Jacques Brinon/AP
FBI Director Robert S. Mueller

Consumed with War on Terror, FBI Short-Staffed on Fraud

October 20, 2008 02:04 PM
by Josh Katz
Questions abound about the government’s ability to investigate wrongdoing during the economic meltdown, as FBI resources have been focused on domestic terrorism.

FBI Struggles to Combat White-Collar Crime

Since Sept. 11, 2001, FBI resources have been shifted substantially to deal with the domestic terrorist threat instead of white-collar crime, according to an article published in The New York Times this weekend. Now, the agency is understaffed as it tries to investigate impropriety involving the financial meltdown.

More than 1,800 agents, comprising about one-third of the force in criminal programs, were reassigned to terrorism and domestic intelligence, Reuters reports. White-collar crime divisions lost more than 600 agents, “more than one-third of 2001 levels.” Cases against insurance fraud dropped 75 percent and securities fraud cases fell by 17 percent from 2000 to 2007, according to Justice Department numbers. That data accounted for a 50 percent decrease in fraud prosecutions aimed at financial institutions for those years.

As a whole, the FBI brought 26 percent fewer criminal cases to federal prosecutors in the past seven years, according to The New York Times. Justice Department data indicates that the number fell from 11,029 cases to 8,187 in that time period.

“Clearly, we have felt the effects of moving resources from criminal investigations to national security,” said John Miller, an assistant director at the FBI, according to the Times article. “In white-collar crime, while we initiated fewer cases over all, 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.”

Reuters also writes that the Bush administration rejected FBI requests to move more resources away from terrorism, even though officials in the department had alerted the department of a potential mortgage crisis since 2004. 

Some in the administration feel that the Justice Department moved “too aggressively” against corporate fraud after the fall of Enron in 2002, the Times reports. Senior officials in the White House and the Treasury Department were allegedly “concerned the Justice Department and the FBI were taking an antibusiness attitude that could chill corporate risk taking.”

Opinion & Analysis: The FBI-funding conundrum

Paul Wallis of the Digital Journal explains the paradox of the situation: “National security has therefore helped create a problem of national insecurity unparalleled in American history.” According to Wallis, “The FBI lost a lot of its crime budget and human expertise and resources in the process of fighting the War on Terror, which, ironically, has turned out cheaper than the economic terror of the meltdown.” He also blames congressional earmarks and pork for some of the problem, claiming that states and lobbyists gain projects and money while agencies like the FBI are stripped of funding.

In an entry, Business Law writer Matthew Nelson voiced dismay when he learned that the short-staffed FBI was counting on state and local authorities to counter white-collar crime. He uses his home state of Massachusetts as an example, where he says the local government can hardly pay for improvements to infrastructure. “There simply is very little, if any, state and local money available to combat illegal corporate activity.”

Related Topic: Excessive force raises questions about recruitment standards after 9/11

After Sept. 11, police departments lost many recruits to military service. Consequently, they have been in stiff competition to entice recruits, and sometimes, stringent training might fall by the wayside, according to USA Today.

The Justice Department indicated that from 2001 to 2007 the use of disproportionate force by law enforcement authorities jumped 25 percent. According a December 2007 USA Today article, the statistics “come as the nation’s largest police union fears that agencies are dropping standards to fill thousands of vacancies and ‘scrimping’ on training.”

James Pasco, executive director of the National Fraternal Order of Police (FOP), the largest police union in the United States, points out that the cases account for only a small number of the roughly 800,000 police in the country. But he insisted, “These are things we are worried about.”

Most Recent Beyond The Headlines