Accordingly, in the 2001 report, we made 14  recommendations to Justice to improve the effectiveness and efficiency of  its criminal debt collection processes. We interviewed appropriate officials from  Justice’s EOUSA and the responsible FLUs concerning actions taken to  collect the debt, obstacles to collection, and prospects for future  collections. This was done to ensure sufficient privacy of those involved in our  selected cases, and in consideration of Justice’s concern that the release of  information on open cases could hinder the department’s efforts to collect  the debts. Restitution Amounts Far Exceed Likely Collections for the Crime Victims

The court-ordered restitution amounts assessed the offenders for the five  selected criminal debt cases far exceed likely collections for the crime  victims. We found  that the FLUs, which typically become involved in criminal debt collection  after the debt is established at judgment, performed certain debt collection  activities; however, they were not able to reduce the restitution debts  significantly by identifying and liquidating additional assets of the  offenders to pay the victims. Most of the Court-Ordered Restitution Has Not Been Collected

As previously mentioned, the offenders’ restitution amounts for the  selected cases totaled about $568 million. Court records show that each of the offenders, who pled guilty to engaging  in criminal activity, had been high-ranking officials of companies and  lending institutions or operated their own business. As noted earlier, only about $40 million, or about 7 percent of the total  restitution for the selected cases had been paid as of June 2004, which was  from about 4 to 8 years after the courts sentenced each of the offenders. Prospects Are Not Good for Collecting Additional Restitution to Fully Compensate the Crime Victims

For the selected cases, based on information available to us, the FLUs are  not likely to collect sufficient additional restitution amounts from the  offenders to compensate their victims to the extent initially ordered by the  courts. At some point prior to the judgments establishing the restitution  debts, each of the offenders either reported having wealth or significant  financial resources to the courts or to Justice, or there were indicators of  such. There were minimal, if any, apparent negative consequences to the  offenders for not paying restitution to their victims as initially ordered by  the courts. Long Intervals between the Offenders’ Criminal Activities and Their Judgments Create Major Debt Collection Challenges for the FLUs

For the selected cases, according to records provided by the courts, at least  5 to 13 years passed between when the offenders began to engage in the  criminal activities for which they were sentenced and the date of their  judgments. We identified and the FLUs acknowledged that by the time the  courts rendered the judgments establishing the restitution debts, certain of  the offenders’ assets were, among other things, transferred through legal or  potentially fraudulent means to a family member or others, involved in  forfeiture actions, subject to bankruptcy, or moved to a foreign account. In  addition, one of our selected cases involved an offender who was jointly  and severally liable for the debt with another offender who had been  deported. Bankruptcy

According to Justice, bankruptcy can impair the FLU’s ability to collect  criminal restitution debt. However,  very recently, the Congress directed the Attorney General to develop a  strategic plan with certain other federal agencies to improve criminal debt  collection. GAO’s Comments

1. 2.
Why GAO Did This Study

In the wake of a recent wave of corporate scandals, Senator Byron L. Dorgan noted that the American taxpayers have a right to expect that those who have committed corporate fraud and other criminal wrongdoing will be punished, and that the federal government will make every effort to recover assets held by the offenders. Recognizing that GAO previously reported on deficiencies in the Department of Justice's (Justice) criminal debt collection processes (GAO-01-664), Senator Dorgan asked GAO to review selected criminal white-collar financial fraud cases for which large restitution debts have been established but little has been collected. Specifically, GAO was asked to determine (1) the status of Justice's efforts to collect on the outstanding debt, (2) the prospects for future collections, and (3) whether specific problems have affected Justice's ability to collect the debt.

What GAO Found

The court-ordered restitution for the five selected white-collar financial fraud criminal debt cases GAO reviewed far exceeded amounts likely to be collected and paid to the victims. These offenders, who had either been high-ranking officials of companies or operated their own business, pled guilty to crimes for which the courts ordered restitution totaling about $568 million to victims. As of the completion of GAO's fieldwork, which was up to 8 years after the offenders' sentencing, court records showed that amounts collected for the victims in these cases totaled only about $40 million, or about 7 percent of the ordered restitution. At some point prior to the judgments establishing the restitution debts, each of the five offenders either reported having wealth or significant financial resources to the courts or to Justice, or there were indicators of such. However, following the judgments, the offenders claimed that they were not financially able to pay full restitution to their victims. Justice's Financial Litigation Units (FLU) that were responsible for collection performed certain activities to collect the debts after the judgments, but the debts had not been significantly reduced as a result of the FLUs' identification and liquidation of additional assets of the offenders. The FLUs' prospects are not good for collecting additional restitution amounts on these cases. A major problem hindering the FLUs' ability to collect restitution debt in the selected cases was the long time intervals between the criminal offense and the judgment. Court records show that 5 to 13 years passed between when the offenders began to engage in the criminal activity for which they were sentenced and the date of their judgments. For each of the selected cases, by the time the court rendered the judgment establishing the restitution debt, certain of the offenders' assets had been, among other things, transferred to family members or others, involved in forfeiture actions, subject to bankruptcy, or moved to a foreign account. In addition, one of the selected cases involved an offender who was jointly and severally liable for the debt with another offender who had been deported. Justice acknowledged that such dispositions or circumstances are not uncommon and create major debt collection challenges for the FLUs. Moreover, there were minimal, if any, apparent negative consequences to these offenders for not paying their restitution debts. Recently, to further implementation of a related recommendation made in 2001 by GAO, the Congress directed the Attorney General to develop a strategic plan with certain other federal agencies to improve criminal debt collection. Given the significant upward trend in outstanding criminal debt and the difficulty experienced by Justice in collecting criminal restitution debt, it is important that Justice include in such a plan legislative initiatives, operational initiatives, or both to enhance the federal government's capacity to collect restitution for victims of financial crimes.