Viewpoints : Prosecuting S&L; Crimes

E arlier this month, the General Accounting Office released its harrowing new estimate of what the savings and loan crisis will cost taxpayers: at least $325 billion and as much as $500 billion over the next 30 to 40 years.

As bailout costs mount, so does the evidence that fraud played a greater role in the fiasco than previously thought. Atty. Gen. Dick Thornburgh estimated last week that up to 30% of the S&L; failures can be blamed on criminals. He called it an “epidemic of fraud.”

FBI Director William S. Sessions expressed similar views earlier this month in testimony before a House Banking Committee hearing in Dallas. He said FBI agents have found “pervasive” fraud in the thrift business, which he called a “national crisis.”

The following are edited excerpts from an interview with Sessions conducted by Times staff writer James Bates:

Question: Where did this staggering amount of money go in the cases involving fraud? Have your agents been able to trace much of it, or has it just vanished forever?

Answer: Let me give you some indication of where the money isn’t. Obviously in land flips, or whatever you call them in California. That is where a piece of property might be priced at $1 million a month ago, was sold a week later for $2 million and a week later for $3.5 million and a month later for $5.3 million.

Obviously, it has enhanced value that was probably fraudulently placed on that land. If it was worth $1 million originally, the land is still there. So even though it is later priced and supposedly worth $5.3 million, your loss is $4.3 million if the land was worth $1 million.

Q: In their testimony, prosecutors in Dallas were pessimistic about how much money could be recovered through restitution. What’s your view?

A: It is always difficult to find money where these kinds of crimes are involved because a great deal of it is spent. If we can find where it was secreted and placed, then, of course we’ve got a chance to get it. But it is tough to find assets, and I would agree that the outlook there is generally pessimistic.

Q: Many of the high fliers are still running around and have not been charged. The public looks at them and says: “Gee, if these guys were such crooks, how come they’re not facing charges or in jail?” Why has it taken so long?

A: I think the concern that you expressed, and the public’s concern, will be addressed in large measure by the application of resources that have been provided now by the Congress, and that are in connection with FIRREA (the Financial Institutions Reform, Recovery and Enforcement Act, or thrift bailout bill, signed by President Bush last August).

We have 202 allocated new agents, which will take us from around 400 to up around 600 agents who are going to be dealing with bank fraud and embezzlement cases. We have an additional 100 technicians, and the Department of Justice has brought on 118 new assistant U.S. attorneys. The application of those resources will help tremendously to hack into that backlog.

Q: With the cost of the bailout rising, are you under any added pressure to bring these people to justice?

A: I think there is plenty of incentive for that. A question was asked me the other day on my view of the impact on the American public. I said that it was my belief that the American public relied upon banking institutions and financial institutions being soundly managed by people who were honest.

It is absolutely essential that this program go forward to the end, no matter how long it takes. And the statute of limitations is now 10 years (under FIRREA, the statute of limitations for certain crimes involving banks, S&Ls; and credit unions was raised from five years to 10) and we have capable resources, so it’s very important that we do restore the confidence of the American people in their financial institutions.

Q: Why wasn’t this fraud spotted earlier?

A: I think you’d have to ask that question more of the agencies that refer matters to us. We take the referrals, and those are criminal referrals. But until we have them, we don’t have them. So the referral process is absolutely essential.

Q: Have you found any evidence of organized crime involved in thrifts, or drug people? Some have written about the CIA being involved in thrifts. Have you found any of that in your investigations?

A: Organized crime by its very nature has long had as one of its high priorities the taking over of institutions and businesses that legitimize its operation. So I don’t think there’s any question that is always a factor.

Q: But widespread involvement in thrifts?

A: I wouldn’t want to speculate on that. As to the money laundering aspects and the overseas aspects, obviously people do have money laundering needs. If you can take from a drug operation and through a legitimate business, or an apparently legitimate business front, launder that money, then of course people are going to take those avenues. I think we will find more of that.

As to the involvement of the CIA, I’ve responded to that before, indicating that we have no indication of involvement by the CIA. It may be that some of the personnel who are actually involved in these investigations, as representing the institutions, may have had some connection. I can’t tell you that, and I wouldn’t want to speculate.

Q: Are the people you’re looking at for alleged fraud all former executives with thrifts, or are some of them public officials? And are there many aside from thrift executives?

A: I think you’ve pegged it correctly. That is, you’ve said, ‘Are there outsiders as well as insiders?’ We believe we will continue to find that there are outsiders involved. There are developers, there are appraisers, there are lawyers, there are accountants. All sorts of people outside the institution who may have some representative capacity or some developmental capacity in terms of condominiums or land sales, etc.

Q: You’re tracking down people who committed crimes several years ago. Why is it so important now to bring them to justice?

A: Well, in five words: confidence of the American public. Confidence of the American public in the institutions is based upon belief that those institutions are being soundly and legally operated, that those people who operate them can be relied upon and that the functions of government for oversight, regulation and investigation are being properly carried out. So I think it’s extremely important and critical that we follow these to the end.