Home News Speeches The FBI's Role in Combating White Collar Crime
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  • Robert S. Mueller, III
  • Director
  • Federal Bureau of Investigation
  • Economic Club of New York
  • New York, New York
  • June 02, 2009

A few months ago, The Economist magazine announced plans to build an entertainment venue that, in their words, would combine the “magic of a theme park with the excitement of macroeconomics.”

Among the planned rides were the “Currency High-Roller,” where one could float like a butterfly with the euro or sink like a stone with the pound; the “Chamber of Horrors,” where one could tremble with fear in the face of distressed debt; and the “Fiscal Fantasyland,” where one could watch the economy shrink down to nothing, right before their very eyes.

It did take me a minute to note the date on the press release—April 1st—and to realize that this was only an April fool’s joke.

Unfortunately, the Currency High-Roller, the Chamber of Horrors, and the Fiscal Fantasyland are not so far from the truth in describing some of the issues confronting the financial sector.

This is by no means the first financial crisis we have had, nor is it the first instance of bad business judgment or unadulterated greed.

In a State of the Union address, a President once warned against businessmen of great knowledge, but of temperament both “unscrupulous and reckless.”

He stated that “where the conditions are such that they act without supervision or control…they may delude many innocent people into making investments or embarking in kinds of business that are unsound.”

These words of warning could have been given yesterday, but in fact, Teddy Roosevelt delivered them more than a century ago, in 1907—the same year your club held its first meeting.

Roosevelt knew that money and power were too often flanked by dishonesty and self-dealing. It is perhaps no coincidence that he created the FBI just one year later.

Today, we will talk about the FBI’s role in combating white collar crime. We will talk about the need for integrity—in the marketplace, in the boardroom, and in government. And we will touch on our distinct roles in this ethical calculus.

In the wake of September 11th, counterterrorism became the FBI’s top priority. Yet at the same time, we were confronted with a rash of corporate wrongdoing, from Enron to WorldCom and Qwest. We needed to prioritize our resources.

Today, we continue to balance the risk of terrorist attack—as evidenced by the planned attacks on synagogues in the Bronx—against the growing risks to our economy and our communities, from financial fraud to violent crime.

Unfortunately, we do not have the personnel to investigate every criminal threat. We must focus our limited resources where we have the most impact.

In Los Angeles or Miami, for example, we might shift resources to combat gang activity. In Chicago, to organized crime or corruption. And here in New York, we have shifted resources to address white collar crime.

We have moved from a quantitative to a qualitative approach. We are using intelligence to pinpoint the greatest threats to each of our communities, and working hard to prevent those threats from becoming reality.

Turning to the FBI’s role in combating white collar crime, there are many lenses through which to view the current financial crisis—from financial institutions that traded in risk itself, to lenders and real estate professionals who sidestepped standard rules of practice, to homeowners whose purchases exceeded their pocketbooks.

Risk is central to this crisis. In truth, much of what led to the financial meltdown was the result of a failure to properly assess the risks—to businesses, to investors, to homeowners, and to the economy at large.

Yes, there are those who intended to defraud others. But in part, the subprime lending crisis may have been more a matter of groupthink and greed.

The prevailing thought process seemed to be, “Everyone is making money, why should we miss the boat?” But few ever believed that the boat might sink. And when it did, some tried to patch the holes with duct tape and bail out the water with Dixie cups, while the orchestra continued to play on the top deck.

The FBI plays a role in addressing this financial crisis. We do so in two distinct ways. First, we are investigating those with criminal responsibility for certain aspects of the current crisis. Second, we are using intelligence to prevent new threats on the horizon. In this way, we can better promote and protect the health of the economy.

Beginning with mortgage fraud, we are investigating more than 2,400 mortgage fraud matters, more than double the number from just two years ago. And we have doubled the number of agents working on these cases.

We are investigating industry insiders—both those who knowingly participated in fraudulent transactions, and those who knew the risks and intentionally misrepresented those risks to homeowners and investors.

We have developed new ways to detect and combat mortgage fraud. We are collecting and analyzing data to spot emerging trends and patterns. And we are using the full array of investigative techniques to find and stop criminals before the fact, rather than after the damage has been done.

For example, this past April, in Maryland, we charged five defendants in a $70 million dollar mortgage fraud Ponzi scheme. These defendants allegedly tricked homeowners into pouring money into the defendants’ business, with the false promise that revenue from that business would be used to pay off the homeowners’ mortgages.

In San Diego, we charged 24 individuals under the racketeering statute in connection with a scheme that included more than 220 properties, valued at more than $100 million dollars. The alleged leader of the group is a documented member of a well-established and violent gang—the Lincoln Park Street Gang.

And in a case with a unique twist, we worked with our partners in the Milwaukee Police Department to investigate a mortgage fraud scheme orchestrated by a convicted drug dealer.

Michael Lock and his conspirators ran a classic house-flipping scheme, with straw buyers, phony appraisals, and forged bank records. They would obtain the loan money and divide the proceeds. The loans would then go into default, and the homes into foreclosure.

But the criminal activity did not end there. When Lock sold one of the houses in question, the bodies of two suspected drug dealers were discovered buried under concrete slabs in the backyard. Lock is now serving two life sentences on homicide and kidnapping convictions, and he has been convicted of wire fraud arising out of the mortgage fraud scheme.

Unfortunately, the picture is not any prettier on the corporate front.

Like mortgage fraud, economic crimes are crimes of opportunity. New schemes are revealed every day, with losses that once would have been unthinkable, but now are becoming commonplace.

Currently, we are investigating more than 580 corporate fraud cases. And we have more than 1,300 securities fraud cases, including the many Ponzi schemes so prevalent in the news today—from high-profile financiers such as Bernie Madoff to seemingly ordinary individuals from Arizona, Arkansas, Massachusetts, or even Minnesota.

We are targeting accounting fraud, insider trading, and deceptive sales practices. Once we identify the key players, we investigate and bring the appropriate charges.

Agents and analysts on our Corporate Fraud Response Team, for example, are specially trained to conduct complex investigations in a short time frame. And they can be deployed across the country at a moment’s notice.

We do not take these investigations lightly, nor do we open such cases without careful consideration. We do recognize the impact that public disclosure of a criminal investigation may have on a company’s reputation and on the market as a whole.

These investigations further emphasize the need for independent board members, auditors, and outside counsel. Shareholders rely on the board of directors to serve as the corporate watchdog. But often, we see conflicts of interest in the corporate suites.

We all understand that it is better for a company to self-report and remediate its own wrongdoing before the FBI and the Department of Justice become involved. Executives who let the situation escalate to the point of a sudden restatement—and a resulting loss of shareholder confidence—often do greater harm to the companies they are trying to protect than if they had exercised early intervention.

In my days in private practice, I represented a number of executives who could rationalize every bad decision. None of them would have likened themselves to an organized criminal or a street thief.

They would claim it was “business as usual”—that they were playing by the same rules as everyone else. They would say they were acting in the best interests of the company, given the financial constraints and the pressures of running a business.

And I would think to myself, “You broke about 14 laws before breakfast. How could you fail to see that what you were doing was wrong?”

I saw executives who did not start out intending to break the law. But they began to believe their own explanations. And it is a slippery slope from behavior that skirts ethical or legal boundaries to behavior that crosses the line completely.

We in the FBI are best at our jobs when we have the trust of the American people. The same could be said for the business community. If this financial crisis has taught us anything, it may be that it is time for a cultural shift—a “back to basics” approach that incorporates sound business judgment, risk assessment, and integrity, from the top down.

Let me turn for a brief moment to public corruption.

Unfortunately, the private sector has by no means cornered the market on greed. Public corruption is our top criminal priority, for it strikes at the heart of good government.

The vast majority of public officials are honest in their work. They are committed to serving their fellow citizens. But some have abused the public trust.

We have more than 2,500 public corruption investigations. We have convicted nearly 1,700 federal, state, and local officials in the past two years alone.

For a nation built on the rule of law, we can and we should do better. Whether the matter is local, national, or international, whether it concerns millions of dollars or merely hundreds, there is no level of acceptable corruption. The violation of trust is the same. The damage to the taxpayers is the same.

You may ask, “What can we in the business community do to address public corruption?” You can make every effort to recognize corruption when you see it, either here at home, or overseas. You can refuse to participate in corruption of any kind. And finally, you can call us. We would be happy to hear from you.

One last question: what can we expect in the future?

We and our counterparts in other agencies are working to prevent what has the potential to be the next wave of cases: fraud and corruption related to the TARP funds and the stimulus package.

These funds are inherently vulnerable to bribery, fraud, conflicts of interest, and collusion. And there is an old adage: where there is money to be made, fraud is not far behind, like bees to honey.

We faced a similar challenge with relief funding related to Hurricane Katrina. In the wake of that storm, we created a task force to investigate cases of fraud and corruption, and to identify areas where abuse was most likely to take place. Through the work of that task force, we have obtained 246 convictions to date in Mississippi and Louisiana.

Today, we face a much different kind of storm, but the opportunities for criminal behavior—and, indeed, the underlying greed—remain the same.

With trillions of dollars at stake—from the purchase of troubled assets to improvements in infrastructure, health care, energy, and education—even a small percentage of fraud would result in substantial taxpayer losses.

We must collect the intelligence necessary to target potential waste and abuse at all levels, and we must do so before it fully develops. To that end, we must be able to follow the money all the way down the line.

We are working with the SEC, the Inspector General for the TARP, and other multi-agency task forces to identify where these funds are going, and for what purpose. We want to ensure that these funds will be used appropriately, and we will investigate where necessary.

Our goal is to protect the financial services industry, and, by extension, the economy. To that end, we will continue to target those with the opportunity and the intent to harm investor confidence and the public at large.

One certainly does not need to be a Roosevelt scholar to know that, in his opinion, common sense was as important as education; that the courage of one’s convictions should always prevail; and that integrity was the cornerstone of any endeavor, public or private.

In the past century, we have seen great change, for better and for worse. And while the players, the technology, and the resulting damages may be novel, corporate fraud and corruption are as old as time.

And the best tools at our disposal are the same as those espoused by Roosevelt: hard work, credibility, courage, and character.

It is my hope that by working together, we can minimize fraud and corruption. We each have a role to play. Together, we can bring to light the wrongdoing that threatens our economy, our security, and the welfare of our nation. Together, we can strengthen our culture of integrity.

Thank you for having me here today, and God bless.

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