Overview of FERA? (Fraud Enforcement and Recovery Act)

FERA (Fraud Enforcement and Recovery Act) is a federal law that is designed to enhance the criminal enforcement of federal fraud laws. It does it in several ways. First, it expands the scope of several existing fraud laws. Second, it temporarily increased funding for federal agencies that prosecute fraud. Third, it re-extended the scope of the False Claims Act, something which was narrowed by an earlier Supreme Court decision. Finally, it creates the Federal Crisis Inquiry Commission in order to examine the causes of 2007 global financial crisis.

FERA and Fraud Statures

FERA amends several federal laws that deal with fraud, expending their scope to include the types of fraud that they didn't already cover. This includes:

  • Title 18, Section 1040: Under this section of the criminal code, falsifying loan documents submitted to certain financial institutions is a felony. FERA expanded Section 1040 to include mortgage lending businesses. This was designed to crack down on mortgage fraud: fraud that involves borrowers lying about their financial status to get more favorable mortgages.
  • Title 18, Section 1031: This section originally criminalized fraud against the federal government if government procurement and contracts were involved. Under FERA, the section also covers fraud involving any and all federal assistance programs.
  • Title 18, Section 1348: This section criminalized fraud that involved investment securities. Before FERA, this involved securities registered under Securities Exchange Act of 1934. FERA extended the section's scope to cover fraud involving commodities futures and options.
  • Title 18, Section 1956: This section criminalized money laundering, but it left the definition of money laundering ambiguous, leaving the courts some room for interpretation. FERA clarified it, defining money laundering as "any property derived from or obtained or retained, directly or indirectly, through some form of unlawful activity, including the gross receipts of such activity."

Additional Funding Under FERA

FERA authorized temporary funding increases for federal agencies that are charged with detecting and prosecuting fraud cases. This includes the Department of Justice, Postal Inspection Service, Secret Service and Securities and Exchange Commission. The increase remains in place until October 2011.

Re-expanding the Scope of False Claims Act

False Claims Act is a federal law that allows citizens to sue federal contractors on behalf of the federal government if one of said citizens believes that a federal contractor committed fraud against the federal government. In 2008, the outcome of the Allison Engine Co. v. United States ex rel. Sanders Supreme Court case narrowed the citizens' ability to sue under the False Claims Act. It required the plaintiff to prove that the federal contractor made false claims specifically in order to defraud the federal government. FERA effectively nullified the decision by broadening the scope of the False Claims Act to include any instance the federal contractor knowingly makes a false statement and/or files a false claim.

Financial Crisis Inquiry Commission

The final section of FERA created the Financial Crisis Inquiry Commission: a bicameral, bipartisan commission that was charged with determining the causes of the current global financial crisis, with the focus placed on how this crisis affected United States. The commission must analyze both domestic and global factors. Unlike the 9/11 commission, the Financial Crisis Inquiry Commission has the power to subpoena documents and witness testimonies. Its relationship with fraud is somewhat tangential. Financial fraud is widely viewed as one of the causes of the financial crisis. The commission's investigation will determine whether or not that's the case and, if so, to what extent.

As of this writing, the commission's investigation is still ongoing. It is expected to make its final report by December 15, 2010.

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