Analysis: U.S. turns to thrift-era fraud law to tackle money laundering

Thu Apr 4, 2013 2:36pm EDT
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By Aruna Viswanatha

WASHINGTON (Reuters) - The Justice Department is again testing the reach of a once-dormant civil fraud law, applying it to money laundering after reviving it recently for cases tied to the financial crisis.

The Financial Institutions Reform, Recovery and Enforcement Act, passed in 1989 in response to the savings-and-loan crisis, covers fraud that "affects" federally insured financial institutions, a broad category that is increasingly useful to government lawyers.

Ignored for a time after the cleanup of the thrift crisis, FIRREA has in recent years been used to pursue allegations of misconduct in making government-insured loans and even charges that rating agency Standard & Poor's misled investors.

A case involving a small Delaware bank has pointed to yet another use for FIRREA - battling money laundering.

The Justice Department is "actively trying to use FIRREA in a variety of creative contexts," said Andrew Schilling, a partner at the law firm BuckleySandler who previously led the civil division in the Manhattan U.S. Attorney's office.

The law combines the broad nature of certain criminal statutes with the lower burden of proof needed for civil charges, giving the government ammunition to bring cases on the preponderance of the evidence, without needing to prove fraud beyond a reasonable doubt.

In November, the Justice Department brought its first money-laundering case using FIRREA, in a lawsuit against the First Bank of Delaware.

The U.S. Attorney's office in Philadelphia accused the bank of violating FIRREA by processing withdrawals on behalf of fraudulent merchants and ignoring obligations to report suspicious activity. The law essentially allows the Justice Department to bring civil wire fraud cases, and in this case, the government accused the bank of engaging in wire fraud by processing transactions it knew, or was willfully blind to knowing, were based on fraud against consumers.   Continued...

One hundred dollar notes are seen in this photo illustration at a bank in Seoul January 9, 2013. REUTERS/Lee Jae-Won