Anti-Money Laundering Association

July 16, 2008 Event

SSA Brian C. WeberFinancial Institution Fraud Asset Forfeiture UnitFBI Headquarters(202) 324-3309Brian.Weber@ic.fbi.gov

Financial Crimes and SARsFinancial Crimes and SARs

Hundreds of Thousands of SARSHundreds of Thousands of SARS

Billions of Dollars in Estimated LossesBillions of Dollars in Estimated Losses

Very Important tool for Law EnforcementVery Important tool for Law Enforcement– Direct ResourcesDirect Resources– Assist With Ongoing CasesAssist With Ongoing Cases– Track Trends Track Trends

Suspicious Activity ReportsSuspicious Activity ReportsNumber of SARs ReportedNumber of SARs Reported

Nationwide Nationwide – FY 2008 – FY 2008(10/01/2007 – 6/30/2008 3rd Quarter)(10/01/2007 – 6/30/2008 3rd Quarter)

265,715

244

59,439

28,593

3,131

1,124

16,419

23,042

1,771

1,950

28,937

3,836

5,623

28,302

4,671

48,510 3,035

9,814

61,449

438

27,096

1,979

0

100,000

200,000

300,000

400,000

500,000

BSA

/Money L

aundering

Bribery

Check Fraud

Check K

iting

Com

mercial L

oan Fraud

Com

puter Intrusion

Consum

er Loan Fraud

Counterfeit C

heck

Counterfeit C

redit-Debit C

ard

Counterfeit Instrum

ent

Credit C

ard Fraud

Debit C

ard Fraud

Defalcation-E

mbezzlem

ent

False Statement

Misuse of Position

Mortgage Fraud

Mysterious D

isappearance

Wire T

ransfer Fraud

Other

Terrorist Financing

Identity Theft

No V

iolation Indicated

Nu

mb

er o

f SA

Rs

rece

ive

d

520,467 Total SARs

Suspicious Activity ReportsSuspicious Activity ReportsDollar Losses ReportedDollar Losses ReportedNationwide - FY 2008Nationwide - FY 2008

(10/01/2007 – 6/30/2008 – 3rd Quarter) (10/01/2007 – 6/30/2008 – 3rd Quarter)

$416.9 $12.1$560.5

$871.5$890.5

$39.2$366.1

$165.1$66.8$27.8

$567.4$57.0

$423.0$688.9

$429.0$982.2

$36.2$430.6

$795.1$2.1

$469.0$16.0

$0

$500

$1,000

$1,500

$2,000

BSA

/Money L

aundering

Bribery

Check Fraud

Check K

iting

Com

mercial L

oan Fraud

Com

puter Intrusion

Consum

er Loan Fraud

Counterfeit C

heck

Counterfeit C

redit-Debit C

ard

Counterfeit Instrum

ent

Credit C

ard Fraud

Debit C

ard Fraud

Defalcation-E

mbezzlem

ent

False Statement

Misuse of Position

Mortgage Fraud

Mysterious D

isappearance

Wire T

ransfer Fraud

Other

Terrorist Financing

Identity Theft

No V

iolation Indicated

Do

llar Lo

sse

s in

Millio

ns

$5,242,047,254 in Total Losses

MORTGAGE FRAUDMORTGAGE FRAUD

Lender was stuck with a

$250,000 loan.

Appraisal: recently renovated condominiums, Brazilan hardwood, Italian granite countertops, valued at $275,000.

Mortgage fraud is committed Mortgage fraud is committed for one of two reasonsfor one of two reasons

To obtain a property To obtain a property

To gain a profitTo gain a profit

OPERATION MALICIOUS OPERATION MALICIOUS MORTGAGEMORTGAGE

JUNE 18, 2008JUNE 18, 2008

287

406

173

81

0

250

500

Arrests DefendantsCharged

Convictions Sentencings

$1.07 Billionin estimated

losses

Operation Malicious Mortgage Operation Malicious Mortgage March 1, 2008 to June 18, 2008March 1, 2008 to June 18, 2008

Seized Assets from Operation Malicious MortgageSeized Assets from Operation Malicious Mortgage

Seized Assets from Operation Malicious MortgageSeized Assets from Operation Malicious Mortgage

Where is the crime problem?Where is the crime problem?14 FBI field offices reside in the top ten mortgage fraud hotspots as identified 14 FBI field offices reside in the top ten mortgage fraud hotspots as identified through intelligence from multiple source indicators.through intelligence from multiple source indicators.

Emerging Problematic Mortgage Fraud Areas

Top 10 Mortgage Fraud Hot Spots

Source: FBI 2007 Mortgage Fraud Report

INTELLIGENCE ANALYSISINTELLIGENCE ANALYSISDirectorate of Intelligence – Financial Crimes Intelligence UnitDirectorate of Intelligence – Financial Crimes Intelligence Unit

Financial Institution Fraud/Asset Forfeiture UnitFinancial Institution Fraud/Asset Forfeiture Unit

Analysis based on research from the following Analysis based on research from the following sources:sources:

FBIFBI-Field office pending cases for FY 2007-Field office pending cases for FY 2007

HUD-OIGHUD-OIG-2007 Pending investigations-2007 Pending investigations

FinCENFinCEN-SAR analysis-SAR analysis

MARIMARI-Mortgage Asset Research Institute-Mortgage Asset Research Institute

Fannie MaeFannie Mae-Misrepresentation data-Misrepresentation data

RealtyTrac IncRealtyTrac Inc.-Foreclosure data.-Foreclosure data

InterthinxInterthinx-Provider of industry risk management tools-Provider of industry risk management tools

RadianRadian GuarantyGuaranty-Mortgage insurance provider-Mortgage insurance provider

Number of ViolationsNumber of Violations of of Mortgage Related Fraud SARS Mortgage Related Fraud SARS

Fiscal Years 2003 – 2008 Fiscal Years 2003 – 2008 (10/1/2002 – 6/30/2008) Nationwide(10/1/2002 – 6/30/2008) Nationwide

6,93

617

,127

21,9

9435

,617

46,7

1748

,510

1,85

01,

724

2,12

62,

409

3,24

03,

131

4,56

96,

784

11,6

1121

,023

28,6

9228

,302

0

100,000

Mortgage Fraud CommercialLoan Fraud

False Statement

Fiscal Year 2003 Fiscal Year 2004 Fiscal Year 2005 Fiscal Year 2006 Fiscal Year 2007 Fiscal Year 2008 ( as of June 2008)

Nu

mbe

r of

SA

Rs

rece

i ved

Dollar Losses Reported of Dollar Losses Reported of Mortgage Related Fraud SARS Mortgage Related Fraud SARS

Fiscal Years 2003 – 2008 Fiscal Years 2003 – 2008 (10/1/2002 – 6/30/2008) Nationwide(10/1/2002 – 6/30/2008) Nationwide

$225 $4

29$1

,014

$946

$813

$982 $1

,060

$1,1

63$7

11$5

40 $1,0

44$8

91

$388

$458

$998 $1

,402

$798

$689

$0

$1,000

$2,000

Mortgage Fraud CommercialLoan Fraud

False Statement

Fiscal Year 2003 Fiscal Year 2004 Fiscal Year 2005 Fiscal Year 2006 Fiscal Year 2007 Fiscal Year 2008 (as of June 2008)

Dol

lar

Los

ses

Rep

orte

d in

M

illi

ons R

ou

nd

ed

to n

eare

st

mill

ion

th

Dollar Losses in Millions

FBI Mortgage Fraud Cases FBI Mortgage Fraud Cases Fiscal Years 2003 to 2008 Fiscal Years 2003 to 2008

436534

721881

1,2041,477

0

1000

2000

FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008(as of

6/30/2008)

Cases Pending

Data Source: Compass & MAR updated 6/30/2008

Steady Growth in Pending Cases

FY 2003 -2004 CPI Codes; FY 2005-2006 - 29L& 29Ms;& FY 2007 – present - 329 Classifications Only

FBI FY 2007 Pending Mortgage FBI FY 2007 Pending Mortgage Fraud InvestigationsFraud Investigations

More than

$1 Million56%

Under $1 Million44%

Loss Amounts tied to Pending Investigations FY 2007

FY 2007 Pending FY 2007 Pending FBIFBI Mortgage Mortgage Fraud Investigations By RegionFraud Investigations By Region

South Central18%

Northeast10%

West23%

North Central27%

Southeast22%

0

50,000

100,000

150,000

200,000

250,000

Fo

recl

osu

res

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Unclassified 2005 2006 2007

RealtyTrac Incorporated, 2005 through RealtyTrac Incorporated, 2005 through 2007 Foreclosure Filings by Month2007 Foreclosure Filings by Month

RealtyTrac Inc.:RealtyTrac Inc.: Percent of Percent of Households in Foreclosure 2007 Households in Foreclosure 2007

State Percent of Households in Foreclosure 2007

Nevada 3.376

Florida 2.002

Michigan 1.947

California 1.921

Colorado 1.919

Ohio 1.797

Georgia 1.566

Arizona 1.516

Illinois 1.250

Indiana 1.027

Emerging Schemes: Emerging Schemes: Down MarketDown Market

Builder-BailoutBuilder-Bailout

Seller Assistance ScamsSeller Assistance Scams

Short-Sale FraudsShort-Sale Frauds

Foreclosure RescueForeclosure Rescue

ID Theft and HELOCsID Theft and HELOCs

Re-emerging Scheme: Re-emerging Scheme: Builder-BailoutBuilder-Bailout

Typically consist of builders offering Typically consist of builders offering excessive incentives to buyers, which excessive incentives to buyers, which are not disclosed on the mortgage loan are not disclosed on the mortgage loan documents. documents.

Occur when a builder or developer Occur when a builder or developer experiences difficulty selling their experiences difficulty selling their inventory and uses fraudulent means to inventory and uses fraudulent means to unload it. unload it.

Re-emerging Scheme: Re-emerging Scheme: Builder-Bailout ExampleBuilder-Bailout Example

Builder wishes to sell a property worth Builder wishes to sell a property worth $200,000 to a buyer. $200,000 to a buyer.

The property’s value is fraudulently inflated The property’s value is fraudulently inflated to $240,000. to $240,000.

The lender funds a mortgage loan of The lender funds a mortgage loan of $200,000 believing that $40,000 was paid to $200,000 believing that $40,000 was paid to the builder, creating home equity. The the builder, creating home equity. The builder forgives the buyers $40,000 down builder forgives the buyers $40,000 down payment. Hence, the lender unknowingly payment. Hence, the lender unknowingly funds 100 percent of the home’s value. funds 100 percent of the home’s value.