FBI Executive Asst. Director Ashley on Interrnal Audits and FBI Priorities

Institute of Interntal Auditors addressed by FBI's Ashley during fraud seminar


In that case, a crooked insider at a Long Island company that provided customers with access to credit history bureaus downloaded over 30,000 credit histories. He then sold them to conspirators who used them to commit identity theft. They looted personal savings accounts and racked up credit card charges. Their crimes impacted over 30,000 victims and resulted in over $11 million in losses. The subject pled guilty, and was sentenced to 14 years in prison.

Another rapidly-growing threat the FBI investigates is mortgage fraud. Nearly 22,000 mortgage-related suspicious activity reports have been filed this year. Losses have increased from $429 million in 2004 to over $1 billion in 2005. Like corporate fraud, mortgage lending and the housing market have a significant impact on our nation's economy. Many people want to believe their homes are worth more than they are, and the recent housing booms across the U.S. have attracted criminals who want to exploit the situation to make a quick profit.

The FBI investigates mortgage fraud in two distinct areas: fraud for housing and fraud for profit. Fraud for housing represents illegal action perpetrated solely by the borrower--the motive being to acquire and maintain ownership of a house under false pretenses, such as misrepresenting income or employment history, or using a stolen identity for the transaction.

The FBI focuses the majority of its mortgage fraud efforts on fraud for profit. This is commonly referred to as "Industry Insider Fraud," which speaks for itself. We estimate that 80 percent of all reported fraud losses involve collaboration or collusion by industry leaders. Typically, their M.O. is revolving equity, falsely inflating property values, or issuing loans based on fictitious properties.

One current mortgage fraud trend is property flipping, which is best described as buying properties and then artificially inflating their value through false appraisals. Then, the properties are repurchased several times at a higher price by associates of the "flipper." Often, flipped properties are repurchased for 50 percent to 100 percent of their original value.

Another trend is equity skimming, which happens when corrupt insiders persuade unsophisticated borrowers to refinance their mortgages every few months. Corrupt employees target people with high mortgage interest rates and convince them to refinance at slightly lower rates. A few months later, they repeat the scheme with a slightly lower rate, but a higher loan amount is generated each time to pay the origination fees. In essence, the perpetrators strip the remaining equity from the properties and line their pockets with origination fees. Eventually the loans become too large for the borrowers, who are forced to default.

These are just some of the trends we are seeing, but we have been working hard to educate the public and to work with the mortgage industry to combat the problem. For example, we are collaborating with the Mortgage Bankers Association to improve and promote reporting of fraudulent mortgage activity through filing Suspicious Mortgage Activity reports. This will give us a more complete picture of the problem so we can more effectively disrupt and dismantle mortgage fraud.

Health care fraud is another area of great concern. And as people continue to live longer, criminals will continue their attempts to defraud health care programs. We are seeing criminal activity ranging from the traditionally unscrupulous--such as fraudulent billing--to the truly unconscionable, such as diluting cancer drugs and performing unnecessary surgeries.

Health care fraud puts the health and finances of all Americans at risk. And although we believe the problem will persist, especially as the elderly population continues to grow, we are making solid progress. In 2005, for example, we secured 402 indictments and 500 convictions.