The Rising Tide of Financial Fraud

In November 2009 President Obama created the Financial Fraud Enforcement Task Force as a response to the rise in financial crimes following the financial crisis that struck the nation in 2007.  

In the Task Force's 2010 First Year Report, it states that the mission of the Task Force is to address "an exceptionally wide array of fraudulent activities: bank, mortgage, and lending fraud; securities and commodities fraud; retirement plan fraud; mail and wire fraud; tax crimes; money laundering... and other financial crimes and violations."

Some of the highest incidences of financial fraud are found in the mortgage industry. According to a June 2011 report from the
Financial Crimes Enforcement Network (FinCEN), a Treasury Department bureau that tracks illegal financial activity, reports of mortgage fraud increased 31 percent in the first quarter of 2011.  

This doesn't mean, though, that there were more occurrences of mortgage fraud in that period. The majority of the reports coming in to FinCEN were related to what the report refers to as "increasingly dated activities," meaning alleged mortgage fraud incidents - including those within the subprime mortgage lending market - that occurred during the housing boom between 2006 and 2007, the resulting crisis of which is considered to have precipitated the national economic fallout that occurred in 2008.

Among the other types of financial crimes that the Financial Fraud Enforcement Task Force is charged to investigate and prosecute are workers compensation fraud. Since the economic downturn that beset the nation beginning in 2008, workers compensation fraud by employers has seen an increase. In a  2009 report on an interim fraud survey conducted by the Coalition Against Insurance Fraud (CAIF) it was concluded that: 

"overall, the economy in 2009 appears to have had a significant impact on the incidence of fraud.  On average, fraud bureaus reported the number of referrals received and cases opened increased in all 15 categories of fraud included in the survey."  

The CAIF conducted the survey in an effort to learn trends in the frequency and severity of insurance fraud, and how economic conditions were affecting the bureaus themselves.

Echoing the conclusions of the CAIF's report, a 2010 report from the Florida Department of Financial Services, Division of Insurance Fraud, similarly found that "the constant changes in the economic landscape of Florida... continue to catapult insurance fraud... to the forefront of vulnerabilities" in the insurance fraud spectrum.  

Both reports equally revealed that, while workers compensation fraud by employers showed the least amount of increase out of all the categories, it nevertheless deserved inclusion among the categories of fraud determined to be influenced by economic conditions.

While fraud certainly cannot be excused, it is clear that downturns in the economy will create higher levels of fraud at the very time when government resources that are available to punish those convicted of fraud are at their lowest.