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THE FEDERAL BUREAU OF INVESTIGATION FINANCIAL INSTITUTION FRAUD AND FAILURE REPORT

For Fiscal Years (FY) 2000 - 2001 Ending September 30, 2001

FINANCIAL INSTITUTION FAILURE INVESTIGATIONS AND PERCENT OF INCREASE (DECREASE) FROM PRIOR YEAR

FINANCIAL INSTITUTION FRAUD AND MAJOR CASES UNDER INVESTIGATION BY THE FBI BY FISCAL YEAR

STATISTICAL ACCOMPLISHMENTS FROM FBI INVESTIGATIONS IN FINANCIAL INSTITUTION FRAUD AND FAILURE MATTERS

         A. CONVICTIONS/PRE-TRIAL DIVERSIONS

         B. INDICTMENTS AND INFORMATIONS

         C. RECOVERIES, RESTITUTIONS, AND FINES

         D. SEIZURES AND FORFEITURES

 

 

 

     THE FEDERAL BUREAU OF INVESTIGATION FINANCIAL INSTITUTION FRAUD AND FAILURE REPORT

For Fiscal Years (FY) 2000 - 2001
Ending September 30, 2001

     Financial Institution Fraud (FIF) is a Tier One strategic priority within the Federal Bureau of Investigation's (FBI) Strategic Plan. Through this national strategy, the FBI's goal in addressing FIF is to create an effective and ongoing deterrent designed to prevent criminal conspiracies from defrauding major U.S. industries and the U.S. Government.1 FIF investigations are among the most demanding, difficult, and time-consuming cases undertaken by law enforcement. Efforts by the FBI and the Department of Justice have attained extraordinary results since the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989.

     Areas of primary investigative interest relative to FIF include bank failures, identity theft, check fraud, counterfeit negotiable instruments, check kiting, and mortgage and loan fraud. FIF investigations related to emerging technologies and computer-related banking are taking on added significance among the nation’s financial institutions.

     Since the 1992 peak of the savings and loan crisis, the FBI has been able to refocus its investigative efforts from failed financial institution cases to other high-priority FIF matters. At the close of FY 2001, the total number of pending FIF investigations for the FBI was 8,184. Of this total, 97 failure cases, or 1.18 percent, involved criminal activity related to a failed financial institution. This statistic reflects an 87 percent reduction in failure investigations since the July 1992 peak of 758 cases.

     However, as the number of failure investigations has declined, the number of major FIF investigations has remained substantial. As of FY 2001, the FBI was investigating 4,383 major cases, or 46.4 percent of all pending FIF cases.2 This is significant in view of the fact that convictions related to major case investigations have remained constant since FY 1995, surpassing total convictions for major cases during the 1992 peak.

     During the late 1980s and early 1990s, approximately 60 percent of the fraud reported by financial institutions related to bank insider abuse. Since then, external fraud schemes have replaced bank insider abuse as the dominant FIF problem confronting financial institutions. The pervasiveness of check fraud and counterfeit negotiable instrument schemes, technological advances, as well as the availability of

1FBI Strategic Plan 1999-2004.

     2 A major case is defined as an investigation pertaining to a failed financial institution, or where the loss or loss exposure to the financial institution exceeds $100,000.

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personal information through information networks, has fueled the growth in external fraud. In many instances, the international aspects associated with many of these schemes have increased the complexity and severity in the fraud being committed.

     For the period of April 1, 1996 through September 30, 2001, the FBI received 154,062 Suspicious Activity Reports (SARs) for criminal activity related to check fraud, counterfeit negotiable instruments, and related schemes. These schemes accounted for 27 percent of the 320,336 SARs filed by U.S. financial institutions (excluding Bank Secrecy Act violations), and equaled approximately $4.8 billion in losses.3

     The FBI continues to concentrate its efforts on organized criminal groups involved in these activities. These organized groups are often involved in the sale and distribution of stolen and counterfeit corporate checks, money orders, payroll checks, credit and debit cards, U.S. Treasury checks, and currency. Furthermore, the organized groups involved in check fraud and loan fraud schemes are often involved in illegal money laundering activities in an effort to conceal the proceeds from their crimes.

     Criminal activity has become more complex and loan frauds are expanding to multi-transactional frauds involving groups of people from top management to industry professionals who assist in the loan application process. These professionals include loan brokers, appraisers, accountants, and real estate attorneys. Such transactions are sometimes hidden against a backdrop of genuine transactions which give them an appearance of legitimacy. Due to the complexity of these crimes, more proactive FIF investigations are being initiated than ever before. These cases target large-scale fraud operations, often involving hundreds of subjects in multiple jurisdictions.

     The lines between traditional banking services and other financial services now offered by these institutions are fading. As financial institutions become less regulated and provide more financial services to the public through the sale of insurance, securities, investment products, and on-line banking, the nature of FIF will change in terms of the potential impact to the nation’s financial institutions.

     The FBI has responded to these trends by providing proactive deterrents to assist the nation’s banking infrastructure in combating FIF. The FBI is fully supportive of the inkless fingerprint program for nonbank customers as a preventive measure in combating check fraud and counterfeit negotiable schemes. Additionally, the FBI and the Office of the Comptroller of the Currency published Check Fraud: A Guide to Avoiding Losses, to assist financial institutions in identifying these schemes. In an effort to assist financial institutions in the identification of computer-related crimes, the FBI worked closely with the federal banking regulatory agencies in developing guidelines entitled Guidance Concerning the Reporting of Computer-Related Crimes by Financial Institutions, for use by financial institutions in the reporting of these crimes.

     3These statistics are derived from the Suspicious Activity Report database, which is owned by the five Federal banking regulatory agencies, and is maintained by the U.S. Treasury Department's Financial Crimes Enforcement Network.

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I.     FINANCIAL INSTITUTION FAILURE INVESTIGATIONS AND PERCENT OF INCREASE (DECREASE) FROM PRIOR YEAR

     Since February 1986, the FBI has tracked the number of financial institution failure investigations. From a peak of 758 cases in July 1992, failure investigations have steadily declined. Since the 1992 peak, failure investigations have decreased 86.9 percent. The matrix below illustrates the number of failure investigations and corresponding percentage change by fiscal year.

FISCAL YEAR REPORT DATE FAILURE INVESTIGATIONS % CHANGE FROM PRIOR YEAR
2/92 740
+10.4%
9/93 651
(-12.0%)
9/94 531
(-18.4%)
9/95 395
(-25.6%)
9/96 247
(-37.5%)
9/97 200
(-19.0%)
9/98 142
(-29.0%)
9/99 129
(-09.1%)
9/00 99
(-23.3%)
9/01 97
(- 2.1%)

The chart and graphs which follow exhibit:

(a) Financial Institution Failure Investigations by Field Office and Category, during FYs 2000 and 2001;

(b) Financial Institution Failure Investigations for 1997 - 2001;

(c) Number of FDIC-Insured “Problem” Institutions for 1997 - 2001; and,
  
(d) Assets of FDIC-Insured “Problem” Institutions for 1997 - 2001.

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FINANCIAL INSTITUTION FAILURE INVESTIGATIONS BY FIELD OFFICE AND CATEGORY FISCAL YEAR 2000

      FBI FIELD OFFICE FAILED BANKS FAILED S&Ls FAILED CREDIT UNIONS TOTAL
      ALBANY 0 0 0 0
      ALBUQUERQUE 0 0 0 0
      ANCHORAGE 1 0 0 1
      ATLANTA 0 0 1 1
      BALTIMORE 2 0 0 2
      BIRMINGHAM 0 0 0 0
      BOSTON 3 0 0 3
      BUFFALO 0 0 0 0
      CHARLOTTE 2 2 1 5
      CHICAGO 0 0 0 0
      CINCINNATI 0 0 0 0
      CLEVELAND 0 1 0 1
      COLUMBIA 3 0 1 4
      DALLAS 4 2 0 6
      DENVER 3 1 1 5
      DETROIT 0 1 0 1
      EL PASO 0 0 0 0
      HONOLULU 0 0 0 0
      HOUSTON 2 5 0 7
      INDIANAPOLIS 0 0 1 1
      JACKSON 1 0 0 1
      JACKSONVILLE 0 0 0 0
      KANSAS CITY 0 0 1 1
      KNOXVILLE 0 0 1 1
      LAS VEGAS 0 0 0 0
      LITTLE ROCK 0 1 0 1
      LOS ANGELES 6 2 0 8
      LOUISVILLE 1 0 0 1
      MEMPHIS 0 0 0 0
      MIAMI 1 2 0 3
      MILWAUKEE 0 0 1 1
      MINNEAPOLIS 1 0 0 1
      MOBILE 0 0 0 0
      NEWARK 3 3 0 6
      NEW HAVEN 0 0 0 0
      NEW ORLEANS 2 3 1 6
      NEW YORK 1 1 2 4
      NORFOLK 0 0 0 0
      OKLAHOMA CITY 1 0 0 1
      OMAHA 2 0 0 2
      PHILADELPHIA 2 2 2 6
      PHOENIX 0 0 0 0
      PITTSBURGH 2 1 0 3
      PORTLAND 0 0 0 0
      RICHMOND 0 0 0 0
      SACRAMENTO 0 0 0 0
      ST. LOUIS 3 0 0 3
      SALT LAKE CITY 1 0 1 2
      SAN ANTONIO 0 2 0 2
      SAN DIEGO 0 0 0 0
      SAN FRANCISCO 0 0 0 0
      SAN JUAN 0 2 0 2
      SEATTLE 0 0 0 0
      SPRINGFIELD 2 1 2 5
      TAMPA 0 0 1 1
      WMFO 0 0 1 1
         
      TOTAL 49 32 18 99

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FINANCIAL INSTITUTION FAILURE INVESTIGATIONS BY FIELD OFFICE AND CATEGORY FISCAL YEAR 2001

     FBI FIELD OFFICE FAILED BANKS FAILED S&Ls FAILED CREDIT UNIONS TOTAL
      ALBANY 0 0 0 0
     
      ALBUQUERQUE 0 0 0 0
     
      ANCHORAGE 1 0 0 1
     
      ATLANTA 0 0 0 0
     
      BALTIMORE 1 0 0 1
     
      BIRMINGHAM 0 0 0 0
     
      BOSTON 3 0 0 3
     
      BUFFALO 0 0 0 0
     
      CHARLOTTE 2 1 0 3
     
      CHICAGO 1 1 1 3
     
      CINCINNATI 0 0 0 0
     
      CLEVELAND 0 0 1 1
     
      COLUMBIA 1 0 1 2
     
      DALLAS 3 2 1 6
     
      DENVER 2 1 0 3
     
      DETROIT 0 0 0 0
     
      EL PASO 0 0 0 0
     
      HONOLULU 1 0 0 1
     
      HOUSTON 2 5 0 7
     
      INDIANAPOLIS 0 0 1 1
     
      JACKSON 2 0 0 2
     
      JACKSONVILLE 0 0 0 0
     
      KANSAS CITY 1 0 1 2
     
      KNOXVILLE 0 0 0 0
     
      LAS VEGAS 1 0 0 1
     
      LITTLE ROCK 0 1 0 1
     
      LOS ANGELES 4 0 0 4
     
      LOUISVILLE 0 0 0 0
     
      MEMPHIS 0 0 0 0
     
      MIAMI 1 1 0 2
     
      MILWAUKEE 0 0 1 1
     
      MINNEAPOLIS 2 0 0 2
     
      MOBILE 0 0 1 1
     
      NEWARK 2 4 0 6
     
      NEW HAVEN 0 1 0 1
     
      NEW ORLEANS 3 3 0 6
     
      NEW YORK 1 1 1 3
     
      NORFOLK 0 0 0 0
     
      OKLAHOMA CITY 0 0 0 0
     
      OMAHA 1 0 0 1
     
      PHILADELPHIA 4 2 2 8
     
      PHOENIX 0 0 0 0
     
      PITTSBURGH 1 1 1 3
     
      PORTLAND 0 0 0 0
     
      RICHMOND 0 0 0 0
     
      SACRAMENTO 0 0 0 0
     
      ST. LOUIS 2 1 0 3
     
      SALT LAKE CITY 1 0 1 2
     
      SAN ANTONIO 1 5 0 6
     
      SAN DIEGO 0 0 0 0
     
      SAN FRANCISCO 1 0 0 1
     
      SAN JUAN 0 2 0 2
     
      SEATTLE 0 0 0 0
     
      SPRINGFIELD 3 0 2 5
     
      TAMPA 0 0 1 1
     
      WMFO 0 0 1 1
     
         
      TOTAL 48 32 17 97
     

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     FINANCIAL INSTITUTION FAILURE INVESTIGATIONS

1997 - 2001

YEAR FAILURE INVESTIGATIONS
1997
200
1998
142
1999
129
2000
99
2001
97

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FDIC - INSURED “PROBLEM INSTITUTIONS” 1997 - 2001

MONTH/YEAR COMMERCIAL BANKS SAVINGS INSTITUTIONS TOTAL
12/97
71
21
92
12.98
70
18
88
09/99
69
11
80
12/00
76
18
94
12/01
95
19
114

“Problem Institutions” – those with financial, operational or managerial weaknesses that threaten their continued viability.

Source: FDIC Quarterly Banking Profile through Fourth Quarter 2001

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ASSETS OF FDIC - INSURED “PROBLEM INSTITUTIONS”
1997 - 2001

 

MONTH/YEAR

COMMERCIAL BANKS
($ BILLIONS)

SAVINGS INSTITUTIONS
($ BILLIONS)

TOTAL
($ BILLIONS)
12/97
5
2
$7
12/98
5
6
$11
09/99
4
4
$8
12/00
17
7
$24
12/01
36
4
$40

 

“Problem Institutions” – those with financial, operational or managerial weaknesses that threaten their continued viability.

Source: FDIC Quarterly Banking Profile through Fourth Quarter 2001

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