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June 29, 2009

Fraud Enforcement and Recovery Act of 2009

On May 20, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009. Among other things, the law "authorizes" substantial funding in 2010 and 2011 for various federal agencies, including the Department of Justice, the Postal Inspection Service, the Securities and Exchange Commission, and the Inspector General of Housing and Urban Development, to investigate and prosecute financial frauds of all types. (Note that an authorization does not necessarily mean any appropriation of additional funding to these agencies above their existing funding will result.)

One of the law's chief sponsors, Sen. Patrick Leahy, included the following in his comments on the law:

"At its core, the Fraud Enforcement and Recovery Act authorizes the resources necessary for the Justice Department, the FBI, and other investigative agencies to respond to this crisis. In total, the bill authorizes $245 million a year over the next two years to hire more than 300 Federal agents, more than 200 prosecutors, and another 200 forensic analysts and support staff to rebuild our nation's 'white collar' fraud enforcement efforts. While the number of fraud cases is now skyrocketing, we need to remember that resources were shifted away from fraud investigations after 9/11. Today, the ranks of fraud investigators and prosecutors are drastically under stocked, and thousands of fraud allegations are going unexamined each month. We need to restore our capacity to fight fraud in these hard economic times, and this bill will do that."

Supporters of the law have promoted the idea that this funding of efforts to fight financial crimes will in effect result in a good return on the government's investment as it will result in higher recovery of funds lost to fraud. Some cite Justice Department estimates that each dollar spent to prosecute fraud results in more than $20 being ordered in restitution and fines for victims and the government.

This law (if funded) could result in a sea change in the focus of federal law enforcement to address a wide array of financial crimes in the future. It bears watching to see if this effort has a measurable impact in tamping down the growth and spread of financial-related fraud and whether it will in particular have any impact on payments fraud issues, such as the persistence of check fraud schemes or the development of new fraud schemes leveraging gaps in emerging payments modes.

By Clifford S. Stanford, assistant vice president and director of the Retail Payments Risk Forum at the Atlanta Fed

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