FBI is understaffed for financial investigations

The FBI is struggling to find enough agents and resources to investigate criminal wrongdoing tied to the country's economic crisis, according to current and former bureau officials.

The bureau slashed its criminal investigative work force to expand its national security role after the Sept. 11 attacks, shifting more than 1,800 agents, or nearly a third of all agents in criminal programs, to terrorism and intelligence duties. Officials say the cutbacks have left the bureau seriously exposed in investigating areas such as white-collar crime, which has taken on urgent importance recently because of the nation's economic woes.

The pressure on the FBI has recently increased with the disclosure of criminal investigations into some of the largest players in the financial collapse, including Fannie Mae and Freddie Mac. The FBI is planning to double the number of agents working financial crimes by reassigning several hundred agents amid a mood of national alarm. But some people inside and out of the Justice Department wonder where the agents will come from and whether they will be enough.

So depleted are the ranks of the FBI's white-collar investigators that executives in the private sector say they have had difficulty attracting the bureau's attention in cases involving possible frauds of millions of dollars. Some companies victimized by fraud have begun turning to private investigators and accountants to do the legwork in the cases before turning their work over to the FBI.

Since 2004, FBI officials have warned that mortgage fraud posed a looming threat, and the bureau has repeatedly asked the Bush administration for more money to replenish the ranks of agents handling nonterrorism investigations, according to records and interviews. But each year, the requests have been denied, with no new agents approved for financial crimes, as policymakers focused on counterterrorism as the chief financing priority.

According to previously undisclosed internal FBI data, the cutbacks have been particularly severe in staffing for investigations into white-collar crimes like mortgage fraud, with a loss of 625 agents, or 36 percent of its 2001 levels.

Overall, the number of criminal cases that the FBI has brought to federal prosecutors – including a wide range of crimes like drug trafficking and violent crime – dropped 26 percent in the last seven years, going from 11,029 cases to 8,187, Justice Department data showed.

“Clearly, we have felt the effects of moving resources from criminal investigations to national security,” said the FBI's assistant director, John Miller. “In white collar crime, while we initiated fewer cases overall, we targeted the areas where we could have the biggest impact. We focused on multimillion-dollar corporate fraud, where we could make arrests but also recover money for the fraud victims.”

But Justice Department data, which include cases from other agencies, like the Secret Service and Postal Service, illustrates the impact. Prosecutions of frauds against financial institutions dropped 48 percent from 2000 to 2007, insurance fraud cases plummeted 75 percent, and securities fraud cases dropped 17 percent.

Statistics from a research group, the Transactional Records Access Clearinghouse, using somewhat different methodology and looking only at the FBI, show an even steeper decline of nearly 50 percent in overall white-collar-crime prosecutions during the same period.

In addition to the investigations into Fannie Mae and Freddie Mac, the FBI is carrying out investigations of AIG and Lehman Brothers, and it has opened more than 1,500 other mortgage-related investigations into companies both big and small. Some FBI officials privately worry that the trillion-dollar federal bailout of the financial industry may itself become a problem because it contains inadequate controls to deter fraud.

No one has suggested that a quicker response would have averted the mortgage meltdown, but some officials said a faster reaction might have deterred more of the early schemes that seized on loose federal lending regulations.

Republicans and Democrats in Congress are pushing for a more aggressive response by the FBI. Reps. Mark Kirk, R-Ill., who sits on the House appropriations committee, and Chris Carney, D-Pa., called on Congress to triple the FBI's financing for financial crimes investigations.

“To fix our system and prevent a repeat of the events we now see,” they wrote in a letter last week to Robert Mueller, the FBI director, “we have got to set an example by bringing the full might of federal law enforcement against the people who illegally profited or destroyed companies at the expense of our country.”

In public, Mueller has insisted that the FBI is doing more with less when it comes to criminal prosecutions. And Justice officials have repeatedly asserted the administration's commitment to fight violent and white-collar crime even as they have not provided the bureau additional resources.

But current and former officials say Mueller has lost a behind-the-scenes battle with the Justice Department and the Office of Management and Budget to replenish the ranks.

“The administration's top priority since the 9-11 attacks has been counterterrorism,” said Justice Department spokesman Peter Carr. “In part, that's reflected by a significant investment of resources at the FBI to answer the call from Congress and the American public to become a domestic intelligence agency in addition to a law enforcement agency.”

Interviews and internal records show that FBI officials realized the growing danger posed by financial fraud in the housing market beginning in 2003 and 2004 but were rebuffed by the Justice Department and the budget office in their attempts to acquire more resources and staffing.

Between 2001 and 2007, the FBI sought an increase of more than 1,100 agents for criminal investigations apart from national security. Instead, it suffered a decrease of 132 agents, according to FBI data. During these years, the bureau asked for an increase of $800 million but received only $50 million more. In the 2007 budget cycle, the FBI obtained money for a total of one new agent for criminal investigations.

* Does not include public corruption crimes.

SOURCE: New York Times