Thousands of white-collar criminals are not being prosecuted in federal court -- and in many cases, not at all -- because of the Bush administration's restructuring of the FBI after the attacks of 9/11.

Five and a half years later, the White House and Justice Department have not replaced at least 2,400 agents shifted to counterterrorism work, leaving far fewer on the trail of identity thieves, con artists and other criminals.

Two successive attorneys general have rejected the FBI's pleas for reinforcements.

An analysis of more than a million cases touched by FBI agents and federal prosecutors before and after 9/11 found the number of criminal cases investigated by the FBI nationally has steadily declined. In 2005, the bureau brought 20,011 cases to federal prosecutors, compared with 30,485 in 2000 -- a 34 percent drop.

White-collar crime investigations by the bureau have plummeted. In 2005, the FBI reported 3,500 cases, compared with 10,411 in 2000. The FBI office covering coastal Northern California referred 124 white-collar crime cases to prosecutors in 2000, but just 70 in 2005, records show.

While other federal agencies have stepped in to cover more of the load in drug enforcement, in most cases local law enforcement agencies haven't been able to take up the slack.

As agents were shifted to counterterrorism after 9/11, FBI Director Robert Mueller was well aware of the consequences. Without more agents, there was no way to maintain the bureau's grip on its traditional list of crimes, particularly time-consuming fraud investigations.

Mueller asked for help from Attorney General John Ashcroft and his successor, Alberto Gonzales, but was rebuffed. "We were told to do more with less," said David Szady, a former FBI assistant director who retired last year as head of counterintelligence.

In 2005, the FBI sent a five-year strategic plan to the Justice Department that Szady called "the director's attempt to get this agency where it needed to be, including a robust criminal footprint. I know for a fact that the Justice Department beat that down."

That September, the Justice Department inspector general's office said 1,143 agents had been transferred from traditional crime programs and 1,279 more on the books as criminal program agents were being used on counterterrorism work. It concluded that the FBI "reduced its investigative efforts related to traditional crimes by more than 2,400 agents."

Over the past eight years, the ranks of FBI agents have increased 14 percent, to 12,575 from about 11,000, but almost all the increase has been for anti-terror duties, records show. Since 2001, the bureau has doubled its staff of intelligence officers, to more than 2,000.

The Justice Department, attorney general's office and White House Office of Management and Budget say traditional criminal enforcement by the FBI hasn't suffered. They say federal agencies work more efficiently to compensate for the emphasis on homeland security.

"The administration strongly disagrees that the FBI has been anything less than effective in the years since 9/11 in combatting domestic crime issues," Office of Management and Budget spokesman Sean Kevelighan said. "We have worked to achieve a balance between the FBI's homeland security and criminal investigative missions."

FBI Assistant Director Chip Burrus said, "We'll just abide by what the president's budget is. We work a lot smarter than we have in the past."

Mueller, Gonzales and Ashcroft declined to be interviewed.

Burrus acknowledged that the bureau has reduced its efforts to fight fraud, likening its current policies -- in which fraud losses below $150,000 have little chance of being addressed -- to "triage." Even cases with losses approaching $500,000 are much less likely to be accepted for investigation than before 9/11, he said.

There is "no question," he said, that America's financial losses from frauds below $150,000 amount to billions a year.

In San Francisco, officials at the U.S attorney's office and the FBI said in interviews Tuesday that they had not seen significant reductions in staffing or caseloads for white-collar crime.

"We continue to have a number of lawyers dedicated to doing white-collar prosecutions, and they're very busy," said Scott Schools, who was appointed interim U.S. attorney in San Francisco last month. Schools pointed to recent investigations into stock options backdating and into corruption by elected officials in the Bay Area.

"Terrorism is our No. 1 priority, but we are still deeply involved in investigating white-collar crimes," said Joseph Schadler, an FBI special agent. "It is not as high a priority as it once was, but I think that's reasonable."

Northern District Federal Public Defender Barry Portman said he has noticed a change "at the bottom. The low-rent cases are not being brought."

For instance, he said, tellers who steal from the banks where they work were prosecuted regularly in federal court until the past few years.

Portman said it was hard to measure the success of the national and local focus on preventing terrorism. Few cases have been brought in the Bay Area, and investigators won't talk about their work.

"The response has been, 'Trust us -- you haven't seen any planes hit towers in the last five years,' " Portman said.

Sen. Joe Biden, D-Del., introduced legislation in February that calls for hiring 1,000 agents at a cost of $160 million a year.

"There's no doubt that fighting terrorism should be a top priority for the FBI, but we can't forget about the risk to our neighborhoods from everyday crime," Biden said.

Hard-pressed agents working white-collar crime now routinely urge banks or lawyers representing victims to do most of the investigating themselves. Even then, the FBI won't necessarily pursue criminal charges.

There are many reasons federal agents are better suited than local police to conduct complex fraud investigations.

The FBI has agents around the nation and the world to run down leads. Even if a local detective could get her chief to approve a trip across country, she has no jurisdiction in another state.

If agents need to subpoena business records, they simply call a federal prosecutor, who can get one easily. That's not true in many state jurisdictions, where it can take a couple of days for a prosecutor to prepare documentation and present it to a judge for a subpoena.

Federal agents have access to wiretaps; local officers often do not except in rare circumstances. Locals need a court order for a body wire; feds don't. FBI agents can record telephone calls if one party consents without going to a judge; locals can't.

And federal sentences for white-collar crimes are generally tougher than those meted out in state courts. So not only are fewer criminals convicted, but they also serve less time.

A few years ago, more than 1,000 people across the country invested roughly $70 million in a scam known as Resource Development International, led by two men who set up their headquarters in Tacoma, Wash.

Though victims in Washington urged the FBI to investigate, the two men didn't face federal charges -- or any criminal case -- in Washington.

The district attorney's office in Santa Clara County ended up taking on the case after an elderly victim in the San Jose area came forward. Deputy District Attorney Paul Colin prosecuted the kingpins, John and David Edwards, a father-and-son team who are now serving 27-year sentences in state prison, and two other men who sold the phony investments to people in California.

But scores of others involved in the scam haven't faced charges.

"If the feds had taken this on, it might have been caught sooner, and more of the people who assisted the Edwardses might have been brought to justice," Colin said. "These scams happen every day to the rich and the poor, and they should be a priority of law enforcement -- particularly at the federal level."

http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/04/11/MNGPNP65UN1.DTL

Sam writers ...different layout of material in the Story

Post-9/11 FBI has little time for fraud
Restructuring to fight terror leaves fewer agents for domestic crimes and rights abuses

By PAUL SHUKOVSKY, TRACY JOHNSON and DANIEL LATHROP
Seattle Post-intelligencer

SEATTLE — Thousands of white-collar criminals across the country are no longer being prosecuted in federal court and, in many cases, not at all, leaving a trail of frustrated victims and potentially billions of dollars in fraud and theft losses.

It's the untold story of the Bush administration's massive restructuring of the FBI after the terror attacks of 9/11.

Five and a half years later, the White House and Department of Justice have failed to replace at least 2,400 agents transferred to counter-terrorism squads, leaving far fewer agents on the trail of identity thieves, hatemongers, con artists and other criminals.

Two successive attorneys general have rejected the FBI's pleas for reinforcements behind closed doors.

While there hasn't been a terror strike on American soil since the realignment, few are aware of the hidden cost: A dramatic plunge in FBI investigations and case referrals in many of the crimes the bureau has traditionally fought, including sophisticated fraud and embezzlement schemes, and civil rights violations.

"Politically, this trade-off has been accepted," said Charles Mandigo, a former FBI congressional liaison who retired as special agent in charge in Seattle four years ago. "But do the American people know this trade-off has been made?"

Among the findings from a six-month investigation by the Seattle Post-Intelligencer, in which the newspaper analyzed more than a million cases touched by FBI agents and federal prosecutors before and after 9/11:

•Overall, the number of criminal cases investigated by the FBI nationally has steadily declined. In 2005, the bureau brought slightly more than 20,000 cases to federal prosecutors, compared with about 31,000 in 2000 — a 34 percent drop.
•White-collar crime investigations by the bureau have plummeted in recent years. In 2005, the FBI reported 3,453 cases. More than 10,000 cases were assigned to agents in 2000.
•Civil rights investigations, which include hate crimes and police abuse, have continued a steady decline since the late 1990s. The FBI pursued more than 2,000 such cases as recently as 1998 but only 530 cases by 2005.

Fraudsters unprosecuted

While other federal agencies have stepped in to shoulder more of the load in drug enforcement, the gaps created by the Bush administration's War on Terror are troubling to criminal justice experts, police chiefs, and even some current and former FBI officials and agents.

"There's a niche of fraudsters that are floating around unprosecuted," said one recently retired top FBI official, who spoke on condition of anonymity. "They are not going to jail. There is no law enforcement solution in sight."

A solution can't come soon enough for a growing number of frustrated fraud victims, including a 75-year-old Issaquah, Wash., woman who was allegedly swindled out of more than $1 million, and a cancer patient whose identity was stolen from a Seattle hospital.

They each sought the FBI's help. They got little or none.

"As far as I'm concerned, the FBI has no interest in protecting people from these kinds of crimes, "said Lloyd Martindale Jr., a Bellingham, Wash., man who put $500,000 into an investment con and is still fighting get it back.

Officials deny declines

Officially, the U.S. Department of Justice, the Attorney General's Office and White House Office of Management and Budget assert that traditional criminal enforcement by the FBI hasn't suffered in the wake of 9/11. They say federal law enforcement agencies are working more efficiently to compensate for the emphasis on Homeland Security.

"The administration strongly disagrees that the FBI has been anything less than effective in the years since 9/11 in combating domestic crime issues," OMB spokesman Sean Kevelighan said. "We have worked to achieve a balance between the FBI's homeland security and criminal investigative missions. "

"We'll just abide by what the president's budget is," said FBI Assistant Director Chip Burrus. "We work a lot smarter than we have in the past."

FBI Director Robert Mueller, Attorney General Alberto Gonzales and his predecessor, John Ashcroft, declined to be interviewed for this story.

According to the Post-Intelligencer 's analysis, if the FBI had continued investigating financial crimes at the same rate as it did before the World Trade Center came down, about 2,000 more criminals would be behind bars.

The number of fraud convictions in federal courts has dropped about 20 percent.

White-collar crimes often affect the people least able to afford it — lower-income and elderly people, according to Peter Henning, a former Justice prosecutor who teaches law at Wayne State University in Detroit.

"If you keep it small, and act quickly and get out of the jurisdiction, you can avoid being prosecuted," Henning said. "Scam artists know that."

Large numbers of FBI agents were also transferred out of violent crime programs because bureau officials knew that local police — who have overlapping jurisdiction in violent crimes — would have to help.

In the months after 9/11, when the first waves of agents were funneled into counter-

terrorism, FBI director Mueller was well-aware of the consequences to come. Without a major influx of new agents, there was no way to maintain the bureau's grip on a long list of traditional crimes, particularly time-consuming fraud investigations.

Mueller would ask for help from two attorneys general — Ashcroft and Gonzales — only to be rebuffed each time.

"We were told to do more with less," said David Szady, a former FBI assistant director who retired last year as head of counter-intelligence.

Dale Watson, who retired in 2002 as the FBI's executive assistant director over counter-terrorism, also blames the OMB and the Justice Department for failing to heed the warnings.

By the time the bureau started putting together its fiscal 2006-2007 budget in mid-2005, "we realized we were going to have to pull out of some areas — bank fraud, investment fraud, ID theft cases — that protect the financial infrastructure of the country," the retired top FBI official said.

Also in 2005, the FBI sent a five-year strategic plan to Justice that Szady called "the director's attempt to get this agency where it needed to be, including a robust criminal footprint. I know for a fact that the Justice Department beat that down. It was dead on arrival."

A September 2005 Justice Department inspector general's report asserts that in addition to the 1,143 agents transferred from traditional crime programs, the FBI used 1,279 agents on counterterrorism work, even though they were on the books as criminal-program agents. The inspector general concluded that the FBI reduced its investigative efforts related to traditional crimes by more than 2,400 agents.

In fiscal 2006, the bureau sought 250 to 350 new agents. They were funded for fewer than 75, a former official said. Over the past eight years, the ranks of FBI agents have increased from about 11,000 to 12,575, and nearly all have been assigned to anti-terror duties, records show.

Fraud-case 'triage'

Burrus, the FBI assistant director, acknowledges that the bureau has reduced its efforts to fight fraud. He likened the FBI's current fraud-enforcement policies, in which losses below $150,000 have little chance of being addressed, to "triage."

Enforcing civil rights laws has been a core FBI mission since the Johnson presidency, but after 9/11 those efforts declined substantially. The number of cases brought by the FBI to federal prosecutors for any reason from getting subpoenas to seeking charges fell 60 percent between 2000 and 2005, the Post-Intelligencer found.

While the FBI disputes the degree of the decline, the bureau's own figures show drops in cases investigated, indictments and convictions, particularly hate crimes.

Civil rights cases against local police, including allegations of brutality and misuse of power, also dropped after 9/11, but FBI data show a rebound in indictments and convictions since 2005.

There were 24 percent fewer agents working on civil rights cases in 2004 than in 2000, according to the 2005 inspector general report.

http://www.chron.com/disp/story.mpl/front/4704121.html