tv [untitled] CSPAN June 5, 2009 3:30pm-4:00pm EDT
>> these words of warning could have been given yesterday, but in fact, teddy roosevelt delivered them more than a century ago in 19 oh seven, 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 i want to talk about the fbi's role in combating white-collar crime. we'll 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 11, counterterrorism became the fbi's top priority.
and yet at the same time, we were confronted with a rash of corporate wrongdoing, from enron to worldcom, to qwest. we have to prioritize, and we did. today we continue to balance the risk of terrorist attack, as evidenced by the plan to talk attacks against a growing risk to our economy and our communities from financial fraud and violent crime as well. 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 or example we might shift resources to combat gang activities. in chicago to organized crime, for 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, and we are using intelligence to pinpoint the greatest threats to each of our communities and working hard to prevent those threat from becoming reality. turning to the fbi's role in combating white-collar crime, there are many lenses through which to view the financial crisis. from financial institutions that traded in risk itself, to lenders and real estate professionals who sidestepped the standard rules of practice, to homeowners whose purchases exceeded their pocketbooks. risk is quite obviously 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, risks to businesses, risk to investors, risk to homeowners, risk to the economy at large.
and yes, there are those who intended to defraud others. but in part, the subprime lending crisis may have been more a matter of a group thing and agreed. the prevailing thought process seemed to be everyone is making money, why should we miss the boat. if you ever believe the boat might sink, and when it did some tried to patch the holes with the tape, bailout 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. and we do so in two distinct ways. first, we are investigating those with criminal responsibility for aspects of the current crisis. and 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.
start by talking about mortgage fraud. we are currently investigating more than 2400 mortgage fraud matters, more than double the number from just two years ago. we have double the number of agents working on these cases throughout the country. we are investigating industry insiders, both those who knowingly participated in fraudulent transactions and those who knew the risks and intentionally misrepresented those risks, 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 the five defendants in a $70 million
mortgage fraud ponzi scheme. these defendants allegedly tricked homeowners into pouring money into the defendants business with a 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. value that more than $100 million. the alleged leader of this group is a documented group of a well established and violent street gang. in a case with a unique twist, we work with our partners in the milwaukee police department to investigate a mortgage fraud scheme orchestrated by a convicted drug dealer. michael locke and his conspirators ran a classic house flipping scheme with a straw buyers, phony appraisals and forged bank records. they would obtain a loan money and divide the proceeds, loans
within go into into default and homes into foreclosure. at the criminal activity did not end there. winlock sold one of the houses in question, the bodies of two suspected drug dealers were discovered buried under concrete slabs in the backyard. he is now serving two life sentences on homicide and kidnapping convictions, and has been convicted of wire fraud arising out of the mortgage fraud scheme. we have cases similar to these across the country, and by that i mean the mortgage fraud, not necessarily the bodies that were found in the backyard. turning to corporate fraud, unfortunately the picture is not any prettier when it comes to corporate rock. like mortgage fraud economic crimes are crimes of opportuni opportunity, new schemes are revealed everyday with losses that once would have been
unthinkable, but now are becoming commonplace. currently we are investigating more than 500 corporate fraud cases, and we have more than 1300 securities fraud cases under investigation, including the many ponzi scheme so prevalent in the news today from the high profile financiers such as bernie madoff to seemingly ordinary individuals from arizona, arkansas or massachusetts, even minnesota. we are targeting accounting fraud, insider trading and deceptive sales practices. which we identify the key players. we investigate and bring the appropriate charges, agents and analysts on our corporate fraud response team. as an example our specially trained complex investigations and a very short timeframe and they can be deployed at a moments notice across the country. we do not take these
investigations lightly nor do we open cases without careful consideration. we do recognize the impact of a public disclosure of a criminal investigation may have on the companies reputation and on the market as a whole. these investigations further emphasized those in need for independent board members, auditors and outside counsel. shareholders rely on a board of directors to serve the corporate date as of the corporate watchdog. but often we see conflict of interest in the corporate suites. we all understand that it is better for a company to self-report into 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 himself 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 interest of the company, giving 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 have also seen executives who did not start out intending to break the law. but they begin to believe their own explanations, and it is a very 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. and the same can 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. i was in a brief moment talking about another aspect of financial crime, economic crime, white-collar crime, and that his public corruption. unfortunately the private sector has by no means cornered the market on greed. public corruption is the fbi's top priority and indeed has been the top priority in the criminal arena since september 11. it is our top priority because public corruption strikes at the
heart of good government. and while the vast numbers, the vast majority of the public officials are honest in their work, and are committed to serving their fellow citizens, there are others, some who have abused the public trust. we currently have more than 2500 public corruption investigatio investigations. and the last two years alone, we have convicted nearly 1700 federal, state and local officials for abuse of the public trust. for a nation that is built on the rule of law, we can and we should do better. whether the matter is local, national or international, whether it concerns of millions of dollars for merely hundreds, there is no level of acceptable corruption. the violation of the trust is the same, the damage to the
taxpayers. [inaudible] >> we can start by making every effort to recognize corruption when it is seen either at home, overseas, refuse to participate in corruption of any kind, and finally, you can call us. we are always anxious and willing to receive your calls. one last question, and that is what do we see in the future. we and our counterparts in other agencies are working to prevent but has the potential to be the next wave of cases. fraud and corruption related to the tar ponds and a stimulus package. these funds are inherently vulnerable to conflict of interest, inclusion. there isn't old adage that 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 of abuses -- abuse was most likely to take place. for the work of that task force, we have 246 convictions 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. we have trillions, trillions of dollars at stake. from the purchase of troubled assets to improvements in infrastructure, healthcare, energy, education, even a small percentage of fraud would result in substantial, substantial taxpayer losses. we must collect the intelligence
necessary to target the potential waste and abuse at all levels, and we must do so before it fully developed. to that and 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, other multi- agency task forces and inspectors general to identify where these funds are going and for what purpose. we want to ensure that these funds will be appropriately utilized, and we will investigate and prosecute 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 and bester conference 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, kerch of one's convictions should always prevail, and that integrity, 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 damage is maybe 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. kerch. and character. it is my hope that by working together we can minimize fraud and corruption. we each have a role to play, and together we can bring to light the wrongdoing that threatens our economy, our security and the welfare of our nation. and together we can strengthen
our culture, the united states culture, of integrity. thank you for having me today and got blessed. [applause] >> thank you very much. it is our custom, we have to club members ask questions. the founder of kroll inc., and alan murray, the assistant managing editor of "the wall street journal." jewels, the first question for the director comes from you. >> thank you mr. director. and thank you for the work that you perform for our country. that's the easy part. >> i thought so. >> i want to focus on two areas. number one, the focus on financial fraud, and raise some questions having to do with the fbi as a preventable organization or the fbi as a crime-fighting organization. my second question will deal
with the whole counterterrorism issue and the role the fbi should most effectively play, the crime-fighting piece versus the intelligence piece, an issue that i know you are very comely with and have been very involved in examining and considering. so to the first question, for my own experience, which is of course in the corporate sector. i find that there is certain organizations i culture, by orientation and by training are better at prevention and detection. i would say that's true of the auditing profession, in my view. the fbi has a great and well-earned reputation as a crime-fighting organization. one of the issues i would pose to you is who is going to own the responsibility -- i know there are taskforces and there are committees which are inherently difficult to manage, but look looking at the tarp funds, but alfons and what will be taking place in the
disposition of many so-called toxic assets there is going to be a huge sum of money and opportunities for fraud. why is the fbi focused on the preventative piece when we have many other organizations in the private and public sector who in my view are better equipped? most people in the room probably don't know how few special agents there are. you have a limited amount of manpower. answer my question specifically is prevention versus detection versus both. and your policy-setting as the head of the bureau. >> i tend to look at prevention and detection and conviction along a continuum. and you are more successful in the detection and a conviction if you have been in on the preventive stage. an example being that we are working with inspectors general now. and yes, the inspectors general
have the initial responsibility of putting to place those mechanisms that will prevent fraud, waste and abuse. but in working with them and in looking down the road we want to make certain that the accounting mechanisms ammann recordkeeping, that is put in place right now is capable of providing us the information we will need when we detect fraud. and so there are various roles to be played in preventing fraud in the first instance, but also going after the fraud once it occurs. and to the extent that we can more incorporate work and task forces and work with the inspectors general i believe we will be much more successful in preventing fraud, but also much more successful in identifying that fraud, investigating and prosecuting it down the road. that's the white collar criminal arena. >> any examples where the fbi in the context of financial fraud has played any meaningful role prior to the last 12 months?
from a preventative point of view. >> i think you make an a somewhat artificial distinction of the preventive versus investigation. guess, in the course of investigations whether it be ourselves or in conjunction with aig, we have had instances i can name off the top of my head, where together we have identified a fraudulent scheme and terminated through investigations, prosecutions for it to go elsewhere. across the country, over the years we have worked very closely as you well know what the inspectors general of government fraud, with the other inspectors general that putt and elsewhere to address both from the preventative side but also from the investigation and convictions i'd. >> okay. let me switch topics now. >> we will come back. >> okay. [laughter] >> glenn, how often do you get a chance to cross-examine the head of the fbi?
[laughter] [inaudible] >> i thought the most interesting part was you were talking about the shortage of agents. that's because you hired them all away. [laughter] >> that's true also. >> i want to go back to your point about mortgage fraud. you talked about a doubling of fraud cases, doubling of your resources to combat mortgage fraud. i think we all know now that one of the things that happened in the last decade was an extraordinary abandonment of prudent lending standards. mortgage loans were made with no down payment. mortgage loans were made with negative amortization, and people were qualified based on their ability to pay the first year but not the third year when it ballooned. and most significantly mortgage loans, there were these no doc loans were you didn't really have to prove you had an income. it seems like all that was an indication to fraud, and i wonder how you feel about putting the burden now on the
fbi to clean that up, if the fundamental problem was ludicrously lax lending standards. >> i think both in my remarks and observers, i think we both will say there are many factors that contribute to the financial plight that we are in now. and the mortgage and subprime mortgage fraud crisis. a piece of that was intentional fraud that should be investigated and prosecuted and individuals responsible go to jail. but it is a slice of it. and what i try to articulate and my remarks was exactly that. it's a much larger problem than just those individuals who committed fraud. i will tell you, an agent i talked to a couple of months ago was doing these type of cases back in 2000, 2001, 2002. he said we had some success addressing these cases and he said the housing market was going up so fast that even if
you found fraud you would find no loss to the investors. and so the housing market continued, the continued upturn in the housing market is limited to loss to investors because you turned around and you could sell it for a higher price. and so fraud was a part of it but it was not the sole reason for it, nor do i think necessarily that is a principal reason for the economic plight we are in today. >> director mueller, let me shift my second area which is the fight against counterterrorism. and we have a present today commissioner kelly, and former commissioner safer and i know the partnership has been a terrific partnership. my question is a focus question, and i am back to prevention and detection but in a different venue.
this time the venue is in the area of counterterrorism. given the limitation of resources that you have, as a crime-fighting organization, my own expense is people who are crimefighters tend now to be particularly good at intelligence activities. my personal expense. so my question for you is this, there are other questions around the world who divided the responsibility for intelligence gathering versus crime-fighting. and if you could, could you make the case for why we need to keep both functions inside the bureau when the need for crime-fighting will always be substantial whether it's financial fraud, whether it's violent, whatever it is. please make the case for us why the intelligence function should remain inside of one organization, from your perspective. >> you're alluding to domestic
intelligence agencies around the world, whether it be in my five or where there is a separate agency. i think what you will find if you go back and look at a number of these agencies is that they understand there has to be a closer connection with the law enforcement entities. the first reason why we need to have it within our organization is because whenever you pass out the case, if you have developed case and then you want to pass off her for conviction, and inevitably there is a drop in the knowledge of the agents or the officers in passing the case on. the other thing that is often overlooked particularly in the united states is the incentive for that agency to gather intelligence through the criminal justice process. one of the things you have happening in almost all of our cases around the country is that one or more other persons in our plea-bargaining system will only cooperate and give us intelligence. we would call it in some circumstances in the past, we go to the person who wants to
cooperate and say okay, what can you tell us about your conspirators in this particular illegal case. now to go back and say what can you tell me about terrorism in the united states or overseas. and so having that continuum, the development of the intelligent, the use of that intelligence to develop a case and then utilizing that case and convicting the person, but also out of that case comes intelligence that feeds back into the cycle is tremendously important. >> another point i would make on his. if you look at what we are good at, as a law-enforcement agency, we are good at interviews and interrogations, developing sources, we are good at wiretaps whether it be for national security or criminal, we call title iii for better wires. same type of thing that is done by nsa. we also do forensic, whether it be dna, fingerprints and the like. and lastly israel and. what we do in all those four
arenas is collect information. now, in the past, yes, there is a mentality you are clicking evidence as opposed to information. but the fact of the matter is you are collecting information. and out of the information you have a much broader view of the gaps that you are missing in terms of identifying down the road. so what we do, if you use the intelligence community jargon as we are collectors. what we have not done well in the past is understand that our domain we have to identify the threat, understand what we know, identify gaps in what we know, and then collect against those gaps which is the kind of cycle that is seen in the intelligence community. having it wrapped up in one organization in my mind usually much broader capability to identify the threat, fill the gaps of that threat, and then where appropriate, investigate, indict and then start the cycle again. one last piece, and that is we
as an organization, i believe strongly as a principal, that we are there to protect the civil liberties and privacy rights of individuals. i have infiltrated every agent coming out of quantico, and it is important that we keep that in mind when we are utilizing intelligence, and our organization i believe keeps that foremost in its mind when it's doing its work. and i'm not certain that unfettered, domestic intelligence agency would have the same appreciation of the importance of those particular elements. >> i would like one last point, because ray kelly is here and is a terrific job, and to an certain extent we have learned from right. the next time raise up your talking, ask him about the necessity of combining intelligence with the operations, because he has been one of the foremost advocates of that, he's done a trigger job on it. >> let your foray.