Cutbacks hamper FBI investigations of financial crimes

WASHINGTON — The FBI is struggling to find enough agents and resources to investigate criminal wrongdoing tied to the country's economic crisis, according to current and former bureau officials.

The bureau slashed its criminal-investigative work force to expand its national-security role after the Sept. 11 attacks, shifting more than 1,800 agents, or nearly one-third of all agents in criminal programs, to terrorism and intelligence duties.

Current and former officials say the cutbacks have left the bureau seriously exposed in investigating areas such as white-collar crime, which has taken on urgent importance in recent weeks because of the nation's economic woes.

Increasing pressure

The pressure on the FBI has increased recently with the disclosure of criminal investigations into some of the largest players in the financial collapse, including Fannie Mae and Freddie Mac.

The FBI is planning to double the number of agents working financial crimes by reassigning several hundred agents amid a mood of national alarm. But some people inside and out of the Justice Department wonder where the agents will come from and whether they will be enough.

So depleted are the ranks of the FBI's white-collar investigators that executives in the private sector say they have had difficulty attracting the bureau's attention in cases involving possible frauds of millions of dollars.

Some companies victimized by fraud have used private investigators and accountants before turning their work over to the FBI.

Since 2004, FBI officials have warned that mortgage fraud posed a looming threat, and the bureau repeatedly has asked the Bush administration for more money to replenish the ranks of agents handling nonterrorism investigations, according to records and interviews. But each year, the requests have been denied.

New information

According to previously undisclosed internal FBI data, the cutbacks have been severe in staffing for investigations into white-collar crimes like mortgage fraud, with a loss of 625 agents, or 36 percent of its 2001 levels.

Overall, the number of criminal cases that the FBI has brought to federal prosecutors — including a wide range of crimes like drug trafficking and violent crime — dropped 26 percent in the last seven years, going from 11,029 cases to 8,187, Justice Department data showed.

Shift in focus

"Clearly, we have felt the effects of moving resources from criminal investigations to national security," said the FBI's assistant director, John Miller.

"In white-collar crime, while we initiated fewer cases overall, 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."

But Justice Department data, which include cases from other agencies, such as the Secret Service and Postal Service, illustrate the impact. Prosecutions of frauds against financial institutions dropped 48 percent from 2000 to 2007, insurance-fraud cases plummeted 75 percent, and securities-fraud cases dropped 17 percent.

Statistics from a research group at Syracuse University, the Transactional Records Access Clearinghouse, using somewhat different methodology and looking only at the FBI, show an even steeper decline of nearly 50 percent in white-collar-crime prosecutions during the same period.

Several investigations

In addition to the investigations into Fannie Mae and Freddie Mac, the FBI is carrying out investigations of American International Group and Lehman Brothers, and it has opened more than 1,500 other mortgage-related investigations into companies both big and small.

Some FBI officials privately worry that the trillion-dollar federal bailout may itself become a problem because it contains inadequate controls to deter fraud.

No one has suggested that a quicker response would have averted the mortgage meltdown, but some officials said a faster reaction might have deterred more of the early schemes that seized on loose federal lending regulations.

"They were very late to the game," Rep. Zoe Lofgren, D-Calif., who has quarreled with the FBI over its financing priorities, said of the bureau's response to the mortgage crisis. "They were not on top of this, and they're just now starting to really do something."