Financial institution fraud.

AuthorHofer, Matthew
PositionIII. The Financial Institutions Reform, Recovery, and Enforcement Act D. Double Jeopardy through IV. The Bank Secrecy Act, with footnotes, p. 1236-1264 - Annual Survey of White Collar Crime
  1. Double Jeopardy

    As stated above, FIRREA provides for both criminal and civil sanctions for violations by financial institutions and IAPs. (190) The FDIC's authority to enforce both types of penalties has occasionally produced double jeopardy concerns. (191) This argument, applied to civil and criminal punishments for the same act, usually fails; however, an extreme civil penalty may raise a legitimate double jeopardy concern not foreclosed by rulings to date.

    1. The Dual Functions of the FDIC

      The enabling legislation of the FDIC endows it with dual roles: (i) governmental regulator of federally-insured financial institutions, and (ii) receiver of failed institutions. (192) In the latter role, it stands in the shoes of the bankrupt institution, acting as a private party vindicating private interests. (193) When an FDIC- insured institution enters receivership, the agency will act as both regulator and receiver for the same institution. (194)

    2. Hudson v. United States

      The Supreme Court dispensed with the argument that the Double Jeopardy Clause acted as a barrier to the FDIC pursuing future prosecution in its capacity as receiver in Hudson v. United States. (195) The Court stated that the Fifth Amendment's Double Jeopardy Clause only protects defendants from successive criminal punishments, but sanctions imposed by the FDIC post-receivership are civil. (196) The Court abrogated its previous holding in United States v. Halper, (197) where it bypassed the threshold question of whether the successive punishments were criminal and instead focused on whether the sanction was so grossly disproportionate to the harm caused to be deemed "punishment" for the purposes of double jeopardy. (198) Although Hudson acknowledged that a civil sanction might constitute criminal punishment when the "clearest proof' indicates that it is so "punitive in purpose or effect as to transform what was clearly intended as a civil remedy into a criminal penalty," (199) the Court concluded that such a determination of the sanction's criminal nature must first be established before implicating the Double Jeopardy Clause. (200) The Court also determined that, when a civil sanction has been designed to serve as a deterrent, the deterrent purpose does not alone transform civil sanctions into criminal punishment. (201) Thus, prior civil proceedings resulting in sanctions that fail to rise to Hudson's standard for criminality fail to trigger the Double Jeopardy Clause.

  2. Recent Prosecutions and Settlements

    The Department of Justice filed a civil lawsuit against the credit rating agency Standard & Poor's Ratings Services ("S&P"). (202) The complaint, which names McGraw-Hill Companies, Inc. and its subsidiary, Standard & Poor's Financial Services LLC (collectively S&P) as defendants, seeks civil penalties under FIRREA based on three forms of alleged fraud by S&P: (1) mail fraud affecting federally insured financial institutions in violation of 18 U.S.C. [section] 1341; (2) wire fraud affecting federally insured financial institutions in violation of 18 U.S.C. [section] 1343; and (3) financial institution fraud in violation of 18 U.S.C. [section] 1344. (203) The government has identified more than $5 billion in losses suffered by federally insured financial institutions in connection with the failure of CDOs rated by S&P from March to October 2007. (204)

    Attorney General Eric Holder and U.S. Attorney for the Western District of North Carolina announced in August 2013 that the United States has filed a civil lawsuit against Bank of America Corporation and certain affiliates, including Merrill Lynch, Pierce, Fenner & Smith f/k/a/ Banc of America Securities, LLC, Bank of America, N.A., and Banc of America Mortgages Securities, Inc. (collectively "Bank of America"). (205) The civil complaint filed in the U.S. district court in Charlotte alleges that Bank of America defrauded investors, including federally insured financial institutions, who purchased more than $850 million in RMBS from Bank of America Mortgage Securities 2008-A (BOAMS 2008-A) securitization. (206)

    The United States Attorney for the Southern District of New York filed and simultaneously settled for $158.3 million a lawsuit against Citigroup, Inc ("Citi") for civil penalties under FIRREA. (207) The Complaint alleges Citi submitted false certification to HUD in violation of 18 U.S.C. [section][section] 1006 and 1014 and seeks "civil penalties as authorized under 12 U.S.C. [section] 1833a, in the amount of up to the greater of (i) $1 million per violation, (ii) the amount of loss to the United States, or (iii) the amount of gain to Citi." (208) A civil fraud lawsuit filed by the United States Attorney for the Southern District of New York, the Commissioner of the Federal Housing Administration ("FHA"), and the Special Agent-in-Charge of the New York Field Office of the Office of the Inspector General, U.S. Department of Housing and Urban Development ("HUD OIG") against 14 defendants--including sellers, lenders, and appraisers--alleges FIRREA violations and seeks civil penalties. (209) The United States Attorney for the Southern District of New York, Assistant Attorney General for the Civil Division of the U.S. Department of Justice, General Counsel of the U.S. Department of HUD, and Acting Deputy Inspector General of HUD filed a civil mortgage fraud lawsuit against Home Mortgage Capital Corporation, its affiliate Allied Home Mortgage Corporation, as well as Allied President and CEO Jim C. Hodge and Executive Vice President Jeanne L. Stell. (210) "The United States seeks damages and civil penalties under FIRREA for the hundreds of false statements that Allied submitted to HUD." (211) A civil lawsuit filed by the United States Attorney for the Southern District of New York against Bank of New York Mellon Corporation seeks hundreds of millions of dollars in civil penalties under FIRREA. (212)

    The United States Attorney for the Southern District of New York "entered into an agreement with the law firm of Steven J. Baum, RC. ("Baum"), one of the largest volume mortgage foreclosure firms in New York State, that requires the firm to pay $2 million to the United States and extensively change its practices with respect to mortgage foreclosure actions (the 'Agreement')." (213) That Agreement releases Baum from any potential claims pursuant to FIRREA. (214) The United States Attorney for the Southern District of New York, General Counsel of HUD, and Inspector General of HUD filed and simultaneously settled a civil fraud lawsuit against Citimortgage, Inc., a subsidiary of Citibank, N.A--the Complaint sought damages and civil penalties under FIRREA for over six years of misconduct in connection with Citimortgage's participation in the Federal Housing Administration Direct Endorsement Lender Program. Citimortgage agreed to pay $158.3 million to the United States in damages under the False Claims Act. (215)


    This Section addresses the Bank Secrecy Act's statutory rationales, examines its record-keeping requirements, discusses its reporting requirements, and analyzes its method of structuring offenses.

  3. Purpose

    In 1970, Congress enacted the Currency and Foreign Transactions Reporting Act, commonly referred to as the Bank Secrecy Act (216) ("BSA"), to address tax evaders' and organized crime's increasing use of financial institutions to launder unreported income. (217) The BSA requires that financial institutions maintain "certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism." (218) This enhanced documentation of the deposit, transfer, and exchange of currency can be used to uncover illegal concealment and thus improve the effectiveness of law enforcement. (219)

    The increased interest in and importance of the BSA is due to the recognition of the global scale on which illicit funds enter the flow of commerce through legitimate financial institutions. Drug traffickers and global terrorism groups rely heavily on financial institutions to integrate and to move funds. (220)

    The BSA, as amended, (221) requires financial institutions (222) to keep certain account records of currency transactions over indicated dollar amounts, to report currency transactions of more than $10,000 into or out of a financial institution, and to disclose certain accounts that United States citizens and residents hold at foreign financial institutions. (223) The BSA imposes civil and criminal penalties on financial institutions, non-financial trades, and businesses. (224)

    In response to the terrorist attacks of September 11, 2001, Congress enacted the USA Patriot Act of 2001. (225) This legislation amended several provisions of the BSA. It broadened the definition of "financial institution;" (226) expanded requirements for financial and certain non-financial trade or business institutions with respect to recordkeeping, reporting, due diligence, anti-money laundering programs, "Know Your Customer" standards, (227) and correspondent accounts with foreign shell banks; and increased the civil and criminal penalties for certain BSA offenses. (228) The International Money Laundering Abatement and Anti-Terrorist Financing Act is included within Title III of the USA Patriot Act. Its purposes include: preventing, detecting, and prosecuting international money laundering and the financing of terrorism; providing a clear national mandate for subjecting those foreign jurisdictions and financial institutions that pose particular, identifiable opportunities for criminal abuse to special scrutiny; and ensuring that reports of potential money laundering reach the proper authorities for all appropriate elements of the financial services industry. (229)

  4. Title I: Record-Keeping Requirements


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