In response to the savings and loan crisis of the 1980s, Congress enacted the Financial Institutions, Reform, Recovery and Enforcement Act of 1989 (FIRREA), a law that permits the government to bring civil bank fraud actions. In 1990, Congress amended FIRREA to add a provision that rewards whistleblowers who bring evidence of bank fraud to the government.

How Does FIRREA Protect the Banking System?

FIRREA allows the Department of Justice to pursue civil claims against entities and individuals who commit specified crimes against federally insured institutions, including:

  • False entries in banks’ books or records
  • False statements 
  • Illegal gifts or commissions for procuring loans
  • Theft or embezzlement by a bank officer or employee
  • Use of false statements with respect to loan applications
  • Defrauding or attempting to defraud a bank
  • False statements and overvaluing of securities
  • Concealment of assets
  • Mail fraud
  • Wire fraud

By enabling the government to pursue civil claims for conduct that is also a criminal offense, FIRREA permits the government to prevail at trial without proving its case “beyond a reasonable doubt.” Instead, the government need only meet the “preponderance of evidence” standard, which means it is only necessary to prove that it is more likely than not that the defendant engaged in bank fraud. This makes FIRREA a powerful tool in the fight against bank fraud, and one that the government has used to collect billions in penalties and fines.

Although FIRREA was originally used to prosecute bank officers and outsiders whose misconduct caused the banks to fail in the wake of the savings and loan scandal, subsequent court rulings have vastly expanded the law so that the bank itself can also be prosecuted since misconduct threatens its financial stability. 

Under FIRREA, a whistleblower provides DOJ with a “confidential declaration” describing the misconduct. If the whistleblower’s information results in the government ultimately recovering money, the whistleblower is entitled to:

  • 20 to 30 percent of the first $1 million recovered 
  • 10 to 20 percent of the next $4 million recovered
  • 5 to 10 percent of the next $5 million recovered

If the government recovers $10 million or more, for example, then the whistleblower award could be as much as $1.6 million.