United States Government Accountability Office

GAO

Report to the Honorable Byron L. Dorgan,
U.S. Senate

January 2005

CRIMINAL DEBT
Court-Ordered
Restitution Amounts
Far Exceed Likely
Collections for the
Crime Victims in
Selected Financial
Fraud Cases

GAO-05-80

a

January 2005

CRIMINAL DEBT

Highlights of GAO-05-80, a report to the
Honorable Byron L. Dorgan, U.S. Senate

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 whitecollar 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.

GAO recommends that the
Attorney General (1) include in the
criminal debt strategic plan, which
is called for by recent
congressional action, legislative
initiatives, operational initiatives,
or both that are directed toward
maximizing opportunities for
collection; and (2) report annually
in Justice’s Accountability Report
on the progress toward developing
and implementing the strategic
plan. Justice stated it is taking
steps to develop a strategic plan to
improve criminal debt collection.
www.gao.gov/cgi-bin/getrpt?GAO-05-80.
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Gary T. Engel
at (202) 512-3406 or engelg@gao.gov.

Court-Ordered Restitution Amounts Far
Exceed Likely Collections for the Crime
Victims in Selected Financial Fraud
Cases

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 highranking 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. Justice’s comments on a
draft of this report are consistent with this conclusion.

Contents

Letter

1
2
6
7

Results in Brief
Background
Scope and Methodology
Restitution Amounts Far Exceed Likely Collections for the Crime
Victims
Recent Congressional Action
Conclusion
Recommendations for Executive Action
Agency Comments and Our Evaluation

9
16
17
17
18

Comments from the Department of Justice
GAO’s Comments

20
23

Staff Acknowledgments

24

Appendixes
Appendix I:
Appendix II:

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GAO-05-80 Criminal Debt

A

United States Government Accountability Office
Washington, D.C. 20548

January 31, 2005

Leter

The Honorable Byron L. Dorgan
United States Senate
Dear Senator Dorgan:
In March 2004, we reported that the Department of Justice’s (Justice)
unaudited records indicated that the total amount of outstanding criminal
debt had more than quadrupled over a 6-year period, growing from about
$6 billion as of September 30, 1996, to almost $25 billion as of
September 30, 2002.1 This significant upward trend started with enactment
of the Mandatory Victims Restitution Act of 1996 (MVRA).2 One feature of
that law substantially increased the restitution amounts the courts were
required to order for certain offenses.3 Our 2004 report included detailed
information on the reported amount and growth of criminal debt for fiscal
years 2000 through 2002, including specific amounts related to white-collar
financial fraud.4 As discussed in that report, Justice’s unaudited records
indicate that for each of these 3 fiscal years, about two-thirds or more of
criminal debt was related to white-collar financial fraud. About 80 percent
of the white-collar financial fraud debt as of September 30, 2002, was
categorized as nonfederal restitution, which is criminal debt owed to other
than the federal government and for which Justice has a significant
responsibility to collect on behalf of crime victims.

1

GAO, Criminal Debt: Actions Still Needed to Address Deficiencies in Justice’s Collection
Processes, GAO-04-338 (Washington, D.C.: Mar. 5, 2004). For this report, the latest reported
data from Justice as of the completion of our fieldwork in mid-December 2003 were for
fiscal year 2002. Justice was still in the process of compiling and summarizing criminal debt
information for fiscal year 2003.
2

Pub. L. No. 104-132, Title II, Subtitle A, 110 Stat. 1214, 1227.

3

18 U.S.C. § 3663A (2000) requires the court to order restitution for offenders, regardless of
the offender’s ability to pay, who are convicted of (1) a crime of violence as defined by 18
U.S.C. § 16 (2000); (2) an offense against property under title 18 of the U.S.C., including any
offense committed by fraud or deceit; or (3) an offense related to tampering with consumer
products (18 U.S.C. § 1365 (2000)), in which an identifiable victim has suffered a physical
injury or pecuniary loss. See also 18 U.S.C. §§ 2248, 2259, 2264, and 2327 (2000).

4

White-collar financial fraud is criminal activity involving various types of unlawful,
nonviolent conduct committed by corporations, individuals, or both, including theft or fraud
and other violations of trust, for example, securities fraud and financial institution fraud.

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We noted in our earlier July 2001 report, and reaffirmed in our 2004 report,5
that the collection of outstanding criminal debt is inherently difficult due to
a number of factors, including the nature of the debt, in that it involves
criminals who may be incarcerated, may have been deported, or may have
minimal earning capacity; the MVRA requirement that the assessment of
restitution be based on actual loss and not on an offender’s ability to pay;
and the significant amount of time that may pass between offenders’ arrest
and sentencing, thus affording opportunities for offenders to hide
fraudulently obtained assets in offshore accounts, shell corporations,
family members’ names and accounts, or other ways. Our 2001 report also
noted as contributing factors to the growth of reported uncollected
criminal debt Justice’s inadequate policies and procedures for collecting
criminal debt, lack of adherence to established criminal debt collection
procedures in certain judicial districts, and Justice’s insufficient
coordination with other entities involved in the collection of criminal debt.
In the wake of a recent wave of corporate scandals, you noted that the
American taxpayers have a right to expect that those who have committed
corporate fraud and other criminal or civil wrongdoing will be punished,
and that the federal government will make every effort to recover assets
and the ill-gotten gains held by such offenders. Recognizing that we
previously reported on specific deficiencies in Justice’s and other federal
agencies’ criminal debt collection processes and had made
recommendations to improve collections, you asked us to study several
specific criminal restitution debt cases to shed additional light on the
difficulties involved in attempting to collect restitution for victims of crime.
Specifically, for selected criminal white-collar financial fraud cases for
which large restitution debts have been established but little has been
collected, you asked that we 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.

Results in Brief

The restitution assessed the offenders by the courts for the five selected
criminal debt cases we reviewed that involved white-collar financial fraud
far exceeds amounts that have been and are likely to be collected and paid
to victims of the crimes. Taken together, the five offenders were ordered by
5

GAO, Criminal Debt: Oversight and Actions Needed to Address Deficiencies in Collection
Processes, GAO-01-664 (Washington, D.C.: July 16, 2001). GAO-04-338.

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the courts to pay restitution totaling about $568 million to their victims,
many of whom were corporate shareholders or small investors. The courts
also ordered four of the offenders to serve prison terms ranging from 1 to 5
years and placed one offender on several years of probation. The offenders,
who had either been high-ranking officials of companies or operated their
own business, pled guilty to various white-collar crimes. As of June 2004,
which was several years after the offenders were sentenced, court records
showed that amounts collected for the victims totaled only about
$40 million, or about 7 percent of the ordered restitution.6
These limited collections resulted predominantly from asset forfeiture
actions7 or from payments made prior to the offenders’ sentencing. For
each of these selected cases, Justice’s Financial Litigation Units (FLU),
which are responsible for criminal debt collection, performed certain
activities to attempt to collect the debts after the judgments. However, the
FLUs were not able to identify and liquidate additional assets of the
offenders to significantly reduce the debts.
Based on information available to us, the FLUs’ prospects are not good for
collecting additional restitution amounts on these cases. Each of the
offenders, at some point prior to the judgments establishing the restitution
debts, either reported having wealth or significant financial resources to
the courts or to Justice, or there were indicators that this was the case.
However, following the judgments, the offenders claimed that they were
not financially able to pay full restitution to their victims. At the time of our
debt file reviews, the limited payments the offenders had made or were

6

This low rate of collection for the selected cases coincides with overall collection rates for
criminal debt we have previously reported. In 2004, we reported that according to Justice’s
unaudited records, collections relative to outstanding criminal debt averaged about 4
percent for fiscal years 2000, 2001, and 2002 (GAO-04-338). In 2001, we reported that
criminal debt collection averaged about 7 percent for fiscal years 1995 through 1999 (GAO01-664).

7

Asset forfeiture is used to seize property associated with criminal activity. The property
seized may be illegal for someone to own or it may be the gains resulting from the criminal
activity. It is a means of punishing and deterring criminal activity by depriving criminals of
property, including items such as monetary instruments, real property, and tangible personal
property, that was used or acquired through illegal activities. The federal government seizes
such property associated with violations of various federal statutes and takes title to that
property (forfeiture) through either an administrative or judicial process. Seized property
either can be returned to the owner or forfeited to the government. After federal forfeiture,
noncash property may be sold, put into official use, destroyed, or shared with state and local
law enforcement agencies participating in the seizure.

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then making will do little to significantly reduce the outstanding balance of
the restitution debts as initially set by the courts.
For the selected cases, we also found that there were minimal, if any,
apparent negative consequences to the offenders for not paying their
restitution debts. Court and public records indicated that each of the
offenders’ lifestyles was, at a minimum, comfortable. Moreover, it is not a
crime to willfully fail to pay restitution debt. A court may revoke or modify
the terms and conditions of probation or supervised release for an
offender’s failure to pay restitution;8 however, these are of little
consequence once the offender has successfully completed the term of
probation or supervised release, because at that point, the offender cannot
be sent to prison for failure to pay a restitution debt.
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, a situation that Justice acknowledged is typical. Court
records show that 5 to 13 years passed between when the offenders
selected in our review began to engage in the criminal activity for which
they were sentenced and the date of their judgments. Justice stated that
during such intervals, criminals engaged in fraudulent enterprises
commonly dissipate their criminal gains quickly and in a manner that
cannot be easily traced, such as expending gains on intangible and excess
“lifestyle” expenses, including travel, entertainment, gambling, and gifts. In
addition, other dispositions and circumstances involving the offenders’
assets or the offenders occur that create major debt collection challenges
for the FLUs. For example, we found that for 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
through legal or potentially fraudulent means to family members 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. Justice acknowledged that such dispositions or
circumstances are not uncommon.

8

Supervised release is a period during which an offender who has completed his or her full
prison sentence mandated by federal sentencing guidelines is under supervision by federal
probation officers.

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Given the significant upward trend in outstanding criminal debt and the
difficulty experienced by Justice in collecting criminal restitution debt,
which we have previously reported and which is exemplified by the
selected cases discussed in this report, it is important that Justice
determine how to better maximize opportunities for making offenders’
assets available to pay the offenders’ victims. In our view, Justice can best
accomplish this by addressing our 2001 recommendation that it work with
other involved federal agencies to develop a strategic plan to improve
criminal debt collection processes and establish an effective coordination
mechanism among all such entities. As stated in our 2001 report, effective
and efficient criminal debt collection hinges on the ability of the entities
involved to work together in assessing and collecting criminal debt, and
prompt action is essential for maximizing potential collections.9
Our current review of the five selected white-collar financial fraud debts, as
supported by our previous work on criminal debt collection, strongly
supports the need for Justice, as the agency primarily responsible for
collecting criminal debt, to take the lead in promptly addressing and
implementing our 2001 recommendation that Justice work with the
Administrative Office of the United States Courts (AOUSC), the Office of
Management and Budget (OMB), and the Department of the Treasury
(Treasury) to develop a strategic plan that would improve interagency
processes and coordination with regard to criminal debt collection
activities, as well as address managing, accounting for, and reporting
criminal debt. Until such a strategic plan is developed and effectively
implemented, which could involve legislative as well as operational
initiatives, the effectiveness of criminal restitution as a punitive tool may
be diminished, and Justice will lack adequate assurance that offenders are
not benefiting from ill-gotten gains and that innocent victims are being
compensated for their losses to the fullest extent possible.
The conference report accompanying the Consolidated Appropriations Act,
2005, Public Law No. 108-447, which was signed into law on December 8,
2004, included language calling for the Attorney General to take the lead in
such a coordinated effort. In tandem with this call for action, we
recommend that Justice consider a broad range of legislative and
operational initiatives for enhancing the federal government’s capacity to
collect restitution for victims of financial crimes for inclusion in the
strategic plan.
9

GAO-01-664.

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As discussed in the “Agency Comments and Our Evaluation” section at the
end of this report, Justice’s comments on a draft of this report, which are
reprinted in appendix I, are consistent with our conclusion that given such
poor prospects for collection of restitution debt for our five selected cases,
as well as the overall low collection rates for criminal debt we have
previously reported, it is important that Justice determine how to better
maximize opportunities to make offenders’ assets available to pay crime
victims. In its comments, Justice stated that consistent with our
recommendation and the conference report that accompanied the
Consolidated Appropriations Act of 2005, Justice is in the process of
organizing an interagency joint task force to develop a strategic plan for
improving criminal debt collection. Justice did not, however, specifically
comment on our recommendations.

Background

Justice is responsible for collecting criminal debt and has delegated
operating responsibility to its FLUs within all of Justice’s U.S. Attorneys’
Offices (USAO).10 Justice’s Executive Office for United States Attorneys
(EOUSA) provides administrative and operational support, including
support required for debt collection, to the USAOs. According to Justice,
the FLUs typically become involved in the criminal debt collection process
after the judgment, which occurs when an offender is convicted and a
judge orders the offender to pay a fine or restitution. The U.S. Courts and
their probation offices may also assist in collecting moneys owed. AOUSC
provides national standards and promulgates administrative and
management guidance, including standards and guidance required for debt
collection, to the various U.S. judicial districts.

10

There are 94 districts throughout the country, but USAOs for 2 of them are combined,
resulting in 93 USAOs.

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In July 2001, we reported on the growth of uncollected criminal debt
through fiscal year 1999. We noted that although some of the key factors
that contributed to the increasing amount of criminal debt were beyond
Justice’s control, certain of Justice’s criminal debt collection processes
were inadequate.11 Accordingly, in the 2001 report, we made 14
recommendations to Justice to improve the effectiveness and efficiency of
its criminal debt collection processes.12
In our March 2004 report, we discussed the extent to which Justice had
acted on our previous recommendations to it to improve criminal debt
collection. Our follow-up work on Justice’s efforts to implement our 2001
recommendations showed that it had completed actions on 7 of the 14
recommendations, most of which were completed about 2 years after we
made the recommendations, and had efforts under way to address 6 other
recommendations. We noted that because many of these recommendations
largely focused on establishing policies and procedures, it is important that
they be effectively implemented once they are established, and it will likely
take some time for collection results to be realized from full
implementation. However, efforts to implement the recommendation that
we considered the most critical had not progressed—namely for Justice to
participate in a multiagency effort to develop a unified strategy for criminal
debt collection. Specifically, we reported that Justice had not yet worked
with other agencies, including AOUSC, OMB, and Treasury, to implement a
key recommendation to work as a joint task force to develop a strategic
plan that addresses managing, accounting for, and reporting criminal debt.
We concluded that the long-standing problems in the collection of
outstanding criminal debt—including fragmented processes and lack of
coordination—continued because there is no united strategy among the
major entities involved with the collection process.13

Scope and
Methodology

Our case study review, on which the results described in this report are
based, focused on a nonrepresentative selection of five criminal whitecollar financial fraud debts that Justice reported outstanding as of

11

GAO-01-664.

12

In the 2001 report, we also made recommendations to address long-standing problems in
the collection of outstanding criminal debt to the AOUSC, OMB, and Treasury.
13

GAO-04-338.

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September 30, 2002, each with a judgment prior to fiscal year 2001 that
assessed the offender millions of dollars of restitution. We selected debts
involving offenders who were not currently in prison and for which the
offenders had paid a relatively small amount of the outstanding restitution
amounts as of September 30, 2002. Also, our review only involved selected
cases for which we could clearly identify the lead debtor in court and
Justice records.
We obtained sufficient information to address our three reporting
objectives; however, we were not provided all of the details pertaining to
each of the five selected cases and thus cannot be assured that there was
not additional relevant information. Because Justice still considers these
cases to be open law enforcement cases for collection purposes, the
information Justice provided for each case was limited primarily to what
was included in its debt collection file minus personal identifiers, such as
the names of the offenders, their addresses, and their Social Security
numbers. Therefore, we are not providing a comprehensive account of any
particular case.
For each selected debt, we reviewed Justice’s debt collection file or files,
minus all personal identifiers. 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. To supplement or attempt to further corroborate the
information obtained from Justice for each case, we obtained and reviewed
pertinent information about the selected debts and debtors from certain
records made available by the courts and from public sources available
through the Internet, such as property records. Also, for reporting
purposes, rather than highlighting specific case studies in detail, our
discussions focus on specific types of debt collection problems identified
during this review, many of which we were aware of from our previous
work. 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.
We conducted our review from November 2003 through June 2004 in
accordance with U.S. generally accepted government auditing standards.
We received written comments signed by the Director, Executive Office for
United States Attorneys, on a draft of this report. Justice’s comments are

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reprinted in appendix I, and technical comments received from both
Justice and AOUSC have been addressed as appropriate in this report.

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. The offenders’ restitution amounts totaled about $568 million.
However, according to court records, only about $40 million, or about 7
percent of the total, had been collected several years after the courts
sentenced each of the offenders. The vast majority of these collections
resulted from asset forfeiture actions and from payments that were made
before the offenders were sent to prison or placed on probation. 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. Moreover, based on information available to
us, the FLUs’ prospects are not good for collecting additional restitution
amounts from the offenders to compensate their victims to the extent
initially ordered by the courts. Following the judgments, despite
indications of prior wealth or possession of significant financial resources,
the offenders claimed to have limited financial means to pay their
restitution debts. Further, there were minimal, if any, apparent negative
consequences to the offenders for not paying such debts.
A major debt collection problem for the FLUs for the selected cases was
that up to 13 years had passed between the offenders’ criminal activities
and the related judgments. By the time the FLUs became involved in trying
to collect the restitution debts, the offenders’ assets had been, among other
things, transferred to family members or others, forfeited to the
government, or involved in bankruptcy. Justice acknowledged to us that
the long intervals between criminal activity and the related judgments, and
certain dispositions and circumstances involving the offenders’ assets or
the offenders that take place during such intervals, make collection
difficult for many criminal restitution debt cases.

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. Restitution amounts for
individual cases ranged from over $7 million to more than $400 million.
Court records show that each of the offenders, who pled guilty to engaging

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in criminal activity, had been high-ranking officials of companies and
lending institutions or operated their own business. The crimes in these
cases consisted of fraudulently manipulating company sales figures and
inventories to increase stock values or to obtain loans, engaging in
schemes to convert business loan proceeds for personal use, selling
securities to private investors under false pretenses, and illegally sharing in
loan proceeds from a federally insured financial institution. The victims of
the crimes involving the offenders of our selected cases included corporate
shareholders, large lending institutions, and small investors—many of
whom were elderly and had been harmed financially. In addition to the
court-ordered restitution, prison terms ordered by the courts for four of
these offenders ranged from 1 to 5 years followed by 3 to 5 years of
supervised release. One offender received several years of probation rather
than prison. As of June 2004, all of the offenders were out of prison or off
probation, but three offenders were still on supervised release.
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.
Collections for the individual cases ranged from less than 1 percent to
about 10 percent of the restitution amounts owed. About $24 million of
these collections resulted from asset forfeiture actions, and over
$11 million from payments that were made prior to the offenders’
sentencing. After the judgments were rendered, the FLUs performed
certain debt collection activities, such as filing liens on the offenders’ real
property; issuing restraining notices forbidding the transfer or disposition
of assets; performing title searches; and requesting, obtaining, and
reviewing financial information from the offenders.14 Performing such
activities did not enable the FLUs to further reduce the restitution debts
significantly by identifying and liquidating additional assets of the
offenders.

14

Although the FLUs performed certain debt collection actions for each of the selected
cases, we found that some of the FLUs’ efforts, such as filing liens, were not always done
promptly following the judgment. In addition, the asset discovery work performed by the
FLUs consisted primarily of requesting, obtaining, and reviewing financial information
provided by the offender. We noted in our 2001 report (GAO-01-664) certain problems
stemming from a lack of independent verification of financial information provided by
offenders. We also noted that prompt collection action, including the performance of asset
discovery work, such as researching online property locator services, is critical to
minimizing the dilution of assets that could be available for payment of a restitution debt.
Accordingly, we offered recommendations to help Justice improve the timeliness and extent
of its criminal debt collection efforts.

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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. Specifically, prior to sentencing, one or more of the offenders
reported earning millions of dollars in annual gross income, having millions
of dollars in net worth, or spending thousands of dollars per month on
clothing and entertainment. In addition, court records indicate that certain
of the offenders converted millions of dollars of fraudulently obtained
assets for personal use, established businesses for their children, or held
residential properties worth millions that were located in upscale
communities. In spite of the reported wealth or financial resources or
indications of such, following their judgments, each of the offenders
reported to either the courts or Justice a modest income or net worth and
claimed to have limited financial means to pay restitution debt. Further, at
the time of our file reviews, three of the offenders were on supervised
release and making monthly or yearly payments set by the courts that will
do little to reduce the outstanding balance of their restitution debts, one
offender had stopped making routine monthly payments after supervised
release terminated, and one offender had negotiated a settlement with the
crime victim, which was approved by Justice and the court, for far less than
the initial court-ordered restitution.
There were minimal, if any, apparent negative consequences to the
offenders for not paying restitution to their victims as initially ordered by
the courts. First, information obtained from the courts and public
documents indicated that the offenders were living in reasonable comfort.
For example, one offender and his immediate family owned and, at the time
of our review, resided in a property worth millions of dollars; another
offender owns a home worth over $1 million; and two offenders took
overseas trips while on supervised release. Second, after probation or
supervised release has expired, the offenders cannot be sent to prison for
failure to pay their restitution debts. According to Justice, although it does
not apply to restitution, the willful failure to pay a fine is a crime of criminal
default, which can result in the offender’s receiving an additional fine of not
more than twice the amount of the unpaid balance of the fine or $10,000,
whichever is greater; being imprisoned not more than 1 year; or both.
However, there is no such similar crime for willful failure to pay restitution.
A court may revoke or modify the terms and conditions of probation or
supervised release for an offender’s failure to pay restitution. However,

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these are of little consequence once the offender has successfully
completed the term of probation or supervised release.

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.
Justice stated that after criminal activity occurs, years may pass before the
initial investigation of a crime, let alone the arrest, trial, and conviction of
an offender. Justice also stated that the primary focus during the criminal
investigation, prior to judgment, is on the discovery and prosecution of the
offender’s criminal acts rather than on the potential future debt recovery by
the federal government. During the intervals between criminal activities
and the related judgments, Justice acknowledged that dispositions and
circumstances involving the offenders’ assets or the offenders often occur
that create major debt collection challenges for the FLUs. According to
Justice, criminals with any degree of sophistication, especially those
engaged in fraudulent criminal enterprises, commonly dissipate their
criminal gains quickly and in an untraceable manner. Assets acquired
illegally are often rapidly depleted on intangible and excess “lifestyle”
expenses. Specifically, travel, entertainment, gambling, clothes, and gifts
are high on the list of means to rapidly dispose of such assets. Moreover,
money stolen from others is rarely invested into easily located or
exchanged assets, such as readily identifiable bank accounts, stocks or
bonds, or real property. Justice emphasized that the initial efforts by
criminal law enforcement investigators, federal prosecutors, and the
probation office promise the greatest opportunity for meaningful recovery
of illegally obtained assets. Therefore, in our view, coordination among the
FLUs and other entities involved in criminal debt collection is critical.

Transfer of Assets

According to Justice, there is no general statutory authority for Justice to
obtain pretrial restraint of assets in order to satisfy a potential criminal
judgment that may result in a restitution debt. However, once such a

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judgment is imposed, Justice can proceed against a third party by filing a
separate federal action to recover the assets or proceeds thereof. Justice
emphasized that it must prove by a preponderance of the evidence that the
offender fraudulently transferred assets, which often involves a lengthy
and time-consuming process. Moreover, even when a valid claim is made
against a third party for a fraudulent transfer, the third party may have a
“good faith” defense if the transfer was accepted in exchange for a
“reasonably equivalent value.”
The challenges encountered in collecting restitution debt from offenders
who may have transferred assets to others through legal or potentially
fraudulent means were evident in our review of selected cases. According
to Justice, at least one of the offenders in our selected cases has engaged in
a shell game for the purpose of shielding their assets. In addition, Justice
stated that at least one of the offenders has not provided full financial
disclosure, and that the FLU is currently exploring whether the offender
fraudulently conveyed assets to family members and others. Based on
information in Justice and court records, certain of the offenders in the
selected cases engaged in one or more of the following activities.
• Prior to the judgment, the offender and the offender’s family established
trusts, foundations, and corporations for their assets at about the same
time they closed numerous bank and brokerage accounts.
• Over the course of several years, the offender converted for personal
use hundreds of millions of dollars obtained through illegal white-collar
business schemes.
• Several years prior to the judgment, the offender’s minor child, who is
now an adult, was given the offender’s company. As of completion of our
fieldwork, that company employed the offender.
• Prior to the judgment, the offender placed a multimillion-dollar
residence in a trust.
• Prior to the judgment, the offender established a trust worth hundreds
of thousands of dollars for the offender’s child.
• The offender and the offender’s family rent their expensively furnished
residence, which they previously owned, from a relative.

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Forfeited Assets

Justice stated that forfeited assets are the property of the federal
government and do not always go to crime victims. Justice can restore
forfeited assets to a victim upon the victim’s filing of a petition, but only in
those limited cases when it is the victim’s actual property that is being
restored. According to Justice, the FLUs’ coordination with Justice’s Asset
Forfeiture Unit and others at the outset of the case is invaluable in securing
assets for payment of the victims’ restitution when such potential exists.
The importance such coordination has to securing forfeited assets for the
crime victim was evident in one of our selected cases. Court records
showed that about $175 million of the offender’s assets that had been
identified as related to the case had been forfeited; however, the FLU’s
records showed that only about $50 million of such assets had been
forfeited. At the time of our file review, the FLU was not certain whether
any forfeited assets had been, or could be, applied toward the offender’s
restitution debt. Subsequent to our visit to the FLU and our inquiries
related to this matter, Justice stated that only about $24 million of the
$50 million of forfeited assets in its records may be applied toward the
offender’s restitution debt as a result of a petition filed by the victim.

Bankruptcy

According to Justice, bankruptcy can impair the FLU’s ability to collect
criminal restitution debt. When a bankruptcy proceeding is initiated before
the criminal judgment, the bankruptcy estate attaches to all of the
offender’s property and rights to property, which can significantly limit
assets available for restitution. When a bankruptcy proceeding is initiated
after the criminal judgment, the United States may file a proof of claim in
the bankruptcy proceeding and may have secured status if its lien was
perfected against any of the defendant’s property. However, there may be
other creditors seeking payment from the offender’s estate, including often
the Internal Revenue Service. These other creditors may be just as much
victims of the offender as the victims named in the restitution order and
may also have valid interests in payment from the estate. Moreover,
bankruptcy’s automatic stay may limit the FLUs’ ability to otherwise
enforce the debt.15
For one of the selected cases, the offender went into bankruptcy prior to
the judgment. Shortly after the judgment, which was rendered over 5 years

15

The automatic stay mandated by 11 U.S.C. § 362 (2000) prevents the federal government
from pursuing collection action against debtors in bankruptcy for certain debts that arise
prior to the commencement of the bankruptcy litigation.

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ago, the FLU issued a restraining notice to the offender, forbidding the
transfer or disposition of his assets, and filed a lien on certain property.
However, according to the FLU, the ongoing bankruptcy has prevented it
from taking additional collection action. Recently, Justice stated that it had
been advised by the bankruptcy trustee that for this case, most of the
offender’s bankruptcy estate of several million dollars would be distributed
to the victim.16 Justice emphasized that generally for cases in which the
offender goes into bankruptcy prior to the judgment, the criminal
restitution debt will only be recognized as a general unsecured debt and,
therefore, most often will not be satisfied.

Foreign Accounts and
Deportation

Justice stated that money obtained illegally is often moved to offshore
accounts or to debtor-haven countries. In the absence of a treaty with a
foreign government or a provision of law to provide for the repatriation of
money transferred to foreign accounts, acquiring such money for the
liquidation of an offender’s restitution debt is difficult at best. Justice also
stated that certain offenders are deported; however, they continue to be
liable for the unpaid portion of their restitution debts, as current law
requires that the debts stay on the books for 20 years after the period of
incarceration ends or after the judgment if no incarceration is ordered.
Justice acknowledged that potential collection actions are limited for
offenders who have been deported. For example, liens filed in counties
where the offender previously held property have little, if any, effect when
offenders have moved assets and are living abroad. In addition, FLU
officials cannot subpoena financial information from offenders who have
been deported or obtain depositions from such offenders regarding their
assets.
Debt collection complications due to transfers of assets to foreign accounts
and the deportation of offenders were evident in our selected cases. For
one case, according to Justice, the FLU’s efforts to identify and secure
assets of the offender to liquidate the restitution debt have been hampered,
in part, because the offender had established, among other things, a foreign
bank account for the purpose of shielding his assets. For another case
involving two offenders who were jointly and severally liable for the
restitution debt, one offender had settled his liability for the debt, with the
approval of Justice and the court, by paying the victim far less than the
amount initially ordered by the court. With regard to this offender, Justice
16

It is important to note that a large outstanding restitution balance will remain after the
bankruptcy estate is distributed to the victim.

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GAO-05-80 Criminal Debt

stated that his reported assets and net worth were such that the thought
that additional collection efforts would have positive results was not
considered by the FLU to be reasonable. The FLU was left with little
recourse for additional collection action because the other offender in the
case, who is still liable for the remainder of this debt, was deported after
serving a prison term.

Recent Congressional
Action

Our March 2004 report and ongoing discussions with your office have kept
you apprised of progress in implementing the recommendations included
in our 2001 report. As discussed more fully in the background section of
this report, Justice has made progress in establishing certain policies and
procedures to improve criminal debt collection. Unfortunately, the effort
we considered key to more substantive progress, namely, development of a
strategic plan by all of the involved entities, had not been started. However,
very recently, the Congress directed the Attorney General to develop a
strategic plan with certain other federal agencies to improve criminal debt
collection. Specifically, the conference report that accompanied the
Consolidated Appropriations Act, 2005, Public Law No. 108-447, signed into
law on December 8, 2004, included language to further the implementation
of our 2001 recommendation regarding the establishment of an interagency
task force for the purpose of better managing, accounting for, reporting,
and collecting criminal debt.
In the conference report, the conferees directed the Attorney General to
establish a task force within 90 days of enactment of the act and to include
specified federal agencies, such as Treasury, OMB, and AOUSC, to
participate in the task force. Led by the Department of Justice, the task
force will be responsible for developing a strategic plan for improving
criminal debt collection. The strategic plan is to include specific
approaches for better managing, accounting for, reporting, and collecting
criminal debt. Specifically, the plan is to include steps that can be taken to
better and more promptly identify all collectible criminal debt so that a
meaningful allowance for uncollectible criminal debt can be reported and
used for measuring debt collection performance. Also, the conferees
directed the Attorney General to report to the Committees on
Appropriations within 180 days of enactment of this act on the activities of
the task force and the development of a strategic plan.17
17

H.R. Report No. 108-792, reprinted in 150 Cong. Rec. H10426-H10427 (daily ed. Nov. 19,
2004).

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Conclusion

Given such poor prospects for collection for the selected cases, as well as
the overall low collection rates for criminal debt we have previously
reported, it is important that Justice determine how to better maximize
opportunities to make offenders’ assets available to pay offenders’ victims
once judgments establish restitution debts. By taking advantage of all debt
collection opportunities, Justice may be able to better achieve the intent of
MVRA, which is to compensate crime victims to the extent of their financial
loss. Justice can best accomplish this aim by implementing the
recommendation we made in 2001 to work with AOUSC, OMB, and
Treasury to develop a strategic plan as now also called for by the
conference report accompanying the Consolidated Appropriations Act,
2005, to address managing, accounting for, and reporting criminal debt
including the collectibility of such debt.
Further, our review of the five selected criminal white-collar financial fraud
debts, in conjunction with the findings on our previous criminal debt
collection work, strongly supports the need for Justice to take the
leadership role in promptly addressing this recommendation. Effective
coordination and cooperation is essential for maximizing collections, and
as the federal agency primarily responsible for criminal debt collection,
Justice’s leadership in this effort is vital. The strategic plan should include a
determination of how to best maximize opportunities to make offenders’
assets available to pay the victims once judgments establish restitution
debts. Until such a strategic plan is developed and effectively implemented,
which could involve legislative as well as operational initiatives, the
effectiveness of criminal restitution as a punitive tool may be diminished,
and Justice will lack adequate assurance that offenders are not benefiting
from ill-gotten gains and that innocent victims are being compensated for
their losses to the fullest extent possible.

Recommendations for
Executive Action

To help ensure that the strategic plan called for in the conference report
effectively addresses all potential opportunities for collection, we
recommend that the Attorney General include in the strategic plan
legislative initiatives, operational initiatives, or both that are directed
toward maximizing opportunities to make offenders’ assets available to pay
victims once restitution debts are established by judges.
To monitor progress in leading the development and implementation of the
strategic plan, we also recommend that the Attorney General report
annually in Justice’s Accountability Report on progress toward developing

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and implementing a strategic plan to improve criminal debt collection. This
report should include a discussion of any difficulties or impediments that
significantly hinder such progress.

Agency Comments and
Our Evaluation

Overall, Justice’s EOUSA’s comments on a draft of this report, which are
reprinted in appendix I, are consistent with our conclusion that given such
poor prospects for collection for the selected cases, as well as the overall
low collection rates for criminal debt we have previously reported, it is
important that Justice determine how to better maximize opportunities to
make offenders’ assets available to pay offenders’ victims once judgments
establish restitution debts. EOUSA stated that consistent with our
recommendation and the conference report that accompanied the
Consolidated Appropriations Act of 2005, Justice is in the process of
organizing an interagency joint task force to develop a strategic plan for
improving criminal debt collection.
EOUSA did not specifically comment on our recommendations including
the recommendation that the Attorney General include in the strategic plan
legislative initiatives, operational initiatives, or both that are directed
toward maximizing opportunities to make offenders’ assets available to pay
victims once restitution debts are established by judges. However, EOUSA
did emphasize that current statutes do not provide adequate remedies for
the collection of criminal debt and cited several examples including the
lack of general statutory authority for the United States to obtain pretrial
restraint of assets in order to satisfy a potential criminal judgment that may
result in a restitution debt. Regarding operational initiatives, as stated in
this report, because many of the recommendations we have previously
made to Justice to improve criminal debt collection focused on establishing
policies and procedures, it is important that the policies and procedures be
effectively implemented once they are established. Moreover, any
multiagency effort to develop a unified strategy for criminal debt collection
will need to address operational issues.
Both EOUSA and AOUSC provided technical comments that have been
addressed as appropriate in this report.

As agreed with your office, unless you announce its contents earlier, we
plan no further distribution of this report until 30 days after its issuance
date. At that time, we will send copies to the Chairmen and Ranking

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GAO-05-80 Criminal Debt

Minority Members of the Senate Committee on Homeland Security and
Governmental Affairs; the Subcommittee on Financial Management, the
Budget and International Security, Senate Committee on Homeland
Security and Governmental Affairs; and the Subcommittee on Government
Efficiency and Financial Management, House Committee on Government
Reform. We will also provide copies to the Attorney General, the Director
of the Administrative Office of the U.S. Courts, the Director of the Office of
Management and Budget, and the Secretary of the Treasury. Copies will be
made available to others upon request. The report will also be available at
no charge on GAO’s Web site, at http://www.gao.gov.
If you have any questions about this report, please contact me at (202) 5123406 or engelg@gao.gov or Kenneth R. Rupar, Assistant Director, at
(214) 777-5714 or rupark@gao.gov. Staff acknowledgments are provided in
appendix II.
Sincerely yours,

Gary T. Engel
Director
Financial Management and Assurance

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GAO-05-80 Criminal Debt

Appendix I

Comments from the Department of Justice

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Note: GAO comments
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GAO-05-80 Criminal Debt

Appendix I
Comments from the Department of Justice

See comment 1.

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GAO-05-80 Criminal Debt

Appendix I
Comments from the Department of Justice

See comment 2.

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GAO-05-80 Criminal Debt

Appendix I
Comments from the Department of Justice

The following are GAO’s comments on the Department of Justice’s letter
dated January 13, 2005.

GAO’s Comments

1. As discussed in this report, only about $40 million, or about 7 percent, of
the $568 million restitution for these five selected cases had been paid as of
June 2004, and collections for these individual cases ranged from less than
1 percent to about 10 percent of the restitution amounts owed. Prospects
are not good for collecting additional restitution to fully compensate the
crime victims for the selected cases in our study. Regardless of whether
these offenders currently have, or once had, wealth equal to the restitution
amounts, the disparity between restitution owed to the crime victims for
the financial losses they incurred as a result of criminal activity and
amounts paid to the victims by the offenders makes it necessary for Justice
to take advantage of all debt collection opportunities to better achieve the
intent of MVRA, which is to compensate crime victims to the extent of their
financial loss.
2. EOUSA stated that the USAOs had collected over $4 billion on behalf of
victims of crime over the last 5 years. However, as stated in this report, the
low collection rate (about 7 percent of the ordered restitution) for the
selected cases coincides with overall collection rates for criminal debt as
we have previously reported. In 2004, we reported that according to
Justice’s unaudited records, collections relative to outstanding criminal
debt averaged about 4 percent for fiscal years 2000, 2001, and 2002 (GAO04-338). In 2001, we reported that criminal debt collection averaged about 7
percent for fiscal years 1995 through 1999 (GAO-01-664).

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GAO-05-80 Criminal Debt

Appendix II

Staff Acknowledgments

Appendx
iI

Richard T. Cambosos, Michael D. Hansen, Andrew A. O’Connell, Ramon J.
Rodriguez, Linda K. Sanders, and Matthew F. Valenta made key
contributions to this report.

(191037)

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