Wave Of Fraud Cases Stretches FBI Ranks

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With half of its 12,000 agents working on counterterrorism, the FBI was already short-handed when the financial crisis exploded. The bureau has had to respond by opening thousands of mortgage and securities fraud cases, and officials there say they think that is just the beginning. They expect to open many more in the weeks and months ahead.

The sense both inside and outside the bureau is that something is going to have to give. Quite simply, at this point there aren't enough investigators to go around. Craig Dotlo, head of the society of former FBI agents, says the bureau is going to have to reassess priorities. For example, he says that agents are starting to think they have to pick and choose which terrorism leads to follow.

"Some agents believe we should be more circumspect about what we cover," says Dotlo. "And I think that is where the controversy is."

With so much focus on terrorism, the natural question is: What's being overlooked?

Consider defense contracting. The FBI helps the Department of Defense investigate fraud — in particular procurement and contracting fraud. The FBI has clearly decided, given its thin bench, to pursue fewer cases.

"There isn't that much aggressive review being done in reference to the whole contracting and procurement area," says William Dupree, the founder and former head of the Defense Department's Criminal Investigative Service. His job was to make sure that defense contractors weren't ripping off the government. He says that just doesn't seem to be a priority anymore. "I get the sense that nobody is minding the store. ... I get the sense that there isn't the aggressiveness in reviewing and looking at things that there should be under the current circumstances."

What Dupree means by "current circumstances" is the amount of defense spending going on. Defense contracts have just about doubled in value — to about $400 billion — since the beginning of the Clinton administration. But the number of cases the FBI has referred for prosecution has fallen by more than half.

Nick Schwellenbach is a researcher at The Center for Public Integrity, a watchdog group. He has just written a report on the falloff in Defense Department procurement fraud cases. The FBI had referred 213 cases in 2001. Last year, the number was just 86. "I was surprised by the FBI's numbers because I knew governmentwide there had been a massive increase in contracting," says Schwellenbach. "It seemed counterintuitive that there would be a massive drop in the number of cases they are sending prosecutors while contracting increased so much."

He says he doesn't think there is less fraud, just less attention being paid to it.

The FBI, for its part, says there are fewer Defense Department cases because they are focusing on higher-profile investigations. Across the spectrum of other crimes that have traditionally been the FBI's responsibility, the bureau seems to have opted to give them less attention. "We used to have a drug program prior to 9/11, and that drug program is almost nonexistent now," Dotlo says. "Violent-crimes programs have suffered; not as many people work on those programs. White-collar has suffered, to some extent, although public corruption has always been a No. 1 priority for the FBI even after 9/11."

The FBI appears to be bridging its staffing gaps by referring cases to other agencies. Drug busts have been picked up by the Drug Enforcement Administration. Wire and mail fraud is being handled by local law enforcement. U.S. attorneys and the FBI have raised the bar for going forward with financial prosecutions.

FBI Director Robert Mueller told a congressional committee last week that the FBI was trying to recruit new agents. But the division that investigates financial crimes still needs more people. "The logical consequence of cannibalizing our criminal resources to augment our national security effort is that we have reduced our ability to surge resources within our criminal branch," Mueller said.

The FBI expects that surge is going to be needed soon. In addition to the 500 corporate investigations already under way, the bureau is bracing for new cases that will grow out of the government's bailout and stimulus plans. It expects that the hundreds of billions of dollars being spent will create new possibilities for fraud and public corruption. The FBI is going to have to find the agents to investigate those cases, too.

Correction June 4, 2009

Earlier Web versions of this story erroneously referred to the Drug Enforcement Administration as the Drug Enforcement Agency.



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