THE FEDERAL BUREAU OF INVESTIGATION
FINANCIAL INSTITUTION FRAUD AND FAILURE REPORT

For Fiscal Year (FY) 2004
Ending September 30, 2004

The Federal Bureau of Investigation's (FBI) mission in the area of financial institution fraud (FIF) is to identify, target, disrupt, and dismantle criminal organizations and individual operations engaged in fraud schemes which target our nation's financial institutions. Additionally, the FBI seeks to identify, undertake, and promote prevention measures, where available, to reduce the opportunity for fraud to take place within the financial institution arena. Within white-collar crimes, FIF investigations are among the most demanding, difficult, and time-consuming cases undertaken by law enforcement. Efforts by the FBI and the Department of Justice have attained extraordinary results since the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989.

Areas of primary investigative interest relative to FIF include financial institution failures, insider fraud, identity theft, check fraud, counterfeit negotiable instruments, check kiting, and mortgage and loan fraud. FIF investigations related to emerging technologies and computer-related banking are taking on added significance among the nation's financial institutions.

Since the 1992 peak of the savings and loan crisis, the FBI has been able to refocus its investigative efforts from failed financial institution cases to other high-priority FIF matters. At the close of FY 2004, the total number of pending FIF investigations for the FBI was 5,125. Of this total, 60 failure cases, or less than 1 percent, involved criminal activity related to a failed financial institution. This statistic reflects a 92 percent reduction in failure investigations since the July 1992 peak of 758 cases.

However, as the number of failure investigations has declined, the number of major FIF investigations has remained substantial. As of FY 2004, the FBI was investigating 3,915 major cases, or 76.3 percent of all pending FIF cases. This is significant in view of the fact that convictions related to major case investigations have remained constant since FY 1995, surpassing total convictions for major cases during the 1992 peak.

During the late 1980s and early 1990s, approximately 60 percent of the fraud reported by financial institutions related to bank insider abuse. Since then, external fraud schemes have replaced bank insider abuse as the dominant FIF problem confronting financial institutions. The pervasiveness of check fraud and counterfeit negotiable instrument schemes, technological advances, as well as the availability of personal information through information networks, has fueled the growth in external fraud. In many instances, the international aspects associated with many of these schemes have increased the complexity and severity in the fraud being committed.

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1A major case is defined as an investigation pertaining to a failed financial institution, or where the loss or loss exposure to the financial institution exceeds $100,000

For the period of April 1, 1996, through September 30, 2004, the FBI received 340,781 Suspicious Activity Reports (SARs) for criminal activity related to check fraud, check kiting, counterfeit checks, and counterfeit negotiable instruments. These fraudulent activities accounted for 46.5 percent of the 732,161 SARs filed by U.S. financial institutions (excluding Bank Secrecy Act violations), and equaled more than $9 billion in losses.

The FBI continues to concentrate its efforts on organized criminal groups involved in these activities. These organized groups are often involved in the sale and distribution of stolen and counterfeit corporate checks, money orders, payroll checks, credit and debit cards, U.S. Treasury checks, and currency. Furthermore, the organized groups involved in check fraud and loan fraud schemes are often involved in illegal money-laundering activities in an effort to conceal the proceeds from their crimes.

Criminal activity has become more complex and loan frauds are expanding to multitransactional frauds involving groups of people from top management to industry professionals who assist in the loan application process. These professionals include loan brokers, appraisers, accountants, and real estate attorneys. Such transactions are sometimes hidden against a backdrop of genuine transactions which give them an appearance of legitimacy. Due to the complexity of these crimes, more FIF investigations are being initiated than ever before. These cases target large-scale fraud operations, often involving hundreds of subjects in multiple jurisdictions.

Other fraud matters affecting the nation's financial institutions are being classified and worked by the FBI as Corporate Fraud, Cyber Fraud, and Terrorist Financing. The results of these cases are not included in this report.

The lines between traditional banking services and other financial services now offered by these institutions are fading. As financial institutions become less regulated and provide more financial services to the public through the sale of insurance, securities, investment products, and on-line banking, the nature of FIF will change in terms of the potential impact to the nation's financial institutions.

The FBI has responded to these trends by providing proactive deterrents to assist the nation's banking infrastructure in combating FIF. The FBI and the Office of the Comptroller of the Currency published Check Fraud: A Guide to Avoiding Losses, (revised in 1999 by the FBI) to assist financial institutions in identifying check fraud-related schemes. Another publication produced in 2001 by the FBI entitled: "How Financial Institutions Can Help the FBI" can assist financial institutions in preventing
and reporting financial crimes as well as bank robberies.

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2These statistics are derived from the Suspicious Activity Report database, which is owned by the five Federal banking regulatory agencies, and is maintained by the U.S. Treasury Department's Financial Crimes Enforcement Network.

I. FINANCIAL INSTITUTION FAILURE INVESTIGATIONS
AND PERCENT OF INCREASE (DECREASE) FROM PRIOR YEAR

Since February 1986, the FBI has tracked the number of financial institution failure investigations. From a peak of 758 cases in July 1992, failure investigations have steadily declined. Since the 1992 peak, failure investigations have decreased 92 percent. The matrix below illustrates the number of failure investigations and corresponding percentage change by fiscal year.

The chart and graphs which follow exhibits:

(a) Financial Institution Failure Investigations by Field Office and Category, during FY 2004;
(b) Financial Institution Failure Investigations for 2000 - 2004;
(c) Number of FDIC-Insured "Problem" Institutions for 2000 - 2004; and,
(d) Assets of FDIC-Insured "Problem" Institutions for 2000 - 2004.

FINANCIAL INSTITUTION FAILURE INVESTIGATION
BY FIELD OFFICE AND CATEGORY
FISCAL YEAR 2004

   FINANCIAL INSTITUTION FAILURE INVESTIGATIONS

2000 - 2004

FDIC - INSURED “PROBLEM INSTITUTIONS” 2000 - 2004

“Problem Institutions” – those with financial, operational or managerial weaknesses that threaten their continued viability.

Source: FDIC Quarterly Banking Profile through Third Quarter 2004

“Problem Institutions” – those with financial, operational or managerial weaknesses that threaten their continued viability.

Source: FDIC Quarterly Banking Profile through Third Quarter 2004

II. FINANCIAL INSTITUTION FRAUD AND MAJOR CASES
UNDER INVESTIGATION BY THE FBI BY FISCAL YEAR

Following the 1982 deregulation of the savings and loan industry, and in conjunction with more speculative lending practices, the FBI initiated criminal investigations of hundreds of failed financial institutions throughout the United States. Since the July 1992 peak, the number of failure investigations has steadily declined. However, total FIF and major case investigations have leveled off to pre-1992 figures. At the close of FY 2004, the total number of pending FIF and major case investigations continue to exceed levels at the beginning of the savings and loan crisis. The following matrix reflects total pending FIF and major case investigations reported during FY 2000 through FY 2004.

The chart and graphs which follow exhibits:

(a) Pending Cases by Institution Type and Major Cases for FY 2004;
(b) Pending and Major Cases for FYs 2000 - 2004; and
(c) Pending Caseload by Institution Type and Dollar Loss for FY 2004.

FINANCIAL INSTITUTION FRAUD CASES
BY INSTITUTION TYPE AND MAJOR CASE
(PENDING AS A SEPTEMBER 30, 2004)

PENDING AND MAJOR CASES

2000 - 2004

PENDING CASELOAD BY INSTITUTION TYPE AND DOLLAR LOSS FISCAL YEAR 2004

FAST TRACK = 315

< $25K IN LOSSES = 163

TOTAL CASES = 5,125

III. STATISTICAL ACCOMPLISHMENTS FROM FBI INVESTIGATIONS
IN FINANCIAL INSTITUTION FRAUD AND FAILURE MATTERS

A. CONVICTIONS/PRETRIAL DIVERSIONS

Total FIF convictions, excluding local convictions, continued to decrease. However, the percentage of convictions in major cases continued to increase. The matrix below is illustrative of this trend.

* - includes PreTrial Diversions and excludes local convictions.

The charts and graphs which follow exhibits:

(a) Convictions and PreTrial Diversions for FYs 2000 - 2004;
(b) Types of Subjects Convicted During FY 2004;
(c) Total Convictions, "Outsiders vs Insiders" for FYs 2000 - 2004; and
(d) Convictions and PreTrial Diversions by Institution Type and Amount for FY 2004.

FINANCIAL INSTITUTION FRAUD CONVICTIONS AND PRETRIAL DIVERSIONS
(DOES NOT INCLUDE LOCAL CONVICTIONS)

TYPES OF SUBJECTS CONVICTED IN
FINANCIAL INSTITUTION FRAUD CASES
FISCAL YEAR 2004*

* Does not include PreTrial Diversions or local convictions

 CONVICTIONS “OUTSIDERS VS INSIDERS”
2000– 2004

(no pretrial diversions or local convictions)

CONVICTIONS & PRE-TRIAL DIVERSIONS
BY INSTITUTION TYPE & AMOUNT
FISCAL YEAR 2000
(No State or Local Statistics)

FAST TRACK = 168

* <$25K IN LOSSES = 62

(*NOT TRACKED BY INSTITUTION TYPE)

B. INDICTMENTS AND INFORMATIONS

For FY 2004, the total number of defendants charged by indictment or information decreased 33.8 percent from FY 2003. The following matrix illustrates this trend.

The chart and graphs which follow exhibits:

(a) Total FIF Indictments and Informations for FYs 2000 - 2004; and
(b) Indictments and Informations by Institution Type and Dollar Loss for FY 2004.

FINANCIAL INSTITUTION FRAUD INDICTMENT/INFORMATIONS
(DOES NOT INCLUDE LOCAL INFORMATION/INDICTMENTS)