By Chuck Gallagher — Business Ethics Keynote Speaker and Trainer
TL;DR: Chuck Gallagher, business ethics keynote speaker, argues that federal fraud enforcement has always chased the cheap case over the expensive one, and that the pattern quietly hands powerful organizations the rationalization they need.
Why Did the Postal Clerk Face Prison While the Merchant Kept His Freedom?
In the early years of the republic, the federal government ran on customs revenue. Tariffs paid for the army, the courts, the mail. So a merchant who lied about a cargo to shave what he owed the Treasury was stealing public money in the most direct way a man could. And what happened to him? United States attorneys and customs officials filed a forfeiture case. Against the ship. Against the goods. He lost property. He kept his freedom.
Now take the postal clerk who dipped into the mail funds. He was prosecuted. Personally. In the earliest years of the republic, stealing from the mails could carry the death penalty.
Same government. Same theft of public money. Two entirely different answers.
Daniel Richman, a Columbia law professor and former federal prosecutor in the Southern District of New York, laid that history out in the Financial Times this month, and it has been rattling around my head since. His point was not that anyone back then was crooked. It was that the machinery kept making the same choice, in the same direction, for two hundred years.
What Does Enforcement Selection Actually Cost?
As a business ethics keynote speaker, I spend most of my working life in rooms where executives want to talk about risk. They want a number. Here is one. In April 2024, the Government Accountability Office produced the first government wide estimate of federal fraud losses: somewhere between 233 billion and 521 billion dollars a year, roughly three to seven percent of what the government obligates. GAO repeated that estimate in a review released in July 2026.
That July review holds the part that should keep a board awake. GAO examined the twenty largest federally funded, state administered programs, together accounting for about 1.1 trillion dollars in federal obligations in fiscal 2025. It asked one plain question. Had the responsible agencies documented their fraud risks and assessed how likely those risks were? Five had. Fifteen had not.
Fifteen out of twenty. On a trillion dollars.
Is the Problem Priorities, or Is It Arithmetic?
Both. And the arithmetic is the honest half. A benefit fraud case against one person is cheap. The documents are thin, the defendant rarely has counsel who can wage a three year fight, and the file closes. A case against a large organization is expensive. Forensic accountants. Privilege fights. Cooperating witnesses who need years of handling. Tight budgets do not manufacture villains. They manufacture triage.
You can see that triage in the docket. In fiscal 2025, the United States Sentencing Commission received documentation on 66,662 individual federal cases. Immigration offenses made up 37.7 percent of them. Firearms, 12.1 percent. Fraud, theft, and embezzlement together came to 7.6 percent.
Let me be clear about what those numbers do and do not prove. They do not prove bad faith by any administration, and the skew is far older than any sitting official. Richman traces it to the 1790s, through the moonshiners the Internal Revenue Service prosecuted after the Civil War while sophisticated liquor and tobacco firms built evasion schemes nobody unwound. What the numbers do prove is that the federal system convicts far more people for crossing a line than for looting a program.
Does a Bigger Fraud Division Change the Pattern?
It might. In April 2026 the Justice Department announced a National Fraud Enforcement Division, the first division in the department’s history built solely to pursue fraud against the United States and its citizens. On August 13, 2026, Assistant Attorney General Colin M. McDonald issued the division’s first priorities memorandum, naming five areas: public trust and financial integrity, health care, internal revenue, global trade and commerce, and corporate misconduct. The division expected roughly 500 attorneys and staff in place by August 24.
Five hundred people is real. Corporate misconduct landing fifth on a list of five is also real. Both things are true at once, and the next two years will tell us which one was load bearing.
What Happens Inside a Company That Believes Nobody Is Coming?
Here is where this stops being a policy argument and becomes my lane.
Misconduct needs three things. A need, which is pressure, a number to hit, a quarter to save. An opportunity, which is a control nobody checks. And a rationalization, which is the story a decent person tells himself so he can sleep.
Enforcement selection feeds the third one directly. When a general counsel reviews the record and concludes, reasonably, that organizations of a certain size tend to receive civil settlements while individuals receive indictments, that conclusion does not stay in the general counsel’s office. It seeps. It becomes the room temperature of the place. Nobody stands up and says we will not get caught. Nobody has to. You know exactly what I mean.
I have watched capable people rationalize their way into felonies. Not one of them woke up wanting to be a criminal. They worked somewhere that had quietly stopped believing consequence applied to them.
So What Should a Board Actually Do About Any of This?
Stop waiting for the enforcement environment to tell you where your risk sits. That is the entire lesson. The Justice Department’s priority list describes the Justice Department’s budget. It does not describe your exposure.
Do what fifteen of those twenty agencies did not do. Write down where your organization could be defrauded and where it could defraud. Assess the likelihood of each. Put a date on the document and an owner beside every line. Then read it out loud in a room with the people who run those processes, because a risk assessment nobody has said aloud is decoration.
Years of work as a business ethics keynote speaker have taught me the last step is the one boards skip. Ask the question everybody avoids until somebody answers it honestly. If one of our people crossed a line next quarter, would the story they told themselves sound reasonable to them?
Frankly, it usually would. That is the whole problem.
Frequently Asked Questions
What is selective enforcement in federal fraud cases?
Selective enforcement describes the reality that prosecutors have far more chargeable conduct in front of them than they have resources to charge, so they choose. Historically those choices have favored cases that are cheap and quick to prove, which tends to mean individual defendants rather than large organizations. The choice is usually driven by budget and difficulty rather than by any conscious decision to protect the powerful. The effect on the record, however, looks the same either way.
How much does the federal government lose to fraud each year?
The Government Accountability Office estimated in April 2024 that annual federal fraud losses fall somewhere between 233 billion and 521 billion dollars, based on fiscal year 2018 through 2022 data. That works out to roughly three to seven percent of federal obligations. It remains the only government wide estimate of its kind, and GAO cited it again in a July 2026 review.
What is the DOJ National Fraud Enforcement Division?
It is a Justice Department division announced in April 2026 and dedicated solely to fraud against the United States and its citizens, the first of its kind in the department’s history. On August 13, 2026, Assistant Attorney General Colin M. McDonald issued a memorandum naming five enforcement priorities: public trust and financial integrity, health care, internal revenue, global trade and commerce, and corporate misconduct. The division expected roughly 500 attorneys and staff in place by August 24, 2026.
Why are corporate fraud cases harder to prosecute than individual benefit fraud?
Organizational cases require forensic accounting, document review at scale, fights over attorney client privilege, and cooperating witnesses who must be developed over years. A single defendant benefit fraud case can often be built from a thin file and resolved by plea. When budgets are tight, the cheaper case gets made. That is arithmetic before it is ideology.
How should a company respond to shifting federal enforcement priorities?
It should stop treating the government’s stated priorities as a map of its own risk. As a business ethics keynote speaker, I tell boards that a published enforcement priority list reflects a prosecutor’s budget, not a company’s exposure. The practical move is a documented fraud risk assessment with named owners and review dates, updated whether or not anyone outside the building is asking for it.
Before You Go
The uncomfortable truth in all of this is that the people most likely to be prosecuted are rarely the people best positioned to steal. That gap is old, it is largely structural, and it will not close because a new division opened its doors. It closes inside organizations, one honest risk conversation at a time. If your board has not had that conversation lately, or has had it in a way nobody remembers a week later, that is worth fixing before somebody else fixes it for you.
Chuck Gallagher speaks to boards, executive teams, and compliance leaders about the behavioral conditions that produce misconduct and what to do about them before the subpoena arrives. To discuss a program for your organization, visit ChuckGallagher.com.
Five Questions for Reflection
1. If a regulator never looked at us again, which of our controls would quietly stop being enforced first?
2. Where in this organization does someone already believe that people like us do not get prosecuted?
3. Have we ever written down, on paper, the three ways we are most likely to be defrauded and the three ways we are most likely to defraud someone else?
4. When we cite an enforcement priority list to set our compliance agenda, are we managing risk or borrowing someone else’s judgment?
5. What is the most reasonable sounding rationalization currently circulating in this company, and who has said it out loud to leadership?
