Moving Illegal Proceeds
Challenges Exist in the Federal Government's Effort to Stem Cross-Border Currency Smuggling Gao ID: GAO-11-73 October 25, 2010U.S. Customs and Border Protection (CBP) is the lead federal agency responsible for inspecting travelers who seek to smuggle large volumes of cash--called bulk cash--when leaving the country through land ports of entry. It is estimated that criminals smuggle $18 billion to $39 billion a year in bulk cash across the southwest border. The Financial Crimes Enforcement Network (FinCEN) is responsible for reducing the risk of cross-border smuggling of funds through the use of devices called stored value, such as prepaid cards. GAO was asked to examine (1) the extent of actions taken by CBP to stem the flow of bulk cash leaving the country and any challenges that remain, (2) the regulatory gaps, if any, of cross-border reporting and other anti-money laundering requirements of stored value, and (3) if gaps exist, the extent to which FinCEN has addressed them. To conduct its work, GAO observed outbound operations at five land ports of entry. GAO also reviewed statutes, rules, and other information for stored value. This is a public version of a law enforcement sensitive report that GAO issued in September 2010. Information CBP deemed sensitive has been redacted.
In March 2009, CBP created an Outbound Enforcement Program aimed at stemming the flow of bulk cash leaving the country, but further actions could be taken to address program challenges. Under the program, CBP inspects travelers leaving the country at all 25 land ports of entry along the southwest border. On the Northern border, inspections are conducted at the discretion of the Port Director. From March 2009 through June 2010, CBP seized about $41 million in illicit bulk cash leaving the country at land ports of entry. Stemming the flow of bulk cash, however, is a difficult and challenging task. For example, CBP is unable to inspect every traveler leaving the country at land ports of entry and smugglers of illicit goods have opportunities to circumvent the inspection process. Other challenges involve limited technology, infrastructure, and procedures to support outbound operations. CBP is in the early phases of this program and has not yet taken some actions to gain a better understanding of how well the program is working, such as gathering data for measuring program costs and benefits. By gathering data for measuring expected program costs and benefits, CBP could be in a better position to weigh the costs of any proposed expansion of the outbound inspection program against likely outcomes. Regulatory gaps of cross-border reporting and other anti-money laundering requirements exist with the use of stored value. For example, travelers must report transporting more than $10,000 in monetary instruments or currency at one time when leaving the country, but FinCEN does not have a similar requirement for travelers transporting stored value. Similarly, certain anti-money laundering regulations, such as reports on suspicious activities, do not apply to the entire stored value industry. The nature and extent of the use of stored value for cross-border currency smuggling and other illegal activities remains unknown, but federal law enforcement agencies are concerned about its use. FinCEN is developing regulations, as required by the Credit CARD Act of 2009, to address gaps in regulations related to the use of stored value for criminal purposes, but much work remains. FinCEN has not developed a management plan that includes, among other things, target dates for completing the regulations. Developing such a plan could help FinCEN better manage its rulemaking effort. When it issues the regulations, law enforcement agencies and FinCEN may be challenged in ensuring compliance by travelers and industry. For example, FinCEN will be responsible for numerous tasks including issuing guidance for compliance examiners, revising the way in which it tracks suspicious activities related to stored value, and addressing gaps in anti-money laundering regulations for off-shore entities that issue and sell stored value. GAO recommends that CBP, among other things, gather data on program costs and benefits and that FinCEN develop a plan, including target dates, to better manage its rulemaking process. CBP and FinCEN concurred with these recommendations.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Richard M. Stana Team: Government Accountability Office: Homeland Security and Justice Phone: (202) 512-8816GAO-11-73, Moving Illegal Proceeds: Challenges Exist in the Federal Government's Effort to Stem Cross-Border Currency Smuggling
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
October 2010:
Moving Illegal Proceeds:
Challenges Exist in the Federal Government's Effort to Stem Cross-
Border Currency Smuggling:
GAO-11-73:
GAO Highlights:
Highlights of GAO-11-73, a report to congressional requesters.
Why GAO Did This Study:
U.S. Customs and Border Protection (CBP) is the lead federal agency
responsible for inspecting travelers who seek to smuggle large volumes
of cash”called bulk cash”when leaving the country through land ports
of entry. It is estimated that criminals smuggle $18 billion to $39
billion a year in bulk cash across the southwest border. The Financial
Crimes Enforcement Network (FinCEN) is responsible for reducing the
risk of cross-border smuggling of funds through the use of devices
called stored value, such as prepaid cards. GAO was asked to examine
(1) the extent of actions taken by CBP to stem the flow of bulk cash
leaving the country and any challenges that remain, (2) the regulatory
gaps, if any, of cross-border reporting and other anti-money
laundering requirements of stored value, and (3) if gaps exist, the
extent to which FinCEN has addressed them. To conduct its work, GAO
observed outbound operations at five land ports of entry. GAO also
reviewed statutes, rules, and other information for stored value. This
is a public version of a law enforcement sensitive report that GAO
issued in September 2010. Information CBP deemed sensitive has been
redacted.
What GAO Found:
In March 2009, CBP created an Outbound Enforcement Program aimed at
stemming the flow of bulk cash leaving the country, but further
actions could be taken to address program challenges. Under the
program, CBP inspects travelers leaving the country at all 25 land
ports of entry along the southwest border. On the Northern border,
inspections are conducted at the discretion of the Port Director. From
March 2009 through June 2010, CBP seized about $41 million in illicit
bulk cash leaving the country at land ports of entry. Stemming the
flow of bulk cash, however, is a difficult and challenging task. For
example, CBP is unable to inspect every traveler leaving the country
at land ports of entry and smugglers of illicit goods have
opportunities to circumvent the inspection process. Other challenges
involve limited technology, infrastructure, and procedures to support
outbound operations. CBP is in the early phases of this program and
has not yet taken some actions to gain a better understanding of how
well the program is working, such as gathering data for measuring
program costs and benefits. By gathering data for measuring expected
program costs and benefits, CBP could be in a better position to weigh
the costs of any proposed expansion of the outbound inspection program
against likely outcomes.
Regulatory gaps of cross-border reporting and other anti-money
laundering requirements exist with the use of stored value. For
example, travelers must report transporting more than $10,000 in
monetary instruments or currency at one time when leaving the country,
but FinCEN does not have a similar requirement for travelers
transporting stored value. Similarly, certain anti-money laundering
regulations, such as reports on suspicious activities, do not apply to
the entire stored value industry. The nature and extent of the use of
stored value for cross-border currency smuggling and other illegal
activities remains unknown, but federal law enforcement agencies are
concerned about its use.
FinCEN is developing regulations, as required by the Credit CARD Act
of 2009, to address gaps in regulations related to the use of stored
value for criminal purposes, but much work remains. FinCEN has not
developed a management plan that includes, among other things, target
dates for completing the regulations. Developing such a plan could
help FinCEN better manage its rulemaking effort. When it issues the
regulations, law enforcement agencies and FinCEN may be challenged in
ensuring compliance by travelers and industry. For example, FinCEN
will be responsible for numerous tasks including issuing guidance for
compliance examiners, revising the way in which it tracks suspicious
activities related to stored value, and addressing gaps in anti-money
laundering regulations for off-shore entities that issue and sell
stored value.
What GAO Recommends:
GAO recommends that CBP, among other things, gather data on program
costs and benefits and that FinCEN develop a plan, including target
dates, to better manage its rulemaking process. CBP and FinCEN
concurred with these recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-11-73] or key
components. For more information, contact Richard Stana at (202) 512-
8777 or stanar@gao.gov.
[End of section]
Contents:
Letter:
Background:
CBP Has Established an Outbound Enforcement Program, but Further
Actions Are Needed to Address Program Challenges:
Regulatory Gaps Involving Cross-Border Reporting and Other Anti-Money
Laundering Requirements Exist for Stored Value:
Efforts Are Under Way to Address Regulatory Gaps Related to Stored
Value, but Much Work Remains:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Costs for Outbound Enforcement Program (Fiscal Years 2008-
2010):
Appendix II: General Overview of the Federal Rulemaking Process:
Appendix III: Comments from the Department of Homeland Security:
Appendix IV: Comments from the Department of the Treasury:
Appendix V: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Bulk Cash Seizures at Land Ports of Entry on the Northern and
Southwest Border:
Figures:
Figure 1: CBP Officers Conducting Outbound Inspections:
Figure 2: CBP Officers Querying Travelers Leaving the United States:
Figure 3: Secondary Inspection of an Outbound Vehicle:
Figure 4: Examples of Closed System Stored Value Cards:
Figure 5: Monthly Bulk Cash Seizure Totals at Land Ports of Entry:
Abbreviations:
APA: Administration Procedure Act:
BEST: Border Enforcement Security Task Force:
BSA: Bank Secrecy Act:
CBP: Customs and Border Protection:
CMIR: Report of International Transportation of Currency or Monetary
Instrument:
CTR: Currency transaction report:
DEA: Drug Enforcement Administration:
DHS: Department of Homeland Security:
DOJ: Department of Justice:
EPIC: El Paso Intelligence Center:
FATF: Financial Crimes Enforcement Network:
FBI: Federal Bureau of Investigation:
FinCEN: Financial Crimes Enforcement Network:
IRS: Internal Revenue Service:
MSB: Money services business:
NBFI: Nonbank financial institution:
NDIC: National Drug Intelligence Center:
NPRM: Notice of Proposed Rulemaking:
OFO: Office of Field Operations:
OMB: Office of Management and Budget:
SAR: Suspicious activity report:
SB/SE: Small Business/Self Employed Division:
Treasury: Department of the Treasury:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
October 25, 2010:
The Honorable Max Baucus:
Chairman:
Committee on Finance:
United States Senate:
The Honorable Jeff Bingaman:
United States Senate:
Moving illegal proceeds across our nation's borders presents a
significant threat to national security. Mexican drug trafficking
organizations, terrorist organizations, and other groups with
malevolent intent finance their operations by moving funds into or out
of the United States. For example, a common technique used for taking
proceeds from drug sales in the United States to Mexico is a method
known as bulk cash smuggling.[Footnote 1] Smuggling methods can
involve taking bulk cash by private or commercial vehicles through
land ports of entry, by private plane or boat through air and sea
ports of entry, or through other means, including underground tunnels,
parcels sent by mail, or by foot between ports of entry. Because of
its clandestine nature, the extent of bulk cash smuggling is difficult
to quantify with any certainty. The National Drug Intelligence Center
(NDIC) estimates that proceeds from drug trafficking generated in this
country are smuggled across the southwest border and the proceeds
total between $18 billion and $39 billion a year.[Footnote 2] NDIC
also estimates that Canadian drug trafficking organizations smuggle
significant amounts of cash across the Northern border from proceeds
of drugs sold in the United States. In the largest known case of bulk
cash smuggling, over two tons of currency, mostly in $100 banknotes,
totaling $205 million was seized in Mexico City in 2007. In addition
to bulk cash smuggling, 21ST century methods and technologies of
laundering money have emerged. In 2009, the NDIC stated that new
financial products and technologies present unique opportunities for
money launderers as well as unprecedented challenges to the
intelligence, law enforcement, and regulatory communities.[Footnote 3]
Among other money laundering techniques, NDIC and others cited the use
of prepaid cards or gift cards that are loaded with currency or value--
also called stored value--as presenting a compact and easily
transportable method that has been used to move money into and out of
the United States.[Footnote 4] U.S. law enforcement officials agree
that stored value is an emerging cash alternative for legitimate
consumers and criminals alike.[Footnote 5]
U.S. Customs and Border Protection (CBP)--a major component in the
Department of Homeland Security (DHS)--is the lead federal agency in
charge of securing our nation's borders. CBP carries out its
responsibility by, among other things, inspecting travelers at land,
air, and sea ports of entry.[Footnote 6] In March 2009, the Secretary
of Homeland Security called on CBP to help stem the flow of bulk cash
and weapons moving south by inspecting travelers leaving the United
States for Mexico. As a result of this request, CBP increased its
effort to stem the flow of bulk cash smuggling. This effort--called
outbound operations--expanded CBP's primary mission of inspecting
travelers who seek to enter the United States. In addition to
addressing the threat of bulk cash and arms that leave the country,
CBP outbound operations may also, among other things, identify and
pursue criminals or fugitives attempting to flee the country and
travelers who attempt to take stolen vehicles across the border. CBP's
responsibility for inspecting travelers who leave the country is a
difficult task because it must also facilitate the cross-border
movement of legitimate travelers and billions of dollars in
international trade.
The Financial Crimes Enforcement Network (FinCEN)--a bureau in the
Department of the Treasury[Footnote 7]--seeks to deter and detect
criminal activity and safeguard the financial system from the risk
that terrorists and other criminals may fund their operations through
financial institutions in the United States. Among other things,
FinCEN is responsible for administering certain laws aimed at
preventing criminals from abusing financial systems in the United
States.
Given the important role that CBP and FinCEN play in national
security, you asked us to review the progress that they have made in
stemming the flow of bulk cash leaving the country and in ensuring
financial entities whose businesses involve stored value carry out
anti-money laundering practices, respectively. In response, in
September 2010, we issued a law enforcement sensitive report to you
that addressed the following questions:
* To what extent has CBP taken actions to stem the flow of bulk cash
leaving the country through land ports of entry and what challenges,
if any, remain?
* What regulatory gaps, if any, exist for cross-border reporting and
other anti-money laundering requirements involving the use of stored
value?
* If any regulatory gaps exist for cross-border reporting and other
anti-money laundering requirements involving the use of stored value,
to what extent has FinCEN taken action to address them?
This report is a public version of the prior sensitive report that we
provided to you. DHS deemed some of the information in the prior
report as law enforcement sensitive, which must be protected from
public disclosure. Therefore, this report omits sensitive information
about CBP's outbound inspection efforts, including techniques used to
carry out inspections and data on staffing, infrastructure, and
technology that support outbound inspections. In addition, at DHS's
request, we have redacted data on the specific ports of entry where
bulk cash has been seized. Although the information provided in this
report is more limited in scope, it addresses the same questions as
the sensitive report. Also, the overall methodology used for both
reports is the same.
To address the question on CBP efforts to stem the flow of bulk cash
leaving the country at land ports of entry, we conducted site visits,
reviewed CBP data, and interviewed CBP officials. We visited and
observed outbound operations at five ports of entry (Blaine,
Washington; Buffalo, New York; El Paso, Texas; Laredo, Texas; and San
Ysidro, California). We selected these ports of entry to provide us
with examples of outbound operations at land ports of entry on the
Northern and southwest border that have high volumes of traffic. At
each location, we interviewed managers and CBP officers knowledgeable
about outbound operations to determine actions that have been taken to
stem the flow of bulk cash as well as ways to strengthen the program.
While we cannot generalize our work from our site visits to all ports
of entry, the results from this work provided us with valuable
insights about outbound operations. Among other things, we reviewed
and analyzed data on the amount of bulk cash seized from March 2009
through June 2010. We assessed the reliability of these data by
interviewing staff responsible for the data and reviewing relevant
documentation. We concluded that these data were sufficiently reliable
for the purposes of our review. We reviewed data on the number of
license plate readers installed on outbound lanes as of July 2010. We
interviewed CBP staff responsible for collecting these data and
determined that the data were sufficient for our review. We also
reviewed CBP's policies and procedures and strategic plan for its
outbound operations. We interviewed staff at CBP headquarters involved
in (1) implementing the outbound program and (2) assessing staffing,
technology, and equipment for outbound operations. We also reviewed
documents on the budget for outbound operations, policy guidance, and
relevant statutes related to bulk cash smuggling. We reviewed
assessments of bulk cash smuggling, including the 2009 and 2010
National Drug Threat Assessments issued by the National Drug
Intelligence Center,[Footnote 8] a National Drug Intelligence Center
report on bulk cash smuggling,[Footnote 9] and a Mexican Bulk Currency
study issued by U.S. Immigration and Customs Enforcement (ICE).
[Footnote 10] We found these assessments to be acceptable for use in
our report. We also reviewed January 2010 data from the Texas Center
for Border Economic and Enterprise Development and interviewed center
staff members to determine the reliability of the data. We concluded
that the data were sufficiently reliable for our review. In addition,
our investigators tested outbound operations at three ports of entry
on the southwest border. Our investigators did their work in
accordance with quality standards for investigations established by
the Council of the Inspectors General on Quality and Efficiency. While
we cannot generalize the work of our investigators to all ports of
entry, the results from this work provided us with valuable insights
about outbound operations. We reviewed Standards for Internal Control
in the Federal Government and compared the standards for monitoring
and controls with CBP's policies and procedures and performance
measures for its Outbound Enforcement Program.[Footnote 11] Our scope
did not include an examination of outbound operations at air or sea
ports of entry.
To address the questions on regulatory gaps, if any, of cross-border
reporting and anti-money laundering requirements involving the use of
stored value and the status of FinCEN efforts to address any
identified gaps, we reviewed and analyzed information on the ways in
which stored value has been used to smuggle currency across the
nation's borders and to launder money. We also reviewed current
regulations and statutes that govern issuers, sellers, and redeemers
of stored value. To obtain further information on vulnerabilities
related to stored value, we interviewed officials or obtained
information from federal law enforcement agencies that are involved in
efforts to interdict or investigate the illicit use of stored value,
including ICE, the U.S. Secret Service, and CBP--components in DHS,
the Federal Bureau of Investigation (FBI) and the Drug Enforcement
Administration (DEA)--components in the Department of Justice (DOJ),
and Criminal Investigation of the Internal Revenue Service (IRS)--a
component in the Department of the Treasury (Treasury). In addition,
we reviewed a random, probability sample of 400 reports on suspicious
activities submitted by depository institutions and money services
businesses (MSB) from October 2008 through April 2010 to identify
examples of suspicious activities related to stored value.[Footnote
12], [Footnote 13] To obtain information on the status of Treasury's
efforts to address identified vulnerabilities (on stored value), we
interviewed officials from Treasury's Office of Terrorism and
Financial Intelligence, FinCEN, and the Office of Fraud/Bank Secrecy
Act, within IRS' Small Business/Self Employed Division (SB/SE). We
reviewed relevant legislation, such as the Credit Card Accountability
Responsibility and Disclosure Act of 2009 (Credit CARD Act)[Footnote
14] and the Notice of Proposed Rulemaking related to stored value
issued by Treasury in June 2010.[Footnote 15] We also reviewed OMB's
guidelines and requirements for the rulemaking process. Finally, we
reviewed Standards for Internal Control in the Federal Government
[Footnote 16] and compared the standards for monitoring with FinCEN's
policies and procedures for monitoring MSBs.
We conducted this performance audit from June 2009 through September
2010 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
Background:
CBP Is the Lead Federal Agency Responsible for Stemming the Flow of
Bulk Cash Leaving the U.S. at Land Ports of Entry:
CBP is the lead federal agency charged with securing our nation's
borders while facilitating legitimate travel and commerce.[Footnote
17] To meet the Secretary's March 2009 mandate that CBP conduct
inspections of traffic leaving the U.S. for Mexico at all 25 land
ports of entry on the southwest border, CBP expanded or initiated
inspections of outbound travelers, including those leaving by foot,
private vehicle (see figure 1), or commercial trucks. CBP's effort to
stem the flow of bulk cash is part of a larger counternarcotics
strategy to secure the southwest border.[Footnote 18]
Figure 1: CBP Officers Conducting Outbound Inspections:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
CBP has three main components that have border security
responsibilities. First, CBP's Office of Field Operations is
responsible for inspecting the flow of people and goods that enter and
leave the country through air, land, and sea ports of entry. Second,
CBP's Border Patrol works to prevent the illegal entry of persons and
merchandise, including contraband, into and out of the United States
between the ports of entry and at checkpoints located in major traffic
routes away from the border. In doing so, the Border Patrol is
responsible for controlling nearly 7,000 miles of the nation's land
borders between ports of entry and 95,000 miles of maritime border in
partnership with the United States Coast Guard. Third, CBP's Office of
Air and Marine helps to protect the nation's people and critical
infrastructure through the coordinated use of an integrated force of
air and marine resources and provides mission support to the other CBP
components. For fiscal year 2010, CBP had a $11.4 billion budget, of
which $2.7 billion was for border security and trade facilitation at
ports of entry. For outbound operations, CBP's budget was about $109
million in fiscal year 2009 and is an estimated $145 million for
fiscal year 2010.
In carrying out its responsibilities, CBP operates 327 ports of entry,
composed of airports, seaports, and designated land ports of entry
along the Northern and southwest border.[Footnote 19] While CBP does
not know the number of travelers that leave the United States through
land ports of entry, it estimates that it inspected over 360 million
travelers who entered the country in fiscal year 2009 through land,
air, and sea ports of entry. In total, the number of travelers who
entered the country through land ports of entry represented over 70
percent of all travelers entering the country.
CBP's Process for Inspecting Travelers Leaving the Country:
The process used by CBP to inspect travelers leaving the country
differs from the inspection process for those entering the United
States at land ports of entry. CBP centers attention, among other
things, on the citizenship and admissibility of the travelers for
those who seek to enter or reenter the country through land ports of
entry.[Footnote 20] In contrast, CBP officers ask a different set of
questions of travelers leaving the country. To determine whether
travelers are in compliance with the reporting requirements for the
international transport of currency and monetary instruments,[Footnote
21] officers may ask travelers whether they (1) intend to leave the
country by asking where they are going (i.e., Mexico on the southwest
border and Canada on the Northern border), (2) are carrying more than
$10,000 in currency, checks, money orders, or any other type of
monetary instrument,[Footnote 22] and (3) are transporting any weapons
or ammunition into Mexico or Canada.[Footnote 23] While carrying more
than $10,000 in currency or other type of monetary instrument across
the border is legal, failure to report the currency or monetary
instrument with the intent to evade the reporting requirement is
illegal. Further, it is illegal for an individual to knowingly conceal
more than $10,000 in currency or other monetary instruments and
transport or attempt to transport such currency or monetary
instruments into or out of the United States with the intent of
evading the reporting requirements.[Footnote 24] In addition to the
interview process, CBP officers may also inspect, among other things,
the content of car trunks, vehicle compartments, and packages in the
vehicle. Figure 2 shows CBP officers querying outbound travelers at a
land port of entry.
Figure 2: CBP Officers Querying Travelers Leaving the United States:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
When conducting outbound operations, CBP officers may refer travelers
for a more detailed inspection--called secondary inspection. Secondary
inspections generally involve inspections of vehicles in a separate
area from the primary inspection. They can include more in-depth
interviewing of travelers, checking the traveler's identifying
information against law enforcement databases, or inspecting
containers and boxes (see figure 3).
Figure 3: Secondary Inspection of an Outbound Vehicle:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
FinCEN Plays a Key Role in Regulating Money Services Businesses:
While smuggling cash is one method of taking illegal proceeds out of
the country, criminals have also begun using other means to move
proceeds from illegal activities across U.S. borders. One such method
is the use of electronic media called stored value. This method can
involve a broad range of technologies, including the use of prepaid
cards, prepaid telephone cards, and financial transactions carried out
through a cell phone.[Footnote 25] Money services businesses play a
key role in issuing, selling, and redeeming stored value.
FinCEN, a bureau within the Department of the Treasury, is responsible
for the administration of the Bank Secrecy Act (BSA)[Footnote 26]--a
statute that authorizes FinCEN to require MSBs and other financial
institutions as well as nonfinancial trades or businesses and many
individuals to maintain records and file reports that have a high
degree of usefulness in criminal, tax, regulatory investigations or
procedures, or certain types of counterterrorism investigations.
[Footnote 27] FinCEN carries out this responsibility as part of its
broad mission of enhancing U.S. national security, deterring and
detecting criminal activity, and safeguarding financial systems from
abuse by among other things, requiring financial institutions to
establish anti-money laundering programs as well as file reports on
large currency transactions.[Footnote 28] FinCEN has about 300 staff
to carry out its analytical, administrative, and regulatory
responsibilities.[Footnote 29] Within FinCEN, the Regulatory Policy
and Programs Division is responsible for, among other things, BSA
compliance in the financial industry and for issuing regulations for
U.S. financial institutions.
To carry out its mission, FinCEN supports and networks with law
enforcement agencies across the federal government that may be
involved in investigating money laundering and terrorism financing.
[Footnote 30] For example, FinCEN works with agencies in DHS, such as
CBP, ICE, and Secret Service; agencies in DOJ, including the DEA,
Bureau of Alcohol, Tobacco, Firearms, and Explosives, and the FBI; and
the Criminal Investigation Division within the IRS. In addition,
FinCEN coordinates its efforts with another IRS unit called the Small
Business/Self Employed Division which conducts BSA compliance
examinations of certain nonfederally regulated non-bank financial
institutions, such as MSBs and casinos.
MSBs Play a Key Role in Offering Stored Value Products to Consumers:
Among the businesses that FinCEN has defined as MSBs are those that
issue, sell, or redeem stored value.[Footnote 31] In some cases, such
businesses may provide a variety of services in addition to offering
stored value products, including check cashing, money orders, and
money transmitting services. In other cases, such businesses may only
issue, sell, or redeem stored value. These businesses play a key role
in providing financial services to a segment of the population that
may not maintain checking or savings accounts. Such businesses are
common and are located in large and small communities across the
country. Examples of MSBs can range from national companies with a
large number of agents and branches, such as Western Union and
MoneyGram, to small "mom and pop" money services businesses that may
offer check cashing, money orders, and other financial services. The
volume of transactions for MSBs nationwide is not known.[Footnote 32]
One type of product offered by MSBs that falls under the definition of
stored value are stored value cards, which include gift cards or
prepaid cards. In this report, we will refer to such cards as stored
value cards, the same term that FinCEN currently uses for such
products.[Footnote 33] Stored value cards are a growing alterative to
cash transactions and they offer individuals without bank accounts an
alternative to cash and money orders. They have many legitimate uses
that help consumers in a variety of ways. For example, retail
establishments sell gift cards to customers as an easy and convenient
way to purchase goods or services. Employers may issue cards in lieu
of checks when paying salaries to employees. Consumers can also
purchase cards and use them to purchase goods or services at retail
stores across the country or to, in some cases, withdraw cash at
automated teller machines overseas. For example, rather than paying
for groceries using cash, a consumer could use a prepaid card. Also,
the federal government uses prepaid cards in conjunction with its food
stamp program.
The two main types of stored value cards are the following.
* Closed system cards (see figure 4)--These are the most common form
of stored value cards and are often called gift cards. These cards are
issued by major merchants and retailers, such as department stores,
electronics stores, and coffee shops. They can be bought at many
different types of retailers, including drugstores, grocery stores,
and other businesses. Other examples include cards that students may
use to purchase food on college campuses or that passengers use on
subway systems or phone cards. Generally, closed system cards are
limited in use in that they can only be used to purchase goods or
services from a single merchant. These cards may be limited to the
initial value posted to the card or may allow the card holder to add
value. A study conducted for the Federal Reserve estimated that in
2006, the value of transactions for closed system cards amounted to
$36.6 billion.[Footnote 34]
* Open system cards--These cards have greater use as a cash
alternative since a single card may be used at a myriad of stores,
merchants, or automated teller machines (ATM) within and across U.S.
borders. Such cards are easy to buy and can be bought on-line or in
person. Open system cards may not require a bank account or face-to-
face verification of the card holder's identity. Domestically,
companies may voluntarily place a dollar limit on the cards. Such
cards may be used to access cash from ATMs in and out of the United
States and can be reloaded to add value on the card. In certain
countries outside of the United States, open system cards can be
purchased and can be used to withdraw cash at ATMs across the world. A
study conducted for the Federal Reserve estimated that in 2006, the
value of transactions for open system cards in the United States
totaled $13.2 billion.[Footnote 35]
Figure 4: Examples of Closed System Stored Value Cards:
[Refer to PDF for image: photograph]
Source: DOJ.
[End of figure]
Hybrid forms of closed system and open system cards are also
available. One form of a semi-closed system card can be used at more
than one store rather than a single store. For example, a shopper may
be able to use a card at a group of stores located in the same
shopping mall. Another example of a hybrid card is one that can be
used at any merchant that accepts debit or credit cards, but the card
cannot be used to withdraw cash at ATMs.
The Departments of Treasury, Justice, and Homeland Security recognized
stored value as a potential threat for cross-border currency smuggling
and money laundering as early as 2005.[Footnote 36] For example, law
enforcement agencies from these three departments stated that "stored
value cards provide a compact, easily transportable, and potentially
anonymous way to store and access cash value" and that "federal law
enforcement agencies have reported [that such devices have been] used
as alternatives to smuggling physical cash." Further, they stated that
"the volume of dirty money circulating through the United States is
undeniably vast and criminals are enjoying new advantages with
globalization and the advent of new financial services such as stored
value cards." A year later, in 2006, a Treasury official stated that
while stored value cards serve legitimate markets, without adequate
controls, such payment innovations pose significant risks for money
laundering and terrorist financing. This official noted that the risks
involved access to bank payment networks without requiring a bank
account or verifying customer identification.
Beyond cards, new forms of stored value have surfaced in recent years.
In 2008, the World Bank issued a report that identified the risk of
international smuggling and money laundering of illegal proceeds
through the use of financial transactions initiated from a mobile
phone, also called mobile financial services.[Footnote 37] That report
describes how technology is now available in countries such as South
Korea, the Philippines, and Malaysia that allows individuals to make
transactions from an account in one country to an account in another
country through a mobile phone. This technology has begun to penetrate
the market in the United States and will become more readily available
to consumers in the next several years. According to the report, the
risks of money laundering with the use of such devices include (1)
user identity may not be known, (2) "smurfing," or splitting large
financial transactions into smaller transactions, can be carried out
to evade scrutiny and reporting by the financial institution, and (3)
mobile financial services fall outside of anti-money laundering
regulations.
CBP Has Established an Outbound Enforcement Program, but Further
Actions Are Needed to Address Program Challenges:
CBP Has Created an Outbound Enforcement Program and Seized about $41
Million in Bulk Cash Leaving the Country Since March 2009:
In March 2009, CBP reestablished an Outbound Enforcement Program
within its Office of Field Operations (OFO).[Footnote 38] The
immediate goal of the program was to increase outbound enforcement
activities along the southwest border in order to obstruct the illegal
flow of firearms and currency being smuggled from the United States to
the Mexican Drug Trafficking Organizations.[Footnote 39] The program
is staffed by a Director and 6:
other officials. Since March 2009, CBP officers conducting outbound
operations have conducted more than 3 million inspections.[Footnote 40]
In addition to increasing outbound inspections, CBP has taken further
action to support its efforts to seize bulk cash and other items. For
example, CBP has developed a training curriculum that provides officer
training in outbound enforcement operations for all port environments,
including land, air, and sea. The training curriculum includes a 6-
part, Web-based, training series, an 8-day classroom session, and on-
the-job training. During the classroom session, officers complete
modules on legal authority, targeting, inspecting, and processing, and
participate in scenario-based activities.[Footnote 41] As of July
2010, 131 officers had completed the training in fiscal year 2010.
[Footnote 42] In addition to developing outbound training, the
Outbound Enforcement Division integrates the work of outbound
operations with other CBP components. For example, the Division
coordinates with the Tactical Operations Division and the Office of
Intelligence and Operations Coordination to develop tactical and
strategic operations based on a review of intelligence information and
seizure activity. Further, the Division coordinates its efforts with
staff involved in carrying out the Western Hemisphere Travel
Initiative as well as with the Office of Border Patrol.[Footnote 43]
For example, outbound enforcement efforts are augmented by 116 Border
Patrol agents.
OFO also coordinates its efforts with other law enforcement entities
working to combat bulk cash smuggling, such as DEA and ICE. For
example, CBP coordinates with DEA by providing staff and intelligence
to the El Paso Intelligence Center (EPIC), a national tactical
intelligence center led by DEA and designed to support law enforcement
efforts, with a significant emphasis on the southwest border. Among
other functions, EPIC analyzes bulk cash seizure data and develops
various reports on bulk cash smuggling methods, which are provided to
various law enforcement agencies. EPIC also responds to requests for
bulk currency seizure data from officers in the field. Additionally,
CBP participates with ICE in Operation Firewall and the Border
Enforcement Security Task Force (BEST) initiative. Operation Firewall,
started in 2005, targets criminal organizations involved in outbound
currency smuggling, while the BEST initiative focuses on increasing
information sharing and collaboration among agencies involved in
disrupting and dismantling criminal organizations that pose a
significant threat to border security.
As a result of its outbound enforcement activities, CBP seized about
$41 million in illicit bulk cash leaving the country at land ports of
entry from March 2009 through June 2010. The vast majority of this
currency, 97 percent, was seized along the southwest border.[Footnote
44] While CBP seized more than twice the amount of bulk cash during
the first year of the outbound program as compared to the year prior,
[Footnote 45] total seizures account for a small percentage of the
estimated $18 billion to $39 billion in illicit proceeds being
smuggled across the southwest border and out of the United States
annually.[Footnote 46]
CBP was most successful in seizing bulk cash during the first 6 months
of the Outbound Enforcement Program. As shown in table 1 below, CBP
seized nearly $21 million from March 2009 through August 2009,
averaging about $3.5 million each month. Despite the number of
seizures increasing by 17 percent during the second 6 months of the
outbound program, the total amount of cash seized decreased by 37
percent when compared to the first 6-month period.
Table 1: Bulk Cash Seizures at Land Ports of Entry on the Northern and
Southwest Border:
Cash seized: Total;
Preprogram seizures: Mar. 2008 - Aug. 2008: $4,731,555;
Preprogram seizures: Sept. 2008 - Feb. 2009: $12,058,277;
Program seizures: First 6 months: Mar. 2009 - Aug. 2009: $20,842,679;
Program seizures: Second 6 months: Sept.2009 - Feb. 2010: $13,121,700.
Cash seized: Monthly average;
Preprogram seizures: Mar. 2008 - Aug. 2008: $788,593;
Preprogram seizures: Sept. 2008 - Feb. 2009: $2,009,713;
Program seizures: First 6 months: Mar. 2009 - Aug. 2009: $3,473,780;
Program seizures: Second 6 months: Sept.2009 - Feb. 2010: $2,186,950.
Seizure events: Total;
Preprogram seizures: Mar. 2008 - Aug. 2008: 159;
Preprogram seizures: Sept. 2008 - Feb. 2009: 180;
Program seizures: First 6 months: Mar. 2009 - Aug. 2009: 198;
Program seizures: Second 6 months: Sept.2009 - Feb. 2010: 231.
Seizure events: Monthly average;
Preprogram seizures: Mar. 2008 - Aug. 2008: 27;
Preprogram seizures: Sept. 2008 - Feb. 2009: 30;
[Program seizures: First 6 months: Mar. 2009 - Aug. 2009: 33;
Program seizures: Second 6 months: Sept.2009 - Feb. 2010: 39.
Source: GAO analysis of CBP BorderStat data.
[End of table]
The amount of cash seized in any given month varied. As shown in
figure 5 below, since the start of the Outbound Enforcement Program,
total seizures spiked in March, April, and September 2009. The spikes
in March and April 2009, totaling $6.4 million and $8.2 million
respectively, were each driven by a single incident in which CBP
seized a large amount of currency. For example, of the $6.4 million
CBP seized in March 2009 across all ports of entry, CBP seized more
than $3 million during a single incident at a port of entry. In
contrast, the $6.3 million spike in September is comprised of multiple
seizures of smaller amounts of currency, with no single seizure larger
than $803,000.
Figure 5: Monthly Bulk Cash Seizure Totals at Land Ports of Entry:
[Refer to PDF for image: stacked vertical bar graph]
2007:
October;
Southwest border: $0.89 million;
Northern border: $0.
November;
Southwest border: $1.09 million;
Northern border: $0.03 million.
December;
Southwest border: $1.3 million;
Northern border: $0.
2008:
January;
Southwest border: $0.49 million;
Northern border: $0.
February;
Southwest border: $0.28 million;
Northern border: $0.03 million.
March;
Southwest border: $0.78 million;
Northern border: $0.
April;
Southwest border: $0.95 million;
Northern border: $0.
May;
Southwest border: $1 million;
Northern border: $0.05 million.
June;
Southwest border: $0.9 million;
Northern border: $0.03 million.
July;
Southwest border: $0.35 million;
Northern border: $0.
August;
Southwest border: $0.66 million;
Northern border: $0.
September;
Southwest border: $1.3 million;
Northern border: $0.22 million.
October;
Southwest border: $1.04 million;
Northern border: $0.03 million.
November;
Southwest border: $0.91 million;
Northern border: $0.11 million.
December;
Southwest border: $1.76 million;
Northern border: $0.
2009:
January;
Southwest border: $3.83 million;
Northern border: $0.03v
February;
Southwest border: $2.78 million;
Northern border: $0.04 million.
March; Outbound enforcement program reestablished in March 2009;
Southwest border: $6.42 million;
Northern border: $0.02 million.
April;
Southwest border: $8.05 million;
Northern border: $0.14 million.
May;
Southwest border: $1.02 million;
Northern border: $0.02 million.
June;
Southwest border: $1.5 million;
Northern border: $0.03 million.
July;
Southwest border: $1.27 million;
Northern border: $0.
August;
Southwest border: $2.34 million;
Northern border: $0.04 million.
September;
Southwest border: $6.1 million;
Northern border: $0.19 million.
October;
Southwest border: $1.14 million;
Northern border: $0.04 million.
November;
Southwest border: $0.85 million;
Northern border: $0.01 million.
December;
Southwest border: $1.15 million;
Northern border: $0.05 million.
2010:
January;
Southwest border: $1.4 million;
Northern border: $0.03 million.
February;
Southwest border: $2.13 million;
Northern border: $0.02 million.
March;
Southwest border: $1.72 million;
Northern border: $0.32 million.
April;
Southwest border: $1.9 million;
Northern border: $0.03 million.
May;
Southwest border: $2.04 million;
Northern border: $0.09 million.
June;
Southwest border: $1 million;
Northern border: $0.13 million.
Source: GAO analysis of BorderStat data.
[End of figure]
From March 2009 through June 2010, CBP had at least one bulk cash
seizure at 21 of the 25 land ports of entry along the southwest border
while conducting outbound operations;[Footnote 47] however, the total
amount seized varied significantly by port. Along the southwest
border, the total cash seized at each port during this time period
ranged from about $11,000 to about $11 million, with more than 80
percent of the cash seized at 5 land ports. Two ports represent about
half of all seizures. CBP officials stated that the concentration of
seizures in these 5 land ports may be the result of high-traffic
volumes and proximity to major drug trafficking routes.
In addition to bulk cash seizures, CBP's Outbound Enforcement Program
has carried out other enforcement actions, such as firearm seizures,
drug seizures, stolen vehicle recoveries, and enforcement of
immigration violations. Examples include the following:
* In April 2010, officers conducting outbound operations at the San
Ysidro port of entry in California apprehended a male subject wanted
in Mexico for a triple homicide, trafficking of cocaine,
methamphetamines, firearms, and ammunitions.
* In June 2010, officers conducting outbound operations at the San
Luis, Arizona port of entry seized a large sports utility vehicle, 114
grenades, and over 2,500 rounds of various types of ammunition.
Stemming the Flow of Bulk Cash Is a Challenging Task:
CBP has succeeded in establishing an Outbound Enforcement Program, but
the program is in its early phases and there is a general recognition
by CBP managers and officers that the agency's ability to stem the
flow of bulk cash is limited because of the difficulty in detecting
bulk cash. Beyond the inherent difficulty in identifying travelers who
attempt to smuggle cash, three main factors limit CBP's success in
this area.
First, CBP currently does not conduct outbound operations on a full-
time basis, providing smugglers opportunities to circumvent detection
by crossing the border when CBP officers are not conducting
operations. Second, officers have limited equipment, technology, and
infrastructure for conducting outbound operations. CBP officers and
managers report that additional resources would improve officer
effectiveness at discovering bulk cash and enhance officer safety. CBP
began a $23 million project to determine how to deploy additional
technology to outbound lanes in 2009 and expect cost estimates to be
ready in September 2010. CBP also plans to spend approximately $10
million in funds from the Fiscal Year 2009 Supplemental Appropriations
Act[Footnote 48] for temporary infrastructure improvements and to
install additional infrastructure at up to 21 crossings on the
southwest border starting in February 2011. Third, long wait times
impact CBP's ability to inspect all outbound travelers given CBP's
need to balance its mission of facilitating the cross-border movement
of legitimate travelers and billions of dollars in international trade
with its mission of inspecting travelers. Additional data and
information on the challenges CBP faces in stemming the flow of bulk
cash smuggling is law enforcement sensitive and not included in this
report.
While factors such as staffing, infrastructure, and technology limit
CBP's ability to detect large amounts of cash, the fact that CBP
conducts outbound inspections does not guarantee that the agency will
identify attempts to smuggle bulk cash. For example, our investigators
tested outbound operations at three ports of entry on the southwest
border. Our investigators observed that CBP officers and Border Patrol
agents were interviewing travelers, inspecting vehicles, and
performing secondary inspections at each port.[Footnote 49] At each of
these locations, our investigators bypassed opportunities to turn
around and proceeded on a traffic lane at the entrance to the port of
entry marked as the route to Mexico, signaling their intent to leave
the country. They entered a designated outbound inspection area with
shredded cash hidden in the trunk of their car.[Footnote 50] At two of
the three ports of entry our investigators claimed that they only
wanted to see the border and would like to turn around when approached
by CBP officers and Border Patrol agents conducting outbound
inspections. At both of these ports of entry, officers and agents
allowed the investigators to turn around without searching the
vehicle, asking for identification, or probing further to determine
whether our investigators posed a risk of smuggling. In addition, the
officers and agents did not question our investigators on why they did
not turn around earlier when they had an opportunity to do so. At the
third port of entry, CBP officers did not interview our investigators
or physically inspect the vehicle that contained the shredded cash.
However, CBP officers used an X-ray detector on the vehicle.
Program Data, Policies and Procedures, and Performance Measures Could
Be Strengthened to Improve the Outbound Program:
Addressing the limitations described above could require substantial
capital investments at all ports of entry. However, the extent that
such investments could result in greater seizures of bulk cash,
weapons and ammunition is not known, in part because CBP lacks data on
benefits and costs of an expanded program. CBP will likely need more
time to gain a clearer understanding of how well the program is
working and what factors will contribute most to improved results.
Data on the expected costs and benefits of the program are a basic
building block for informing decisions on whether to expand the
program, continue the program at current levels, or to reduce the size
of the program. In addition, policies and procedures to ensure the
safety of officers are not in place. CBP has developed strategic goals
for its outbound program, but it lacks performance measures that
assess the effectiveness of the program.
Limited Data on Expected Program Costs and Benefits Hinders CBP's
Ability to Inform Decisions on the Budget and Outbound Program:
As the outbound program matures, developing additional cost data in
four key areas--staffing, technology, infrastructure, and wait times
created by outbound operations--could help inform decisionmakers on
program and budget decisions. OMB provides guidance on how agencies
can evaluate the costs and benefits of a program, such as the Outbound
Enforcement Program, to inform policymakers on budget and program
decisions.[Footnote 51] In addition, DHS calls on its components to
carry out analyses of costs and benefits to assist in planning a
project and in managing costs and risks.[Footnote 52] The Southwest
Border Counternarcotics Strategy states that law enforcement agencies
should analyze the effectiveness of outbound inspections and, if
warranted, consider expanding the number of inspections in search of
bulk currency.[Footnote 53]
Data for Determining Staffing Costs for Expanded Operations Has Limits:
While CBP has data on the current cost of the Outbound Enforcement
Program, it faces challenges in developing cost data to estimate the
future size of the program. From fiscal years 2008 through 2010, the
cost of CBP's outbound program increased from about $89 million to an
estimated $145 million. Costs for the outbound program involved
primarily the cost of headquarters and mission support staff as well
as salaries, benefits, overtime and premium pay for officers. Together
these items represent more than 98 percent of the total cost for each
fiscal year. Appendix I provides a more detailed breakdown of costs
for the outbound program.
CBP plans to improve its data for estimating the cost of staff
involved in inspecting outbound traffic for its current level of
effort. For example, CBP plans to refine the data by calling on CBP
managers at ports of entry to estimate the total number of hours
officers worked during an outbound shift rather than simply counting
the number of officers who worked that day.
While CBP has cost data for staffing the current level of effort,
challenges remain for estimating costs of staffing the program in the
future. CBP has developed an Outbound Workload Staffing Model to
assist managers in determining future staffing levels. However, the
model has data limitations, in part, because data on outbound
operations is limited or missing because the program is new. For
example, the model does not identify the number of CBP canine handlers
that are needed to support outbound operations. Having such data would
inform future iterations of the model in estimating the number of
currency canine handlers that may be needed. Also, the model assumes
that outbound traffic volumes are the same as inbound traffic volumes
because CBP does not have data on the number of travelers and vehicles
that leave the country through land ports of entry. According to these
staff, having such data would be helpful in determining staffing needs.
CBP is Making Progress in Developing Cost Estimates of Equipment
Needed by CBP Officers to Carry Out Outbound Operations at Land Ports
of Entry:
CBP managers stated that they are developing a list of equipment
officers need to conduct outbound operations at land ports of entry.
Such a list would include equipment, such as mirrors, fiber-optic
scopes, and density readers that CBP officers need to inspect vehicles
leaving the country. Managers stated that they plan to develop the
initial list by the end of 2010 and they would submit the list to
managers at ports of entry for comment in 2011. Once comments have
been received, CBP plans to develop a cost estimate for outbound
equipment later in 2011.
One source of funding for purchasing equipment by CBP is the
Department of the Treasury's Forfeiture Fund. In fiscal year 2009, CBP
deposited more than $25 million into the fund from currency
forfeitures. CBP is permitted by the Department of the Treasury's
Executive Office of Asset Forfeiture to use money from the fund to
purchase equipment and infrastructure such as canopies, signage and
lighting to support outbound operations.[Footnote 54] However, CBP has
expressed concern about using the funds for a one-time purchase of
equipment and infrastructure because funding is not available for
maintenance and repair of the equipment in the CBP Office of Field
Operations budget. For fiscal year 2010, CBP requested $7.5 million so
that the agency could pay overtime to state and local law enforcement
officers who work outbound operations with CBP at ports of entry and
$500 thousand for equipment, such as currency counters, digital
cameras, and contraband detection kits. In total, CBP requested about
$102 million from the Treasury Forfeiture Fund for fiscal year 2010.
As of June 2010, CBP had received almost $55 million from the fund,
however, none of this money was for the outbound program.
CBP is Making Progress in Developing Cost Estimates of Technology
Improvements:
CBP has a project underway to determine how to upgrade and install
license plate readers and to enable computer connectivity, but the
agency has not yet determined how much this would cost at each port.
According to CBP, license plate readers are available at 48 of 118
outbound lanes on the southwest border and none of the 179 outbound
lanes on the northern border. Additionally, CBP officials estimated
that there are a limited number of outbound lanes networked to support
computer stations or wireless computing, both necessary for document
readers that we discussed earlier in this report. CBP officials in
charge of the project stated that they plan to determine the costs
involved in deploying license plate readers and computer connectivity
and that a cost estimate will be available in September 2010. Such
estimates could provide important information for CBP outbound program
managers as they assess scenarios for outbound operations at each port
of entry.
Cost Estimates of Infrastructure Improvements Are Limited:
Although CBP has plans to consider outbound infrastructure needs, it
has not yet conducted an analysis of outbound infrastructure needs at
ports of entry and the related costs for improving infrastructure for
its outbound operations. The strategic plan for the Outbound
Enforcement Program states that the program will request the necessary
budgetary funding to conduct facility assessments at ports of entry
and articulate the operational needs for outbound facilities. CBP has
completed a preliminary assessment of Southwestern ports of entry in
which it determined the readiness of each site to accommodate outbound
infrastructure. However, this preliminary assessment did not estimate
the costs of infrastructure improvements at each port of entry.
Building on this effort, CBP plans to conduct a site survey that would
consider needed infrastructure at each port of entry and stakeholders
that would be involved in construction such as local governments and
private landholders. However, Outbound Enforcement Division officials
told us in July 2010, that they will not begin to conduct site surveys
until they receive funds for construction. They have not requested
this funding because DHS has not yet determined whether to expand the
program. Without cost estimates, it will be difficult for CBP to
inform program managers and policymakers about costs involved in
improving infrastructure for the Outbound Enforcement Program.
Developing Data on the Costs Created by Wait Times Is a Difficult Task:
In its Circular A-94 guidance, OMB states that agencies should
consider all costs of a program when conducting a cost-benefit
analysis, such as the costs resulting from waiting at the border. CBP
officials told us that they have not yet collected data on wait times
for outbound inspections because they have been initially focused on
establishing the program.[Footnote 55] Furthermore, they said that
developing cost data on wait times for outbound inspections would be
difficult based on CBP's experiences in collecting similar wait time
data for inbound inspections.
In July 2010, we reported that CBP's wait times data for personal and
commercial vehicles in inbound inspections are collected using
inconsistent methods and the data are unreliable. CBP acknowledged
problems with its wait times data and has initiated a pilot project to
automate wait times measurement, and to improve the accuracy and
consistency of the data collected. The objectives of the project are
to measure wait times in both directions--inbound and outbound--for
cars and trucks, determine real-time and predictive capabilities,
replace the manual process for calculating wait times, and explore
long-term operations.[Footnote 56] Understanding what kinds of delays
might result from outbound inspections and how expanding the program
might affect such delays could better position CBP in determining the
program's costs.
Analyzing Seizure Data and Other Benefits of Outbound Operations Is
Challenging:
While seizure data are useful for determining many of the benefits of
outbound operations, some benefits are more difficult to quantify. For
example, it is difficult to quantify the degree to which outbound
operations deter drug trafficking organizations from attempting to
smuggle bulk cash. Another benefit that is difficult to quantify is
the intelligence information that officers may obtain by conducting
outbound operations, including information that may help in
discovering smuggled cash, weapons and drugs. To address this type of
difficulty, OMB encourages agencies to enumerate any other benefits
beyond those that can be quantified.[Footnote 57] For example,
agencies that have conducted such analyses have used subject matter
experts to offer a qualitative evaluation of benefits.
In analyzing the costs and benefits of the outbound inspections
program, it is important to recognize that CBP is part of a larger
effort by federal, state, and local agencies to disrupt and dismantle
drug trafficking organizations, in part by denying them the profits of
their drug sales. How much CBP spends to combat such activities could
be indirectly affected by the efforts of other agencies involved in
interdiction activities. For example, if local police officers were to
increase enforcement on highways leading to the border, they may
intercept bulk cash before it gets to the border, potentially changing
the results of CBP's efforts. Additionally, if CBP increases its
outbound operations, criminals may respond to the increased difficulty
of smuggling bulk cash by changing tactics to use other means of
moving currency out of the country, such as using stored value. We
discuss the use of stored value later in this report.
CBP's Outbound Policies and Procedures Do Not Address Weaknesses
Related to Officer Safety:
CBP has not yet developed policies and procedures to help ensure
officer safety in conducting outbound operations. At all five ports of
entry we visited, CBP officers and managers cited safety concerns
related to conducting outbound inspections. In addition, at each of
these ports, we observed that officers used the side of the highway to
conduct secondary inspections, while other vehicles moved past,
potentially endangering officers. Also, at the Blaine port of entry,
the officers conducted inspections of the underside of vehicles in the
traffic by lying on the ground with their legs exposed while traffic
moved by in neighboring lanes at speeds up to approximately 25 miles
per hour.
CBP program managers noted that one way to improve the safety of
officers is to improve infrastructure, such as developing designated
areas for secondary inspections and installing speed bumps and
barriers. We agree that improved infrastructure could enhance officer
safety, however, whether CBP will receive funds to improve
infrastructure remains an open question. Until such improvements are
made, CBP will be faced with the important issue of how to ensure
officer safety.
At two of the five ports of entry we visited, CBP was using guidance
for outbound operations that was developed prior to the
reestablishment of the Outbound Enforcement Program and it does not
specify how CBP officers should inspect travelers in a way that
ensures the officers' safety. This guidance states that the safety of
teams conducting outbound operations is an important consideration,
but otherwise does not provide safety guidance for officers. At two
other ports of entry we visited, CBP officials stated that the ports
began conducting outbound operations after the Outbound Enforcement
Program was reestablished but did not reference any specific guidance
for officers to use. At the Laredo port of entry, officials provided
us with locally developed guidance for officers that details specific
actions that the officers should take to help ensure their safety. For
example, the officer should always face the traffic, use loud commands
to vehicles when escorting a vehicle to secondary screening, and
remain aware of traffic passing him or her.
At the time of this report, CBP had not yet issued an outbound
directive to ports of entry that provides guidance for ensuring
officer safety. In July 2010, a CBP outbound program manager told us
that a directive for the program was under review by CBP management;
however the official could not provide estimates on when the directive
is to be approved and issued. The manager agreed that policies and
procedures on officer safety are important. However, the manager said
that developing such policies and procedures should be done at the
local level because each port of entry is unique. For example, traffic
volumes vary for each port of entry. The manager stated that the draft
directive does not include guidance that directs managers at land
ports of entry to develop policies and procedures for ensuring officer
safety. GAO's Standards for Internal Control in the Federal Government
state that policies and procedures enforce management directives and
help ensure that actions are taken to address risks. In addition, the
standards state that such control activities are an integral part of
an entity's planning, implementing, reviewing, and accountability for
stewardship of government resources and achieving effective results.
[Footnote 58] Directing and ensuring that managers at ports of entry
develop policies and procedures for officer safety could help protect
officers from danger when they are conducting outbound operations.
CBP Has Developed Strategic Goals for Its Outbound Enforcement
Program, but Challenges Remain in Developing Measures Related to
Program Effectiveness:
In October 2009, CBP issued a strategic plan for fiscal years 2010
through 2014 that represented a first step toward developing
performance measures for outbound efforts, but challenges remain in
developing the measures. The plan states that the immediate goal of
the program was to obstruct the illegal flow of firearms and currency
being smuggled from the United States to drug trafficking
organizations in Mexico. According to the plan, a key objective of
CBP's outbound efforts is to detect and remove people and goods that
pose a threat from the legitimate annual flow of millions of people,
cargo and conveyances departing from the United States. To help
achieve this objective, the Outbound Enforcement Program plans to
carry out 11 initiatives, such as conducting an outbound threat
assessment and tracking and reporting on outbound activities.[Footnote
59]
The strategic plan for the outbound program also recognizes that
developing or obtaining better data on the threat of bulk cash
smuggling and other illegal activities is one key to understanding the
effectiveness of its operations. For example, the outbound program
recognizes the value of assessments that identify major trafficking
routes and methods for illegal export activities. However, CBP has yet
to develop a performance measure that shows the degree to which its
efforts are stemming the flow of bulk cash leaving the country. While
we recognize that doing so is a difficult task, we reported in
September 2005 that agencies can use performance information to inform
decisions on future strategies, planning and budgeting, and allocating
resources.[Footnote 60] In addition, Standards for Internal Control in
the Federal Government state that control activities, such as
establishing and reviewing performance measures, are an integral part
of an entity's planning, implementing, reviewing and accountability
for stewardship of government resources and achieving effective
results.[Footnote 61] Such activities could call for comparisons and
assessments relating different sets of data to one another so that
analyses of the relationships can be made and appropriate actions can
be taken.
Using information and data from other agencies that evaluate drug
trafficking organizations provides one way to measure the
effectiveness of CBP's outbound operations. Two examples of how such
information could inform managers and policymakers of CBP's efforts
involve studies by NDIC and ICE. In March 2008, NDIC estimated that
while current bulk cash interdiction efforts successfully disrupt the
transport of tens of millions of dollars in drug proceeds en route to
or at the southwest border every year, the interdicted currency is
less than 1 percent of the total amount of illicit bulk cash destined
for Mexico.[Footnote 62] In addition, a November 2009 study issued by
ICE stated that gross revenue generated by Mexican drug trafficking
organizations, and subsequently smuggled into Mexico, is substantial.
[Footnote 63] CBP officials stated that while it may not be possible
to know the extent to which its officers are intercepting cash, they
believe such information is useful. For example, they cited analyses
by ICE's Bulk Cash Smuggling Center as another data source that could
help in developing performance measures.[Footnote 64] In July 2010,
CBP officials stated that they plan to develop draft performance
measures comparing program costs to outcomes such as the amount of
bulk cash seized by the end of fiscal year 2011. While this is a good
first step, without data to show the degree to which CBP efforts are
stemming bulk cash smuggling and other criminal activities, it will be
difficult for managers and policymakers to assess the effectiveness of
CBP's outbound program.
Regulatory Gaps Involving Cross-Border Reporting and Other Anti-Money
Laundering Requirements Exist for Stored Value:
Regardless of the success of efforts to stem the flow of bulk cash,
criminals can use other methods of transporting proceeds from illegal
activities across the nation's borders. Stored value is one such
method.[Footnote 65] Regulatory exemptions heighten the risk that
criminals may use stored value to finance their operations. For
example, unlike cash, FinCEN does not require travelers to report
stored value in excess of $10,000 to CBP when crossing the border.
FinCEN has initiated actions to address these exemptions, but much
work remains before the regulatory gaps are closed and anti-money
laundering practices are fully implemented.
Unlike with Cash, Travelers Are Not Required to Report More than
$10,000 in Stored Value When Crossing the U.S. Border:
The Bank Secrecy Act (BSA) is a key federal statute that seeks to
safeguard the U.S. financial system from criminal activity and to
combat the exploitation of the U.S. financial system by criminals and
terrorists. Among other things, the BSA authorizes the Secretary of
the Treasury to require financial institutions, as well as non-
financial trades or businesses and many individuals, to make reports
and maintain records that have a high degree of usefulness in
criminal, tax, or regulatory investigations or proceedings, or in the
conduct of intelligence or counterintelligence activities, including
analysis, to protect against international terrorism.[Footnote 66]
Among other things, the BSA and its current implementing regulations
require an individual who physically transports, mails, or ships more
than $10,000 in currency or monetary instruments, such as traveler's
checks, across the U.S. border to file a Report of International
Transportation of Currency or Monetary Instrument (CMIR).[Footnote 67]
Unlike this reporting requirement for currency and monetary
instruments, there is no similar requirement for stored value.
According to Treasury, no requirement exists because stored value is
not defined as a monetary instrument under the BSA or its implementing
regulations. Instead, according to FinCEN, stored value is a device
that provides access to monetary value, rather than being a monetary
instrument itself.
MSBs That Issue, Sell, or Redeem Stored Value Are Exempt from Three
Key Anti-Money Laundering Provisions of the BSA[Footnote 68]
Many of the anti-money laundering requirements contained in the BSA
regulations do not apply to MSBs that offer stored value products. The
BSA and its regulatory framework focus on financial institutions'
record keeping and reporting requirements that create a paper trail of
financial transactions that federal agencies can use to deter criminal
activity and apprehend criminals. Some BSA regulations apply to MSBs
that offer stored value products. For example, financial institutions,
including MSBs that provide stored value products, are required to
report currency transactions made by the same customer that exceed
$10,000 during the course of any one day.[Footnote 69]
However, FinCEN exempted MSBs that offer stored value products from
many other anti-money laundering provisions of the BSA regulations.
[Footnote 70] According to FinCEN, they provided these exemptions in
their 1999 rulemaking due to the "complexity of the industry and the
desire to avoid unintended consequences with respect to an industry
then in its infancy."[Footnote 71] In 2008, FinCEN recognized that
these exemptions created a situation whereby issuers, sellers, and
redeemers of stored value are subject to a less comprehensive Bank
Secrecy Act/Anti-Money Laundering regime than are other actors falling
within the scope of FinCEN's regulations. FinCEN later stated that "if
these [regulatory] gaps are not addressed, there is increased
potential for the use of [stored value] as a means for furthering
money laundering, terrorist financing, and other illicit transactions
through the financial system."[Footnote 72] Below is a discussion of
three key exemptions related to stored value activity by MSBs. We
discuss FinCEN's efforts to address these exemptions later in the
report.
FinCEN Does Not Require MSBs That Are Sole Issuers, Sellers, or
Redeemers of Stored Value to Register:
Under the BSA and its implementing regulations, certain MSBs must
register with Treasury by filing information with FinCEN.[Footnote 73]
The purpose of registration is to assist supervisory and law
enforcement agencies in the enforcement of criminal, tax, and
regulatory laws and to prevent MSBs from engaging in illegal
activities.[Footnote 74] While most types of MSBs are required to
register, there are exemptions for certain types of MSBs. For example,
a MSB that solely issues, sells, or redeems stored value is not
required to register under current BSA regulations.[Footnote 75] The
total number of MSBs that are solely issuers, sellers, or redeemers of
stored value, and thus exempt from registration, is unknown.
A MSB that issues, sells, or redeems stored value is generally
required to register with FinCEN if that MSB also provides another
financial service which is subject to registration, such as check
cashing. However, in 2007, the Secretaries of the Treasury and
Homeland Security, and the Attorney General, stated that the majority
of MSBs that are required to register continue to operate without
doing so.[Footnote 76] According to FinCEN officials, roughly 25,000
MSBs were registered in May 2007. Through an outreach program to
unregistered MSBs, FinCEN increased the number of registered MSBs to
43,041, as of June 15, 2010. However, the total number of MSBs
operating nationwide is unknown.[Footnote 77],[Footnote 78] FinCEN
officials stated that MSBs may not register because of language
barriers, cost, training issues, or a lack of awareness as to the
requirements.
FinCEN Does Not Specifically Require MSBs to Develop and Implement a
Customer Identification Program:
Under BSA regulations, some financial institutions, such as banks, are
required to have customer identification programs that include, among
other things, procedures for verifying customer identity and
determining whether a customer appears on specified government watch
lists. However, current BSA regulations do not specifically require
MSBs to have a customer identification program. Despite this, MSBs may
choose to implement customer identification protocols voluntarily or
in order to satisfy other requirements.[Footnote 79] For example, MSBs
are required to maintain anti-money laundering programs. These
programs are designed to prevent the MSB from being used to facilitate
money laundering and the financing of terrorist activities. As part of
this requirement, MSBs are required to develop and implement policies,
procedures, and internal controls which include, to the extent
applicable to the MSBs under BSA regulations, requirements for
verifying customer identification.[Footnote 80] We discuss FinCEN's
efforts to monitor MSB compliance with these requirements later in
this report.
For law enforcement agencies, having records and documents on the
individual who carries out the transactions is a key step in their
ability to successfully investigate cross-border currency smuggling
and other illegal activity. For example, a threat assessment of stored
value cards by Treasury stated the following:
* "The 9/11 hijackers opened U.S. bank accounts, had face-to-face
dealings with bank employees, signed signature cards and received wire
transfers, all of which left financial footprints. Law enforcement was
able to follow the trail, identify the hijackers and trace them back
to their terror cells and confederates abroad. Had the 9/11 terrorists
used prepaid [stored value] cards to cover their expenses, none of
these financial footprints would have been available."[Footnote 81]
FinCEN Does Not Require MSBs to Report Suspicious Transactions
Involving Stored Value:
While depository institutions are required to file suspicious activity
reports (SAR) for stored value transactions, FinCEN does not require
MSBs to do so.[Footnote 82],[Footnote 83],[Footnote 84] Although some
MSBs may file SARs related to stored value as part of their anti-money
laundering programs or on a voluntary basis, the fact that suspicious
activity involving stored value does not have to be reported by all
financial institutions heightens the risk that cross-border currency
smuggling or the illegal use of stored value may go undetected or
unreported.
Suspicious activity reports inform the federal government of any
suspicious transaction related to a possible violation of law or
regulation, such as money laundering, and can be a valuable source of
information for federal agencies involved in detecting, deterring, and
apprehending criminals. For example, in February 2009, we reported
that law enforcement agencies in the Department of Justice and DHS use
SARs in their investigations of money laundering, terrorist financing,
and other financial crimes.[Footnote 85] In one example, a bank-filed
SAR began an investigation that resulted in the discovery of a
predatory certificate of deposit fraud scheme. The SAR narrative
described critical elements of the crime in detail and law enforcement
and prosecutors in this case noted that the SAR proved instrumental in
ending the scheme.
FinCEN has determined that suspicious activities related to stored
value have been reported by depository institutions and voluntarily
reported by MSBs. For example, in 2006, FinCEN conducted an analysis
of SARs that identified stored value cards as the nexus of the
suspicious activity in order to highlight trends and patterns
associated with the questionable/criminal use of stored value cards.
FinCEN found that between January 1, 2004, and February 15, 2006, 471
SARs were filed that were associated with stored value activity.
[Footnote 86] Of these, 341 SARs (72 percent), generally described
activities associated with structuring and/or money laundering.
[Footnote 87]
Law Enforcement Case Examples and Reported Suspicious Activities
Demonstrate the Use of Stored Value for Cross-Border Currency
Smuggling and Other Illicit Activities:
In its 2010 report on bi-national criminal proceeds led by the Office
of Counternarcotics Enforcement and ICE, DHS reported that little is
known about whether Mexican criminal enterprises are making use of
stored value technologies. Further, it reported that intelligence gaps
center around a lack of data on emerging technologies like stored
value cards, especially those that are offshore based.[Footnote 88]
However, in a March 2010 testimony before the House Appropriations
Committee, the FBI Director stated that recent money laundering
investigations demonstrate that criminals are able to exploit existing
vulnerabilities in the reporting requirements in order to move
criminal proceeds using stored value devices, such as prepaid cards.
While the extent to which stored value is used for illicit purposes is
unknown, law enforcement case examples and reported suspicious
activities demonstrate that stored value has been used for cross-
border currency smuggling and other illicit activities.[Footnote 89]At
least two mechanisms that can be used to move currency out of the
country using stored value devices have been documented by law
enforcement and reported suspicious activities. First, illegal
proceeds can be loaded on stored value devices and physically carried
across the border. Two examples of the physical transport of stored
value across the U.S. border are described below.
* CBP officers at a Washington state port of entry stopped a
commercial shipping truck and discovered $7.2 million worth of prepaid
phone cards. CBP officers report that they were unable to detain or
seize these phone cards because there is no requirement that such
cards be reported at the border. Later analysis revealed the
manufacturer had sent five other shipments of phone cards across the
border in a 3-month period, totaling more than $25 million.
* ICE agents assisting with outbound inspections at the San Ysidro
port of entry encountered an individual attempting to leave the
country in possession of a laptop computer, several merchandise gift
cards, credit cards, and cell phones. Upon further investigation, the
agents uncovered that the passenger had over 1,000 stolen credit card
numbers and was working as part of a credit card fraud operation. The
passenger explained that for his work, he was paid with prepaid gift
cards. The man used these gift cards to purchase prepaid phone cards,
which he smuggled into Mexico and sold for a profit.
The second method involves moving illicit proceeds out of the country
by shipping stored value cards out of the country, where co-
conspirators can use the cards to make purchases or to withdraw cash
from local ATMs. Many cards can also be reloaded with additional value
remotely via the Internet. For example, in 2008, DEA agents in
Connecticut were investigating a narcotics and money laundering
organization allegedly using stored value cards to launder narcotics
proceeds. The investigation revealed that illicit proceeds were loaded
onto stored value cards, which were then shipped to Colombia, South
America. In Colombia, co-conspirators withdrew the money from local
ATMs. The investigation revealed that in a 5-month period,
conspirators withdrew more than $7 million from the stored value cards
at a single location in Medellin, Colombia.
As discussed above, stored value devices are not subject to cross-
border reporting requirements. As a result, individuals are not
required to file any report if they physically transport, mail, or
ship more than $10,000 in value in the form of stored value products.
Four of six law enforcement agencies with whom we spoke expressed
concern about the lack of a cross-border transport reporting
requirement for stored value.[Footnote 90] For example, CBP senior
officials report that because stored value is not subject to CMIR
requirements, they lack the authority to seize stored value devices at
the border without establishing probable cause or linking the stored
value devices to a specified unlawful activity. In contrast, an IRS
special agent told us that a cross-border reporting requirement would
not entirely address the illicit use of stored value because there are
other mechanisms by which stored value can be used to transport funds
internationally. For example, smugglers could physically carry or ship
stored value cards with no value out of the country and then add value
to the cards remotely.
Beyond the use of stored value for cross-border currency smuggling,
law enforcement examples and reported suspicious activities
demonstrate that stored value can be used for other illicit purposes,
such as money laundering, tax fraud, and identity theft. Below are two
examples:
* In a recent law enforcement case, stored value cards were used to
conceal proceeds of a $15 million tax fraud scheme. In this example,
suspects filed more than 540 fraudulent tax returns. On some
occasions, the suspects routed electronic transfers of tax refunds
directly to prepaid cards obtained anonymously through an Internet
application process.
* A depository institution filed a suspicious activity report
describing a customer who loaded $73,405 on one prepaid card and
$9,987 on a second prepaid card over the course of about a year and a
half. All transactions were made in cash, mostly $20 bills, and
reporting officials noted that the cash had an odor similar to
marijuana. Of the $73,405 loaded on the card, $72,212 was withdrawn in
cash. While the deposits took place in Washington state, the
transactions on the card occurred in Southern California and Mexico.
Efforts Are Under Way to Address Regulatory Gaps Related to Stored
Value, but Much Work Remains:
FinCEN Is in the Process of Developing and Issuing Regulations that
Require Anti-Money Laundering Practices for Stored Value:
At the time of our review, FinCEN was in the process of developing and
issuing regulations, as required by the Credit CARD Act,[Footnote 91]
to address the risk associated with the illicit use of stored value.
On May 22, 2009, the Credit CARD Act was enacted which, among other
things, required the Secretary of the Treasury, in consultation with
the Secretary of Homeland Security, to do the following:
* Issue regulations in final form implementing the BSA, regarding the
sale, issuance, redemption, or international transport of stored
value, including stored value cards. In doing so, the Credit CARD Act
stated that Treasury may issue regulations regarding the international
transport of stored value to include reporting requirements pursuant
to 31 U.S.C. § 5316 which applies to the transport of monetary
instruments.[Footnote 92]
* Take into consideration current and future needs and methodologies
for transmitting and storing value in electronic form in developing
the regulations.
The Credit CARD Act also called on Treasury to issue final regulations
implementing the above requirements by February 2010.[Footnote 93]
FinCEN is in the early phases of issuing the related regulations and
much work remains before it addresses the risk of cross-border
currency smuggling and money laundering through the use of stored
value.[Footnote 94] For significant regulatory action, such as the
proposed rule that FinCEN developed on stored value, OMB prescribes an
11-step process.[Footnote 95] This process involves steps that range
from drafting a Notice of Proposed Rulemaking (NPRM) to publication of
the final rule at least 60 days before its effective date. In June
2010, FinCEN issued a NPRM. FinCEN proposes to revise the BSA
regulations applicable to MSBs with regard to stored value by, among
other things, renaming "stored value" as "prepaid access" and defining
that term; imposing suspicious activity reporting requirements,
customer information and transaction recordkeeping requirements on
providers and sellers of prepaid access; and imposing a registration
requirement on providers of prepaid access.[Footnote 96]
In preparing the NPRM, FinCEN carried out several actions. For
example, FinCEN consulted with Treasury components, such as IRS SB/SE
and IRS-Criminal Investigations Divisions. In addition, it obtained
input from external stakeholders including industry, law enforcement,
and federal agencies and departments. In doing so, FinCEN officials
told us they consulted with and obtained input from DHS agencies, such
as ICE and CBP, before and after writing versions of the draft rule.
[Footnote 97] In addition, FinCEN received comments from OMB prior to
issuing the NPRM.
Treasury and FinCEN officials told us that they accelerated their
efforts toward developing and issuing a new rule on stored value due
in part to the requirements under the Credit CARD Act. They
acknowledged that the existing regulations for stored value--issued in
1999--have not kept pace with developments in the stored value
industry and that the regulations were now outdated. However, agency
officials said they believe that their efforts prior to the Credit
CARD Act, such as leading an interagency effort to develop and issue
the 2007 Money Laundering Strategy Report, establishing a Stored Value
Subcommittee of the Bank Secrecy Act Advisory Group in May 2008, and
posing questions related to stored value to the public as part of
proposed revisions to MSB definitions in May 2009,[Footnote 98] placed
them in a better position to establish a regulatory framework for
stored value in response to the Credit CARD Act.
We describe in more detail below how FinCEN plans to address several
of the regulatory gaps that apply to MSBs involved in stored value.
However, FinCEN has not established an end date for the regulations,
which is discussed later in this report.
FinCEN Proposes Addressing Three Regulatory Gaps Related to MSBs
Involved in Stored Value:
Recognizing that stored value products are vulnerable to money
laundering, FinCEN's June 2010 NPRM proposes to address regulatory
gaps related to MSBs involved in stored value or "prepaid access" in
the following three areas:
* Registration with FinCEN. The NPRM proposes that providers of
prepaid access must (1) register with FinCEN as a MSB,[Footnote 99]
(2) identify each prepaid program for which it is the provider of
prepaid access, and (3) maintain a list of its agents. However,
sellers, such as grocery stores or drug stores, of prepaid access
would not have to register.[Footnote 100] According to FinCEN, it is
proposing to exempt the seller from registering with FinCEN because
the seller's role is complementary with, but not equal to, the
authority and primacy of the provider of prepaid access, and the
seller is generally acting as an agent on behalf of the provider. As
stated in the NPRM, providing an exemption would be consistent with
the treatment of other agents under the MSB rules.
* Customer identification program. The NPRM proposes that providers
and sellers of prepaid access must establish procedures to verify the
identity of a person who obtains prepaid access under a prepaid
program; obtain identifying information concerning such a person,
including name, date of birth, address, and identification number; and
retain such identifying information for 5 years after the termination
of the relationship.
* Submitting reports on suspicious activities. The NPRM proposes that
MSBs must file reports on suspicious activities related to prepaid
access.[Footnote 101]
The next steps that FinCEN plans to follow include (1) summarizing and
analyzing the comments, (2) revising the regulation as proposed in the
NPRM, if appropriate, (3) consulting with law enforcement and
regulatory stakeholders and clearance within Treasury, (4) preparing a
final rule for OMB to review, and (5) addressing any further comments
from OMB.
FinCEN Has Not Yet Decided How Best to Address the International
Transport of Stored Value:
At the time of our review, FinCEN was considering several options to
address the international transport of stored value; however, the
agency has not yet decided on what course of action it will take or
when. In the June 2010 NPRM, FinCEN stated that it plans to regulate
the cross-border transport of stored value in a future rulemaking
proposal in part because of issues identified with respect to
financial transparency while performing its regulatory research of the
stored value industry. According to FinCEN officials, they have not
addressed the cross-border transport of stored value in the June 2010
NPRM because addressing regulatory gaps in (1) registration with
FinCEN, (2) customer identification programs, and (3) reporting on
suspicious activities had a higher priority.
While FinCEN may ultimately call upon individuals to report stored
value at the borders, FinCEN officials indicated that cross-border
transparency and monitoring may be achieved through other means.
According to FinCEN, one option it may use to achieve cross-border
transparency is to call upon entities in the stored value industry to
report suspicious activities related to the use of stored value that
cuts across the nation's borders. In addition, FinCEN is proposing in
the June 2010 NPRM that providers of prepaid access maintain records
that may include information on the type and amount of the transaction
and the date, time, and location where the transaction occurred. For
example, such information could identify the purchase and use of
stored value in and outside of the United States. FinCEN's success in
using this approach depends, in part, on (1) the degree to which
entities report such instances in a complete and accurate fashion and
(2) the timeliness of such reporting and the degree to which the
information is shared with law enforcement agencies. The challenges
FinCEN faces in using this approach are discussed later in this report.
FinCEN Has Developed Initial Plans for Issuing the Final Rule on
Stored Value, but Its Plans Do Not Assess Ways to Mitigate Risks for
Completing Rules on Stored Value:
FinCEN has developed initial plans for issuing the final rules for
stored value; however, its plans are missing key elements that are
consistent with best practices for project management. Best practices
for project management established by the Project Management Institute
state that managing a project involves project risk management, which
serves to increase the probability and impact of positive events, and
decrease the probability and impact of events adverse to the project.
Project risk management entails determining which risks might affect a
project, prioritizing risks for further analysis by assessing their
probability of occurrence, and developing actions to reduce threats to
the project. Other practices include (1) establishing clear and
achievable objectives, (2) balancing the competing demands for
quality, scope, time, and cost, (3) adapting the specifications,
plans, and approach to the different concerns and expectations of the
various stakeholders involved in the project, and (4) developing
milestone dates to identify points throughout the project to reassess
efforts under way to determine whether project changes are necessary.
[Footnote 102]
In an effort to meet the statutory deadline of February 2010, FinCEN
developed preliminary plans and milestones for issuing the final rule
on stored value. For example, the agency identified certain steps in
the rulemaking process, such as summarizing comments and making
recommendations to management before finalizing the rule. However,
FinCEN's plans did not assess which risks might affect the project,
prioritize risks for further analysis by assessing their probability
of occurrence, or develop actions to reduce threats to the project as
suggested by best practices for project management. While FinCEN
officials acknowledge risks exist, such as not knowing whether the
nature of these comments may cause FinCEN to change its policy path
with respect to the NPRM, they have not produced a plan that
identifies actions to reduce threats to the project nor does their
plan (1) consider alternative approaches that the agency may need to
take based on comments received, or (2) include the time it may take
to produce a series of rules, including a rule that addresses the
cross-border transport of stored value. Assessing ways to mitigate
risks associated with issuing rules on stored value and the cross-
border transport of stored value could better position FinCEN to
provide reasonable assurance that it can produce a set of rules that
(1) fulfills the requirements of the Credit CARD Act and (2) informs
decisions related to improving anti-money laundering practices among
the stored value industry.
In general, federal rulemaking can be a lengthy process for
significant regulatory action. In April 2009, we reported that the
average time needed to complete a significant rulemaking across 16
case-study rules at four federal agencies[Footnote 103] was about 4
years--having a range from about 1 year to nearly 14 years with
considerable variation among the federal agencies and rules.[Footnote
104] However, as called for by best practices for project management,
all four of the federal agencies examined in the report set milestones
for their regulatory development. Additionally, during the course of
our review one of the four agencies provided data showing it routinely
tracked these milestones, and two federal agencies subsequently
provided some documentation and data to show likewise, when commenting
on our draft report. Our report concluded that monitoring actual
versus estimated performance enables agency managers to identify steps
in the rulemaking process that account for substantial development
time and provides information necessary to further evaluate whether
the time was well spent.
A project management plan that is consistent with best practices could
help FinCEN better manage its rulemaking effort. The Credit CARD Act
required FinCEN's effort in issuing regulations in final form
implementing the BSA regarding the sale, issuance, redemption, or
international transport of stored value to be completed within the
prescribed time frame of 270 days from the date of enactment. However,
FinCEN was unable to meet the statutory deadline of February 2010 to
develop and issue these regulations and has much work to do to carry
out the requirements of the Credit CARD Act. In addition to
identifying and mitigating risks associated with the regulatory
process, a project management plan could also help FinCEN (1) track
and measure progress on tasks associated with completing mandated
requirements, and (2) identify points throughout the project to
reassess efforts under way to determine whether goals and milestones
are achievable or project changes are necessary. If such plans call
for changes to time lines, then FinCEN could request for legislation
to extend the statutory deadline. Until the rule is finalized and
implemented, vulnerabilities could continue to exist in the stored
value industry with respect to the cross-border transport of stored
value and money laundering for the purpose of supporting illegal
activities.
More Work Remains to Ensure Agencies Enforce Cross-Border Currency
Smuggling and Industry Complies with the Final Rule:
While issuing the final rule on stored value will be a major step
toward addressing regulatory gaps, much work remains to ensure
enforcement by law enforcement agencies to identify cross-border
currency smuggling with the use of stored value and to ensure issuers,
sellers, and redeemers of such devices implement anti-money laundering
requirements after the final rule is issued. For example, FinCEN faces
the task of conducting awareness programs about the new rule for
officials in law enforcement and industry, as well as determining
whether the new rule will address the Credit CARD Act requirements or
if additional rules will need to be developed. Beyond these tasks,
federal law enforcement agencies and FinCEN face other challenges as
well. These are described in more detail below.
Enforcing the Cross-Border Requirements Related to Stored Value Will
Be a Challenge:
If FinCEN requires individuals to declare stored value at the border
when leaving the country, law enforcement officials we spoke to report
that they would encounter the following challenges.
* Detecting illegitimate stored value cards. According to the law
enforcement officials we spoke with, it may be difficult to detect
illegitimate stored value for three reasons. First, stored value cards
loaded with large amounts of currency can be easily concealed in a
wallet, letter, or package given the minimal amount of physical space
a stored value product occupies, particularly when compared to bulk
cash. Second, stored value cards do not contain any features that
distinguish them from traditional credit or debit cards. Third, there
is no mechanism by which to distinguish stored value cards that an
individual possesses for legitimate reasons and those possessed for
illegitimate reasons.
* Obtaining proper traveler declarations. The public would have to be
made aware of any new declaration requirement for the international
transport of stored value. Further, it may be difficult for the
traveler to recall the value on a stored value card and for law
enforcement to verify the value on a card. Unlike cash which can be
counted, the value of a stored value card can only be determined using
a card reader or by accessing the account information.
* Seizing the funds. Unlike cash, which can be physically seized, the
process of seizing funds from a stored value card is much more
difficult. Law enforcement first has to identify where the funds are
held, which could be at any financial institution worldwide. Second,
law enforcement would need to obtain the right to freeze the funds and
to seize the funds through obtaining a warrant. However, in the time
it takes to obtain a warrant, it is possible that a suspect and any co-
conspirators could transfer the funds off of the stored value card to
another account.
FinCEN Faces Challenges in Ensuring Industry Compliance With the New
Rules:
FinCEN's approach for addressing vulnerabilities with cross-border
currency smuggling and other illicit use of stored value depends, in
part, on ensuring that industry complies with the new rules. Among
other things, FinCEN faces challenges in areas such as monitoring
MSBs, addressing gaps in anti-money laundering practices of off-shore
issuers and sellers of stored value, and educating industry about the
new anti-money laundering requirements.
Current Guidance for Monitoring MSB Compliance With Anti-Money
Laundering Requirements Is Silent on Stored Value:
As administrator of the BSA, FinCEN is responsible for, among others
things, developing regulatory policies for agencies that examine
financial institutions and businesses for compliance with the BSA
regulations. FinCEN is also responsible for overseeing agency
compliance examination activities and provides these agencies with
assistance to ensure they are able to carry out their compliance
exams. Treasury, through FinCEN, has delegated the authority to
conduct compliance examinations of certain nonfederally regulated
nonbank financial institutions (NBFI), including MSBs, to the Office
of Fraud/BSA, within IRS' Small Business/Self-Employed Division. IRS
Fraud/BSA carries out this function with approximately 385 field
examiners nationwide.
FinCEN's guidance for these examiners lacks specific information to
follow when assessing MSB compliance by issuers, sellers, and
redeemers of stored value. To provide guidance for performing MSB
examinations to these examiners, in December 2008, FinCEN issued,
jointly with IRS, the Bank Secrecy Act/Anti-Money Laundering
Examination Manual For Money Services Businesses.[Footnote 105]
FinCEN's goal was to ensure consistency in the application of the anti-
money laundering requirements called for by BSA. The manual includes
general procedures that are applicable to all MSBs, such as procedures
for reviewing an anti-money laundering program, but it does not
specifically address transaction testing procedures for examining
issuers, sellers and redeemers of stored value. Standards for Internal
Controls in the Federal Government state that an effective control
environment is a key method to help agency managers achieve program
objectives.[Footnote 106] he standards state, among other things, that
agencies should have policies and procedures that enforce management's
directives. The standards also state that such control activities are
an integral part of an entity's planning, implementing, reviewing, and
accountability for stewardship of government resources and achieving
effective results. Developing policies and procedures for monitoring
entities that issue, sell, and redeem stored value could help ensure
that such entities carry out current and future anti-money laundering
requirements. IRS Fraud/BSA officials acknowledged that there are no
specific transaction testing procedures in the manual for examiners to
follow at a MSB that issues, sells, and redeems stored value. They
told us that at the time the manual was developed, FinCEN did not have
sufficient information on the stored value industry and it wanted to
get a better understanding of the industry before including
examination procedures in the manual. In July 2010, FinCEN told us
that it intends to update the manual to reflect final rules on MSB re-
definitions and prepaid access. However, it is uncertain when it will
do so because the manual update is contingent on completion of the
final rules.
FinCEN Faces Challenges in Tracking Reports on Suspicious Activities
Related to Stored Value:
FinCEN faces challenges regarding the ease in which it can analyze the
SAR database for reports related to stored value.[Footnote 107] We
sought to identify the types of reported suspicious activities
involving stored value or prepaid products by analyzing the SAR
database; however, we experienced significant data challenges that
limited our efforts. Currently, SAR forms do not contain a mechanism
to indicate that stored value was the financial service involved in
the suspicious activity, aside from including this information in the
narrative portion of the form. Therefore, to identify SARs potentially
involving stored value products, the narrative portion of the form
must be searched using key terms, such as "stored value," "prepaid
card," or "gift card," that might indicate this activity.[Footnote 108]
We reviewed a random, probability sample of 400 SARs that were
identified by using narrative search terms believed to identify SARs
filed due to stored value.[Footnote 109] However, for an estimated 39
percent of the reports, the suspicious activity described did not
involve the use of stored value, even though one of the key search
terms appeared in the narrative. For example, the search term
identified in the narrative did not describe the type of suspicious
activity that occurred, but rather, was included in a description of
the type of services the reporting entity offered. In another example,
the SAR was filed for suspicion of credit card fraud or structuring
but the report also described the type of transactions the customer
completed, one of which might have been the purchase of gift cards.
Due to these database limitations, it is difficult to track and
monitor suspicious activity and the risks related to the use of stored
value. Standards for Internal Controls in the Federal Government state
that internal controls should include an assessment of the risks the
agency faces from both external and internal sources. This guidance
defines risk assessment as the identification and analysis of relevant
risks associated with achieving the agency's objectives and forming a
basis for determining how risks should be managed. In addition,
internal control standards state that once risks have been identified,
they should be analyzed for their possible effect. Risk analysis
includes estimating the risk's significance, assessing the likelihood
of its occurrence, and deciding how to manage the risk and what
actions should be taken.
To address the difficulty in tracking suspicious activities related to
stored value, FinCEN has discussed SAR form revisions with the Data
Management Council that include check boxes for the types of items
involved in the suspicious activity, including prepaid products.
FinCEN plans to implement a revised SAR form with these changes in
fiscal year 2012. Making such changes could better position FinCEN to
fully evaluate the potential impact of the stored value industry on
their ability to carry out the agency's broad mission of enhancing
U.S. national security, deterring and detecting criminal activity, and
safeguarding financial systems from abuse.
FinCEN Faces Challenges in Developing a More Complete Database of MSBs:
FinCEN does not have a complete database on MSBs, including those that
issue, sell, and redeem stored value. The lack of a comprehensive
database complicates FinCEN's ability to educate all MSBs and other
entities about the new rule and its anti-money laundering requirements
since the agency does not have full knowledge of the MSB population
[Footnote 110] or other entities involved with stored value such as
the telecommunications industry (mobile devices--cellular phones and
other wireless communication devices). These entities may not be as
familiar with BSA anti-money laundering requirements and need more
time and orientation to understand and meet the new requirements.
Historically, identifying the population of MSBs subject to BSA
requirements has been a challenge for FinCEN and IRS Fraud/BSA. This
challenge has been well-documented over the years by, among others,
Treasury's Inspector General,[Footnote 111] us,[Footnote 112]and, more
recently in the 2007 National Money Laundering Strategy Report.
[Footnote 113] To illustrate this problem, IRS Fraud/BSA uses its Web-
based Currency and Banking Retrieval System, public and commercial
databases, Internet searches, and the yellow pages to identify MSBs to
monitor because a complete database of MSBs does not exist. FinCEN
performed searches of past BSA reports and got referrals from other
law enforcement officials about potential MSBs to monitor. However,
not all of the businesses identified were actually subject to BSA
requirements. FinCEN officials told us they plan to use the Bank
Secrecy Act Advisory Group and its Subcommittees, including the Stored
Value Subcommittee, to identify ways to perform appropriate outreach
to applicable MSBs, in part, to develop a more complete database.
FinCEN has not set a date for completion of this effort as its plans
have not been finalized.
FinCEN officials told us that under the new rule, monitoring and
compliance may be performed by its Office of Compliance, Office of
Enforcement, and IRS' Fraud/BSA. However, even if it is able to
develop a more complete database of MSBs, the degree to which IRS will
monitor MSBs involved in issuing, selling, and redeeming stored value
is an open question. For example, in March 2010, IRS told us that MSBs
which provide stored value services generally have not been the target
of compliance exams in recent years. IRS Fraud/BSA officials told us
that most MSBs they examined for fiscal years 2007 through 2009
provided some other financial service (e.g. money transmission, check
cashing, and issuing and selling traveler's checks) as their primary
financial service, and may have conducted stored value transactions as
an auxiliary financial service. IRS Fraud/BSA work plans during this
period as well as for the current fiscal year (2010) excluded
examination of MSBs whose primary financial service is stored value
for the following two reasons: (1) most MSBs that were examined
provided multiple financial services of which stored value may have
been only one of them, and (2) the existing statutory requirements for
entities that offer stored value products are minimal and IRS resource
expenditures would be more beneficial in focusing on other MSBs.
[Footnote 114]
FinCEN's Efforts to Close Gaps in Anti-Money Laundering Regulations
for Off-Shore Entities Has Made Progress, but More Work Remains:
Combating the use of stored value by criminals involves not only
efforts to implement anti-money laundering practices domestically, but
also involves extending these efforts to international financial
markets. Stored value issuers outside of the United States are
generally not subject to FinCEN's anti-money laundering regulations,
even though the stored value products they issue may be used in the
United States or elsewhere in the world. Such devices can be used to
load money from this country and download money in foreign countries
through ATMs.
Prior to enactment of the Credit CARD Act, FinCEN had begun the
process of proposing a new rule to address, among other things, off-
shore MSBs that market their stored value products in the United
States but the final rule is being delayed.[Footnote 115] As of April
2010, agency officials told us its final rule related to off-shore
MSBs will be delayed and issued at the time FinCEN issues the final
rule addressing the requirements under the Credit CARD Act. This would
allow for the provisions in both rules to be synchronized along with
appropriate references because the two rules are closely related to
one another.
Meanwhile, one way Treasury and FinCEN are addressing off-shore
providers of stored value is through an intergovernmental entity
called the Financial Action Task Force (FATF). FATF's purpose is to
establish international standards and to develop and promote policies
for combating money laundering and terrorist financing. In 2006, FATF
issued a study[Footnote 116] concluding that providers of new payment
methods, such as stored value and mobile payments that are outside the
jurisdiction of a given country, may pose additional risks of money
laundering when (1) the distribution channel being used is the
Internet, (2) there is no face-to-face contact with the customer, and
(3) the new payment network operates through an open network that can
be accessed in a high number of jurisdictions (e.g. ATMs worldwide).
More recently, in its Strategic Plan (2008-2012) FinCEN recognized
that to address the risk of cross-border transport and money
laundering through the use of such devices calls for an approach that
involves international cooperation with regulatory and law enforcement
agencies outside of the United States. The degree to which FinCEN will
succeed in gaining the cooperation of agencies outside of the United
States in regulating stored value remains an open question. Officials
at three of six law enforcement agencies we spoke with expressed
concern about the risk of money laundering from off-shore MSBs.
According to Treasury officials we interviewed, the agency led the
2006 effort to disclose risks of money laundering related to off-shore
MSBs that sell and issue stored value products and informed us that a
new effort is currently under way to update the conditions and
findings to see what more needs to be done to deter the use of such
products for money laundering and terrorist financing activities.
Treasury officials told us the updated report is being co-chaired by
FATF representatives from Germany and the Netherlands with Treasury as
a participating member. Although originally scheduled for June 2010,
the revised issuance date for the updated report on new payment
methods is October 2010.
FinCEN May Need to Evaluate Alternative Approaches to the Proposed
Rule:
In the NPRM, FinCEN has included a request for comments on the
proposed rule, as well as 15 questions it asks stakeholders to comment
on. For example, FinCEN's proposed rule exempts certain types of
prepaid devices from anti-money laundering requirements. Specifically,
the proposed rule exempts those devices that are (1) used to
distribute payroll or benefits;[Footnote 117] (2) used to distribute
government benefits; or (3) used for pre-tax flexible spending
accounts for health care and dependent care expenses. The proposed
rule also exempts programs offering closed system products that can
only be used domestically as well as products that limit the maximum
value and transactions to $1,000 or less at any given time.[Footnote
118] As stated in the NPRM, FinCEN recognizes that some members of the
law enforcement community have expressed concern about exempting
prepaid access payroll programs from anti-money laundering
requirements. To address concerns such as these, FinCEN has requested
comments on methods for ensuring that the company and its employees
are legitimate, and that the program is valid. FinCEN has also asked
for comments on the $1,000 a day threshold as it may apply to
transactions involving multiple MSBs. According to FinCEN, it will
consider this matter and any comments that it receives. In doing so,
when FinCEN reviews the comments it receives, it may need to evaluate
alternatives to exempting such prepaid programs to address the risk of
money laundering and the transport of such devices across the nation's
borders to finance illegal activities. OMB Circular A-4 and Executive
Order 12866, as amended, indicate that analysis of alternatives is a
key component in assessing proposed rules.[Footnote 119]
FinCEN Acknowledges that Outreach Will Help Ensure Industry Compliance
With the New Rules:
While the June 2010 NPRM proposes regulations that would require each
"provider of prepaid access" to register with FinCEN and carry out
anti-money laundering requirements related to prepaid access, the
degree to which providers will register with FinCEN and carry out the
proposed requirements remains an open question. FinCEN may face two
challenges in this regard. First, while the proposed rule describes
characteristics of MSBs that may qualify as a provider, entities in
the prepaid access industry may not immediately know whether they are
a provider without further clarification from FinCEN. This condition
could lead to entities not registering as a provider when FinCEN
intends that they follow the anti-money laundering requirements for
such entities. Second, while sellers are exempt from registration
requirements under the proposed rule, they are required to comply with
certain anti-money laundering requirements. Not knowing whether the
universe of providers and sellers is complete and accurate may hinder
compliance efforts. As a result, FinCEN may face a higher risk of
noncompliance without a program to educate industry about the rule and
how to apply it.
In July 2010, FinCEN officials told us that they typically develop and
conduct industry outreach, as resources allow, supporting the
implementation of major new rulemakings. FinCEN officials explained
that these outreach activities greatly assist covered industries in
better understanding the new rules and how the new rules are to be
applied. Because the prepaid access rulemaking is ongoing and FinCEN
is awaiting feedback on its proposed regulations, preparations and
planning for outreach to providers of prepaid access and other
affected industry participants are in the initial phases, according to
agency officials. Officials told us that FinCEN will continue its
discussions with the Bank Secrecy Act Advisory Group and its
Subcommittees to gain insight on how best to reach those affected by
any final regulations. According to FinCEN, the level of effort
associated with a major industry outreach effort of this kind will be
significant.
Conclusions:
Moving illegal proceeds across the border, whether in the form of bulk
cash or stored value, represents a significant threat to national
security. While CBP's outbound inspection effort has shown some early
results, particularly in terms of bulk cash seized, the program's
future is uncertain. If DHS continues to conduct outbound inspections,
CBP faces important decisions regarding resources and processes for
outbound inspections, and without all the necessary information, CBP
may be unable to most effectively inform decisions on where scarce
resources need to be applied. In addition, CBP could also improve its
Outbound Enforcement Program by directing and ensuring ports of entry
develop guidance that addresses officer safety. Also, by establishing
performance measures related to program effectiveness, CBP could be
better positioned to show the degree to which its efforts are stemming
the flow of cash, weapons, and other goods that stem from criminal
activities. While we recognize that this is a new program, without
data and information to inform resource decisions, help ensure that
officers are safe, and measure program effectiveness, CBP risks that
the program could result in an inefficient use of resources, that
officers will be endangered, and that Congress could not have the
information it needs for its oversight efforts.
Even if efforts to reduce the flow of bulk cash into Mexico are
successful, drug trafficking organizations and other criminal elements
may shift their tactics and use other methods to smuggle illegal
proceeds out of the United States, such as through the use of stored
value. FinCEN is in the process of developing and issuing regulations
related to the issuance of stored value, as required by the Credit
CARD Act, but work remains and it is unclear when the agency will
issue the final regulation. By developing a management plan with
timelines for issuing final rules, FinCEN could be better positioned
to manage its rulemaking efforts and to reduce the risk of cross-
border smuggling and other illicit uses of stored value by drug
trafficking organizations and others. Developing policies and
procedures, such as for transaction testing for monitoring MSBs that
issue, sell, and redeem stored value could help ensure that such MSBs
carry out current and future anti-money laundering requirements.
Recommendations for Executive Action:
To strengthen CBP's implementation of the Outbound Enforcement Program
as well as its planning efforts related to the program, we recommend
that the Secretary of Homeland Security direct the Commissioner of
Customs and Border Protection to take the following three actions:
* Collect cost and benefit data that would enable a cost/benefit
analysis of the Outbound Enforcement Program to better inform
decisions on where scarce resources should be applied. These data
could include cost data on training and using currency canine for
outbound operations as part of the Outbound Workload Staffing Model,
cost estimates for equipping officers, installing technology to
support outbound operations, assessments of infrastructure needs at
port of entry outbound lanes, an estimate of the costs resulting from
travelers waiting to be inspected, and information on quantifiable
benefits, such as seizures, as well as non-quantifiable benefits
resulting from outbound inspections.
* Direct and ensure that managers at land ports of entry develop
policies and procedures that address officer safety, such as detailing
how officers should conduct outbound inspections on a busy highway
environment.
* Develop a performance measure that informs CBP management, Congress,
and other stakeholders about the extent to which the Outbound
Enforcement Program is effectively stemming the flow of bulk cash,
weapons, and other goods that stem from criminal activities by working
with other federal law enforcement agencies involved in developing
assessments on bulk cash and other illegal goods leaving the country.
To strengthen FinCEN's rulemaking process and to ensure IRS compliance
examiners consistently apply the anti-money laundering requirements
under the Credit CARD Act, we recommend that the Director of FinCEN
take the following two actions:
* Update its written plan by describing, at a minimum, target dates
for implementing all of the requirements under the Credit CARD Act to
include FinCEN's overall strategy and risk mitigation plans and target
dates for issuing notices of proposed rulemaking and final rules.
* Revise its guidance manual to include specific examination policies
and procedures, including for transaction testing, for IRS examiners
to follow at a MSB that issues, sells, and/or redeems stored value.
Agency Comments and Our Evaluation:
We provided a draft of the sensitive version of this report to DHS,
the Department of the Treasury, and DOJ for comment. In commenting on
our draft report, DHS, including CBP, concurred with our
recommendations. Specifically, DHS stated that it is taking action or
plans to take action to address each recommendation. For example, DHS
stated that it is collecting cost data as well as identifying
quantifiable and non-quantifiable benefits of the outbound program to
conduct cost/benefit analysis. In addition, DHS stated that it will
update its National Outbound Operations Policy Directive to ensure
each Port Director establishes a standard operating procedure for
officer safety. DHS also stated that it will work to develop effective
performance measures that accurately assess its surge-type outbound
operations. CBP stated that it will coordinate with other law
enforcement entities, including other DHS components and DOJ as well
as the White House Office of National Drug Control Policy to enhance
CBP interdiction efforts. DHS also stated that it is investigating the
implementation of a random sampling process in the outbound
environment that would provide statistically valid compliance results
for outbound operations. If effectively implemented, these actions
would address the intent of our recommendations.
In commenting on our draft report, Treasury, including FinCEN, stated
that they agree with our recommendations. Specifically, Treasury
stated that it anticipates issuing additional rulemaking to address
all areas of potential vulnerability in the prepaid access sector.
Treasury stated that although identifying target dates is particularly
challenging when taking a phased approach to rulemaking, it agrees
that the existing plan should be updated accordingly. Additionally,
Treasury stated that when the initial rulemaking is finalized, it will
proceed with its plan to update the Money Services Business
examination manual and other related outreach efforts. If effectively
implemented, these actions would address the intent of our
recommendations.
DOJ did not have formal comments on our report. DHS, Treasury, and DOJ
provided technical comments, which we incorporated as appropriate.
Appendix III contains written comments from DHS. Appendix IV contains
written comments from Treasury.
As arranged with your offices, we plan no further distribution of this
report until 30 days after the issue date. At that time, we will send
copies of this report to the Secretary of Homeland Security, the
Attorney General of the United States, the Secretary of the Treasury,
the Director of the Office of Management and Budget, and the
appropriate congressional committees. We will make copies available to
others on request if they have appropriate security clearances and a
need to know.
If your offices or staff have any questions concerning this report,
please contact me at (202) 512-8777 or by e-mail at stanar@gao.gov.
Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. Key contributors
to this report are listed in appendix V.
Signed by:
Richard M. Stana:
Director, Homeland Security and Justice Issues:
[End of section]
Appendix I: Costs for Outbound Enforcement Program (Fiscal Years 2008-
2010):
Expense Item: Headquarters/Mission support;
Fiscal year 2008: $42,708,955;
Fiscal year 2009: $50,782,988;
Fiscal year 2010 (projected): $68,335,263.
Expense Item: Salaries and benefits;
Fiscal year 2008: $38,165,223;
Fiscal year 2009: $48,375,984;
Fiscal year 2010 (projected): $65,159,909.
Expense Item: Overtime;
Fiscal year 2008: $3,980,533;
Fiscal year 2009: $4,918,598;
Fiscal year 2010 (projected): $5,546,535.
Expense Item: Premium Pay[A];
Fiscal year 2008: $2,571,585;
Fiscal year 2009: $3,089, 091;
Fiscal year 2010 (projected): $4,388,725.
Expense Item: Supplies, Equipment, and Communication;
Fiscal year 2008: $499,796;
Fiscal year 2009: $545,259;
Fiscal year 2010 (projected): $798,514.
Expense Item: Other non-labor[B];
Fiscal year 2008: $294,204;
Fiscal year 2009: $326,590;
Fiscal year 2010 (projected): $390,586.
Expense Item: Rent and facilities;
Fiscal year 2008: $289,173;
Fiscal year 2009: $312,252;
Fiscal year 2010 (projected): $426,470.
Expense Item: Travel, training, and transportation;
Fiscal year 2008: $206,124;
Fiscal year 2009: $261,883;
Fiscal year 2010 (projected): $246,349.
Expense Item: Total;
Fiscal year 2008: $88,715,593;
Fiscal year 2009: $108,612,645;
Fiscal year 2010 (projected): $145,292,351.
Source: GAO analysis of CBP data.
Note: CBP conducted outbound operations before the Outbound
Enforcement Program Office was created in March 2009.
[A] Holiday, Sunday, and night pay.
[B] Miscellaneous expenses.
[End of table]
[End of section]
Appendix II: General Overview of the Federal Rulemaking Process:
This appendix provides an overview of the steps in the rulemaking
process for a significant regulatory action under Executive Order
12866, as amended, and the potential time involved for some of the
steps.
Step 1: Agency (or agencies, if a joint rule) completes development of
the notice of proposed rule making (NPRM), which includes the proposed
rule and supplemental information.[Footnote 120]
Step 2: Agency submits the draft NPRM and supporting materials,
including any required cost-benefit analysis, to the Office of
Management and Budget (OMB) for review.
Step 3: OMB reviews the draft NPRM and supporting materials and
coordinates review of the proposed rule by any other agencies that may
have an interest in it.
Step 4: OMB notifies the agency in writing of the results of its
review, including any provisions requiring further consideration by
the agency, within 90 calendar days after the date of submission to
OMB.[Footnote 121]
Step 5: OMB resolves disagreements or conflicts, if any, between or
among agency heads or between OMB and any agency; if it cannot do so,
such disagreements or conflicts are resolved by the President or by
the Vice President acting at the request of the President.
Step 6: Once OMB notifies the agency that it has completed its review
without any requests for further consideration, the agency reviews the
NPRM and publishes it for public comment in the Federal Register.
Step 7: Agency is to give the public a meaningful opportunity to
comment on the proposed rule, which generally means a comment period
of not less than 60 days.
Step 8: Once the comment period has closed, the agency reviews the
comments received, makes appropriate revisions to the proposed rule,
and prepares a notice of the final rule, including supplemental
information with responses to comments received.[Footnote 122]
Step 9: Agency submits draft notice and final rule, including updated
supporting materials or cost-benefit analysis, to OMB for review.
Step 10: OMB reviews the draft notice, final rule, and supporting
materials; coordinates review by any other agencies that may have an
interest in the rule; and notifies the agency of the results within 90
calendar days after the date of submission to OMB.[Footnote 123]
Step 11: Once OMB notifies the agency that it has completed its review
without any requests for further consideration, the agency reviews the
rule one more time and generally publishes the final rule and
supplemental information in the Federal Register at least 60 days
before the new rule takes effect.
[End of section]
Appendix III: Comments from the Department of Homeland Security:
U.S. Department or Homeland Security:
Washington, DC 20528:
September 9, 2010:
Richard M. Stana:
Director, Homeland Security and Justice:
441 G Street, NW:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Mr. Stana:
RE: Response to Draft Report GA0-10-983, Moving Illegal Proceeds:
Challenges Exist in the Federal Government's Effort to Stem Cross-
Border Currency Smuggling:
Thank you for the opportunity to review and comment on the Government
Accountability Office's (GAO) draft report referenced above (Job Code
440800). The Department of Homeland Security (DHS), particularly U.S.
Customs and Border Protection (CBP), concurs with the recommendations
in the draft report and offers the following response.
Recommendation 1: Collect cost and benefit data that would enable a
cost/benefit analysis of the OEP to better inform decisions on where
scarce resources should be applied. These data could include cost data
on training and using currency canine for outbound operations as part
of the Outbound Workload Staffing Model, cost estimates for equipping
officers, installing technology to support outbound operations,
assessments of infrastructure needs at port of entry outbound lanes,
an estimate of the costs resulting from travelers waiting to be
inspected, and information on quantifiable benefits, such as seizures,
as well as non-quantifiable benefits resulting from outbound
inspections.
Response: Concur. CBP's Office of Field Operations (0F0), Outbound
Enforcement Division (OED), is using a Project Integrator to identify
cost estimates for Tier 1, Tier 2 and Tier 3 outbound land border
solutions. OED is utilizing a project integrator that has begun
collecting data such as infrastructure, tools and technology, canine,
staffing, port volumes and hours of operation to further develop the
cost/benefit analysis with a BorderWizard Tool.
OED is coordinating with the OFO”Offices of: Planning, Program
Analysis and Evaluation (PPAE) and Mission Support (MS) to better
identify quantifiable and non-quantifiable benefits. The collection
and analysis of outbound data will greatly improve CBP's ability to
conduct a cost/benefit analysis of the outbound program.
PPAE's Workload Staffing Model (WSM) does not compile and analyze cost
data, as noted in the recommendation: "These data could include cost
data on training and using currency canine for outbound operations as
part of the Outbound Workload Staffing Model." The WSM focuses on
specific work attributes instead of cost shivers. As the outbound
operation develops these work attributes then the WSM can be enhanced
to address the expected outbound mission and processes, including
estimates of volumes, processing times, etc.
Also note that the WSM has been updated and some outbound operations
modeling were recently integrated into the existing WSM. While the
outbound operations modeling is not based on workload data drivers,
the model integrates research from the OED as to how many Customs and
Border Protection Officers (CBPOs) are needed and where they should be
deployed if funding is provided. Furthermore, the WSM Program is
continuously seeking to improve the model. As described above, the
Outbound portion of the model can be enhanced to be a better predictor
of the staffing investment required for the OED once the mission,
scope, and the outbound program processes (or various options for
these) are defined further.
Completion Date: May 30, 2011.
Recommendation 2: Direct and ensure that managers at land ports of
entry develop policies and procedures that address officer safety,
such as detailing how officers should conduct outbound inspections on
a busy highway environment.
Response: Concur. OED is updating the National Outbound Operations
Policy Directive to include Section 5.6.1 "Directors of Field
Operations (DFOs) will ensure that each Port Director has established
an Officers' Safety Standard Operating Procedures (SOP) and
implemented an on-the-job-training orientation program for outbound
operations to ensure CBPOs are aware of the port's unique outbound
safety hazards and challenges."
The issuance of national directives served to promote uniformity in
CBP's border security mission. Because of the unique challenges
identified at CBP's diverse ports of entry, the OED is unable to
establish one standard national safety SOP, but will require that each
Port Director develop a safety SOP based on the unique challenges at
the port of entry.
Completion Date: January 31, 2011.
Recommendation 3: Develop a performance measure that informs CBP
management, Congress and other stakeholders about the extent to which
the OED is effectively stemming the flow of bulk cash, weapons, and
other goods that stem from criminal activities by working with other
federal law enforcement agencies involved in developing assessments on
bulk cash and other illegal goods leaving the country.
Response: Concur. OED and PPAE are currently working with the
Department of Homeland Security's (DHS's) Program Analysis and
Evaluation (PA&E) Office to develop appropriate Outbound/Exit
performance measures that support the expansion of outbound activities
and meet departmental and external reporting needs as part of a
comprehensive PA&E performance measures improvement initiative in
support of the requirements outlined in the OHS Quadrennial Homeland
Security Review.
CBP currently conducts periodic, surge-type outbound operations which
are limited in scope and do not cover the full range of outbound
activity. OED and PA&E are working to develop effective performance
measures that accurately assess the impact of conducting outbound
operations given these limitations and the concurrent deterrence
effect often observed with surge-type operations. CBP has no basis for
developing a broad measure of the extent to which OED is stemming the
flow of bulk cash, weapons, and other goods from criminal activities.
To increase the effectiveness of outbound operations and our ability
to assess the results of our efforts, CBP is coordinating enforcement
activity with other federal law enforcement agencies to include OHS
components, the Department of Justice and the White House, Office of
National Drug Control Policy, to enhance CBP interdiction efforts. CBP
will continue to identify trends in interdiction activities while
focusing on areas identified in national threat assessments.
PPAE is investigating the implementation of a COMPEX-like random
sampling process in the outbound environment that would provide
statistically valid compliance results for outbound operations. This
implementation is dependent on the required technology enablers, as
outlined in the Land Border Outbound Solutions development plan, being
in place prior to deployment.
Completion Date: September 30, 2911 (Implementation - PA&E measure
improvement process).
Thank you for the opportunity to comment on this Draft Report and we
look forward to working with you on future homeland security issues.
Sincerely,
Signed by:
Jerald E. Levine:
Director:
Departmental GAO/OIG Liaison Office:
[End of section]
Appendix IV: Comments from the Department of the Treasury:
Department Of The Treasury:
Director:
Financial Crimes Enforcement Network:
[hyperlink, http://www.fincen.gov]
September 3, 2010:
Mr. Richard M. Stana:
Director, Homeland Security and Justice:
U.S. Government Accountability Office:
441 G Street N.W.
Washington, D.C. 20515:
Dear Mr. Siena:
We appreciate the review by the Government Accountability Office (GAO)
of federal efforts to control the use of stored value and thank you
for the opportunity to review and comment on the draft report
entitled, Moving Illegal Proceeds: Challenges Exist in the Federal
Government's Effort to Stem Cross-Border Currency Smuggling. As
administrator of the Bank Secrecy Act (BSA), the Financial Crimes
Enforcement Network (FinCEN) is responsible for effective, efficient,
and consistent application of the BSA. FinCEN's proposed rulemaking
for prepaid access products or services is intended to bring non-bank
entities in the prepaid access sector under regulatory oversight that
is more consistent with the obligations of other financial sectors
subject to the BSA. However, as the report accurately notes, there are
many challenges involved in establishing a new regulatory regime and
ensuring compliance for an industry continually evolving with
technology.
FinCEN works with a diverse range of stakeholders to administer the
BSA, including financial industry regulators, law enforcement, and
intelligence officials, as well as the industry members themselves.
The diverse interests and needs of all stakeholders require careful
thought and consideration when imposing new requirements to ensure
that we obtain the right balance between financial transparency for
law enforcement with the compliance obligations placed on industry.
Thus, we appreciate GAO's recognition that federal rulemaking can be a
lengthy process for significant regulatory actions, including those
for prepaid access.
As noted in the June 2010 notice of proposed rulemaking for prepaid
access, we anticipate issuing additional rulemaking to address all
areas of potential vulnerability in the prepaid access sector.
Although identifying target dates is particularly challenging when
taking a phased approach to rulemaking, we agree that our existing
plan should be updated accordingly. Additionally, when the initial
rulemaking is finalized, we will proceed with our plan to update the
Money Services Business examination manual and other related outreach
efforts.
If you have any questions, please feel free to contact Jamal El-Hindi,
Associate Director, Regulatory Policy and Programs Division, 202-354-
6400.
Sincerely,
Signed by:
James H. Preis, Jr.
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Richard Stana (202) 512-8777:
Staff Acknowledgments:
In addition to those named above, David Alexander, Neil Asaba, Chuck
Bausell, Willie Commons III, Kevin Copping, Mike Dino, Ron La Due
Lake, Jan Montgomery, Jessica Orr, Susan Quinlan, Jerome Sandau,
Wesley Sholtes, Jonathan Smith, Katherine Trenholme, and Clarence Tull
were key contributors to this report.
[End of section]
Footnotes:
[1] Under 31 U.S.C. § 5332, bulk cash smuggling is defined as
knowingly concealing and transporting or attempting to transport more
than $10,000 in currency or monetary instruments into or out of the
United States with the intent to evade the federal reporting
requirements. Under 31 U.S.C. § 5316, a person or an agent or bailee
of the person must file a report when the person, agent, or bailee
knowingly transports, is about to transport, or has transported,
monetary instruments of more than $10,000 at one time into or out of
the United States.
[2] These figures were derived by multiplying the total quantity of
Mexico--and Columbia--produced drugs available at the wholesale level
in the United States by wholesale prices for those drugs. See U.S.
Department of Justice, National Drug Intelligence Center, 2009
National Drug Threat Assessment (Johnstown, Pa.: December 2008). Using
a different method, NDIC estimated that at least $17 billion was
smuggled into Mexico in bulk cash shipments alone over a 2-year
period. NDIC based this estimate on a review of U.S. banknotes
repatriated from Mexico. The estimate represents only U.S. currency
returned to the United States not all U.S. currency that was smuggled
to or through Mexico. This estimate is based on analysis of U.S.
banknotes purchased by U.S. financial institutions from Mexican
financial institutions from 2003 through 2004. See U.S. Department of
Justice, National Drug Intelligence Center, 2010 National Drug Threat
Assessment, (Johnstown, Pa.: February 2010).
[3] U.S. Department of Justice, National Drug Intelligence Center,
2009 National Drug Threat Assessment (Johnstown, Pa.: December 2008).
[4] Under 31 C.F.R. § 103.11(vv), stored value is defined as funds or
monetary value represented in digital electronics format (whether or
not specifically encrypted) and stored or capable of storage on
electronic media in such a way as to be retrievable and transferable
electronically.
[5] Money Laundering Threat Assessment Working Group, U.S. Money
Laundering Threat Assessment (December 2005).
[6] Ports of entry are government-designated locations where CBP
inspects persons and goods to determine whether they may be lawfully
admitted or entered into the country. A land port of entry may have
more than one border crossing where CBP inspections occur.
[7] FinCEN is within the Office of Terrorism and Financial
Intelligence. This office aims to prevent terrorism and promote the
nation's security through strengthened international financial systems.
[8] National Drug Intelligence Center, 2009 National Drug Threat
Assessment (Johnstown, Pa., December 2008) and National Drug
Intelligence Center, 2010 National Drug Threat Assessment (Johnstown,
Pa., February 2010).
[9] National Drug Intelligence Center, Reassessing Southwest Border
Bulk Cash Smuggling: Consolidation Points as Trafficker
Vulnerabilities, (Johnstown, Pa., March 2008).
[10] Immigration and Customs Enforcement, Mexico Bulk Currency Study
(Washington D.C.: November 2009).
[11] GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]
(Washington, D.C.: November 1999). These standards, issued pursuant to
the requirements of the Federal Managers' Financial Integrity Act of
1982 (FMFIA), provide the overall framework for establishing and
maintaining internal control in the federal government. Also pursuant
to FMFIA, the Office of Management and Budget (OMB) issued Circular A-
123, revised December 21, 2004, to provide the specific requirements
for assessing the reporting on internal controls. Internal control
standards and the definition of internal control in OMB Circular A-123
are based on GAO's Standards for Internal Control in the Federal
Government.
[12] Under 31 C.F.R. § 103.11 (uu) (1)-(6), MSBs are generally defined
as any of the following (1) currency dealer or exchanger, (2) check
casher, (3) issuer of traveler's checks, money orders, or stored
value, (4) seller or redeemer of traveler's checks, money orders, or
stored value, (5) money transmitter, and (6) the U.S. Post Office.
Banks and persons registered with and regulated or examined by, the
Securities and Exchange Commission or the Commodity Futures Trading
Commission have been excluded from the definition of an MSB.
[13] The margin of error for percentages for the sample of 400 reports
is plus or minus 5 percentage points or less at the 95 percent level
of statistical confidence.
[14] Pub. L. No. 111-24, 123 Stat. 1734 (2009).
[15] Amendments to the Bank Secrecy Act Regulations-Definitions and
other Regulations Relating to Prepaid Access, 75 Fed. Reg. 36589
(proposed June 28, 2010).
[16] [hyperlink, hhttp://www.gao.gov/products/GAO/AIMD-00-21.3.1].
[17] CBP may refer criminals or individuals who violate laws and
regulations to ICE for further investigation.
[18] Office of National Drug Control Policy, Southwest Border
Counternarcotics Strategy (Washington D.C.: June 2009).
[19] CBP operates 25 land ports of entry along the southwest border
and 81 land ports of entry along the Northern border. Some land ports
may contain multiple crossings where travelers can exit the country.
[20] When interviewing travelers who seek to enter or return to the
United States, the Immigration and Nationality Act (See 8 U.S.C. §
1225(a)) and implementing regulations (See 8 C.F.R. § 235.1(a), (b),
(f)(1)) and CBP policies and procedures for traveler inspections at
all ports of entry require officers to establish, at a minimum, the
nationality of individuals and whether they are eligible to enter the
country. To do so, CBP officers review documents and databases, and
ask a series of questions to establish whether the traveler is a U.S.
citizen or alien, and if an alien, whether the person meets the
criteria for admission into the country. In general, nonimmigrant
aliens arriving at land and air ports of entry must present a valid,
unexpired passport as well as, depending on the country of origin and
intended length of stay in the United States, a valid, unexpired visa
issued by a U.S. embassy or consulate for entry into the country.
[21] 31 U.S.C. § 5316; 31 C.F.R. § 103.23. Generally, each person who
physically transports, mails, or ships, or causes to be physically
transported, mailed, or shipped currency or other monetary instruments
in an aggregate amount exceeding $10,000 at one time from the United
States to any place outside the United States or into the United
States from any place outside the United States must make a report of
transportation of currency or monetary instruments.
[22] 31 U.S.C. § 5316; 31 C.F.R. § 103.23. For travelers who carry or
individuals who ship, mail, or receive more than $10,000 in currency
or other monetary instruments, such as traveler's checks or money
orders, into or out of the U.S., CBP requires them to fill out a form
called the Report of International Transportation of Currency or
Monetary Instruments. When travelers fail to file a form, file a form
with material omission, or misstatement, or file a false or fraudulent
form, they are subject to civil and criminal penalties, including
under certain circumstances a fine of not more the $500,000 or
imprisonment of not more than 10 years, or both. In addition, the
currency or monetary instrument may be subject to seizure and
forfeiture.
[23] Under 31 C.F.R. § 103.11(u), monetary instruments include (i)
currency; (ii) travelers' checks in any form; (iii) all negotiable
instruments (including personal checks, business checks, official bank
checks, cashier's checks, third-party checks, promissory notes (as
that term is defined in the Uniform Commercial Code), and money
orders) that are either in bearer form, endorsed without restriction,
made out to a fictitious payee for the purposes of the international
transportation reporting requirement or otherwise in such form that
title thereto passes upon delivery; (iv) incomplete instruments
(including personal checks, business checks, official bank checks,
cashier's checks, third-party checks, promissory notes (as that term
is defined in the Uniform Commercial Code), and money orders) signed
but with the payee's name omitted; and (v) securities or stock in
bearer form or otherwise in such form that title thereto passes upon
delivery. Monetary instruments do not include warehouse receipts or
bills of lading.
[24] 31 U.S.C. § 5332.
[25] According to the World Bank, almost half the world's population
owns a cell phone and it estimates that 1.4 billion people will use
cell phones to remit money domestically and across borders by 2015.
See The World Bank, Integrity in Mobile Phone Financial Services:
Measures for Mitigating Risks from Money Laundering and Terrorist
Financing, (Washington D.C.: 2008). According to the Financial Action
Task Force, an organization whose purpose is to establish
international standards and to develop and promote policies for
combating money laundering and terrorist financing, a cell phone can
be used as a payment system access device to authorize the deduction
of value from a prepaid account.
[26] Bank Secrecy Act, titles I and II of Pub. L. No. 91-508, 84 Stat.
1114 (1970) (codified as amended in 12 U.S.C. §§ 1829b, 1951-1959; 31
U.S.C. §§ 5311-5332).
[27] The Secretary of the Treasury has the authority to administer the
BSA and its implementing regulations. This authority has been
delegated by the Secretary to the Director of FinCEN.
[28] 31 U.S.C. §§ 5318, 5313.
[29] The Director of FinCEN reports to the Under Secretary, Office of
Terrorism and Financial Intelligence.
[30] Among other things, the support FinCEN provides to domestic law
enforcement agencies, in their efforts to investigate and prosecute
financial crimes, includes a variety of services and products such as
providing access to BSA data, responding to requests from law
enforcement agencies for information pertaining to specific
investigations, and producing analytic products covering a range of
issues related to financial crimes. FinCEN also works with law
enforcement at the state and local level as well as collaborates with
international counterparts in other countries to facilitate sharing of
financial information between domestic and international law
enforcement agencies. For more information, see GAO, Anti-Money
Laundering: Improved Communication Could Enhance the Support FinCEN
Provides to Law Enforcement, [hyperlink,
http://www.gao.gov/products/GAO-10-141], (Washington D.C.: December
14, 2009).
[31] See 31 C.F.R. § 103.11(uu).
[32] In 2005, KPMG, a consulting firm, attempted to estimate the
transaction volume of MSBs nationwide for FinCEN by surveying 24,000
MSBs. The study estimated that MSBs accounted for about $300 billion
in annual transaction volume. This estimate excluded the U.S. Postal
Service, an entity that falls under the definition of MSB because it
offers money order services. However, because the survey obtained an 8
percent response rate the large percentage of nonresponses may have
affected the survey results. See KPMG, LLP Economic and Valuation
Services, 2005 Money Services Business Industry Survey Study
(Washington D.C.: September 2005).
[33] See 31 C.F.R. § 103.11(vv).
[34] Dove Consulting, The Electronics Payments Study, A Survey of
Electronic Payments for the 2007 Federal Reserve Payments Study,
(Boston, Ma.: March 2008). The scope of the study involved collecting
data on electronic payments made in the United States in 2006.
According to the study, prepaid card adoption has grown and is
emerging as a potentially important component of the electronic
payments mix, such as credit cards and debit cards.
[35] Dove Consulting, The Electronics Payments Study, A Survey of
Electronic Payments for the 2007 Federal Reserve Payments Study
(Boston, Ma.: March 2008).
[36] Money Laundering Threat Assessment Working Group, 2005 U.S. Money
Laundering Threat Assessment, (December 2005).
[37] The World Bank, Integrity in Mobile Phone Financial Services:
Measures for Mitigating Risks from Money Laundering and Terrorist
Financing (Washington D.C.: 2008).
[38] Prior to September 11, 2001, the former U.S. Customs Service
conducted outbound inspections in a routine fashion using permanent
outbound teams. After this date, port directors had the discretion to
continue outbound operations, but the Customs Service shifted its
focus to inbound inspections to prevent terrorists from entering the
country. During this time, only two ports of entry continued to
conduct outbound operations in a routine fashion--Hidalgo, Texas and
Laredo, Texas. In 2003, the U.S. Customs Service was merged with
components of the U.S. Immigration and Naturalization Service and the
Animal and Plant Health Inspection Service to form Customs and Border
Protection. The Outbound Enforcement Program was reestablished, under
CBP, on March 12, 2009, when the Secretary of Homeland Security called
on CBP to stem the flow of cash and weapons that were being taken into
Mexico through land ports of entry.
[39] While this report focuses on currency smuggling, we previously
issued a report on firearms trafficking in June 2009, entitled
Firearms Trafficking: U.S. Efforts to Combat Arms Trafficking to
Mexico Face Planning and Coordination Challenges, [hyperlink,
http://www.gao.gov/products/GAO-09-709] (Washington, D.C.: June 2009).
[40] According to CBP, it conducted 4,217,883 outbound interviews and
3,002,716 outbound inspections from March 12, 2009 through July 13,
2010. An interview consists of the officer asking the traveler whether
they (1) intend to leave the country, (2) are carrying more than
$10,000 in cash, checks, money orders, or any other type of monetary
instrument, and (3) are transporting any weapons or ammunitions out of
the country. An inspection involves the searching of a vehicle,
passenger, or pedestrian. For example, an inspection might involve
inspecting the content of the vehicle, such as opening a trunk of a
car and examining the vehicle for hidden compartments where cash may
be concealed.
[41] Among other items, the targeting module discusses how to research
possible links to terrorist and criminal organizations. The inspecting
module covers questioning for outbound inspections and the physical
inspection of vehicles and individuals. The processing module
instructs officers on how to seize vehicles, currency, and other
monetary instruments.
[42] There are 144 training slots available for fiscal year 2010.
[43] DHS and the Department of State's effort to specify acceptable
documents and implement document requirements at air, land, and sea
ports of entry is called the Western Hemisphere Travel Initiative.
[44] During this time, CBP seized about $40.0 million in bulk cash
leaving the country at ports of entry on the southwest border. CBP
also seized about $1.2 million in bulk cash leaving the country at
ports of entry on the Northern border. On the Northern border,
outbound inspections are conducted at the discretion of the Port
Director. CBP officials report that unlike seizures at the southwest
border, outbound seizures along the Northern border are primarily
drugs flowing out of the United States into Canada, specifically
cocaine. The cocaine is generally purchased in the Los Angeles area
after being shipped through Mexico and is then transported to Canada,
where it can be sold at a higher price.
[45] This calculation assumes the start of the Outbound Enforcement
Program to be March 1, 2009. During the first year of the program, CBP
seized $34.0 million in outbound cash at land ports of entry along the
southwest and Northern borders as compared to $16.8 million in the
year leading up to the program.
[46] In addition to CBP, other law enforcement agencies also seize
bulk cash leaving the country. For example, in fiscal year 2009, ICE
had more than 1,200 seizures totaling over $122 million.
[47] Along the Northern border, 9 of the 81 ports of entry also had at
least one seizure while conducting outbound operations.
[48] Supplemental Appropriations Act, 2009, Pub. L. No. 111-32, 123
Stat. 1859, 1881.
[49] The three ports of entry did not have currency canines assigned
to their locations.
[50] Our investigators used shredded cash so that there would not be a
risk that real cash would be confiscated by CBP or Mexican officials.
The shredded cash represented 3,000 bills, or about $60,000, if the
cash were in $20 denominations.
[51] OMB, Circular Number A-94 (Oct. 29, 1992).
[52] DHS, Cost-Benefit Analysis Guidebook (2006).
[53] Office of National Drug Control Policy, National Southwest Border
Counternarcotics Strategy (Washington D.C.: June 2009).
[54] The Treasury Forfeiture Fund is derived from the forfeited assets
of criminal enterprises. The fund is a "special receipt account" i.e.,
a resource account that provides funding to the participating law
enforcement agencies to enhance their capabilities to conduct
successful investigations and forfeitures.
[55] As we reported in July 2010, longer wait times at the border
represent an increase in the cost of travel, which may lead people to
make fewer trips. Conversely, shorter wait times represent a decrease
in the cost of travel which may lead people to make more trips. Such
delays can result in additional expenses for industry and consumers,
stemming from increased carrier costs, inventory costs, labor costs,
problems with inventory, and resulting reduction in trade and output.
See GAO, Border Security: CBP Lacks the Data Needed to Assess the FAST
Program at U.S. Northern Border Ports, [hyperlink,
http://www.gao.gov/products/GAO-10-694] (Washington D.C.: July 19,
2010).
[56] [hyperlink, http://www.gao.gov/products/GAO-10-694].
[57] OMB, Circular Number A-94, (Oct. 29, 1992).
[58] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1].
[59] The other nine steps that the Outbound Enforcement Program plans
to take include (1) create an effective headquarters outbound team,
(2) obtain an adequate budget for outbound activities, (3) evaluate
and update the Office of Field Operations' outbound policies, (4)
revise current Office of Field Operations' procedures to ensure the
facilitation of legitimate trade and travelers, (5) update the Federal
Register's outbound regulations to address current vulnerabilities,
(6) improve CBP automated systems to track and target export
shipments, (7) provide outbound training for CBP officers, embedded
stakeholders, and state and local law enforcement officials, (8)
increase collaboration with other governmental agencies and
international partners and (9) improve outbound facilities.
[60] GAO, Managing for Results: Enhancing Agency Use of Performance
Information for Management Decision Making, [hyperlink,
http://www.gao.gov/products/GAO-05-927] (Washington D.C.: Sept. 9,
2005).
[61] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1].
[62] U.S. Department of Justice, National Drug Intelligence Center,
Reassessing Southwest Border Bulk Cash Smuggling: Consolidation Points
as Trafficker Vulnerabilities, (March 2008).
[63] Immigration and Customs Enforcement, Mexico Bulk Currency Study:
A Project Conducted by the Homeland Security Institute in
Collaboration with U.S. Immigration and Customs Enforcement and the
DHS Office of Counternarcotics Enforcement, (Washington D.C.: Nov.
2009).
[64] The ICE Bulk Cash Smuggling Center's goal is to provide
assistance to federal, state, local and foreign law enforcement
authorities that combat bulk cash smuggling by providing intelligence,
investigative support, and expertise in the transportation and
smuggling of bulk cash.
[65] Stored value is the focus of this report. However, other methods
exist for transporting proceeds from illegal activities across the
nation's borders. For example, in addition to stored value, the 2005
United States Money Laundering Threat Assessment discusses the risk of
money laundering through trade-based schemes, such as the Black Market
Peso Exchange, and the use of shell companies.
[66] 31 U.S.C. § 5311.
[67] 31 U.S.C. § 5316; 31 C.F.R. § 103.23.
[68] "Issuer of stored value" and "seller or redeemer of stored value"
are the current terms used to define the stored value industry under
the Bank Secrecy Act regulations. FinCEN has proposed that these terms
be changed. The proposed changes are discussed later in this report.
[69] 31 C.F.R. § 103.22.
[70] Some MSBs that offer stored value products may be subject to BSA
regulations if that MSB also offers other financial services. For
example, a MSB that operates as a money transmitter and also offers
stored value products is required to register with Treasury in its
capacity as a money transmitter. However, this MSB would be exempt
from filing reports on suspicious transactions involving solely stored
value. We explain the exemptions in more detail later in the report.
[71] Amendment to the Bank Secrecy Act Regulations-Definitions and
Other Regulations Relating to Money Services Businesses, 74 Fed. Reg.
22129, 22136 (proposed May 12, 2009). See also Amendment to the Bank
Secrecy Act Regulations-Definitions Relating to, and Registration of,
Money Services Businesses, 64 Fed. Reg. 45438 (proposed Aug. 20, 1999).
[72] Department of the Treasury, Semiannual Regulatory Agenda, 75 Fed.
Reg. 21868, 21869 (April 26, 2010).
[73] 31 U.S.C. § 5330; 31 C.F.R. § 103.41.
[74] Pub. L. No. 103-325 § 408(a)(2), 108 Stat. 2160, 2249-52.
[75] The registration requirements of 31 C.F.R. § 103.41 do not apply
to the U.S. Postal Service, to agencies of the United States, of any
State, or of any political subdivision of a State, a person that is a
MSB solely because that person serves as an agent of another MSB, or
to a person to the extent that the person is an issuer, seller, or
redeemer of stored value.
[76] U.S. Departments of Treasury, Justice, and Homeland Security,
2007 National Money Laundering Strategy, (Washington, D.C.: May 2007).
[77] Under 31 C.F.R. § 103.41, a person that is a MSB solely because
that person serves as an agent of another MSB is not required to
register.
[78] A 2005 study by KPMG attempted to estimate the total number of
MSBs operating nationwide. The study estimated the number to be
approximately 203,000. This estimate excludes the U.S Postal Service,
an entity that falls under the definition of MSB because it offers
money order services. However, because the survey obtained an 8
percent response rate, the large percentage of non-responses may have
affected the survey results. See KPMG, LLP Economic and Valuation
Services, 2005 Money Services Business Industry Survey Study,
(Washington D.C.: September 2005).
[79] For example, in 2007, the Network Branded Prepaid Card
Association released a set of anti-money laundering best practices for
issuers of network-branded prepaid cards. These best practices
included developing and implementing a customer identification
program, particularly for reloadable cards that can be used to access
cash.
[80] There is not a specific regulation on customer identification
programs for MSBs. However, generally, financial institutions,
including MSBs, are required to file currency transaction reports
(CTR) for each deposit, withdrawal, exchange of currency or other
payment or transfer, by, through, or to the financial institution
which involves a transaction in currency of more than $10,000. 31
C.F.R. § 103.22. Before concluding any transaction with respect to
which a CTR is required, a financial institution is required to verify
and record the name and address of the individual presenting a
transaction, as well as record the identity, account number, and the
Social Security or taxpayer identification number, if any, of any
person or entity on whose behalf such transaction is to be effected.
31 C.F.R. § 103.28.
[81] Treasury Cash Equivalent Working Group, Prepaid Cards Primer and
Threat Assessment (2005).
[82] The USA PATRIOT Act of 2001, Pub. L. No. 107-56, 115 Stat. 272
(Oct. 26, 2001), expanded SAR reporting requirements to include
nondepository institutions. However, under 31 C.F.R. § 103.20(a)(5),
money services businesses are not required to file suspicious activity
reports for transactions that involve solely the issuance, or
facilitation of the transfer of stored value, or the issuance, sale,
or redemption of stored value.
[83] Under 31 C.F.R. § 103.18, which discusses the filing of
suspicious activity reports by banks, there is no exemption for stored
value transactions.
[84] For transactions other than stored value, MSBs are generally
required to file a suspicious activity report when a transaction is
conducted or attempted by, at, or through a MSB, involves or
aggregates funds or other assets of at least $2,000, and the MSB
knows, suspects, or has reason to suspect that the transactions or
pattern of transactions: involves funds derived from illegal
activities or is intended or conducted in order to hide or disguise
funds or assets derived from illegal activity as part of a plan to
violate or evade any federal law, regulation or reporting requirement
under federal law or regulation; are designed to evade BSA
requirements or other financial reporting requirements; have no
business or apparent lawful purpose; or involve the use of the MSB to
facilitate criminal activity.
[85] For more information, see GAO, Bank Secrecy Act: Suspicious
Activity Report Use Is Increasing, but FinCEN Needs to Further Develop
and Document Its Form Revision Process, [hyperlink,
http://www.gao.gov/products/GAO-09-226] (Washington, D.C.: Feb. 27,
2009).
[86] Of the 471 SARs filed that were associated with stored value
cards, 137 were filed by depository institutions, 331 were filed by
money services businesses, and 3 were filed by broker/dealers. Of
note, a single MSB filed 188 of the 331 MSB forms identified.
[87] Structuring is when a person, acting alone, or in conjunction
with, or on behalf of, other persons, conducts or attempts to conduct
one or more transactions in currency, in any amount, at one or more
financial institutions, on one or more days, in any manner, for the
purpose of evading certain reporting requirements.
[88] U.S. Immigration and Customs Enforcement, United States of
America-Mexico: Bi-National Criminal Proceeds Study (Washington, D.C.,
June 2010).
[89] Of note, SARs do not necessarily represent known criminal
activities, but rather suspicions. In many cases, the activity
described in these SARs could be legitimate. Stored value products
serve a legitimate purpose in serving the estimated 75 million
individuals in the United States who do not have access to bank
accounts.
[90] One law enforcement agency with whom we spoke did not express a
concern about the lack of a cross-border reporting requirement for
stored value. Another law enforcement agency with whom we spoke had no
comment.
[91] Pub. L. No. 111-24, 123 Stat. 1734 (2009).
[92] Under 31 U.S.C. § 5316, a person or an agent or bailee of the
person must file a report when the person, agent, or bailee knowingly
transports, is about to transport, or has transported, monetary
instruments of more than $10,000 at one time into or out of the United
States.
[93] Under the Credit CARD Act, the regulations were to be issued in
final form no later than 270 days after the date of enactment of the
act. The deadline for issuing regulations in final form was on
February 16, 2010.
[94] Generally, the Administrative Procedure Act (APA) is the
principal law governing how agencies make rules. The APA prescribes
uniform standards for rule-making and most federal rules are
promulgated using the APA-established informal rule-making process,
also known as "notice and comment" rule-making. Generally, a notice of
proposed rule-making (NPRM) is published in the Federal Register
announcing an agency's intent to promulgate a rule to the public. The
APA requires that the NPRM include a statement of the time, place, and
nature of the public rule-making proceedings, reference to the legal
authority under which the rule is proposed, and the terms or substance
of the proposed rule or a description of the subjects and issues
involved. The NPRM also generally includes the timing and manner in
which the public may comment on the proposed rule. Executive Order
12866, as amended, states that most rule-makings should include a
comment period of 60 days, and most agencies do provide a 60-day or
longer comment period for complex or controversial rules. After
issuance of the NPRM, agencies are generally required to place public
comments as well as other supporting materials in a rule-making docket
which must be available for public inspection.
[95] See appendix II for a more detailed description of the steps and
potential time frames involved in the rule-making process.
[96] FinCEN proposes to define "prepaid access" as an electronic
device or vehicle, such as a card, plate, code, number, electronic
serial number, mobile identification number, personal identification
number, or other instrument that provides a portal to funds or the
value of funds that have been paid in advance and can be retrievable
and transferable at some point in the future.
[97] GAO, Anti-Money Laundering: Improved Communication Could Enhance
the Support FinCEN Provides to Law Enforcement, [hyperlink,
http://www.gao.gov/products/GAO-10-141] (Washington, D.C.: Dec. 14,
2009).
[98] Amendment to the Bank Secrecy Act Regulations-Definitions and
Other Regulations Relating to Money Services Businesses, 74 Fed. Reg.
22129 (proposed May 12, 2009).
[99] FinCEN proposes to define a "provider of prepaid access" as the
person with principal oversight and control over one or more prepaid
programs. Which person exercises "principal oversight and control" is
a matter of facts and circumstances, but FinCEN considers the
following activities to indicate "principal oversight and control:"
(1) organizing the prepaid program; (2) setting the terms and
conditions and determining that the terms have not been exceeded; (3)
determining the other businesses that will participate in the
transaction chain underlying the prepaid access which may include the
issuing bank, the payment processor, or the distributor; (4)
controlling or directing the appropriate party to initiate, freeze, or
terminate prepaid access; and (5) engaging in activity that
demonstrates oversight and control of transactions. FinCEN estimates
that there are 700 entities that fall under its definition of
provider. It also estimates that 93 percent, or about 650 entities,
fall under the definition of a small business, or businesses with less
than 7 million dollars in gross revenue.
[100] FinCEN proposes to define "seller of prepaid access" as any
person who receives funds or the value of funds in exchange for
providing prepaid access as part of a prepaid program directly to the
person that provided the funds or value, or to a third party as
directed by that person. According to the NPRM, the seller of prepaid
access is the party with the most face-to-face purchaser contact and
becomes a valuable resource for capturing information at the point of
sale. According to FinCEN, typically, the seller is a general-purpose
retailer, engaged in a full spectrum product line through a business
entity such as a pharmacy, convenience store, supermarket, discount
store or any of a number of others. FinCEN estimates that there are
about 70,000 sellers of stored value or prepaid access, as defined in
its proposed rule and that a substantial number are small businesses.
[101] The proposed rule would require prepaid providers and sellers to
report on transactions of $2,000 or more which they determine to be
suspicious.
[102] Project Management Institute, A Guide to the Project Management
Body of Knowledge (PMBOK Guide), 4th ed. (Newton Square, Pa.: 2008).
[103] The four federal agencies included in our study were (1) the
Department Transportation's Federal Aviation Administration and
National Highway Traffic Safety Administration, (2) the Environmental
Protection Agency's Office of Air and Radiation and Office of Water,
(3) the Food and Drug Administration's Center for Drug Evaluation and
Research and Center for Food Safety and Applied Nutrition, and (4) the
Securities and Exchange Commission's Division of Corporation Finance
and Division of Investment Management.
[104] GAO, Federal Rule-making: Improvements Needed to Monitoring and
Evaluation of Rules Development as Well as to the Transparency of OMB
Regulatory Reviews, [hyperlink,
http://www.gao.gov/products/GAO-09-205] (Washington, D.C.: Apr. 20,
2009).
[105] FinCEN's Bank Secrecy Act/Anti-Money Laundering Examination
Manual For Money Services Businesses was published on December 9,
2008. It provides guidance to examiners for carrying out MSB
compliance examinations. An effective compliance program requires
sound risk management; therefore, the manual also provides guidance on
identifying and controlling risks associated with money laundering and
terrorist financing. The manual contains an overview of compliance
program requirements, risk and risk management expectations, industry
sound practices, and examination procedures.
[106] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1].
[107] FinCEN has taken a number of steps to improve the overall
quality and value of BSA data, such as SARs. For example, in fiscal
year 2007, FinCEN established a Data Management Council as part of a
broader BSA data management initiative. The Council consists of
approximately 35 representatives from FinCEN, law enforcement,
regulatory agencies, and the IRS, and serves to ensure that internal
and external data users have a clear means of jointly establishing
priorities related to data management, among other roles.
Additionally, in May 2008, FinCEN developed a new management process
for revising BSA forms, such as the SAR form, under the auspices of
its Data Management Council. The goals of this process, among others,
are to improve communication between stakeholders involved in the BSA
form revision process and to improve the implementation of revisions
by FinCEN and other agencies.
[108] The narrative section of the form asks the financial institution
filing the report to provide a chronological and complete account of
the activity or possible violation of law, including what is unusual,
irregular, or suspicious about the transaction.
[109] GAO worked with FinCEN staff to identify the search terms used.
The terms decided on included: "stored value," "store value," "prepaid
card," "prepaid debit," "prepaid credit," or "gift card." FinCEN
searched its database and provided us with 13,327 SARs filed by
Depository Institutions or Money Services Businesses for fiscal year
2009 and October through April in fiscal year 2010 containing
narratives with at least one of the terms. We randomly selected and
reviewed 100 SARS in each of the following categories: (1) SARs filed
by depository institutions in fiscal year 2009; (2) SARs filed by
depository institutions from October through April in fiscal year
2010; (3) SARs filed by money service businesses in fiscal year 2009;
and (4) SARs filed by money service businesses from October through
April in fiscal year 2010. First, an analyst reviewed the narrative
and made a determination as to whether the report pertained to stored
value. A second analyst reviewed this determination and the associated
report for accuracy. All statistical samples are subject to sampling
error; that is, the extent to which the sample results differ from
what would have been obtained if the whole population had been
observed. Measures of sampling error are defined by two elements, the
width of the confidence intervals around the estimate (sometimes
called the precision of the estimate) and the confidence level at
which the intervals are computed. Because we followed a probability
procedure based on random selections, our sample is only one of a
large number of samples that we might have drawn. As each sample could
have provided different estimates, we express our confidence in the
precision of our particular sample's results as a 95 percent
confidence interval (e.g., plus or minus 5 percentage points). This is
the interval that would contain the actual population value for 95
percent of the samples we could have drawn. As a result, we are 95
percent confident that each of the confidence intervals based on the
review of the files in this sample includes the true values in the
population. The margin of error for estimated percentages for the
combined sample of 400 SARs is plus or minus 5 percentage points or
less at the 95 percent level of statistical confidence.
[110] The MSB population can range from large sophisticated chains
with interstate operations that focus on providing a range of
financial services such as check cashing and money transmission to
small one-owner storefront operations that provide a few financial
services, such as stored value cards as an auxiliary service to their
primary retail store operations.
[111] Department of the Treasury, Office of the Inspector General,
Bank Secrecy Act: Major Challenges Faced by FinCEN in Its Program to
Register Money Services Businesses, OIG-05-050 (Washington, D.C.:
Sept. 27, 2005).
[112] GAO, Bank Secrecy Act: FinCEN and IRS Need to Improve and Better
Coordinate Compliance and Data Management Efforts, [hyperlink,
http://www.gao.gov/products/GAO-07-212] (Washington, D.C.: Dec. 15,
2006). In response to a recommendation cited in this report, IRS tried
to determine whether its Small Business/Self-Employed Division
taxpayer data base could be used to facilitate the identification of
MSBs using a standard profile. However, IRS was unable to do so in
part because it could not readily distinguish MSBs from non-MSBs in
tax return data. In developing its methodology, IRS found that it
could match taxpayer identification numbers for known MSBs from the
NBFI to tax return data and create a profile of known MSBs. However,
when developing a method for matching the MSB profile to the entire
tax return database, IRS found there were not any variables that could
be used to distinguish MSBs from non-MSBs. In conjunction with this
effort, IRS began another project to determine if outside data sources
could be used to identify previously unknown MSBs using information
compiled by a private data source. As potential MSBs are identified
using these data, IRS sends correspondence to these entities and then
examines them to determine whether any were a previously unidentified
MSB. IRS has also acquired a second data source containing potential
MSBs from a private firm which it also uses to identify such
businesses.
[113] U.S. Departments of Treasury, Justice, and Homeland Security,
2007 National Money Laundering Strategy (Washington, D.C.: May 2007).
[114] Although IRS Fraud/BSA work plans did not include MSBs having a
primary financial service of stored value, officials told us the
examiners classified some MSBs (a fraction of one percent) as having
stored value as their primary financial service based on completed IRS
Fraud/BSA examinations.
[115] See Amendment to the Bank Secrecy Act Regulations--Definitions
and Other Regulations Relating to Money Services Business, Notice of
Proposed Rulemaking, 74 Fed. Reg. 22129, 22133-22134 (proposed May 12,
2009).
[116] FATF - GAFI, Financial Action Task Force: Report on New Payment
Methods (Paris, France: Oct. 13, 2006).
[117] According to the NPRM, this exemption applies only when the
employer (or appropriately designated third parties), and not the
employee, can add to the funds to which the payroll card or other such
electronic device provides access.
[118] Specifically, the proposed rules exempt prepaid programs where
the maximum dollar value is clearly visible on the product and the
following conditions are met: (1) at the point of initial load, the
load limit cannot exceed $1,000; (2) may not exceed $1,000 maximum
aggregate value (such as through multiple transfers of value to a
single prepaid access product) that can be associated with the prepaid
access at any given time; and (3) on any given day, no more than
$1,000 can be withdrawn with the use of the prepaid access.
[119] The June 2010 NPRM states that "[T]his proposed rule is a
significant regulatory action and has been reviewed by the Office of
Management and Budget in accordance with Executive Order 12866." OMB
Circular A-4 provides guidance on the development of regulatory impact
analysis as required under Section 6(a)(3)(C) of Executive Order
12866, as amended.
[120] An agency may also begin this process with an advance notice of
proposed rule making that seeks comments and suggestions from the
public on the potential content of a forthcoming NPRM, but this step
is not required by law or executive order in most cases.
[121] Executive Order 12866, as amended, provides that, for rules
governed by a statutory deadline, the agency shall, to the extent
practicable, schedule rulemaking proceedings so as to permit
sufficient time for OMB review. It also provides that when an agency
is obligated by law to act more quickly than normal review procedures
allow, the agency shall comply with the requirements to submit the
proposed rule and required supporting materials to OMB, "to the extent
practicable."
[122] If the final rule is materially different from the proposed
rule, possibly because of new issues raised or other important legal
or substantive developments during the comment period, an agency may
decide to publish it as a proposed rule instead with a second comment
period. This approach helps the agency provide sufficient notice and
opportunity for public comment on how the rule addresses the new
issues or developments, but it delays implementation of the final rule.
[123] This time period is reduced to 45 days if OMB has previously
reviewed the rule and supporting information and there has been no
material change in the facts and circumstances upon which the rule is
based.
[End of section]
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