, including weekends and holidays. The size of the Defense budget makes the potential dollar impact of contractor fraud enormous.
The Department of Defense spends $620 million every day, including weekends and holidays. It operates 5,500 installations and employs 6.3 million people including military, civilian, and industrial workers. In the procurement area, the Department of Defense deals with over 60,000 prime contractors to meet its requirements for items ranging from basic supplies and equipment to major weapons systems.
During the past five years, the FBI has endeavored to bring about more joint investigations with the military investigative agencies. A Memorandum of Understanding between the Department of Justice and the Department of Defense, which was implemented in August. 1984, recognized the individual expertise brought to investigations by both FBI and Military investigative agency Special Agents, and established the framework for undertaking joint investigations. In this fashion, scarce resources are efficiently utilized and investigative thrust intensified, where appropriate.
The size of the Defense budget makes the potential dollar impact of contractor fraud enormous. In addition to the substantial costs to the Government, many frauds imperil the safety and capabilities of our armed forces.
In 1984, an FBI representative was designated to interact with the Defense Procurement Fraud Unit, which is a joint Department of Justice! Department of Defense effort to combat procurement fraud. Through this representation and the functioning of the Memorandum of Understanding, the number of notifications to the FBI of procurement fraud cases has significantly increased.
While Defense procurement contracts are vulnerable to a variety of frauds, the Departments of Justice and Defense have agreed that the most serious threats fall into the following areas:
Fraudulent Sale of Defective Substitute Products
The creation of task forces which utilize FBI Special Agents, Military investigative Special Agents, Defense Contract Audit Agency Auditors, Internal Revenue Service Special Agents, and other experts, have enhanced investigative efforts to the point of having taken on the largest and most complex fraud and corruption investigations ever attempted.
Example: Replacing an inspected shipment of approved goods with substandard goods.
Falsification of Test Data Example: Creating records of materials tests not actually performed to conceal the substitution of inferior materials.
Labor Mischarging Example: Billing work performed by technicians at the higher rates allowed for work done by senior engineers.
Defective Pricing in Negotiated Contracts Example: Inflating estimates of subcontractors’ costs for supplies and equipment.
Corruption in Contracting Example: Kickbacks to a Government procurement official. Innovative and novel investigative approaches (undercover operations, utilization of computers to process data, and court-ordered electronic surveillance) have enhanced the FBI’s ability to handle the increasing number of Department of Defense fraud cases. Moreover, these investigative techniques have also maximized the quality of the investigative work product and, the continued use of these investigative tools should ensure the ever increasing successful resolution of these cases.
The nature of Department of Defense fraud requires that investigators receive specialized training. Providing this training has been a joint effort by the FBI and components of the Department of Defense. For example, the Department of Defense Inspector General has sponsored a series of week-long procurement fraud courses. These courses were routinely attended by Special Agents of the FBI. The Naval Investigative Service has periodically conducted a procurement fraud course that includes instruction provided by an FBI Special Agent. The FBI also sponsors White-Collar Crime In-Service training for FBI Special Agents which includes instruction on Defense procurement frauds. Representatives from the Department of Defense Inspector General’s office and Military investigative agencies routinely participate in this training. Specialized training in Defense industry contractor kickback schemes has also been provided in a series of three-day seminars coordinated with the Defense Criminal Investigative Service. The Defense industrial complex has evolved in a manner which has favored clustering of subcontractors around maj or prime contractor installations. This constant interaction, which breeds familiarity, along with enormous
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subcontract expenditures, has created an environment in which kickbacks by subcontractors to the prime contractor are considered a “cost of doing business.” The price of the contract is inflated to cover the cost of the kickback. The Government, and ultimately the taxpayer, bears the cost of this corruption. The FBI recognized that the depth and breadth of the subcontractor kickback activity was only part of the problem. The Anti-Kickback Act, a statute enacted in 1946, was ineffective and, therefore, rarely used in the prosecution of these violations. On February 27, 1986, the FBI, Department of Justice, and United States Attorney personnel testified before the United States Senate regarding the nationwide problem of institutionalized kickback schemes. On October 15, 1986, Congress passed the AntiKickback Act of 1986. This new law significantly improves the ability of Federal law enforcement agencies to address the problem of subcontractor kickbacks. It also requires each prime contractor to have in place procedures to “prevent and detect” violations of the Act, as well as addressing the penalties under the Act. Examples of FBI/Department of Defense Fraud Investigations An FBI investigation code named “THIMBLE” began in April 1983, when a Defense contractor contacted the Philadelphia Division of the FBI after being solicited for a bribe. The case was developed into an undercover operation which included the use of consensual monitoring and ultimately lead to the execution of search warrants. Significant information was also developed which resulted in court-ordered electronic surveillance.
execution of 44 search warrants in 14 states. The importance of the ILLWIND investigation is measured not only in terms of present and anticipated criminal indictments and convictions, but also by major efforts underway to revamp Department of Defense procurement into a manageable process less susceptible to manipulation and corruption. ILLWIND’s significance is underscored by the fact that it focuses upon the illegal sale of Department of Defense proprietary information and documents, a practice which impairs and defeats the Department of Defense contract bidding process. FBI! Department of Defense investigations nationwide have brought about not only criminal charges and convictions, but also significant criminal fines and penalties. In October 1988, as a result of a joint FBI! Department of Defense investigation, an Illinoisbased corporation plead guilty to false claims and conspiracy charges pertaining to cost overruns and executive personnel expenses fraudulently charged to the Department of Defense. The corporation agreed to make restitution of $115 million to the Government. The corporation, in January 1989, further agreed to an additional payment of $71.3 million to resolve pending administrative and noncriminal issues, and to dismiss certain officers proven criminally culpable through investigation.
Department of Defense Fraud Fines, Recoveries, and Restitutions Millions (000,ooo) 80
The investigation focused upon corruption at the Defense Personnel Support Center in Philadelphia, which is responsible for awarding approximately $5 billion in Department of Defense contracts annually. The FBI anticipates that the THIMBLE investigation will ultimately prove that between $65 and $100 million in contracts have been fraudulently awarded. Nineteen individual subjects and five corporate subjects have been convicted or pled guilty. Additional indictments are expected. Another result of this investigation has been the suspension, debarment, or proposed debarment of 120 corporations and individuals from doing further business with the Government. Moreover, $970,000 has been recovered by the Government in the form of fines and restitutions.
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In a recent initiative code named “ILLWIND”, the FBI, joined by other Federal law enforcement agencies, is addressing fraud and bribery within the Department of Defense procurement process. Court-ordered electronic surveillance was used extensively in the covert phase followed by the
0 1986 Fiscal Years
Department of Health and Human Services Fraud
Department of Health and Human Services programs serve 56 million beneficiaries and are estimated to have cost nearly $400 billion in Fiscal Year 1988. The Department of Health and Human Services employs roughly 123,000 persons full time within its five operating divisions which are as follows: (1)
Social Security Administration manages the Nation’s retirement and disability programs; —
(2)
The Health Care Financing Administration administers the Medicare and Medicaid programs; —
(3)
The Public Health Service promotes biomedical research, disease prevention, safety and efficacy of marketed food and drugs, and other activities designed to ensure the general health and safety of American citizens; —
(4)
(5)
The Family Support Administration provides Federal direction and funding for State-administered programs designed to promote stability, economic security, responsibility, and self-support for the Nation’s families; and, —
The Office of Human Development Services provides a variety of social services to American children, American families, older Americans, native Americans, and the Nations’s disabled. —
Although the FBI investigates frauds in several Health and Human Services programs, investigative interest is primarily in the area of health care provider frauds.
Health Care Provider Fraud Example: Investigations involve physicians, laboratories, nursing homes, hospitals, pharmacists, chiropractors, durable medical equipment companies, and others. Usually these investigations are based on violations of mail or wire fraud statutes, bribery/kickbacks for referring business, or simply false statements on Medicare or Medicaid forms. Health Care Provider frauds have been identified as a major crime problem by the Attorney Generals Economic Crime Council and by the President’s Council on Integrity and Efficiency. The FBI has historically focused upon a close working relationship with the Office of Inspector General, Department of Health and Human Services, which has served to expand the intelligence base pertaining to this crime problem. In addition, the FBI has sought to expand its efforts in this area by progressive liaison and contacts with other interested agencies within the health care industry. This includes contacts with commercial insurance carriers and other institutions which collect intelligence data that can assist in the predication of health care fraud investigations. Outlined below are some types of schemes which the FBI investigates in the area of Health Care Provider Fraud.
Prescription Mills Since 1981, the Detroit Division of the FBI has conducted a series of extensive investigations into the prescription mill problem. Briefly, prescription mills represent a new phenomenon in criminality involving medical doctors, pharmacies, and their involvement in extensive Medicaid! Medicare fraud. The prescription mill criminal enterprise works in the following fashion:
A medical doctor, having access to prescription forms, illegally completes the forms in the names of either true orfictitious individuals for controlled substances most frequently Dilaudid (a synthetic heroin), Ritalin, Demeral, and Percodan. The “scripts,” as they are called on the street, are then sold by the doctor to a broker, who in turn sells the in to the user. The user then goes to a cooperating pharmacy where the prescriptions are filled. The user then either keeps the drugs for personal consumption or sells them on the street for monetary gain. Frequently the user pays for the prescription with either a Medicare or Medicaid card. The pharmacy, having received the prescription written for a brand-name drug, instead dispenses a generic substitution. The pharmacy then bills a private insurance company, Medicare, or Medicaid as though a brand-name drug was dispensed. In essence, there are a series offrauds and illegal activity occurring: the illegal issuance ofprescriptions on behalf ofthe doctor; the illegal dispensing of controlled substances on the part of the pharmacy; the illegal billing of insurance carriers and/or Medicare/Medicaid on behalf of the pharmacy; the illegal use of a Medicare! Medicaid and/or insurance card on behalf of the purchaser; and the illegal dealing in controlled substances on behalf of both the broker and the purchaser. -
Detroit’s investigations, which have been conducted jointly with other Federal and state law enforcement and regulatory agencies, have resulted in approximately 400 subjects being prosecuted. The subjects include physicians, pharmacists, laboratory and clinic owners and their employees.
Ambulance/”Ambulette” Fraud The New York and Newark Divisions of the FBI investigate many ambulance and ambulette fraud cases jointly with the Office of Inspector General, Department of Health and Human Services. These are cases in which medical doctors receive kickbacks from ambulance companies for referring patients. In addition, many ambulance companies charge for “ambulance” services when in fact, patients are merely transported in passenger vans. These cases are normally resolved by utilizing cooperating witnesses, informants, and consensual monitoring.
Patient Screening In Miami, a Health Maintenance Organization was investigated for “screening” patients and not accepting those who may require extensive medical services. The motivation for not accepting these clients was that since everyone pays the same fee
This property, valued at $325,000, was recently forfeited in connection with an FBI fraud against the Department of Health and Human Services investigation. for complete medical coverage, those who require extensive medical treatment would not be as profitable to have as clients. This is a new type of Health Care Provider Fraud inasmuch as the Federal Government has only recently allowed Medicare beneficiaries an option to join Health Maintenance Organizations under a federally funded program. This case had a significant impact in Florida and received particular attention from the United States Attorney in Miami, the Attorney General’s Economic Crime Council, and the President’s Council on Integrity and Efficiency.
fraudulent submission of Medicare claim forms by chiropractors. The undercover operation utilized retired FBI Special Agents posing as Medicare beneficiaries to visit selected suspected chiropractors to receive “treatments.” The resultant Medicare claim forms submitted by the chiropractors contained charges for treatments that were not given. This scheme is commonly referred to as “fraudulent billing or billing for services not rendered.” This investigation was conducted jointly with the Office of Inspector General, Department of Health and Human Services.
Fraudulent Billing or Billing For Services Not Rendered The Miami Division of the FBI instituted an undercover operation entitled “MR. HYDE.” The thrust of this undercover operation was the F-
Pharmaceutical Diversions Investigations in this area concern the diversion of pharmaceuticals from institutions which purchase them at a low cost (such as
Government or nonprofit hospitals) to others (such as pharmaceutical distributors) which are unable to purchase at the discounted price. The Oklahoma City Division of the FBI initiated an undercover operation in this area. Investigators from the Office of Inspector General, Department of Health and Human Services and the FBI combined efforts and brought to prosecution more than 20 individuals who were involved in
drug diversion activities. The Oklahoma City effort is symbolic of the effort in other field divisions of the FBI where concentrated efforts have been made to initiate Health Care Provider Fraud investigations. The FBI’s transition from recipient fraud cases to provider fraud cases is a significant step in the upgrading of the quality of FBI investigations.
Veterans Administration and The Department of Housing and Urban Development Fraud The FBI and the Offices of Inspectors General, Veterans Administration and Department of Housing and Urban Development, have developed programs to detect, investigate, and prosecute individuals and/or organizations perpetrating mortgage loan frauds against the Veterans Administration and the Department of Housing and Urban Development. While the FBI investigates many types of loan fraud, recent FBI focus has been in the area of single-family housing programs. In 1985, the Veterans Administration joined with the FBI to develop a training program in this area. It was given the code name ‘VASABLE.” The VASABLE program, and a similar Department of Housing and Urban Development program, have been offered to selected FBI field offices since 1985, to facilitate the identification, investigation and prosecution of those responsible for the annual loss of millions of dollars from Veterans Administration and Department of Housing and Urban Development single-family benefit programs. VASABLE capitalizes on the use of computer programs to detect possible fraud and pinpoint offenders.
Single Family Housing Programs have historically been victimized by investors, speculators, real estate agents, and others who have devised a myriad of criminal schemes to personally profit from program abuse.
Single-family housing programs have historically been victimized by investors, speculators, fee appraisers, real estate agents, and others who have devised a myriad of criminal schemes to personally profit from program abuse. In general, these schemes result in the Government’s insuring of mortgages for unqualified or “straw” applicants, who undercollateralize the loans and cause their default. Typically, all participants in these “straw” mortgages profit at the expense of the taxpayer. Unlike many other crimes, there is often no complainant to surface the fact that a crime has occurred. Without a
proactive investigative program to detect such illegal activity, losses would continue to simply be paid by the Government as a normal course of business.
Fraud Against HUD/VA
Task forces investigating these mortgage loan frauds have had considerable success in detecting criminal violations.
Convictions
In Washington, D. C., after an eight-week trial which ended in April, 1987, three subjects were found guilty by ajury of violating the Racketeer Influenced and Corrupt Organizations (RICO) Statute. A total of twelve individuals have been successfully prosecuted to date in this case, with a total of $194,000 in fines being imposed. In Oklahoma City, 50 subjects are under investigation by a task force where potential losses to banks and the Department of Housing and Urban Development approximate $50 to $60 million. In Denver, ajoint investigation has identf1ed appraisals which were inflated by two to three times their legitimate value resulting in a potential loss of $46 million. 1985
1986
1987
fiscal Years Includes Felonies Misdemeanors, and Pretrial Diversions
Fraud Against HUD/VA Fines, Recoveries, and Restitutions MillIons (000,000) 10
1986
Fiscal Years
1988
ENVIRONMENTAL CRIMES
Estimates previously provided by the Environmental Protection Agency indicate that as much as 90 percent of the hazardous waste in this country is irresponsibly or illegally handled and disposed. The United States has the largest petrochemical, industrial complex in the free world. The safe disposal of by-products generated by the petrochemical industry has become a major national problem. This problem is an area of increasing concern to the American public, particularly the illegal disposition of hazardous waste. Illegally handled wastes can cause serious harm to the environment and/or human health through: (1)
surface water contamination;
(2)
ground water contamination via seepage;
(3)
fire and explosion;
(4)
food chain contamination; and,
(5)
poisoning from direct human contact.
The consequences of human contact can often be immediate and deadly, or more long-term in nature such as birth defects, cancer, or other serious health problems. In the early 1980s, Congress passed the Resource Conservation Recovery Act, while the Environmental Protection Agency began
strengthening regulations governing the handling of toxic substances. These measures were designed to increase public arid environmental safety by requiring the proper handling and disposal of toxic substances by private industry. The result was a massive increase in the costs associated with the handling and disposal of these substances. In many instances, these costs rose above the actual cost of the raw material, creating an immense potential for cost avoidance by some producers, transporters, end-users, and waste disposers by circumventing the safety regulations. With cost avoidance incentives, the incidence of environmental crimes has been rising. Estimates provided by the Environmental Protection Agency indicate that as much as 90 percent of the hazardous waste in this country is illegally handled or disposed. The extent of the environmental crime problem has led the FBI to rank all environmental crime matters as priority investigations and to increase its investigative response both in terms of its commitment to joint FBI/Environmental Protection Agency investigations and independent initiatives. Of major consequence is the rate of growth of the number of cases over the last several years. From 1984 through 1988 the FBI experienced a 397 percent increase in its Environmental Crimes pending caseload. Penalties for these crimes have also become more severe as a result of recent court decisions. This trend toward
Environmental Crimes
higher impact penalties places environmental crimes at the forefront of media attention and has increased political and prosecutorial interest in these investigations. A key factor behind the continuing caseload growth is the immense size of the environmental crime problem itself. As the investigative efforts of the FBI together with other Federal agencies have increased in this area, so have the efforts of those circumventing the toxic substance regulations. The crimes involved with illegal toxic waste handling range from illegal storage, transportation and disposal by corporations to corruption of public officials and the infiltration of the disposal industry by organized crime. Increasingly, the FBI is faced with very sophisticated, elaborate methods of deception devised to conceal criminal disposal activities. As a result, a wide array of highly sophisticated investigative techniques must now be utilized in environmental crimes investigations including closed circuit television surveillance, aerial surveillance, infrared photography, undercover operations, informants, toxicological examinations, consensual monitoring, use of Accounting Technicians for records reviews, use of microcomputers for case management, and execution of search warrants utilizing heavy construction equipment to obtain samples of contamination. While use of these techniques may require intensive commitment of personnel resources, they are essential to develop compelling evidence of criminal activities. Environmental crime investigations frequently involve cooperation between regulatory and law enforcement agencies. Recognizing the need for a cooperative law enforcement effort, the FBI, state police, the Environmental Protection Agency, and other environmental investigative agencies are beginning to capitalize on joint efforts. One such task force is called the “NORTHEAST PROJECT.” It is headquartered in Trenton, New Jersey, and involves commitment by thirteen northeastern states to the detection and investigation of environmental crimes. The FBI has effectively worked cases jointly with the NORTHEAST PROJECT and FBI Agents have attended its training sessions.
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Examples of FBI Environmental Crime Investigations
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0 1985
1986
1987
Fiscal Years Includes Felonies, Misdemeanors, and Pretrial Diversions
1988
In March 1986, the FBI’s Little Rock Division initiated an investigation code named “CONFEED.” This investigation was conducted jointly with numerous Federal and state counterparts. The subjects were associated with a gasohol plant in Vanburen, Arkansas, that utilized seed grains which had been treated with various chemicals. These grains were used to produce alcohol for
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As a result of sophisticated, elaborate methods of deception being devised to conceal criminal disposal, a wide array of highly sophisticated investigative techniques must now be utilized in environmental crime investigations
blending with gasoline to make gasohol. A by product of the process is “distillers mash” which is produced during the fermentation process. The mash was illegally sold by the subjects as animal feed. The feed was purchased by dairy farmers in Western Arkansas, Kansas and Oklahoma. The toxic chemical used to treat the grains was later found in milk products in the same areas. As a result of the discovery, the dairies producing the milk were quarantined. In addition, “stiller,” another by-product in the fermentation process, was illegally dumped in the Arkansas River. In November 1986, an indictment was returned on four subjects associated with this matter. All were charged with RICO and various other offenses. In May 1987, the four subjects were found guilty. In December 1987, as the result of a joint FBI/Environmental Protection Agency
investigation, a Denver-based corporation was convicted of 16 counts of a 19-count indictment charging a variety of environmental offenses, including the “knowing endangerment” provision of the Resource Conservation and Recovery Act. In a landmark decision, the corporation was convicted of knowingly treating, storing, and disposing of hazardous waste in such a fashion that its employees were placed in imminent danger of death arid serious bodily injury. The corporation was sentenced to a $7.63 million fine, ordered to deposit $950,000 into a trust fund to pay future medical expenses of three employees, and ordered to clean up its facility at an estimated expense of $2.3 million.
The objective of this investigative area is to combat corrupt breaches of public trust by Federal, state and local officials, and their private sector accomplices. By broad definition, a public servant, elected, appointed or otherwise owing a duty to honest and faithful public service, may violate Federal law when acting for or on behalf of public office asks, demands, solicits, seeks, accepts, receives or agrees to receive something of value in return for influence in the performance of an official act. This abuse or violation of public trust may be found wherever the interests of individuals or business and government converge. It ranges from the health inspector who “puts the arm” on the restaurant owner; or the police officer who “shakes down” the drug dealer, to the councilman or legislator who extorts money from lobbyists or businessmen to influence the enactment of legislation or the letting of contracts; to the judge who takes bribes to “fix” the outcome of cases. This type of crime is particularly egregious, not only in terms of the specific act of misconduct itself, but also because it may affect the reputation and sincere efforts of the vast majority of those in public office who seek to properly and honorably carry out their responsibilities. Because allegations of official misconduct erode the public’s confidence in their executives, lawmakers and courts, we investigate such allegations promptly and impartially so that the public’s confidence in its government can be restored. The objective of an FBI public corruption investigation is, where possible, to resolve allegations of wrongdoing, either through prosecution or by disproving the allegation.
Corruption is a crime conducted in secrecy. Normally there is no innocent victim to cry “foul” and alert law enforcement to the crime. On the contrary, the “victim” is most often a willing participant in the corrupt scheme. Rarely do we find willing witnesses or strong paper trails. Usually, the corrupt official, by virtue of position, has considerable discretion and may easily conceal corrupt decisions and actions. Often, vendors or contractors who become aware of such schemes are fearful of economic reprisals and refuse to cooperate. Far more often the lack of evidence makes the historical approach difficult and unsuccessful. In order to succeed against the almost impenetrable scheme of corruption, extraordinary investigative approaches are essential. These include the consensual monitoring technique, the undercover operation, and the use of court-ordered electronic interceptions. Our sensitive public corruption undercover operations are reviewed at several levels before being presented to a special committee made up of FBI and Department of Justice officials. This committee, chaired by a Deputy Assistant Director of the Criminal Investigative Division of the FBI, examines the proposed operation, justification, funding, and most important, the potential for legal, ethical and policy issues which may arise. Public corruption investigations are considered very sensitive matters by the FBI since they may adversely affect the reputation of public officials and frequently attract intense media attention. Due to this, and the fact that the possibility exists that allegations may be made
against a public official for the sole purpose of discrediting a political opponent, a sound basis must exist for initiating these investigations.
Public Corruption
Under FBI policy, the initiation of a public corruption investigation must be personally approved by an executive of the FBI only after consideration of facts or circumstances which reasonably indicates a Federal violation for which the FBI has jurisdiction may have occurred, is occurring, or will occur. This standard of “predication” takes into consideration, among other things, the credibility, reliability, and motivation of the individual providing the allegation.
Convictions
Prior to a public corruption case being initiated by the FBI, contact is established with the local United States Attorney’s office or the Public Integrity Section of the United States Department of Justice. A legal opinion is sought as to whether or not the information, if true, is a violation of Federal criminal law. Contact with the Federal prosecutors is maintained closely throughout the investigation until prosecution is sought or the allegations have been disproved.
1983
1978
Fiscal Years includes Felonies, Misdemeanors, and Pretriul Diversions
Public Corruption Informations/Indictments 600
1988
Generally, the FBI addresses state or local public corruption matters when the crime problem is systemic and cannot be addressed as effectively by state or local agencies for a variety of reasons. Often the FBI joins with other law enforcement and regulatory agencies in a team effort to combat a particular corruption problem. The FBI brings with its entrance powerful Federal laws such as the Hobbs Act, which prohibits extortions under color of official right, and the RICO statute. These laws, enacted by Congress, frequently carry tougher penalties than applicable state laws. The following are examples of the types of investigations routinely addressed by the FBI:
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Judicial Corruption
I The FBI’s jurisdiction in the area of judicial corruption encompasses a variety of prohibited activity in vastly different judicial systems at all levels of Federal, territorial, state, and local judicial structures. This area encompasses a variety of prohibited activity in vastly different judicial systems at all levels of Federal, territorial, state and local judicial structures. Whether or not the prohibited activity is an isolated incident involving one judicial officer, or concerns corruption that has penneated a judicial system, the common theme remains about the same: something of value is offered, accepted, or extorted in return for some official action or for not taking an official action. All judicial corruption investigations involve sensitive circumstances and are closely monitored to ensure that the intrusion by the FBI into a court system is only that which is necessary to address the corruption allegations. In addition, when
appropriate, notification is made to senior court officials of the existence of the investigation. Due to the very nature of judicial corruption investigations, when corruption is identified in a judicial system it tends to identify corruption in other areas such as police departments, sheriffs departments, the prosecutor’s office and others. Corruption within a judiciary is virtually dependent upon corruption existing in one of the other areas. FBI investigations involving systemic judicial corruption have produced evidence of corruption in the local court systems in several major cities. In one particular city, corruption was identified and
addressed in two court systems which also led to the identification of corruption within the county prosecutor’s office, the police department, and the sheriffs department. Also, a long-term undercover operation in Chicago, Illinois, has resulted in the conviction of twelve judges.
Contract Corruption
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Contract corruption may occur between a public official and a businessman that furnishes products or services to a city, county, state, territorial, or Federal Government body. In this type of corruption, either the government employee demands a kickback in exchange for awarding a contract, or a representative of the business offers a bribe to the government employee in exchange for the contract.
makes money back many times over by performing inferior work, substituting a lesser grade of materials, or making lower quality products. This type of activity may jeopardize the safety of citizens. It also normally raises the overall price that the public pays because it eliminates competition by giving unfair advantage to some companies over others which, is contrary to our free-enterprise economy.
The bribe or kickback that is paid to the public official is paid for, ultimately, by the public because the business passes on this “cost of doing business” by charging more for their services or products. Another way the public suffers in contract corruption-related matters is that often the business that has paid the bribe/kickback
One FBI investigation concerning corrupt county purchasing practices in Mississippi has resulted in the conviction of forty-eight county supervisors, six vendors and one road foreman. That state has also taken steps to change its system of purchasing in an attempt to prevent further corruption.
Regulatory Corruption Regulatory corruption addresses the payment of bribes to public officials in exchange for their official action or lack of action involving licensing, zoning, or other regulatory responsibilities. Various governmental regulations exist for the safety and well being of the public. These regulations range from those governing the construction of private and commercial buildings, to zoning regulations which dictate what kind of use may be made of a particular piece of real estate, to health codes governing the preparation and serving of food in restaurants. Some public officials who are responsible for overseeing and enforcing these regulations demand or accept bribes in exchange for taking official action, or omitting official action that they should take. These violations of the public trust can affect the safety, health and economic well-being of the American public. A recent New York investigation revealed an extensive extortion scheme wherein City Health Department inspectors were extorting restaurant owners throughout the city in exchange for
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allowing the restaurants to stay in business. Forty-six individuals were arrested and the vast majority have entered guilty pleas.
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JOHN’S CREEK I SAVS “THANK YOU FBI” p.
Above placard refers to an FBI investigation in Georgia which recently resulted in the indictment and conviction of County Commissioners for extorting payoffs in connection with a zoning matter.
Legislative Corruption Corruption within local, state, territorial and Federal legislative structures most often concerns allegations that a legislator is receiving something of value in exchange for official acts with respect to legislation or other matters which the legislative body can effect. Illegal payoffs to corrupt legislative officials often take the form of cash, illegal campaign contributions, promises of future employment or promise of a future business advantage.
In a recent case concerning legislative corruption, the President pro tern of a state senate demanded a $50,000 payoff to ensure the passage of legislation which would legalize horse racing in the state. The victim of the extortion scheme cooperated with the FBI and as a result, a controlled payment was made to the senator after extortionate conversations were recorded. The senator was convicted of violating the Hobbs Act and was sentenced to nine years in Federal prison.
Law Enforcement Corruption Corrupt law enforcement at any level of government is usually symptomatic of an extensive overall crime problem. Dedicated, honest law enforcement officers are working hard every day to combat crime. Conversely, an area that has corrupt law enforcement officers does not have these officers working to eradicate crime and therefore, crime is allowed to self perpetuate in the area. Corruption investigations concerning law enforcement personnel can range from traffic police officers who take a bribe in exchange for not issuing a traffic citation to law enforcement officers who offer protection to drug traffickers in order for them to freely operate their drug business.
One recent FBI investigation has revealed that law enforcement officers in one southern city were committing robbery, murder and were trafficking in drugs. The officers would often take money and narcotics from drug dealers and resell the narcotics. In this particular investigation, twenty-nine individuals have been indicted (twenty-three police officers and six civilians): second twenty-one individuals have been convicted (eighteen police officers and three civilians).
Ethics in Gover,Lment Act Investigations Public corruption is combatted at the highest levels by the Ethics in Government Act. The purpose of the Ethics in Government Act is to preserve and promote public confidence in the integrity of high-level Federal officials through financial disclosure, post-Government employment restrictions and independent investigations of alleged misconduct by these officials. Officials subject to the provisions of the Ethics in
The purpose of the Ethics in Government Act is to preserve and promote public confidence in the integrity of high-level Federal officials through Financial Disclosure, Post-Government Employment Restrictions, and Independent Investigations of alleged misconduct by these officials. F
Government Act include the President, VicePresident and members of the Cabinet, as well as numerous other high-level Federal officials. It is the provision, referred to as the Independent Counsel Provision, that impacts most significantly on FBI operations. Under the Independent Counsel Provision, the Attorney General is required to complete a preliminary investigation within 90 days of the receipt of specific information that a covered official under the Act has violated Federal criminal law. These investigations are normally conducted by the FBI at the discretion of the Attorney General. Based upon findings at the conclusion of this investigation, the Attorney General must determine whether there is a basis for a special
court panel to appoint an Independent Counsel (prosecutor). In the event an Independent Counsel is appointed, by law he/she may request investigative resources of the FBI. Due to the investigative expertise offered by the FBI, all nine Independent Counsels appointed to date have requested FBI assistance to conduct the investigation. At one time, there were 45 FBI Special Agents devoted full time to Independent Counsel investigations. Numerous convictions have been achieved as a result of Independent Counsel investigations. Just as important, several Independent Counsel investigations have resulted in disproving allegations of criminal conduct against prominent public officials.
Election Law Matters The United States Constitution specifically gives the states extremely broad authority to determine the qualifications of voters and to establish and implement procedures for holding elections. Except in situations involving racial or ethnic antagonism, the Federal role in the registration of voters and the conduct of elections is subordinate to that of the states’. The FBI enters election-related matters only when and where necessary to protect the integrity of significant Federal interests or programs, to assure the voting rights guaranteed by the Constitution are not willfully abridged and to address long standing patterns of abuse state authorities are not capable of addressing. The most common type of criminal activity which occurs in the election process and investigated by the FBI is ballot fraud. This includes bribing voters; to cause ballots to be cast in the names of individuals who do not personally subscribe the ballot attributed to them; to falsely report or fraudulently alter vote tallies; to steal ballots; to stuff ballot boxes with fraudulent or illegal votes; to tamper with voting equipment or vote tabulating software; to fraudulently change a voter’s ballot; to intentionally prevent a qualified voter from casting a ballot: to intimidate voters in connection with the exercise of their franchise; or to physically assault voters for having exercised their right.
Other forms of ballot fraud are more subtle. For example, it can be a Federal criminal offense for political participants to intentionally seek out the illiterate, the elderly, or the socially disadvantaged for the purpose of intimidating them into casting their ballots for a particular candidate or issue. Often, when the FBI enters into an investigation concerning violations of election laws, it is determined that the ballot fraud is extensive and involves multiple perpetrators. These investigations tend to be time consuming and manpower intensive. In a recent investigation involving a major midwestern city, 57 persons were convicted for various types of ballot fraud.
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Often, when the FBI enters into an investigation concerning violations of election laws, it is determined that the ballot fraud is extensive and involves multiple perpetrators.
FINANCIAL CRIMES
White-collar crimes generally categorized as financial crimes are those schemes to defraud, embezzle or misapply the money, funds, securities or credits of individuals, businesses and/or financial institutions by manipulation, misrepresentation, falsification or deceit.
J Attorney General’s Economic Crime Council
Information about financial crimes often does not come to the attention of the FBI for some time after the crime has occurred. The reluctance of witnesses to become involved, the voluminous records to be analyzed and the mobility of the perpetrators all contribute to the degree of complexity and time consumption in these investigations. In many Attorney General instances these investigations have international implications in that the subjects are foreign nationals, the schemes involve international transactions, and the proceeds of the crimes are laundered through or hidden in foreign financial institutions. Investigation of international transactions and transfers of monies abroad are facilitated through the cooperative liaison efforts of the FBI’s Legal Attaches abroad in their daily contact with foreign police agencies, Interpol, the assistance from the Office of International Affairs, United States Department of Justice, and direct contact with certain major law enforcement agencies in criminal economic fraud matters. The nature of financial crimes requires the use of virtually every available investigative technique, including interviews, audits, undercover operations, consensual and court-ordered electronic surveillance, physical surveillance, and utilization of computers to assist in the review and analysis of highly complex evidentiary information. The scope and effect of financial crimes dictates that the FBI maintain constant lIaison with its law enforcement counterparts, other government entities, and private organizations that impact on its responsibilities in this criminal area. This is accomplished partially through the FBI’s participation in the following groups:
In July, 1983, the United States Department of Justice announced the creation of an Economic Crime Council to further implement the Attorney General’s program to combat white-collar crime. The Council’s main task is to bring together Federal prosecutive and investigative resources and channel these resources toward detection and prosecution of major white-collar crimes in certain areas of particular importance at Dick Thornburgh the Federal level. Financial crimes identified by the Council as important national criminal problems include bank failures, commodities and securities boiler rooms, bankruptcy fraud, international money laundering schemes and computer crimes. The Interagency Bank Fraud Working Group In December, 1984, the Department of Justice Interagency Bank Fraud Enforcement Working Group was formed by the Attorney General to address problems and promote cooperation in improving the Federal Government’s response to white-collar crime in the nation’s federally regulated financial institutions, focusing especially on crimes by “insiders.” This group meets once a month to discuss and resolve inter-agency problems in the area of banking, focusing on the bank failure problem. It periodically reports to the Attorney General both directly and through the Criminal Division of the United States Department of Justice. It also reports to various heads of the member bank supervisory agencies. Securities Fraud Working Group This Group, comprised of investigative agencies, regulators, and securities industry associations, was established for the purpose of identi1ying and addressing fraud within the securities marketplace.
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Although variations of financial crimes are endless, the most common crimes include:
Bank Fraud and Embezzlement Epidemic bank and savings and loan failures in the United States are contributing to a dramatically increasing bank fraud and embezzlement workload for the FBI. From 1981 through 1988, a total of 1,219 financial institutions across the country failed for a variety of reasons. Failures can result from many different factors, not the least being fraud and embezzlement by internal or external parties. Agents assigned to the FBI’s White-Collar Crime Program investigate bank failures where it is suspected that fraud or embezzlement resulted in or contributed to the failure. As of February 1988, 357 bank and savings and loan failures were under FBI investigation. (See map below.)
While financial institution failures are a dramatic and highly visible component of the FBI’s increasing bank fraud and embezzlement workload, they are not the sole source. Other bank fraud and embezzlement investigations unrelated to failures have also proliferated. Overall, the FBI’s highest priority bank fraud and embezzlement investigations, where losses to the financial institution exceed $100,000, have risen from a pending caseload of 1,825 at the end of 1983 to 3,446 at the end of 1988. This represents an 89 percent increase in pending caseload over the fiveyear period.
Failed Financial Institutions Under Investigation as of February, 1988
While the FBI is mandated to investigate all bank fraud and embezzlement matters, limited resources have required concentration on investigations where losses are potentially significant (exceeding $100,000 loss). The increased commitment by the FBI to investigations of this magnitude is depicted in the pie charts below.
During Fiscal Year 1988, FBI bank fraud and embezzlement investigations were funded with approximately $45,386,380. During this same time period these investigations resulted in monetary accomplishments (fines, recoveries and restitutions) of $197,989,322. Thus, FBI investigation of bank fraud and embezzlement matters resulted in monetary accomplishments of $4.36 for each dollar of funding for this period. Bank fraud and embezzlement can involve many different types of schemes inclusive of, but not limited to, the following:
Bank Fraud and Embezzlement Manpower Utilization Fiscal Year 1983 $1,500-$24,999 9.8%
$25,000-$99,999 36.9%
$100,000 Plus 51.9%
Embezzlement Federal law prohibits any employee or officer connected with a federally insured financial institution (bank, savings and loan institution or credit union) from taking (embezzling, purloining or willfully misapplying) any of the institutions assets (money, securities or property). This crime includes the teller who “borrows” $100 from his! her cash drawer overnight for a nice evening on the town and the president of the bank who embezzles millions through manipulation of the institution’s records. Art Embezzlement Investigation
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Priority Classification
Less $1,500
1.4%
Bank Fraud and Embezzlement Manpower Utilization Fiscal Year 1988 $1.500-$24.999 6.4%
$24.999-$99.999 19.5%
Less $1,500 0.2%
$100,000 Plus 73.9%
*
Priority Classification
In 1983, a five-year investigation was instituted based on allegations that the assets of twenty-seven southeastern banks, with combined funds of over $2.8 billion, had been misused by the owners/officers. Ten of the banks had been declared insolvent. The employees/officers were alleged to have embezzled funds by various methods to include loan swapping and nominee loans. Numerous employees, associates of the owners, and the two principal owners/officers, C.H. and “Jake” Butcher, were convicted of embezzlement, among other charges.
“insider” assistance he kited checks netting himself substantial illegal funds. When the check kiting scheme collapsed, he fled the area and was a fugitive for months using different identities before being apprehended.
Bank Bribery The Comprehensive Crime Control Act of 1984 also expanded the bank bribery statutes. It is illegal for anyone to corruptly give, offer or promise an employee of a federally insured financial institution anything of value in order to influence the employee; and also for any employee, officer, or agent of the financial institution to corruptly solicit or demand anything of value from a customer intending to engage in a transaction at the financial institution.
Epidemic bank and savings and loan failures in the United States are contributing to a dramatically increasing bank fraud and embezzlement workload for the FBI
Bank Fraud In late 1984, Congress enacted the Comprehensive Crime Control Act which, in part, made it a felony, punishable by fine or up to five years imprisonment for anyone to knowingly participate in any scheme to defraud any federally chartered or federally insured financial institution, or to obtain any of the money or other assets of the institution through false pretenses. This includes schemes such as “check kiting,” a scheme usually involving several checking accounts at several financial institutions. The customer writes checks on one account causing a potential overdraft in that account; however, prior to the overdraft occurring, the customer deposits checks from another account, which is being potentially overdrawn, into the first account. This switching of funds back and forth can create artificial balances in both accounts as the amount of the checks increase and some of the artificial funds are skimmed off by the customer for his/her own use. A Bank Fraud Investigation A New Jersey businessman was recently found guilty of bank fraud after evidence was presented at trial that he borrowed $1 million from a financial institution, collateralized by a building he did not own; submitted false financial statements to obtain another loan, which listed stocks/bonds that he did not own; and with
False Statements on Loan Applications This Federal law makes it a felony for anyone to knowingly make a false statement or report for the purpose of influencing action on purchase agreements, loans or applications at any federally insured financial institution. This includes instances where a bank customer interested in a home mortgage knowingly lies about his/her income which, in part, justifies the mortgage or where a major land developer obtains interim financing for a multimillion dollar condominium project by furnishing falsely inflated appraisals to the financial institution to obtain the loan. A major portion of the financial problems currently plaguing the southwest, particularly Texas, are based on allegations that hundreds of multi-million dollar loan packages issued by the financial community were supported by false financial statements and false appraisals at the time loans were obtained. In one continuing major task force investigation in Dallas, Texas, supported by the FBI, Internal Revenue Service, Department of Justice, Federal Home Loan Bank Board investigators and examiners and others, over 100 subjects, including bank employees/officers and customers (promoters and borrowers) have been convicted.
Fraud by Wire The second largest type of criminal activity investigated by the FBI as a financial crime concerns investment fraud and generally deals with international and national con men and the myriad of schemes they perpetrate. The Fraud by Wire Statute makes it illegal to devise a scheme to defraud a victim of money or property by making false representations or promises and transmitting or causing to be transmitted any communication (oral or written) by wire in interstate or foreign commerce. This includes the use of telephone, computer or facsimile equipment. The number of schemes is unlimited, but several general types of schemes are described below:
Advance Fee Schemes Advance fee swindles abound in times of tight money, when overextended or overcommitted borrowers are in need of cash or financing to complete a project or start a new one. Because of the overextension, the borrower cannot get financing from traditional sources, such as banks, insurance companies or other financial institutions. An advance fee is a fee paid by one party to another party in return for a commitment or promise by the second party to extend financing. Advance fees are not illegal, but become criminal when it can be proven that the lender or person to whom the fee was paid never intended to finance the loan.
An Advance Fee Scheme Investigation A group of co-conspirators set up a mortgage company with eight officers in New Jersey, Texas, Calfomia, illinois and Pennsylvania. They offered funding for loans of several hundred thousand to millions of dollars, through foreign sources. The clients (victims) had to pay $25,000 to $35,000 for a letter of credit and a commitmentfrom an English bank. The fee was to be placed in escrow until the clients’ loan was confirmed. FBI investigation determined several hundred clients lost millions of dollars because there never was any foreign source with funds capable of assisting these clients.
Ponzi Schemes (Pyramid Schemes) These schemes, popular for years, involve using today’s investors’ money to pay off promises to yesterday’s investors and can be successful as long as the number of investors constantly grows. When the subjects use interstate wire facilities and are aware that the promises being made to the investor are part of a criminal scheme or mathematically impossible, they are breaking Federal law. Named after Charles Ponzi, an Italian immigrant and financial genius, the scheme was developed as follows: Ponzi needed capital for his business and promised investors 50 percent return in 45 days. Initially, he was bringing in $500,000 per day and only paying out $200,000. When the
The 1982 Rolls Royce pictured above was recently forfeited in connection with an FBI Fraud by Wire investigation.
number of investors started to dwindle, he began to pay out more than he was bringing in, and since he had already taken much of the money for his own use, the scheme collapsed. At the end of the first year (1920), Ponzi had taken in $15 million, $8 million was missing, and a number of investors defrauded.
Boiler Rooms Boiler rooms consist of groups of individuals who use high-pressure sales techniques, usually coupled with a very attractive rate of return, over the telephone (wire communications) to sell stocks, bonds, precious metals, commodities, etc., of dubious or non-existent value. Boiler rooms generally consist of an officer, a number of salesmen and a bank of telephones. They call potential clients throughout the United States inducing them through false promises of high rates of return to invest in their product or service. The client is then requested to wire transfer their
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investment or mail checks. This scheme is usually short lived, unless it is coupled with a pyramid arrangement, with the boiler room eventually closing down only to start anew at another location. Southern California, Florida, and other Sun Belt states are particular havens for this type of activity. Because of significant manpower constraints and the abundance of this type of criminal activity, the FBI offices in these areas have established very productive task forces working with United States Postal Inspectors, Internal Revenue Service, and state and local police agencies to investigate these types of schemes. These are only several of the confidence type schemes that the FBI investigates using the Fraud by Wire Statute. The FBI allocated about 298 Special Agents to investigate international and national con man schemes, while achieving approximately 700 convictions in Fiscal Year 1988.
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The Federal Bankruptcy laws were created to allow the honest debtor who is overwhelmed by his/her debts a chance to make a fresh economic start in life, relieving him/her of the oppressive burden of these debts. However, it is a condition of this relief that all assets owned, except as exempted by law, be turned over to the court for distribution to the creditors. This action can be either voluntary (the debtor takes the petition to court) or involuntary (the creditors force the debtor into court). The FBI addresses criminality relating to bankruptcy fraud involving intentional concealment of some of the assets belonging to the debtor, or the furnishing of false or fraudulent information to the courts or representatives of the court (trustees, marshals or custodians). The FBI spends the majority of its efforts in these matters in investigations relating to planned or organized bankruptcies known as “bust-outs.” This is a scheme whereby a business and a good credit record is established, then extremely large orders of the business’ product are purchased on credit. Once the large inventories are received, the goods are shipped “out the back door” to associates and the suppliers are left “holding the empty bag.” Often records are destroyed, fires set and robberies are faked in an effort to hide or disguise what actually took place. The business files bankruptcy and the crime is completed.
A Bankruptcy Fraud Investigation A group of loosely associated individuals from Florida went into the Northeast United States and established or helped to establish several seemingly legitimate businesses operating in the wholesale health care and beauty supply business. Several large wholesale terminals were used to store inventory that was supposed to be sold to area retailers. In reality, the inventory was shipped to storage warehouses for later sale to discount chains in the New York and Florida area. It was the intent of the subjects to soon file bankruptcy. Based on search warrants served simultaneously in three different cities, millions of dollars of inventory was seized and made available to the legitimate creditors. Approximately 40 subjects were indicted and convicted of bankruptcy fraud and other criminal violations.
Interstate Transportation of Stolen Property (Securities and Negotiable Instruments) and Counterfeit State and Corporate Securities 1 Another source of income for con men is in their dealings with securities (stocks, bonds, notes, etc.). The above two Federal statutes allow the FBI to investigate those subjects who deal in stolen securities and some counterfeit securities. The first law states that anyone who transports in interstate (or foreign) commerce goods, securities, money, etc., worth $5,000, knowing that they have been stolen or taken by fraud, can be convicted of a felony. The second law makes it illegal for anyone to make, use or possess counterfeit or forged state and corporate securities. Conmen often use stolen, counterfeited or fake securities to bolster their financial statements or to display to victims in an effort to convince the victim of their wealth or abilities. These laws are also used extensively by the FBI to investigate major thefts of securities from Wall Street, financial institutions and brokers, or even private homes or companies. During Fiscal Year 1988, FBI investigations resulted in the convictions of 220 subjects engaged in these type of crimes, many of whom were major conmen, and recovered nearly $35,000,000 in securities. Art Actual Irtvestigatiort The FBI has successfully used undercover operations as one way of penetrating criminal conduct in the securities area. One such case was Philadelphia’s “OPERATION GALLSTONE” during which undercover Agents, for several years, met and dealt with conmen from all over the world who were trafficking in both stolen and counterfeit securities. These conmen would sell or lend these securities, for a fee, to the undercover Agents to be used as corporate assets, balance sheet items, or just as “flash” to give the appearance of wealth. Millions of dollars in securities were recovered through investigation.
The Interstate Transportation of Stolen Property (Securities and Negotiable Instruments) and Counterfeit State and Corporate Securities Statutes are used extensively by the FBI to investigate major thefts of securities from Wall Street, financial institutions and brokers, or even private homes and companies.
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Other Types of Significant Financial Crimes Copyright Matters
Computer Fraud and Abuse
The FBI’s investigative interest involves willful infringement for profit involving manufacture, sale or distribution of records, tapes, movies, videos and video games protected by a copyright. Because of limited resources, the FBI concentrates its efforts on only major offenders and often has assistance from industry experts.
The FBI is addressing a series of laws making it illegal for anyone to knowingly access a computer without authorization, to:
Trademark Counterfeiting The Trademark Counterfeiting Act makes it illegal for anyone to traffic in goods or services that knowingly contain counterfeit trademarks. It is the intent of the law to protect the consumer who believes he/she is purchasing a legitimate product. In part, because of the civil remedies and limited resources available, the FBI will usually investigate only when sizeable or widespread criminal activity is involved or the general public is being widely deceived. Examples of this type of activity are the counterfeit production and sale of expensive watches, high fashion accessories, and designer clothes.
(1)
obtain information protected by other laws or Executive orders (such as national security or financial information);
(2)
alter or damage Federal interest computers;
(3)
commit a fraud; and/or
(4)
obtain or alter information of an electronic communication service of which the violator is not a subscriber.
These statutes are the primary tools used against “computer hackers” and information “pirateers.”
STATISTICAL INFORMATION WHITE-COLLAR CRIME PROGRAM White-Collar Crime Program
White-Collar Crime Program Convictions
Manpower Utilization Direct Agent Workyears 1500
—
1986
Fiscal Years Fiscal Years
Includes Felonies, Misdemeanors, and Pretrail Diversions
White-Collar Crime Program
White-Collar Crime Program
Percentage of Manpower Utilized on Priority Cases
Percentage of Convictions in Priority Cases
1985
1986
1987
1986
1988
FIscal Years
Fiscal Years
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