An interesting article regarding possible bank fraud and bail-out funds…
By Tom Braithwaite in Washington  March 31 2009

US authorities have launched more than a dozen criminal investigations into possible fraud involving bank bail-out funds, the special inspector-general for the troubled assets relief programme told Congress on Tuesday.

Neil Barofsky – described at a Senate finance committee hearing as the “Tarp cop” – estimated the US had spent or lent almost $3,000bn of taxpayers’ money to aid banks and other companies, which would “inevitably attract those seeking to profit criminally”.

He said his investigators were already working with law enforcement officials on potential cases. “We actually have probably more than a dozen ongoing criminal investigations based on fraud related to the Tarp programme,” he said. A spokeswoman for Mr Barofsky said the office could not provide more detail as the probes were active.

The total amount of federal money by his estimate includes the $700bn Tarp fund and other programmes operated by the Federal Reserve and the Federal Deposit Insurance Corporation.

Mr Barofsky, a former federal prosecutor in New York , said his role was to prevent the money being diverted illegally. He noted there was a “potential exposure of hundreds of billions of dollars in taxpayer money” if the bail-out efforts were to suffer from the average rate of fraud in federal programmes.

He said if his oversight efforts dissuaded institutions from taking Tarp money, “some might take this as a criticism. I do not”.

“If a bank or financial institution doesn’t want to participate in the Tarp programme because it’s unwilling to disclose how it’s using taxpayer money or because it’s afraid of the vigorous detection programmes that we are establishing for fraud, it means we’re doing our job,” he said.

“Keeping such participants out of the Tarp will only benefit the American taxpayer.”

The approach of the inspector-general differs from that of the Treasury, which has suggested it would not be useful to require banks to disclose exactly how they use the Tarp money.

Mr Barofsky also said he was to prepare an audit of the decision to repay in full counterparties of AIG, the insurance group bailed out with $173bn of government aid.

The Government Accountability Office on Tuesday recommended the Treasury should demand “concessions” from AIG’s counterparties and executives “including seeking to renegotiate existing contracts”.

Copyright The Financial Times Limited 2009