U.S. Says It’s Unlikely to Get Back Most Money Lost Through S&L; Fraud

Atty. Gen. Dick Thornburgh, delivering a discouraging assessment to senators angered by the cost of the savings and loan rescue, said Thursday that there is little chance of recovering much of the money stolen in illegal thrift industry transactions.

“We are fooling ourselves to think that any substantial portion of these assets are going to be recovered,” Thornburgh told members of the Senate Banking Committee.

Large amounts of ill-gotten gains have been sent out of the country, “beyond the reach of U.S. authorities, through complicated money-laundering schemes,” the attorney general said.

Undeterred, committee members said they would be willing to support extraordinary efforts--mounted with additional funds and personnel, along with changes in the law--to help the Justice Department get back more of the money and punish those who diverted it.

Paraphrasing the Bible, Sen. Phil Gramm (R-Tex.) declared: “Vengeance is mine, sayeth the Banking Committee.”

Thornburgh promised that he would launch an aggressive effort to crack down on the white-collar crime that contributed largely to the collapse of thrift institutions.

President Bush has asked Congress to increase the Justice Department’s budget by $50 million to hire more FBI agents and prosecutors to work on S&L; fraud cases.

“We will seek them out,” Thornburgh said, and strive for “the most severe penalties.”

The Bush Administration expects, through the sale of S&Ls;’ real estate and other assets, to recover $20 billion of the $90-billion cost of restoring the federal insurance fund, which was wiped out by the insolvency of more than 500 institutions.

But most of the money diverted by clients and S&L; executives through fraudulent loans is out of reach, the attorney general said.

There is no firm estimate on how much of the $90-billion loss was caused by fraud, but the General Accounting Office found criminal abuses to be widespread in a sample of failed S&Ls; it studied.

The methods of fraud were varied and sophisticated. False appraisals enabled developers to borrow huge amounts of money on overpriced land. Often, loan fees to S&Ls; paid by developers on these questionable deals were really disguised kickbacks. Owners of the S&Ls; paid themselves huge salaries and drew inflated dividends from shady real estate loans and projects.

Much of this money flowed into private accounts and then out of the country, investigators fear.

“Whatever we can recover from those who stole it reduces the burden on the taxpayers,” said Sen. Jake Garn (R-Utah).

“I hope you recover every yacht and Jaguar,” Sen. Alan Dixon (D-Ill.) told Thornburgh. However, he said, “most of those rascals have empty pockets when you get to them.”

Seeking Billions

For some of the biggest losses, “no assets exist to levy on,” the attorney general said. “They have been dissipated.”

Sen. Donald W. Riegle Jr. (D-Mich.), the committee’s chairman, promised Thornburgh, “We’re going to provide you what you feel you need.” He asked Thornburgh to report every 90 days on the progress of S&L; fraud cases.

“There are probably billions of dollars out there,” Riegle said.

The government must “grab by the throat those who have profiteered,” Gramm said. “Maybe we can’t get a lot of money, but we can get satisfaction,” he said, telling Thornburgh, “We want you to find your meanest and toughest prosecutors and go after these people.”

Thornburgh told the panel, “Nothing would please me more than to recover a healthy dividend for this committee and the Congress.”