FBI combats financial fraud with CFEs

Brian Lamkin, chief of the FBI's Financial Crimes Section, directs his team of agents and analysts to tackle fraud while working toward additional recognition for CFEs.  

Brian Lamkin is the once and current leader of the band. But the results are no longer music performances but fraud convictions. Lamkin, the chief of the Financial Crimes Section of the FBI, is responsible for the section's 2,300 agents and 400 support staff members - many of whom are CFEs - and more than 18,000 yearly white-collar cases. But it was during his nine years directing some 120 high school band musicians that helped develop the skills of an effective FBI agent and manager.

"Growing up there were two things that I was interested in: music and law enforcement," Lamkin said during a recent interview with Fraud Magazine in his office at FBI Headquarters in Washington, D.C. His father, a Louisville, Ky., police officer, was an FBI National Academy graduate who once introduced his 10-year-old son to then-director J. Edgar Hoover.

In college, Lamkin graduated with an instrumental music education degree and then worked as a band director at two Kentucky high schools. But since meeting Hoover, he always thought he'd like to work for the FBI one day. So in 1987, at age 30, he applied to the agency and was accepted. Since then, he's worked at FBI offices in Norfolk, Va.; Dallas, Texas; Baltimore, Md.; and Louisville, Ky., and two stints at headquarters.

Though the FBI accepts numerous accountants and lawyers into its ranks, it also recruits diversified applicants such as teachers, police officers, engineers, and military personnel. "Educators have always been a major part of the FBI family," Lamkin said. "Teachers have the skills the FBI needs: setting individual goals, self-discipline, seeing projects through to the end," he said.

"An agent or analyst isn't expected to know everything but when you bring all the diverse parties together, you develop a team, everybody benefits, and you learn something (and catch fraudsters) in the process," Lamkin said. "My former job as the director of a band or orchestra is similar to my job as the Financial Crimes Section chief: to mold them into one solid group to bring the final product forward, whether it be the composer's or the FBI director's vision," he said.

Part of that vision is the FBI's ongoing initiative, "Operation Continued Action," which investigates such rampant financial schemes as mortgage and loan fraud, insider fraud, identity theft, check fraud and kiting, plus financial institution failures due to fraud.

From its inception in August 2004, Operation Continued Action investigators have identified at publication time more than 245 subjects in 158 investigations with 144 arrests, convictions, and sentences.

From 2000 to the present, the FBI's investigations in the financial institution fraud arena have resulted in more than 11,466 indictments, 11,362 convictions, and approximately $8.1 billion in restitution orders.

Lamkin elaborated on the FBI's Financial Crimes Section's efforts during the Fraud Magazine interview.

Please describe your responsibilities as you coordinate the diverse areas of the FBI's Financial Crimes Section (FCS).
As chief of the Financial Crimes Section, I am responsible for the oversight of all white-collar crimes cases (except for public corruption matters) throughout the FBI. This includes setting policy, budget, acquisition of resources (agents and support personnel), and establishing liaisons with other government agencies and financial services industry representatives to address crime trends affecting the U.S. financial services sector. The FCS is comprised of four units (program specific): the Financial Institution Fraud Unit, which focuses on our banking system and the crime trends targeted at our nation's financial institutions, such as mortgage fraud, identity theft, check fraud, insider fraud, commercial loan fraud and bank failures; the Health Care Fraud Unit, which is focused on both government-sponsored - Medicare/Medicaid - and private health insurance providers to address fraud in our health care system; the Economic Crimes Unit, which has the broadest responsibility in the variety of programs to include corporate fraud, securities/commodities fraud, insurance fraud, telemarketing fraud, Ponzi schemes, and high-yield/prime bank note fraud; and the Asset Forfeiture/Money Laundering Unit, which facilitates investigations in all programs (criminal, counterterrorism, counterintelligence, etc.) which have an asset forfeiture potential or money laundering nexus. Additionally, I am the White Collar Crime Program coordinator for the FBI when it comes to budget submissions to Congress and the allocation of resources throughout the FBI.

In what ways does the FCS work with local law enforcement, the courts systems, and even private fraud examiners?
We partner with federal, state, and local law enforcement to address the criminal groups and organizations affecting not only local but regional and national areas. Through the creation of the Financial Crimes Task Forces we are able to bring a strong set of resources to bear on a given crime problem as well as a specific area. Based upon the resource availability of prosecutors (locally and federally), as well as those of the law enforcement community, a determination is made where the best prosecution will occur and the effective deterrent which can be attained. With fraud examiners, the FBI has always relied upon developing partnerships with industry professionals who have a distinct knowledge and insight into, for example, the operations of a company which has been defrauded, to understand the mechanics of how the fraud was perpetrated and to begin focusing on possible suspects (internally or externally to the company). Through these partnerships and acquired knowledge, the FBI has honed its fraud investigative skills over the years.

A good example of how the FBI, in particular the FCS, works with private fraud examiners was through our Outpatient Surgery Initiative. This was featured on ABC's "Primetime" in March 2004, as a result of our efforts with private health insurance groups being defrauded in an unnecessary surgery/kickback scheme. By working with the fraud examiners of these companies, our Criminal Intelligence Section, and our Health Care Fraud Unit, we identified a scheme in which certain surgery centers in southern California actively recruited individuals to travel to California for unnecessary outpatient surgeries for a few hundred dollars in kickbacks. Not only is the economic impact significant to the health care industry through this fraud scheme, but the risk to the individuals' health is great. We have identified organized groups actively recruiting workers in corporations and government agencies in 48 states to engage in this scheme.

We're seeing increasing U.S. federal emphasis on discovering fraud in public companies stemming from the Sarbanes-Oxley Act and the resulting Public Company Accounting Oversight Board. Has this activity accelerated the FBI's efforts and do you work closely with the PCAOB?
We do work closely with the PCAOB, the American Institute of CPAs, and the Securities and Exchange Commission to address the corporate fraud occurring in public companies in a concerted approach to address fraudulent accounting schemes. The FBI has not necessarily accelerated its efforts, but has been full-throttle since the corporate scandals began unfolding in 2001 to aggressively and expeditiously investigate these matters. Corporate fraud is the FBI's number one priority within the Financial Crimes Section and second only to public corruption in FBI director Robert Mueller's priorities for the FBI's white-collar crime program.

Generally and specifically, how is the FCS not only detecting but helping to prevent fraud?
The FCS, in conjunction with other investigative programs within the Criminal Investigative Division (CID), is focused on emerging crime trends and criminal organizations and enterprises to aggressively target these elements and bring to bear all available resources to eliminate the crime problem or group. This is accomplished in part through the use of our Criminal Intelligence Section, which is specifically aligned with the various investigative programs within CID to focus in on crime trends, emerging groups, as well as ensuring there is horizontal communication among all of CID's investigative resources. Through this combined effort, CID is able to bring subject matter experts from the various programs (organized crime, criminal enterprises, white-collar crime, etc.) and focus in on the problem in a team effort. We are then able to assist the field office or offices to do the same which are occurring on a regional or cross-regional basis. Too many times, agencies have focused on the parochial and territorial approach to investigating a matter. As we all know, these criminal groups are not concerned with being one-dimensional in their effort to gain money and resources, so why should we be limiting our investigative resources by pigeon-holing our investigations into only white-collar crime, occupational crime, or drug investigations? Being threat-based and intelligence-driven within CID allows the FBI to pre-position its resources to address the crime problem and criminal groups. Instead of being reactive, the FBI is being proactive. This concept was implemented for CID and criminal investigative program through Grant Ashley, CID's executive assistant director.

Much has been made lately of the lack of coordination among federal agencies and departments. How is it possible to coordinate all your efforts with the myriad investigating entities in the U.S. government?
In FBI director Mueller's 10 priorities for the FBI, law enforcement coordination and information sharing is the ninth priority. It's not an option for the FBI but a mandate which all of law enforcement can benefit from. As I've mentioned before, one of our core missions within the white-collar program and the FBI is coordination and implementation of task forces to address the crime problem. Everyone has limited resources. Only through these efforts can the law enforcement community effectively address the myriad crime problems. It is a force multiplication issue, not to mention the synergy that can be created with a variety of backgrounds and expertise.

With the recent national discussions about consolidating investigatory efforts in the federal government does it look like those plans will extend to the FCS?
No. What I do see is a strengthening of partnerships within the federal law enforcement community to ensure there are not duplicated efforts. The FBI, in particular, the Criminal Investigative Division, is focused on building multi-disciplined investigative teams. By bringing together the subject matter experts in a variety of investigative backgrounds, CID proactively targets criminal enterprises in a team effort. This same investigative mission is utilized by CID and the FCS to build multi-agency teams to focus on emerging white-collar crime trends and organizations.

Is there a group of higher-level investigators (inspectors general, representatives from the Securities and Exchange Commission, the Government Accountability Office, etc.) that occasionally meet to coordinate efforts?
We have a variety of working groups throughout the various white-collar crime investigative programs. These include a National Bank Fraud Working Group, and Identity Theft Working Group, Health Care Fraud Working Group, Securities Fraud Working Group, Corporate Fraud Task Force, Insurance Fraud Working Group, to name a few. A majority of these are conducted in Washington, D.C., and a vast majority of our field offices have created more locally and regionally based working groups in these areas.

How does a FBI field office prioritize its investigations?
Field office priorities are established both at the national program level (at FBI headquarters) and among the various investigative programs in conjunction with local or regional priorities. These are established through local crime surveys and other factors which identify the local or regional crime issues. As I mentioned before, the FBI director has established a core group of 10 priorities, which all field offices must adhere to. The first eight are investigative in nature beginning with counterterrorism, counterintelligence, cyber, public corruption, civil rights, transnational crimes/criminal enterprises, major white-collar crime, and violent crimes. Economic crimes fall within the seventh-ranked priority of the director's 10 priorities.

The FCS covers an extensive list of frauds. Are there a few types that are increasing more rapidly in the United States than others?
Mortgage fraud, identity theft, check fraud, market manipulation schemes ("pump and dump"), high-yield investment schemes, and various healthcare fraud schemes.

According to FBI figures, external fraud schemes have replaced bank insider abuse as the dominant financial institution fraud. Do you know some of the reasons for this change?
This is really a direct result of the subsiding of the S&L failure investigations of the late '80s and early '90s. The diligence of the regulatory agencies, coupled with the aggressive investigation the FBI undertook during its S&L investigative phase brought to light the external fraud that was occurring. With all of the checks and balances in place on insider abuse, this type of fraud - while still occurring - is less than the schemes currently affecting the nation's financial institutions. We have seen a marked increase in criminal groups engaged in low-level fraud (primarily check and identity theft) as a secondary focus to a primary crime problem, such as drug trafficking, gang activity, etc.

With continued low-interest rates, have you seen a marked increase in mortgage fraud?
As extension of credit becomes easier to acquire, the risk of mortgage fraud has increased. Obviously, low-interest rates have driven up the amount of mortgages being made (original or re-financing). Consequently, housing prices have risen which have encouraged entities to recruit individuals as nominee borrowers in a for-profit mortgage fraud scheme. Additionally, unsuspecting first-time borrowers have been duped into providing fraudulent documentation in the mortgage application process. These can only be facilitated by industry professionals to include title companies, closing attorneys, mortgage brokers, and appraisers which are predisposed to engaging in these schemes. We are working with the mortgage industry to address the gaps in the lending process and on ways of detecting those engaged in the fraud to stem the tide of mortgage fraud.

As financial institutions are being bought by large bank conglomerates, becoming less regulated, and are providing more services to the public do you see changes in types of bank frauds?
I can't address the bank purchase aspect, but I can state that the bank fraud continues to be the usual cast of characters: commercial loan fraud, insider abuse, check fraud, mortgage fraud only that it is in larger numbers (dollar loss or exposure). The FCS works closely with the various banking regulators to ensure that as these large mergers occur, a mechanism is in place to effectively address the variety of bank fraud schemes affecting the nation's financial institutions.

Are the most egregious fraudulent telemarketing pitches being used to victimize American citizens still coming from Canada?
They're coming from all over, but Canada still continues to be a predominant base for telemarketing scam artists. We are currently working with our law enforcement partners in Canada, the U.K., the Netherlands, Spain, and Nigeria to address a growing problem.

Most recently, the FBI participated in Operation Roaming Charge which began in January 2004 and targeted international telemarketing fraud originating in the U.S., Canada, U.K., Spain, and Nigeria. This nine-month initiative resulted in more than 100 individuals in the U.S. and 35 individuals overseas being arrested for a variety of fraud schemes. These schemes included bogus lottery, prize, and sweepstakes schemes; offers of nonexistent investments; bogus pre-approved credit cards or credit card protection; tax fraud schemes; and "recovery room" schemes in which criminals pretended to be members of law enforcement agencies offering to help telemarketing fraud victims recover some of their losses if they pay bogus "fees." More than five million consumers were victimized and suffered losses totaling more than $1 billion. More than 190 U.S. and Canadian search warrants were executed as part of the operation, and 74 individuals have been convicted in the United States to date. Additionally, state attorneys general brought 279 criminal, civil, and regulatory actions against illegal telemarketing operations. Operation Roaming Charge involved 25 FBI field offices and the collective assistance of the Royal Canadian Mounted Police, the U.S. Postal Inspection Service, the Federal Trade Commission, New Scotland Yard, the Spanish National Police, and the Nigerian Financial and Economic Crimes Commission to name a few. This illustrates the extent to which the FBI will pull together law enforcement partners to address a significant crime problem.

What other areas of the Financial Crimes Section would you like to mention?
Forensic accounting teams are in development to address the complex regional white-collar crime matters with specialized teams. This will be a combination of forensic accountants and asset forfeiture experts to address those cases which need specialized investigative skillsets.

Also, the FBI is a partner with the ACFE on its Institute for Fraud Studies (IFS) at the LBJ School of Public Affairs at the University of Texas in Austin. We're advisors and analysts to IFS on emerging fraud trends.

Are you finding that you're working increasingly with officials in other nations to fight fraud?
Absolutely. As evidenced by the success of Operation Roaming Charge, the globalization of these fraud schemes requires the development of partnerships with our law enforcement brethren in other countries. Through these efforts, and the extraordinary efforts of our Legal Attache offices, the FBI is able to quickly identify and address emerging crime trend on a global scale. I can't emphasize enough the important role our Legal Attache offices play in the development of these partnerships.

How and who do you work with?
Predominantly with Canada and the U.K. on financial crimes matters. However, we have worked through all of our Legal Attache offices (46 in total) on white-collar crime issues in the countries covered by these U.S. Embassies, specifically on economic crime matters. This is reciprocal, and as such our Office of International Operations facilitates the FBI in the United States in handling investigative matters for foreign countries in the United States.

What are some of the impediments globally?
Acquisition of documentary evidence is a slow process. We are talking about the court certification process in the foreign country for use in U.S. courts. Mutual Legal Assistance Treaties are helpful, but there still is a process to go through. Overall, there is a general interest in working with the FBI on criminal matters affecting the United States and the foreign country.

Obviously this depends on the specifics of a case but do you have any suggestions on how a CFE - either in the public or private sector - can best work with a FBI field office on an investigation?
It is case specific, and will depend upon the circumstance, but the FBI's partnership with the ACFE and IFS is well documented. The FBI has provided training at recent national ACFE conferences and will continue to ensure this partnership is viable and dynamic.

How does the FBI encourage (or require) its agents to achieve CFE certification?
The CFE is a recognized skill for the FBI for both agents and support (analysts). I have proposed and it is under consideration, that the CFE designation be utilized as enhancement to the hiring process for FBI recruits. This is getting strong consideration and is being discussed at FBI training conferences and in-services as an enhancement to an agent's investigative skills.

Has ACFE training assisted FBI agents?
Yes. It focuses on core issues, which are beneficial to the investigative process.

What motivates you personally to detect and fight fraud?
Personally, it is the challenge of unraveling a conspiracy or thought process only known to the fraudster. Much of it depends on understanding or interpreting the human behavior and mindset of the fraudster. The schemes are as creative as one can imagine, and it is my personal enjoyment in unraveling (or reverse engineering) the scheme for a jury to understand. These schemes have so many nuances and angles to facilitate these multi-million and multi-billion dollar crimes, that the arrogance of these criminals to think they will get away with the crime is a driving force for me. White-collar crime has an impact on everyone in some form or fashion, whether it is through higher costs being passed along to the consumer to balance out the fraud losses to a company, bank failures, securities and investment schemes, or corruption conspiracies. I've been investigating white-collar crime for more than 17 years, and I have never wavered on accepting this challenge and satisfaction it brings in exposing the individuals who prey upon the hard work of the everyday person.

What keeps you going in what could be an overwhelming situation?
The FBI, the "FBI family," and everything it stands for to the American public and throughout the world. In crisis situations and in the steady flow of criminal investigations, I have seen how the FBI is always turned to by the American public, our law enforcement partners (including our international partners), and the U.S. Congress, to address a situation or an emerging crime problem. This is a heavy burden, but one in which the FBI does not shy away but accepts through its "can do" approach to protecting the United States. The FBI has an outstanding history on which its reputation has been built, and which is ever expanding. Being part of an organization which is a proven leader in its field and one in which it is striving to improve the law enforcement profession for all of law enforcement, is not only fulfilling professionally, but personally. Being part of a greater cause and the high caliber of individuals I have had the honor to work alongside of makes it all worthwhile.

Lamkin reports mortgage fraud, check kiting as recent fraud trends in the United States

Mortgage fraud in its various forms and the return of check kiting are two recent trends among many in the United States, says Brian Lamkin, chief of the FBI's Financial Crimes Section.

"We're starting to see a two-fold increase in number of frauds reported just from lending institutions this year over last year," says Lamkin. (See chart below.) "What we're seeing is involvement of professionals - accountants, closing attorneys, title companies, appraisers, mortgage brokers - in a systemic mortgage fraud problem in a region," he says. "There's a ripple effect that's detrimental to lending institutions that buy these blocks of loans, and bring them into their portfolio as part of their asset bases. If they maintain it, it obviously undercuts them because they have to foreclose on properties and the loans go into default."

Some recent FBI prosecuted cases include a mortgage fraud ring in Charlotte, N.C. that generated fraudulent loans which exposed financial institutions and mortgage companies to potential losses of $130 million. In a Kansas City, Mo., case, another mortgage fraud ring utilized straw purchasers to buy at least 300 properties which were then foreclosed upon. Losses were in excess of $15 million.

The most common mortgage fraud scheme, Lamkin says, is the classic "property flip." For example, the property flipper purchases a property for $20,000 and has it fraudulently appraised for $80,000. The property flipper sells the property for $80,000 and walks away with a $60,000 profit. In most cases, the bank forecloses on the property and is left with an $80,000 mortgage on a $20,000 home for a loss of $60,000. If the loan was insured by the U.S. Federal Housing Administration, the government absorbs the loss.

Fraudsters also appear to be reviving the age-old scheme of check kiting, Lamkin says. In a recent FBI case, a Binghamton, N.Y., operator of a recycling business wrote in excess of $1 billion in worthless checks in a 15-month period to perpetuate a check kite. And two Lima, Ohio, car dealers teamed up to create a check kite which resulted in the deposit of more than $495 million in bad checks. The scheme inflicted losses of about $8 million and contributed to the failure of a Lima bank.