Combating Money Laundering
Opportunities Exist to Improve the National Strategy Gao ID: GAO-03-813 September 26, 2003Money laundering is a serious crime, with hundreds of billions of dollars laundered annually. Congress passed the Money Laundering and Financial Crimes Strategy Act of 1998 to better coordinate the efforts of law enforcement agencies and financial regulators in combating money laundering. This act required the issuance of an annual National Money Laundering Strategy for 5 years, ending with the issuance of the 2003 strategy. To help with deliberations on reauthorization, GAO determined (1) agency perspectives on the benefit of the strategy and factors that affected its development and implementation, (2) whether the strategy has served as a useful mechanism for guiding the coordination of federal law enforcement agencies' efforts, (3) the role of the strategy in influencing the activities of federal financial regulators, and (4) whether the strategy has reflected key critical components.
Treasury, Justice, and financial regulatory officials with whom GAO spoke said that the National Money Laundering Strategy was initially beneficial but that, over time, certain factors and events affected its development and implementation. They endorsed the concept of a strategy to coordinate the federal government's efforts to combat money laundering and related financial crimes. They also said that the strategy initially had a positive effect on promoting interagency planning and communication, but different agency views emerged over the scope and commitment required, and other events affected the strategy, such as the September 11 terrorist attacks and the creation of the Department of Homeland Security. The strategy generally has not served as a useful mechanism for guiding the coordination of federal law enforcement agencies' efforts to combat money laundering and terrorist financing. While Treasury and Justice made progress on some strategy initiatives designed to enhance interagency coordination of money laundering investigations, most have not achieved the expectations called for in the annual strategies. Also, the 2002 strategy did not address agency roles in investigating terrorist financing, thus, it did not help resolve potential duplication of efforts and disagreements over which agency should lead investigations. In May 2003, Justice and Homeland Security reached an agreement aimed at resolving these problems. Most financial regulators GAO interviewed said that the strategy had some influence on their anti-money laundering efforts because it provided a forum for enhanced coordination, particularly with law enforcement agencies. However, they said that it has had less influence than other factors. They described several other influences on their efforts, particularly their ongoing oversight responsibilities in ensuring compliance with the Bank Secrecy Act and, more recently, the USA PATRIOT Act, which was passed in October 2001 to fight terrorist financing and increase anti-money laundering efforts. GAO's work reviewing national strategies has identified several critical components needed for development and implementation; however, key components have not been well reflected in the strategy. The first is clearly defined leadership, with the ability to marshal necessary resources. However, the leadership for the strategy has not agreed on the strategy's scope or ensured that target dates for completing initiatives were met. The second is clear priorities, as identified by threat and risk assessments, to help focus resources on the greatest needs. Each strategy contained more priorities than could be realistically achieved and none of the strategies was linked to a threat and risk assessment. The third is that established accountability mechanisms provide a basis for monitoring and assessing program performance. While later strategies contained several initiatives designed to establish performance measures, as of July 2003, none had yet been completed. Officials attributed this to the difficulty in establishing such measures for combating money laundering.
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: Team: Phone:GAO-03-813, Combating Money Laundering: Opportunities Exist to Improve the National Strategy
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Report to Congressional Requesters:
United States General Accounting Office:
GAO:
September 2003:
COMBATING MONEY LAUNDERING:
Opportunities Exist to Improve the National Strategy:
Combating Money Laundering:
GAO-03-813:
GAO Highlights:
Highlights of GAO-03-813, a report to congressional requesters
Why GAO Did This Study:
Money laundering is a serious crime, with hundreds of billions of
dollars laundered annually. Congress passed the Money Laundering and
Financial Crimes Strategy Act of 1998 to better coordinate the efforts
of law enforcement agencies and financial regulators in combating
money laundering. This act required the issuance of an annual
National Money Laundering Strategy for 5 years, ending with the
issuance of the 2003 strategy. To help with deliberations on
reauthorization, as agreed with your offices, GAO determined (1)
agency perspectives on the benefit of the strategy and factors that
affected its development and implementation, (2) whether the strategy
has served as a useful mechanism for guiding the coordination of
federal law enforcement agencies‘ efforts, (3) the role of the
strategy in influencing the activities of federal financial
regulators, and (4) whether the strategy has reflected key critical
components.
What GAO Found:
Treasury, Justice, and financial regulatory officials with whom GAO
spoke said that the National Money Laundering Strategy was initially
beneficial but that, over time, certain factors and events affected
its development and implementation. They endorsed the concept of a
strategy to coordinate the federal government‘s efforts to combat
money laundering and related financial crimes. They also said that the
strategy initially had a positive effect on promoting interagency
planning and communication, but different agency views emerged over
the scope and commitment required, and other events affected the
strategy, such as the September 11 terrorist attacks and the creation
of the Department of Homeland Security.
The strategy generally has not served as a useful mechanism for
guiding the coordination of federal law enforcement agencies‘ efforts
to combat money laundering and terrorist financing. While Treasury and
Justice made progress on some strategy initiatives designed to enhance
interagency coordination of money laundering investigations, most have
not achieved the expectations called for in the annual strategies.
Also, the 2002 strategy did not address agency roles in investigating
terrorist financing, thus, it did not help resolve potential
duplication of efforts and disagreements over which agency should lead
investigations. In May 2003, Justice and Homeland Security reached an
agreement aimed at resolving these problems.
Most financial regulators GAO interviewed said that the strategy had
some influence on their anti-money laundering efforts because it
provided a forum for enhanced coordination, particularly with law
enforcement agencies. However, they said that it has had less
influence than other factors. They described several other influences
on their efforts, particularly their ongoing oversight
responsibilities in ensuring compliance with the Bank Secrecy Act and,
more recently, the USA PATRIOT Act, which was passed in October 2001
to fight terrorist financing and increase anti-money laundering
efforts.
GAO‘s work reviewing national strategies has identified several
critical components needed for development and implementation;
however, key components have not been well reflected in the strategy.
The first is clearly defined leadership, with the ability to marshal
necessary resources. However, the leadership for the strategy has not
agreed on the strategy‘s scope or ensured that target dates for
completing initiatives were met. The second is clear priorities, as
identified by threat and risk assessments, to help focus resources on
the greatest needs. Each strategy contained more priorities than could
be realistically achieved and none of the strategies was linked to a
threat and risk assessment. The third is that established
accountability mechanisms provide a basis for monitoring and assessing
program performance. While later strategies contained several
initiatives designed to establish performance measures, as of July
2003, none had yet been completed. Officials attributed this to the
difficulty in establishing such measures for combating money
laundering.
What GAO Recommends:
GAO recommends that, if the requirement for a national strategy is
reauthorized, the Secretaries of the Treasury and Homeland Security
and the Attorney General strengthen the leadership structure for
strategy development and implementation, require processes to ensure
key priorities are identified, and establish accountability
mechanisms. The departments generally concurred with GAO‘s report.
www.gao.gov/cgi-bin/getrpt?GAO-03-813.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact Rich Stana at (202)
512-8777 or Davi D'Agostino at (202) 512-8678.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Early Benefit of the NMLS Was Affected by Certain Factors and Events:
NMLS Generally Has Not Been as Useful as Envisioned for Guiding the
Coordination of Law Enforcement Efforts:
NMLS Has Had Some Influence on Financial Regulators' Efforts, but Other
Factors Played a Larger Role:
The Annual NMLS Has Not Reflected Critical Components Identified by GAO
as Key to Developing and Implementing National Strategies:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Legislation Has Expanded the Responsibility to Combat Money
Laundering:
Appendix III: Summary of Key Anti-Money Laundering Provisions in Title
III of the USA PATRIOT Act and Rules:
Appendix IV: Comments from the Department of the Treasury:
Appendix V: Comments from the Department of Justice:
Appendix VI: Comments from the Department of Homeland Security:
Appendix VII: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Acknowledgments:
Related GAO Products:
Tables:
Table 1: NMLS Goals, Objectives, and Priorities, 1999 through 2002:
Table 2: Status of HIFCA Task Forces as of May 2003:
Table 3: Status of NMLS Initiatives Related to HIFCA Oversight:
Table 4: NMLS Initiatives to Review Bank Examination Procedures, as of
July 2003:
Table 5: Annual NMLS--Dates Submitted to Congress:
Table 6: Status of 2002 NMLS Initiatives Designed to Measure
Performance:
Figures:
Figure 1: The Three Stages of Money Laundering:
Figure 2: Principal Agencies Responsible for NMLS before the Creation
of DHS:
Figure 3: Principal Agencies Responsible for NMLS after the Creation of
DHS:
Abbreviations:
AFMLS: Asset Forfeiture and Money Laundering Section:
BSA: Bank Secrecy Act:
CFTC: Commodity Futures Trading Commission:
DEA: Drug Enforcement Administration:
DHS: Department of Homeland Security:
EOUSA: Executive Office for U.S. Attorneys:
FBI: Federal Bureau of Investigation:
FDIC: Federal Deposit Insurance Corporation:
FinCEN: Financial Crimes Enforcement Network:
FRB: Federal Reserve Board:
HIFCA: High Intensity Money Laundering and Related Financial Crime Area:
ICE: Bureau of Immigration and Customs Enforcement:
IRS-CI: Internal Revenue Service-Criminal Investigation:
JTTF: Joint Terrorism Task Force:
MLCA: Money Laundering Control Act of 1986:
NCUA: National Credit Union Administration:
NMLS: National Money Laundering Strategy:
OCC: Office of the Comptroller of the Currency:
OGQ: Operation Green Quest:
OTS: Office of Thrift Supervision:
SAR: Suspicious Activity Report:
SEC: Securities and Exchange Commission:
TFOS: Terrorist Financing Operations Section:
USA PATRIOT Act: Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001:
United States General Accounting Office:
Washington, DC 20548:
September 26, 2003:
The Honorable Charles E. Grassley
Chairman,
Caucus on International Narcotics Control
United States Senate:
The Honorable Carl Levin
Ranking Minority Member
Permanent Subcommittee on Investigations
Committee on Governmental Affairs
United States Senate:
Money laundering--the process of disguising or concealing illicit funds
to make them appear legitimate--is a serious issue, with an estimated
$500 billion to $1 trillion laundered worldwide annually, according to
the United Nations Office of Drug Control and Prevention. Money
laundering provides the fuel for drug dealers, arms traffickers,
terrorists, and other criminals to operate and expand their activities,
which can have devastating social and economic consequences.
Although the U.S. government had been working to combat money
laundering for many years, efforts by law enforcement and regulatory
agencies took on particular urgency, as the operations of large-scale
criminal organizations grew increasingly sophisticated. To better
coordinate the anti-money laundering efforts of federal, state, and
local law enforcement agencies and financial regulators, Congress
enacted the Money Laundering and Financial Crimes Strategy Act of 1998
(Strategy Act).[Footnote 1] This act called for the annual issuance of
a strategy to combat money laundering--the National Money Laundering
Strategy (NMLS). This requirement will end with the issuance of the
2003 strategy unless reauthorized by Congress. In anticipation of
reauthorization discussions, Congress is interested in knowing how the
strategy has affected coordination and whether improvements could be
made to increase its benefits.
While money laundering first became a federal crime in 1986 with the
passage of the Money Laundering Control Act,[Footnote 2] law
enforcement and the federal financial regulators had sought to protect
the U.S. financial system from certain types of criminal activity since
the passage of the Bank Secrecy Act (BSA) in 1970, which instituted
currency reporting requirements.[Footnote 3] By periodically amending
the BSA, Congress has added anti-money laundering requirements for many
types of financial institutions and transactions. Such amendments and
the resulting regulations have increased the number of federal agencies
with responsibility for ensuring compliance with anti-money laundering
requirements, thereby creating a need to coordinate the efforts of
numerous financial regulatory and law enforcement agencies. Appendix II
describes major anti-money laundering legislation since 1970.
The Strategy Act requires the President--acting through the Secretary
of the Treasury and in consultation with the Attorney General and other
relevant federal, state, and local law enforcement and regulatory
officials--to develop and submit the annual NMLS to Congress by
February 1 of each year from 1999 through 2003. The goal of the
Strategy Act is to increase coordination and cooperation among the
various regulatory and enforcement agencies and to effectively
distribute resources to combat money laundering. The Strategy Act
requires the NMLS to define comprehensive, research-based goals,
objectives, and priorities for reducing money laundering and related
financial crime in the United States. The NMLS has generally included
multiple priorities to combat money laundering to guide federal
agencies' activities. Additionally, the Strategy Act authorizes the
Secretary of the Treasury to designate High Intensity Money Laundering
and Related Financial Crime Areas (HIFCA), in which federal, state, and
local law enforcement would work cooperatively to develop a focused and
comprehensive approach to targeting money laundering
activity.[Footnote 4]
In the wake of the September 11, 2001, terrorist attacks, Congress
passed the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA
PATRIOT Act) to, among other things, both fight terrorist financing and
increase anti-money laundering efforts through further expansion of the
types of financial institutions and transactions that are subject to
anti-money laundering record keeping and reporting
requirements.[Footnote 5] The NMLS has also changed to reflect new
federal priorities in the aftermath of September 11, 2001, including a
goal to combat terrorist financing in 2002.
To assist in congressional deliberations on whether there is a
continuing need for an annual NMLS, this report discusses the results
of our review of the development and implementation of the 1999 through
2002 strategies. Specifically, as agreed with your offices, our
objectives were to determine (1) agency perspectives on the benefit of
the NMLS and factors that affected its development and implementation,
(2) whether the strategy has served as a useful mechanism for guiding
the coordination of federal law enforcement agencies' efforts to combat
money laundering and terrorist financing, (3) the role of the NMLS in
influencing the anti-money laundering and antiterrorist financing
activities of the federal financial regulators, and (4) whether the
NMLS has reflected the critical components we have found to be
necessary for the development and implementation of such a strategy.
To determine agency perspectives on the benefit of the NMLS, we
interviewed responsible officials at and reviewed relevant
documentation obtained from the principal law enforcement components
with anti-money laundering responsibilities at the Departments of the
Treasury, Justice, and Homeland Security and the federal financial
regulatory agencies.[Footnote 6] In general, our work reviewing the
strategy's usefulness for guiding the coordination of law enforcement
agencies' efforts consisted of (1) examining the structure and
operation of HIFCA task forces, (2) analyzing the implementation of
NMLS initiatives to enhance interagency coordination, and (3) assessing
the extent to which the 2002 NMLS addressed agency roles in combating
terrorist financing. We did this by interviewing relevant agency
officials, reviewing agency policies for coordination, evaluating
staffing levels and other resources devoted to NMLS initiatives, and
reviewing the NMLS. Our work determining the role of the NMLS in
influencing the efforts of the federal financial regulators focused
primarily on the NMLS goal that sought to coordinate their efforts. In
2002, the goal was, "Prevent Money Laundering Through Cooperative
Public-Private Efforts and Necessary Regulatory Measures." This goal
had similar titles in earlier strategies (see table 1). We also
examined the role the financial regulators played in supporting
Treasury's efforts under the NMLS goal to strengthen international
cooperation to fight money laundering. To do this, we interviewed
financial regulatory, Treasury, and law enforcement agency officials.
We also reviewed regulatory examination guidelines, policies, and
training information. To determine whether the NMLS reflected
components we have found necessary for national strategies, we reviewed
drafts of the strategies from 1999 to 2002, interviewed officials that
had been involved in the development and implementation of the
strategies, and compared the results from this work with findings from
our past work reviewing national strategies and their implementation.
We conducted our work from June 2002 to August 2003 in accordance with
generally accepted government auditing standards. Additional
information on our scope and methodology is discussed in appendix I.
Results in Brief:
The Treasury, Justice, and financial regulatory agency officials we
interviewed generally agreed that the NMLS was initially beneficial but
that, over time, certain factors and events affected its development
and implementation. The officials endorsed the concept of a strategy to
coordinate the federal government's efforts to combat money laundering
and related financial crimes. Generally, the officials commented that
the annual NMLS probably was more beneficial in the first 2 years (1999
and 2000) than in the subsequent years (2001 and 2002). For example,
Treasury officials said that the NMLS was initially instrumental in
focusing on the need to combat money laundering systemically and not
solely on a case-by-case basis. However, different agency views emerged
about the appropriate scope of the NMLS and the level of agency
commitment to the strategy that was required. Thus, the officials said
the strategy did not reach its potential for integrating and
harmonizing the nation's efforts to combat money laundering and related
financial crimes. In addition, other events affected or delayed the
strategy's implementation. For example, changes in the administration
and senior agency officials led to major revisions to the NMLS in 2001
and 2002. In addition, the 2001 strategy was issued on September 12,
2001. Subsequent to the attacks of September 11, the government's focus
changed to terrorist financing, making money laundering less of a
priority. More recently, the 2003 strategy was delayed, in part,
because the creation of the Department of Homeland Security (DHS)
brought a new player into the mix with the transfer of Treasury's
enforcement functions and staff to the new department.
As a mechanism for guiding the coordination of federal law enforcement
agencies' efforts to combat money laundering and related financial
crimes, the NMLS has had mixed results but generally has not been as
useful as envisioned by the Strategy Act. For example, although
expected to have a central role in coordinating law enforcement
agencies' efforts to combat money laundering, HIFCA task forces
generally had not yet been structured and operating as intended and had
not reached their expectations for leveraging investigative resources
or creating investigative synergies. In some cases, federal law
enforcement agencies had not provided the levels of commitment and
staffing to the task forces called for by the strategy. Further, while
Treasury and Justice made progress on some NMLS initiatives designed to
enhance interagency coordination of money laundering investigations,
most had not achieved the expectations called for in the annual
strategies, including plans to (1) use a centralized system to
coordinate investigations and (2) develop uniform guidelines for
undercover investigations. Headquarters officials cited differences in
the various agencies' anti-money laundering priorities as a primary
reason why initiatives had not achieved their expectations. Moreover,
due to difficulties in reaching agreement over which agency should lead
investigations, the 2002 NMLS did not address agency and task force
roles and interagency coordination procedures for investigating
terrorist financing. Law enforcement officials told us that the lack of
clearly defined roles and coordination procedures contributed to
duplication of efforts and disagreements over which agency should lead
investigations. To help resolve these long-standing jurisdictional
issues, in May 2003, the Attorney General and the Secretary of Homeland
Security signed a memorandum of agreement regarding roles and
responsibilities in investigating terrorist financing. It is too soon
to determine whether the agreement will be successful in resolving
these issues.
Most financial regulators we interviewed said that the NMLS had some
influence on their anti-money laundering efforts because it provided a
forum for enhanced coordination, particularly with law enforcement
agencies. Law enforcement agency officials said the level of
coordination between their agencies and the financial regulators was
good. However, the financial regulators also said that other factors
had more influence on them than the strategy. For example, the
financial regulators cited their ongoing oversight responsibilities in
ensuring compliance with the BSA as a primary influence on them.
Another influence has been anti-money laundering working groups, some
of which were initiated by the financial regulators or law enforcement
agencies prior to enactment of the Strategy Act. The officials said
that the U.S. government's reaction to September 11, which included a
change in government perspective and new regulatory requirements placed
on financial institutions by the USA PATRIOT Act, has driven their
recent anti-money laundering and antiterrorist financing efforts.
Although the financial regulators said that the NMLS had less influence
on their anti-money laundering activities than other factors, they have
completed the tasks for which the NMLS designated them as lead agencies
over the years, as well as most of the tasks for which they were to
provide support to Treasury.
In recent years, our work in reviewing national strategies for various
crosscutting issues has identified several critical components needed
for their development and implementation, including effective
leadership, clear priorities, and accountability mechanisms.[Footnote
7] For a variety of reasons, these critical components generally have
not been fully reflected in the development and implementation of the
annual NMLS. For example, the joint Treasury-Justice leadership
structure that was established to oversee NMLS-related activities
generally has not resulted in (1) reaching agreement on the appropriate
scope of the strategy; (2) ensuring that target dates for completing
strategy initiatives were met; and (3) issuing the annual NMLS by
February 1 of each year, as required by the Strategy Act. Although
Treasury generally took the lead role in strategy-related activities,
the department had no incentives or authority to get other departments
and agencies to provide necessary resources and participation. Also,
the annual strategies have not identified and prioritized issues that
required the most immediate attention. Each strategy has contained more
priorities than could be realistically achieved, the priorities have
not been ranked in order of importance, and no priority has been
explicitly linked to a threat and risk assessment. Further, although
the 2001 and 2002 strategies contained initiatives to measure program
performance, none had been used to ensure accountability for results.
Officials attributed this to the difficulty in establishing such
measures for combating money laundering. In addition, Treasury has not
provided annual reports to Congress on the effectiveness of policies to
combat money laundering and related financial crimes, as required by
the Strategy Act.
If Congress reauthorizes the requirement for an annual NMLS, this
report provides recommendations for the Secretary of the Treasury,
working with the Attorney General and the Secretary of Homeland
Security, to (1) strengthen the leadership structure responsible for
strategy development and implementation, (2) ensure that clear
priorities are identified, and (3) establish accountability mechanisms,
so that the NMLS better meets its interagency coordination and
cooperation expectations.
In commenting on a draft of this report, Treasury said that our
recommendations are important, should Congress reauthorize the
legislation requiring future strategies; Justice said that our
observations and conclusions will be helpful in assessing the role that
the strategy process has played in the federal government's efforts to
combat money laundering; and DHS said that it agreed with our
recommendations. The seven federal financial regulatory agencies did
not address our recommendations, although the Federal Deposit Insurance
Corporation (FDIC) noted that should a national money laundering
strategy continue, annual goals should be achievable and roles and
responsibilities clearly defined. The National Security Council did not
respond to our request for comments.
Background:
Money laundering is the process used to transform monetary proceeds
derived from criminal activities into funds and assets that appear to
have come from legitimate sources. Although the magnitude of global
money laundering is unknown, many estimates suggest annual ranges in
the hundreds of billions of dollars. The process of money laundering
generally takes place in three stages: placement, layering, and
integration. In the placement stage, cash is converted into monetary
instruments, such as money orders or traveler's checks, or deposited
into financial institution accounts. In the layering stage, these funds
are transferred or moved into other accounts or other financial
institutions to further obscure their illicit origin. In the
integration stage, the funds are used to purchase assets in the
legitimate economy or to fund further activities. All financial sectors
and certain commercial businesses can be targeted during one or more of
these stages. Many of these entities are required to report
transactions with certain characteristics to law enforcement if they
appear to be potentially suspicious. The transactions would generally
fall within either the placement or layering stage if they proved to be
involved in money laundering. Transaction reporting requirements are
discussed further later in this report. Figure 1 shows the three stages
of money laundering.
Figure 1: The Three Stages of Money Laundering:
[See PDF for image]
[End of figure]
Terrorist financing is generally characterized by different motives
than money laundering and the funds involved often originate from
legitimate sources. However, the techniques for hiding the movement of
funds intended to be used to finance terrorist activity--techniques to
obscure the origin of funds and the ultimate destination--are often
similar to those used to launder money. Therefore, Treasury, law
enforcement agencies, and the federal financial regulators often employ
similar approaches and techniques in trying to detect and prevent both
money laundering and terrorist financing.
Many Agencies Are Responsible for Combating Money Laundering and
Terrorist Financing:
Agencies under the Departments of the Treasury, Justice, and Homeland
Security are to coordinate with each other and with financial
regulators in combating money laundering. Within Treasury, the
Financial Crimes Enforcement Network (FinCEN) was established in 1990
to support law enforcement agencies by collecting, analyzing, and
coordinating financial intelligence information to combat money
laundering. In addition to FinCEN, Treasury components actively
involved in anti-money laundering and antiterrorist financing efforts
include the Executive Office for Terrorist Financing and Financial
Crimes, the Office of International Affairs, and the Internal Revenue
Service and its Criminal Investigation unit (IRS-CI).[Footnote 8]
Department of Justice components involved in efforts to combat money
laundering and terrorist financing include the Criminal Division's
Asset Forfeiture and Money Laundering Section (AFMLS) and
Counterterrorism Section, the Federal Bureau of Investigation (FBI),
the Drug Enforcement Administration (DEA), and the Executive Office for
U.S. Attorneys (EOUSA) and U.S. Attorneys Offices.[Footnote 9] With the
creation of DHS in March 2003, anti-money laundering activities of the
Customs Service were transferred from Treasury to DHS's Bureau of
Immigration and Customs Enforcement (ICE).
The financial regulators who oversee financial institutions' anti-money
laundering efforts include the depository institution financial
regulators--the Federal Reserve Board (FRB), FDIC, Office of the
Comptroller of the Currency (OCC), Office of Thrift Supervision (OTS),
and the National Credit Union Administration (NCUA)--and also the
Securities and Exchange Commission (SEC), which regulates the
securities markets, and the Commodity Futures Trading Commission
(CFTC), which regulates commodity futures and options markets. While
OCC and OTS are bureaus within Treasury, the FRB, FDIC, NCUA, SEC, and
CFTC are independent agencies that are not part of the executive
branch. Figure 2 shows the primary agencies responsible for combating
money laundering and terrorist financing before the creation of DHS.
Figure 3 shows the primary agencies responsible for combating money
laundering and terrorist financing after the creation of DHS.
Figure 2: Principal Agencies Responsible for NMLS before the Creation
of DHS:
[See PDF for image]
[End of figure]
Figure 3: Principal Agencies Responsible for NMLS after the Creation of
DHS:
[See PDF for image]
[End of figure]
NMLS Was Intended to Coordinate the U.S. Government's Anti-Money
Laundering Efforts:
Given law enforcement's mixed history of both productive partnerships
and turf-protection battles, proponents of the Strategy Act envisioned
that the implementation of an annual NMLS would inaugurate a new level
of coordination and cooperation between law enforcement agencies. The
NMLS also sought to coordinate the efforts of law enforcement agencies
and financial regulators to ensure that financial institutions were
sufficiently vigilant to detect possible money laundering and that they
reported any suspicious activity to law enforcement agencies to assist
in their efforts to investigate money laundering and, more recently,
terrorist financing.
The process for developing the NMLS has varied slightly from year to
year, but it has generally involved Treasury working with other
agencies to develop a draft. Treasury officials said that they have
sometimes asked officials from other agencies to take the lead in
drafting certain sections that pertain particularly to their efforts.
In other instances, Treasury has drafted the sections and asked for
participating agencies' review and comments on the sections relevant to
them. Upon completion of the draft NMLS, the relevant agencies are
given the opportunity to clear the final document through the Office of
Management and Budget's clearance process, which requires that the
agencies approve the document, that is, signify their agreement with
its contents. Treasury officials told us that by approving the NMLS
through this process, the agencies have agreed to it and should be held
accountable to Congress and the public to complete their assigned
responsibilities.
The drafting process has generally resulted in a document that lists
four to six broad goals, each containing objectives, which in turn
contain a list of priorities. Over time, the goals have changed,
sometimes in their wording or order, and other times to cover new
threats. For example, in the wake of September 11, the 2002 NMLS added
the goal, "Focus Law Enforcement and Regulatory Resources on
Identifying, Disrupting, and Dismantling Terrorist Financing
Networks." As of September 24, the 2003 NMLS had not yet been issued.
Table 1 shows the NMLS goals from 1999 through 2002 and the number of
objectives and priorities.
Table 1: NMLS Goals, Objectives, and Priorities, 1999 through 2002:
NMLS year: 1999; NMLS goals: 1. Strengthening domestic enforcement to
disrupt the flow of illicit money; Objectives: 8; Priorities[A]: 21.
NMLS goals: 2. Enhancing regulatory and cooperative public-
private efforts to prevent money laundering; Objectives: 7;
Priorities[A]: 15.
NMLS goals: 3. Strengthening partnerships with state and
local governments to fight money laundering throughout the United
States; Objectives: 5; Priorities[A]: 5.
NMLS goals: NMLS yearTotal: 4. Strengthening international cooperation
to disrupt the global flow of illicit money; Objectives: NMLS
yearTotal: 6; Priorities[A]: 25.
Total; Objectives: 26; Priorities[A]: 66.
NMLS year: 2000; NMLS goals: 5. Strengthening domestic enforcement to
disrupt the flow of illicit money; Objectives: 9; Priorities[A]: 18.
NMLS goals: 6. Enhancing regulatory and cooperative public-
private efforts to prevent money laundering; Objectives: 7;
Priorities[A]: 16.
NMLS goals: 7. Strengthening partnerships with state and
local governments to fight money laundering throughout the United
States; Objectives: 4; Priorities[A]: 5.
NMLS goals: 8. Strengthening international cooperation
to disrupt the global flow of illicit money; Objectives: 7;
Priorities[A]: 19.
Total; Objectives: 27; Priorities[A]: 58.
NMLS year: 2001; NMLS goals: 9. Focus law enforcement efforts on the
prosecution of major money laundering organizations and systems;
Objectives: 5; Priorities[A]: 15.
NMLS goals: 10. Measure the effectiveness of anti-money
laundering efforts; Objectives: 1; Priorities[A]: 4.
NMLS goals: 11. Prevent money laundering through cooperative
public-private efforts and necessary regulatory measures; Objectives:
4; Priorities[A]: 13.
NMLS goals: 12. Coordinate law enforcement efforts with
state and local governments to fight money laundering throughout the
United States; Objectives: 3; Priorities[A]: 6.
NMLS goals: 13. Strengthening international cooperation
to combat the global problem of money laundering; Objectives: 5;
Priorities[A]: 13.
Total; Objectives: 18; Priorities[A]: 51.
NMLS year: 2002; NMLS goals: 14. Measure the effectiveness of anti-
money laundering efforts; Objectives: 2; Priorities[A]: 9.
NMLS goals: 15. Focus law enforcement and regulatory
resources on identifying, disrupting, and dismantling terrorist
financing networks; Objectives: 3; Priorities[A]: NMLS
year: 11.
NMLS goals: 16. Increase the investigation and prosecution
of major money laundering organizations and systems; Objectives: NMLS
year: 4; Priorities[A]: 11.
NMLS goals: 17. Prevent money laundering through cooperative
public-private efforts and necessary regulatory measures; Objectives:
2; Priorities[A]: 7.
NMLS goals: 18. Coordinate law enforcement efforts with
state and local governments to fight money laundering throughout the
United States; Objectives: 3; Priorities[A]: 5.
NMLS goals: 19. Strengthen international anti-money
laundering regimes; Objectives: 5; Priorities[A]: 10.
Total; Objectives: 19; Priorities[A]: 50.
Source: NMLS 1999 to 2002.
[A] The NMLS for 1999 and 2000 used the term "Action Item," and the
NMLS for 2001 and 2002 used the term "Priority.":
[End of table]
The Strategy Act also created an operating mechanism within which to
enhance interagency coordination of law enforcement investigations--
HIFCAs. In accordance with the Strategy Act and the 1999 NMLS:
* HIFCA designations would allow law enforcement to concentrate its
resources in areas where money laundering or related financial crimes
appeared to be occurring at a higher rate than average.[Footnote 10] An
interagency HIFCA Designation Working Group would review requests for
such designations and provide advice for selections to be made by the
Secretary of the Treasury, in consultation with the Attorney
General.[Footnote 11]
* A money laundering action team, where appropriate, would be created
when a HIFCA was designated to spearhead a coordinated federal, state,
and local anti-money laundering effort in the area, or an existing task
force already on the ground would be mobilized.
The 2001 NMLS specified that HIFCAs were to be operational and conduct
investigations designed to result in indictments, convictions, and
seizures, rather than focusing principally on intelligence gathering.
Also, the 2001 NMLS reinforced the expectations that HIFCA task forces
"will be composed of, and draw upon, all relevant federal, state, and
local agencies, and will serve as the model of our anti-money
laundering efforts" and that the Departments of the Treasury and
Justice were to jointly oversee the HIFCA task forces.
The Strategy Act mandated that the NMLS be submitted to Congress by
February 1 of each year, 1999 to 2003. The Strategy Act also required
that--at the time each NMLS was transmitted to the Congress (other than
the first transmission of any such strategy)--the Secretary of the
Treasury must submit a report containing an evaluation of the
effectiveness of policies to combat money laundering and related
financial crimes.
Early Benefit of the NMLS Was Affected by Certain Factors and Events:
The Treasury, Justice, and regulatory agency officials we interviewed
said that the NMLS was initially beneficial but, over time, certain
factors and events affected its development and implementation.
Officials from each of the agencies endorsed the concept of having a
national strategy for combating money laundering and related financial
crimes. Generally, the officials said that the annual NMLS probably was
more beneficial in the first 2 years (1999 and 2000) than in the
subsequent years (2001 and 2002). As an initial benefit, for example,
Treasury officials said that the NMLS was instrumental in focusing on
the need to combat money laundering systemically and not solely on a
case-by-case basis, encouraging multiple law enforcement agencies to
work together, and raising general awareness of the importance of
combating financial crimes. The NMLS enhanced their planning and
communication when it was new because it served to formalize
interagency communication in a way that had not existed before.
Similarly, the officials noted that the early strategies were
instrumental in expanding the perspectives of the regulatory agencies
by refocusing them on the purposes underlying their BSA
responsibilities. The early strategies renewed attention on the fight
against money laundering that supports particular reporting or record
keeping obligations. That is, due partly to the strategies, the
financial regulators became more focused regarding ways in which
criminals could be using financial institutions for money laundering
activities.
However, after the first couple of years, the benefit of the annual
NMLS was affected by a number of factors and events, according to the
Treasury, Justice, and regulatory agency officials we interviewed. One
factor cited was that the principal agencies had significantly
differing views about the appropriate purpose and structure of the
strategy. For instance, Treasury preferred a document that covered the
full breadth and scope of the federal government's planned anti-money
laundering efforts, while Justice preferred a more concise document
that included only those priorities that realistically could be
addressed during the year. Likewise, the regulatory agencies generally
favored a more concise document. Several officials said that this
fundamental difference in views resulted in less-than-full commitment
or buy-in from some agencies, which lessened the overall benefit of the
recent strategies.
An event that affected the 2001 NMLS was the change in presidential
administrations prior to the strategy's issuance. Treasury and Justice
officials explained that with the arrival of a new administration, it
was necessary to revise a nearly complete NMLS to match the new
administration's vision for combating money laundering. This redrafting
process caused the NMLS to be issued very late, leaving little time to
implement any goals or objectives before drafting the 2002 NMLS.
The officials said that the implementation of the recent strategies has
been affected most significantly by external events--particularly
September 11, 2001, and its aftermath, which included passage of the
USA PATRIOT Act and the creation of DHS. Treasury and Justice officials
said that the 2001 NMLS, which was issued on September 12, 2001, was
virtually obsolete at issuance because the nature of the issues they
faced had just changed dramatically. After September 11, combating
terrorist financing became a major element of the federal government's
anti-money laundering efforts, but it was not part of the 2001 NMLS.
The passage of the USA PATRIOT Act increased the requirements on many
financial institutions for conducting due diligence, record keeping,
reporting, and sharing information. Because implementing the USA
PATRIOT Act became the main focus for the financial regulators in the
2002 NMLS, financial regulators attributed their efforts to the USA
PATRIOT Act rather than the NMLS. The creation of DHS required the
transfer of most of the law enforcement functions and staff from
agencies formerly under Treasury to the new agency. Justice anti-money
laundering components remained in Justice. Treasury and Justice
officials said that the implementation of some 2002 NMLS priorities was
delayed pending formation of the new department. They also said that
issuance of the 2003 NMLS has been delayed by the same disruptions.
NMLS Generally Has Not Been as Useful as Envisioned for Guiding the
Coordination of Law Enforcement Efforts:
As a mechanism for guiding the coordination of federal law enforcement
agencies' efforts to combat money laundering and related financial
crimes, the NMLS has had mixed results and--according to the evidence
we reviewed and the officials we contacted--generally has not been as
useful as envisioned by the Strategy Act. For example, although
expected to have a key role in the federal government's efforts to
disrupt and dismantle large-scale money laundering organizations, HIFCA
task forces generally were not yet structured and operating as intended
and had not reached their expectations for leveraging investigative
resources or creating investigative synergies. Further, while Treasury
and Justice made progress on some NMLS initiatives designed to enhance
interagency coordination of money laundering investigations, most had
not achieved the expectations called for in the annual strategies.
Moreover, the 2002 NMLS did not address agency roles and interagency
coordination procedures for conducting terrorist financing
investigations.
HIFCA Task Forces Generally Had Not Yet Been Structured and Operating
as Intended:
As envisioned by the Strategy Act, HIFCAs represent a major NMLS
initiative and were expected to have a flagship role in the U.S.
government's efforts to disrupt and dismantle large-scale money
laundering operations. They were intended to improve the coordination
and quality of federal money laundering investigations by concentrating
the investigative expertise of federal, state, and local agencies in
unified task forces, thereby leveraging resources and creating
investigative synergies. While neither the Strategy Act nor the annual
NMLS specified a time frame for when designated HIFCAs were to become
fully operational, we found that the task forces had made some progress
but generally had not yet been structured and operating as intended. As
of July 2003, Treasury and Justice were in the process of reviewing the
HIFCA task forces to remove obstacles to their effective operations.
The results of this review could provide useful input for an evaluation
report on the HIFCA program, which the Strategy Act requires Treasury
to submit to the Congress in 2004.
Status of HIFCA Task Forces:
In May 2003, we contacted each of the seven designated HIFCAs to obtain
information on the status of their task forces (see table 2). At that
time, two of the seven HIFCAs (the Southwest Border and Miami) had not
started operations. Law enforcement officials in the Southwest Border
area cited several reasons for the HIFCA's nonoperational status,
including (1) difficulty in coordinating activities in such a large
area and (2) lack of funds to persuade state and local officials to
participate.[Footnote 12] In Miami, federal law enforcement officials
had met but had not reached agreement on how the HIFCA should be
structured or how it should operate. For example, the officials had not
agreed on whether the Miami HIFCA should conduct investigations or
focus principally on intelligence gathering.
Table 2: Status of HIFCA Task Forces as of May 2003:
Date designated: March 2000; HIFCA: Los Angeles; Start date[A]:
September 2001; Lead agency: IRS-CI; Number of participating law
enforcement agencies: Federal: 10; Number of participating law
enforcement agencies: State: 2; Number of participating law enforcement
agencies: Local: 4; Number of participating law enforcement agencies:
Total: 16; Shared office space?[B]: No.
HIFCA: New York/New Jersey; Start date[A]: March 2000; Lead agency:
ICE and IRS-CI; Number of participating law enforcement agencies:
Federal: 10; Number of participating law enforcement agencies: State:
6; Number of participating law enforcement agencies: Local: 21;
Number of participating law enforcement agencies: Total: 37;
Shared office space?[B]: Yes.
HIFCA: Puerto Rico; Start date[A]: March 2000; Lead agency: ICE
and IRS-CI; Number of participating law enforcement agencies: Federal:
6; Number of participating law enforcement agencies: State: 3;
Number of participating law enforcement agencies: Local: 1; Number of
participating law enforcement agencies: Total: 10; Shared
office space?[B]: Yes.
HIFCA: September 2001: Southwest Border; Start date[A]: September 2001:
Not yet operating.
Date designated: September 2001; HIFCA: Chicago; Start date[A]:
September 2002; Lead agency: IRS-CI; Number of participating law
enforcement agencies: Federal: 3; Number of participating law
enforcement agencies: State: 1; Number of participating law enforcement
agencies: Local: 0; Number of participating law enforcement agencies:
Total: 4; Shared office space?[B]: Yes.
HIFCA: January 2003: San Francisco; Start date[A]: January 2003:
September 2002; Lead agency: January 2003: ICE and IRS-CI; Number of
participating law enforcement agencies: Federal: January 2003: 7;
Number of participating law enforcement agencies: State: January 2003:
0; Number of participating law enforcement agencies: Local: January
2003: 0; Number of participating law enforcement agencies: Total:
January 2003: 7; January 2003: Shared office space?[B]:
January 2003: No.
Date designated: January 2003; HIFCA: Miami; Start date[A]: Not yet
operating.
Source: Representatives from the seven designated HIFCAs and federal
agency data.
[A] The start date is the date local HIFCA officials considered the
task force to be conducting either investigations or intelligence
gathering activities.
[B] According to Treasury and Justice officials, a key to the success
of the HIFCA program is the ability to promote interagency cooperation
by locating task force participants together in the same office space.
[End of table]
In September 2003, in commenting on a draft of this report, Justice
said that while the Southwest Border HIFCA has not worked out as
intended, the participants in Texas and Arizona met on numerous
occasions over the past 4 years in an attempt to find an organizational
structure that could meet the needs of all of the participants. Justice
also said that headquarters officials and participants in the Southwest
Border area recently decided that the dual-state HIFCA was too
ambitious and that the HIFCA should be limited to Texas and relocated
to augment an existing task force.
Although the 2001 NMLS specified that HIFCAs were to conduct
investigations rather than principally gather intelligence, we found
that two of the five operating task forces (Los Angeles and San
Francisco) were primarily focusing on intelligence gathering
activities--such as reviews of Suspicious Activity Reports (SAR) and
other information required by the BSA--and had not established
multiagency investigative units to act on the intelligence.[Footnote
13] HIFCA officials in Los Angeles told us they planned to locate task
force participants together in the same area in mid-or late-2003, at
which time multiagency investigative units would be established. In San
Francisco, a HIFCA official told us their proposal to become a HIFCA
specified that the task force would focus on intelligence and that
there were no plans to establish multiagency investigative units within
the HIFCA. Treasury and Justice officials responsible for overseeing
the HIFCAs told us that headquarters was reluctant to require the task
forces to establish multiagency investigative units, primarily because
the Strategy Act did not provide additional funds or personnel to
establish such units. The officials noted that even though the 2001
NMLS specified that HIFCAs were to conduct investigations, task forces
that focus on intelligence gathering activities but do not conduct
investigations do enhance interagency efforts to combat money
laundering.
Also, because the investigative activities of the three HIFCAs that had
multiagency investigative units (Chicago, New York/New Jersey, and
Puerto Rico) were based on task force structures already in place
before the HIFCA designation, the overall effect of the NMLS on these
task forces is unclear. For example, the New York/New Jersey HIFCA
essentially represented a renaming of the well-established El Dorado
Money Laundering Task Force, which had existed since 1992. As mentioned
previously, a HIFCA task force could be (1) created when a HIFCA was
designated or (2) based on an existing task force.
Further, in some cases, federal law enforcement agencies had not
provided the levels of commitment and staffing to the HIFCA task forces
called for by the strategy. As shown in table 2, ICE and/or IRS-CI were
designated the lead agency in each of the five operational task forces.
We found that most of the HIFCAs did not have DEA or FBI agents
assigned full-time to the task forces. For example, regarding the three
HIFCAs with multiagency investigative units, DEA and the FBI were not
members of the Chicago HIFCA, DEA was not a member of the New York/New
Jersey HIFCA, and both DEA and the FBI had only part-time
representation on the Puerto Rico HIFCA. As also shown in table 2, four
of the five operating HIFCAs had little or no participation from state
and local law enforcement agencies, with the notable exception being
the New York/New Jersey HIFCA. The NMLS called for each HIFCA to
include participation from all relevant federal, state, and local
agencies.
Justice headquarters officials said the main problem with supporting
the HIFCA task forces was the absence of additional funds or personnel
to offer law enforcement agencies in return for their participation. A
DEA official told us that, because of differences in agencies'
guidelines for conducting undercover money laundering investigations,
DEA will not dedicate staff to HIFCA task force investigative units but
will support intelligence-related activities.[Footnote 14] FBI
officials cited resource constraints as the primary reason why the
bureau does not fully participate. Various task force officials
mentioned lack of funding to compensate or reimburse participating
state and local law enforcement agencies as a barrier to their
participation in HIFCA operations. Further, Treasury and Justice
officials noted that a key to the success of the HIFCA program is the
ability to promote interagency cooperation by locating task force
participants together in the same office space. Accordingly, the 2002
NMLS called for headquarters to examine how to fund the colocation of
HIFCA task force participants absent funds appropriated specifically
for that purpose.
While we recognize that federal law enforcement agencies have resource
constraints and competing priorities, we note that HIFCA task forces
were expected to make more effective use of existing resources or of
such additional resources as may be available. Without commitment and
staffing from relevant federal, state, and local agencies, the task
forces cannot fully leverage resources and create investigative
synergies, as envisioned by the Strategy Act.
Oversight of HIFCA Task Forces Has Not Met Expectations:
Treasury and Justice have not provided the level of oversight of the
HIFCA task forces called for by the NMLS. For example, in response to
our initial inquiries and formal requests for information, Treasury and
Justice officials responsible for overseeing the HIFCA task forces
could not readily provide basic information, such as names of
participating agencies and contact persons or the results of task force
operations.[Footnote 15] Also, as shown in table 3, Treasury and
Justice had not addressed various NMLS initiatives designed to oversee
HIFCA operations, and many of the initiatives were still ongoing well
past expected completion dates. Fully addressing these initiatives
could help ensure accountability within the HIFCAs, as well as refine
the operational mission, structure, and composition of the task forces.
Table 3: Status of NMLS Initiatives Related to HIFCA Oversight:
Annual: NMLS: 2000 NMLS; NMLS initiative: Oversee newly designated
HIFCA task forces:
NMLS initiative: 1. Report on the progress of the HIFCA task
forces; Target date for completion: (1) December 2000; Target
date met?: No; Status (as of July 2003)[A]: Not addressed.
NMLS initiative: 2. Formulate a reporting system so that
the impact of the HIFCAs can be evaluated; Target date for completion:
(2) During the year; Target date met?:
No; Status (as of July 2003)[A]: Ongoing.
Annual: 2001 NMLS; NMLS initiative: Design the organizational
structure of HIFCA task forces and designate regional task force
directors; Target date for completion: October 2001; Target date met?:
No; Status (as of July 2003)[A]: Not addressed.
NMLS initiative: HIFCA representatives will brief Treasury and
Justice officials on:
NMLS initiative: 3. HIFCA activities and coordination efforts;
Target date for completion: (1) March 2002; Target date met?:
No; Status (as of July 2003)[A]: Not addressed.
NMLS initiative: 4. The progress of investigations and the
involvement of federal, state, and local law enforcement and regulatory
agencies; Target date for completion: (2) Quarterly; Target date
met?: No; Status (as of July 2003)[A]: Not addressed.
NMLS initiative: Establish a new asset forfeiture
reporting system for HIFCA task forces and implement its usage; Target
date for completion: March 2002; Target date met?:
No; Status (as of July 2003)[A]: Ongoing.
Annual: 2002 NMLS; NMLS initiative: Review HIFCA task forces to
remove obstacles to their effective operation:
NMLS initiative: 5. Review the progress of each HIFCA and assess
how well the HIFCA concept is working; Target date for completion:
(1) December 2002; Target date met?: (1) No; Status (as of
July 2003)[A]: (1) Ongoing.
NMLS initiative: 6. Recommend what changes to make so that the
HIFCAs can achieve their mission objectives; Target date for
completion: (2) February 2003; Target date met?: (2) No;
Status (as of July 2003)[A]: (2) Ongoing.
NMLS initiative: Each HIFCA will report on participation of state
and local enforcement, regulatory, and prosecution agencies, and
identify steps needed to include participation of all relevant
agencies; Target date for completion: November 2002; Target date
met?: No; Status (as of July 2003)[A]: Ongoing.
NMLS initiative: Provide advanced money laundering
training in each of the six HIFCA locations; Target date for
completion: November 2002; Target date
met?: Yes; Status (as of July 2003)[A]: Completed[B].
Source: GAO analysis of the NMLS (2000 through 2002) and interviews
with Treasury and Justice headquarters officials.
[A] "Not addressed" indicates that Treasury and Justice took little or
no action on the NMLS initiative and that no future action is planned.
"Ongoing" indicates that Treasury and Justice had not completed the
initiative by its target date, but there was ongoing or planned future
work related to the initiative.
[B] Advanced money laundering training was not provided to the
Southwest Border HIFCA, because the HIFCA did not have an operational
task force.
[End of table]
Treasury and Justice officials told us the primary reasons for not
addressing or not yet completing the HIFCA initiatives were that
headquarters (1) was reluctant to impose a structure or reporting
requirement on the field without offering any new resources and (2) did
not believe that a single structure could fit every HIFCA. The
officials also said that the individual HIFCAs were in the best
position to address their specific needs and problems. Further, the
officials told us that, while most of the HIFCA initiatives had not
been addressed or were not yet completed, the HIFCA structure at
headquarters has provided a framework for regular interagency meetings
to discuss money laundering trends and ways to improve interagency
cooperation.
As shown in table 3, although only one of the HIFCA initiatives was
completed by the specified milestone or goal date, many of the
initiatives were still ongoing. For example, the 2002 NMLS called for a
review of HIFCA task forces to remove obstacles to their effective
operation. Specifically, the initiative called for an interagency HIFCA
team to (1) review the accomplishments of the HIFCA task forces to
date; (2) examine structural and operational issues, including how to
fund the colocation of participants in HIFCA task forces absent funds
appropriated for that purpose; and (3) examine existing operations and
make recommendations to ensure that each HIFCA is composed of all
relevant federal, state, and local enforcement authorities,
prosecutors, and financial supervisory agencies as needed. As of July
2003, the HIFCA review team was still in the process of assessing the
HIFCAs. When completed, the team's review could provide useful input
for an evaluation report on the effectiveness of and the continued need
for HIFCA designations, which is required by the Strategy Act to be
submitted to the Congress in 2004.
Money Laundering Training Was Provided to HIFCAs:
According to the 2002 NMLS, Treasury and Justice have conducted a
substantial amount of fundamental, advanced, and specialized money
laundering training to task forces, agencies, investigators, and
prosecutors. For example, as included in the 2002 NMLS (see table 3),
the Federal Law Enforcement Training Center, in cooperation with
Treasury and Justice, have provided an advanced money laundering
training course in six HIFCA locations. According to a Federal Law
Enforcement Training Center official, approximately 900 to 1,000 agency
representatives have participated in the 3-day training seminar. The
official said that the training focused on numerous issues, including
money laundering statutes, the impact of the USA PATRIOT Act, basic and
international banking, asset forfeiture issues, and specific money
laundering schemes and organizations.
NMLS Initiatives to Enhance Coordination of Law Enforcement
Investigations Generally Were Not Addressed or Were Still Ongoing:
While Treasury and Justice made progress on some NMLS initiatives that
were specifically designed to enhance coordination of federal law
enforcement agencies' money laundering investigations, most of the
initiatives were not addressed or were still ongoing.[Footnote 16] In
general, the failure to address or complete the initiatives indicates
that interagency coordination was falling short of expectations.
Progress Was Made on Some Law Enforcement Coordination Initiatives:
Treasury and Justice made progress in implementing some of the NMLS law
enforcement coordination initiatives. For example, as called for in the
1999 and 2000 strategies, the departments took steps to (1) enhance the
money laundering focus of interagency counter-drug task forces and (2)
collect and analyze information on the money laundering aspects of the
task forces' investigations. More recently, the 2002 NMLS called for an
interagency team to identify money laundering-related targets for
coordinated enforcement action. The strategy noted that targets could
be particular organizations or systems used or exploited by money
launderers, such as the smuggling of bulk cash and unlicensed money
transmitters. In August 2002, Treasury and Justice created an
interagency team and identified a money laundering-related target and
four cities in which to conduct investigations. In July 2003, Justice
officials told us that U.S. Attorneys Office officials had agreed to
participate in the targeting initiative and that the initiative was
ongoing.
Most Law Enforcement Coordination Initiatives Were Not Addressed or
Were Still Ongoing:
Most of the annual strategy initiatives designed to enhance interagency
coordination of law enforcement investigations were not addressed or
were still ongoing. Three examples are as follows. First, the Customs
Service created a Money Laundering Coordination Center in 1997 to (1)
serve as the repository for all intelligence information gathered
through undercover money laundering investigations and (2) function as
the coordination and "deconfliction" center for both domestic and
international undercover money laundering investigations.[Footnote 17]
Both the 1999 and the 2000 NMLS contained an initiative to encourage
all applicable federal law enforcement agencies to participate in the
Money Laundering Coordination Center. During our review, Customs
Service officials (before the agency was transferred to DHS) told us
that, although Justice agencies (including DEA and FBI) were invited to
use the center, these agencies were only occasional users and did not
contribute information to the center.[Footnote 18]
DEA and FBI officials told us that their agencies did not use the Money
Laundering Coordination Center because they could not reach a
satisfactory memorandum of understanding regarding participation,
including controls over the dissemination of information. DEA officials
added that the center does not meet DEA's needs because it is used for
deconfliction only. In August 2003, the DEA officials said that DEA had
created and was testing a new database that is designed to be a single
source for information on money laundering investigations related to
drug money. The officials added that DEA has briefed Treasury and DHS
about the new database, but as of August 2003, no other agencies were
participating.
Second, federal law enforcement agencies do not have uniform guidelines
applicable to undercover money laundering investigations. According to
the 2002 NMLS and our discussions with law enforcement officials, the
lack of uniform guidelines inhibits some agencies from participating in
investigations that have an international component. For example, a DEA
official told us that DEA guidelines generally are more restrictive
than guidelines used by Customs (as part of ICE) in regard to (1)
obtaining approval to initiate and continue undercover investigations
and (2) coordinating activities with foreign counterparts. Therefore,
the officials noted that DEA generally could not participate in
international undercover money laundering investigations led by
Customs. The 2002 NMLS called for Treasury and Justice to develop
uniform undercover guidelines by September 2002 to ensure the full
participation of all applicable federal law enforcement agencies in
undercover money laundering investigations. Treasury officials told us
the initiative is still ongoing but has been put on hold, pending
reorganizations associated with the creation of DHS.
Third, Treasury and Justice have not yet fully implemented NMLS
initiatives designed to establish SAR review teams in federal judicial
districts. The 2001 NMLS contained an initiative that called for the
creation of a SAR review team in each federal judicial district.
Generally, each team--to be comprised of an Assistant U.S. Attorney and
representatives from federal, state, and local law enforcement
agencies--was expected to evaluate all SARs filed in their respective
federal judicial district.
The 2001 SAR initiative has been partially implemented. Treasury
officials noted that Justice has primary responsibility for
implementation because Justice provides guidance and direction to EOUSA
and the U.S. Attorneys Offices. According to EOUSA officials, Justice,
EOUSA, and the U.S. Attorneys Offices have actively encouraged the
creation of SAR review teams and these efforts remain ongoing. At our
request, in July 2003, EOUSA conducted an informal survey of U.S.
Attorneys Offices and reported that at least 33 of the 94 federal
judicial districts were actively using interagency SAR review teams.
The 2002 NMLS had a more conservative SAR-related initiative, calling
for the establishment of five additional review teams. Specifically,
the 2002 NMLS initiative called for Treasury and Justice--by August
2002--to (1) identify a priority list of five federal judicial
districts that do not have a SAR review team but could benefit from one
and (2) work with EOUSA and the respective U.S. Attorneys Offices to
encourage the creation of interagency review teams.[Footnote 19] As of
July 2003, this initiative had not yet been completed, but efforts were
still ongoing.
Further, although not called for by the NMLS, the IRS has had a related
initiative to create interagency SAR review teams. Specifically, IRS-CI
data show that IRS has established 41 SAR review teams nationwide--with
all 35 IRS field offices having at least one functioning team--and that
most of the review teams had participation from other agencies.
According to IRS-CI officials, collectively, the 41 teams are to review
every SAR filed in the 94 federal judicial districts. The officials
said that at least 4 of the districts in which a HIFCA task force is
located were using an interagency SAR review team. The officials noted
that IRS review teams are not to duplicate SAR reviews already
performed by existing task forces in federal judicial districts.
Reasons for Not Fully Implementing Interagency Coordination
Initiatives:
Treasury officials told us that resource constraints and competing
priorities were the primary reasons why many of the law enforcement
coordination initiatives were not yet fully implemented. Also, the
officials said that, over the past few years, Treasury has given higher
priority to other parts of the annual strategy--such as international,
regulatory, and terrorism-related initiatives--than to domestic law
enforcement initiatives. Further, the officials said that Treasury
generally took the lead in implementing the annual strategy but could
not require other agencies to focus on specific initiatives or
activities. In this regard, the officials said that other agencies
frequently had their own priorities.
Justice officials also said that the annual strategies have contained
more initiatives than realistically could be pursued. The officials
added that to the extent NMLS initiatives were not completed or target
dates were missed, it was because of competing priorities or the lack
of resources available for proper implementation of the strategy. The
officials noted that there are complex issues involved in attempting to
coordinate the resources, practices, and priorities of two (and
sometimes more) departments and several law enforcement agencies, as
well as U.S. Attorneys Offices throughout the country. Further, Justice
officials told us that while NMLS initiatives to institutionalize
coordination may not have been fully implemented, the efforts to do so
and regular meetings have been continuing.
NMLS Did Not Address Agency Roles and Task Force Coordination in
Terrorist Financing Investigations, but a Recent Interagency Agreement
May Help Clarify Roles:
In developing the 2002 NMLS, Treasury and Justice officials met to
discuss the roles of the various investigative agencies involved in
combating terrorist financing. However, the two departments could not
reach agreement, and the 2002 strategy was published without addressing
the agencies' roles. In general, Justice's position was that it had
exclusive statutory authority to lead all terrorist financing
investigations, while Treasury maintained that it also had the
authority and the needed expertise to lead such
investigations.[Footnote 20] In commenting on a draft of the 2002
strategy, the FBI noted the following:
* The strategy does not address the various agencies' duplication of
efforts to combat terrorist financing.
* By not specifically addressing and delineating the roles of the
respective agencies, the strategy creates more confusion than it
resolves and wastes limited resources.
Moreover, the strategy section on U.S. government efforts to identify,
disrupt, and dismantle terrorist financing networks did not mention or
clarify roles of the three primary law enforcement task forces involved
in investigating terrorist financing--Customs' Operation Green Quest
(OGQ) and the FBI's Terrorist Financing Operations Section (TFOS) and
Joint Terrorism Task Forces (JTTF).[Footnote 21]
According to Treasury officials, the NMLS drafting process
realistically could not have been expected to resolve the long-
standing, highly challenging issues associated with the interagency
jurisdictional dispute. While we agree that it may have been
unrealistic to expect the drafting process to resolve the long-standing
issues, we note that a primary role of the NMLS is to enhance
interagency coordination and help resolve turf-protection battles.
Because the issue was not addressed in the 2002 NMLS, the problem
remained, thus leaving unresolved possible duplication of efforts and
disagreements over which agency should lead investigations. In our
view, any way the NMLS could have advanced resolution of the matter
would have been beneficial.
Agencies Did Not Fully Coordinate Terrorist Financing Investigations:
To help avoid overlapping investigations and duplication of efforts, it
is important that agencies investigating terrorist financing have
coordination mechanisms. At the policy level, a National Security
Council policy coordination committee on terrorist financing is
responsible for coordinating antiterrorist financing
activities.[Footnote 22] This committee is to consider evidence of
terrorist financing networks and coordinate strategies for targeting
terrorists, their financiers, and supporters. At the operational level,
we found that some interagency coordination of terrorist financing
investigations existed between agency headquarters' components. For
example, OGQ and TFOS had assigned one agent to each other's
headquarters in Washington, D.C. The FBI also was to provide
information on its activities to OGQ through daily downloads from the
FBI's terrorist financial database. Further, OGQ and FBI officials told
us that local mechanisms existed around the country to deconflict
investigations.
While OGQ and the FBI task forces took steps to inform each other about
the targets of their investigations, we found that the task forces did
not fully coordinate their activities. For example, at the three
locations we visited (Los Angeles, Miami, and New York City), OGQ and
JTTF officials told us they generally were not aware of each other's
financial investigations and that the task forces generally did not
share investigative information. Several officials indicated that there
were problems with conflicting or competing investigations, including
disagreements over which task force should lead investigations.
Officials at all three locations noted that the government's
antiterrorist financing efforts could be improved if the task forces
worked more closely with each other or were combined.
Further, at the three locations we visited, IRS-CI officials who had
agents assigned to the local OGQ and JTTF also indicated that the task
forces were not fully operating in a coordinated and integrated manner.
Specifically, in Miami and New York City, IRS-CI officials told us that
having both OGQ and the JTTF doing the same type of antiterrorist
financing work was a duplication of effort. IRS-CI officials in Los
Angeles noted that communication between the two task forces could be
better. Also, in response to our inquiry about interagency
coordination, U.S. Attorneys Office officials in the Southern District
of Florida provided the following response in February 2003:
"With respect to the FBI's Joint Terrorism Task Force (FBI-JTTF) and
Customs' Operation Green Quest, we would like to see increased
cooperation and coordination between the agencies. Too often agents of
the FBI and Customs are investigating terrorist financing independent
of each other or overlapping in the targets of their investigations.
Some of the barriers to greater interagency participation may be
conflicting priorities of each of the agencies. Ongoing battles as to
which agency is the 'lead' agency continues to be a problem—":
In commenting on a draft of this report, Treasury said that it
continues to believe that the dispute over who took the lead in
investigating the financing of terrorism did not necessarily result in
duplication of efforts. Treasury said that the issue was largely
definitional, with the FBI leading terrorist investigations with an
ancillary financial component versus Customs financial investigations
that might have a terrorist-related connection.
May 2003 Interagency Agreement Defined Agency Roles:
On May 13, 2003, the Attorney General and the Secretary of Homeland
Security signed a memorandum of agreement regarding the antiterrorist
financing roles of the respective departments and component agencies.
In general, the agreement gives the FBI the lead role in investigating
terrorist financing and specifies that DHS is to pursue terrorist
financing investigations solely through its participation in FBI-led
task forces, except as expressly approved by the FBI. Some excerpts
from the May 2003 agreement are paraphrased substantially as follows:
* The FBI is to lead terrorist financing investigations and operations,
utilizing the intergovernmental and intra-agency National JTTF at FBI
headquarters and the JTTFs in the field. Through TFOS, the FBI is to
provide overall operational command to the national JTTF and the field
JTTFs.
* After June 30, 2003, DHS is to pursue terrorist financing
investigations and operations solely through its participation in the
National JTTF, the field JTTFs, and TFOS, except as expressly approved
by TFOS.
* The Secretary of Homeland Security agreed that, no later than June
30, 2003, OGQ was to no longer exist as a program name. The Secretary
agreed to ensure that any future DHS initiative or program to
investigate crimes affecting the integrity and lawful operation of U.S.
financial infrastructures would be performed through the financial
crimes division at ICE.
The May 2003 agreement also contained several provisions designed to
enhance the coordination and integration of FBI and ICE financial
investigations. For example, the agreement calls for the FBI and ICE to
(1) detail appropriate personnel to each other's task forces, (2) take
steps to ensure that the detailees have full and timely access to data
and other information, and (3) develop procedures to ensure effective
operational coordination of FBI and ICE investigations. Further, the
FBI Director and the Assistant Secretary for ICE were to provide a
joint written report on the implementation status of the agreement 4
months after its effective date to the Attorney General, the Secretary
of Homeland Security, and the Assistant to the President for Homeland
Security. However, as of September 24, 2003, the report had not yet
been issued.
If successful, the May 2003 agreement could prove to be a significant
step toward establishing a coordinated interagency framework for
conducting terrorist financing investigations. At the time of our
review, it was too early to assess the implementation of the agreement.
NMLS Has Had Some Influence on Financial Regulators' Efforts, but Other
Factors Played a Larger Role:
Most financial regulators we interviewed said that the NMLS had some
influence on their anti-money laundering and antiterrorist financing
efforts but that it has had less influence than other factors.
Officials said that, since September 11, a change in government
perspective and additional requirements placed on financial
institutions by the USA PATRIOT Act and its implementing regulations
have been the primary influences on their efforts. Although the
financial regulators said that the NMLS had minimal influence on
establishing priorities for their anti-money laundering and
antiterrorist financing activities, they have completed the tasks for
which they were designated as lead agencies over the years, and most of
those for which they were to provide support to Treasury. The 2002 NMLS
noted that the financial regulators were responsible for implementing
the parts of the USA PATRIOT Act that applied to the entities they
regulate. Appendix III describes the anti-money laundering requirements
set forth in the USA PATRIOT Act and the rules that have been
implemented thereunder.
Financial Regulators Said Factors Other Than the NMLS Exerted a Greater
Influence on Their Anti-Money Laundering Efforts:
Most financial regulators we interviewed said that the NMLS had some
influence on their anti-money laundering efforts because it has
provided a forum for enhanced coordination, particularly with law
enforcement agencies, but that it has had less influence than other
factors. Similarly, law enforcement agency officials told us that the
level of coordination between the financial regulators and their
agencies was good and that they received the assistance and information
they needed from the regulators. They did not, however, attribute this
to the strategy but, rather, to legal requirements.
Financial regulators said that several other factors influenced their
anti-money laundering efforts to a greater extent than the NMLS. These
factors include working groups that had already developed as a result
of BSA implementation, the impact of September 11 on raising awareness
of the importance of fighting money laundering and terrorist financing,
and the passage of the USA PATRIOT Act. The financial regulators said
that they have been working on anti-money laundering issues for many
years and generally initiate their own anti-money laundering
activities. Bank regulators and SEC pointed out that the BSA was passed
in 1970 and that they have been concerned with ensuring banks' and
broker-dealers' compliance with its requirements ever since. The USA
PATRIOT Act extended responsibility for implementing the BSA to
additional financial regulators as well as increased anti-money
laundering requirements for certain financial institutions.[Footnote
23] Additionally, most financial regulators participate in the BSA
Advisory Group, in which the financial regulators coordinate and
communicate among themselves and with financial institutions on
enforcing BSA requirements. Other coordinating forums include the
Federal Financial Institutions Examination Council, Financial Action
Task Force, and USA PATRIOT Act working groups established to develop
and implement regulations resulting from the passage of the USA PATRIOT
Act.[Footnote 24]
Although the NMLS provided a forum in which the financial regulators
could better coordinate with law enforcement agencies, other avenues
for cooperation are prescribed by law, and some existed before passage
of the Strategy Act. For example, depository institutions have been
required to file SARs since 1996. Since December 2002, securities
brokers and dealers have been required to file SARs with FinCEN as a
result of the USA PATRIOT Act and its implementing regulations. (See
app. III.) Certain financial institutions are also required to file
Currency Transaction Reports with FinCEN for transactions that involve
$10,000 or more in currency. Like SARs, these reports are supposed to
be analyzed to look for suspicious activity. Financial regulators said
they oversee financial institutions' programs for complying with these
legal requirements because it is their statutory responsibility, not
because it is included in the NMLS. They said they would do so with or
without the strategy.
Most officials said that September 11 greatly affected how the
administration and Congress thought about money laundering because some
of the techniques used to launder money, illicitly moving funds to
avoid detection, are similar to those used to finance terrorist
activity. Some officials said the new administration was more concerned
with the burden anti-money laundering compliance placed on financial
institutions prior to September 11, but that the events of September 11
changed this, resulting in more attention being paid to the importance
of anti-money laundering compliance. Congress passed the USA PATRIOT
Act, which, for example, increased the due diligence, reporting, and
record keeping requirements for some financial institutions to guard
against their being used by their customers to launder money or finance
terrorist activity. Some officials noted that USA PATRIOT Act
requirements reflected topics being discussed in the NMLS and other
working group meetings that might still have been in the discussion
phase had not September 11 motivated their inclusion in the USA PATRIOT
Act, thus requiring Treasury and other agencies to issue regulations.
Reflecting this change of emphasis, the 2002 NMLS discussed the need to
adapt traditional methods of combating money laundering to
unconventional tools used by terrorist organizations to finance their
operations. According to the 2002 NMLS, the primary responsibility of
the financial regulators was to participate in the drafting and
issuance of USA PATRIOT Act regulations and to provide technical
expertise on the operations of depository institutions and other
financial institutions to Treasury. The regulators also worked to
educate financial institutions and their own staff on the new
requirements.
Federal Financial Regulators Have Been Involved in the Implementation
of Many Action Items in the NMLS, but Most Have Been Led by Treasury:
The federal financial regulators have participated in the
implementation of the NMLS from 1999 to 2002 in a variety of ways,
including participation in working groups established by the NMLS and,
in 2002, worked with Treasury to implement provisions of the USA
PATRIOT Act. The federal financial regulators were expected to
participate in NMLS initiatives, but Treasury, rather than the
financial regulators, was usually designated as the lead agency
responsible for implementation.[Footnote 25] Most federal financial
regulators are independent federal agencies. Therefore, while the
financial regulators have committed to work with Treasury and Justice
on NMLS initiatives, they are not required to do so because, with the
exception of OCC and OTS, they are not part of the executive branch.
Previous strategies have called for the financial regulators to work
with Treasury and Justice on several efforts, such as (1) coordinating
on establishing policies for enhanced information sharing between law
enforcement agencies and the regulatory agencies, (2) working with the
financial services industry to develop guidance for financial
institutions to enhance scrutiny of high-risk money laundering
transactions and customers, and (3) developing a SAR requirement for
broker-dealers. However, policies for enhanced information sharing were
not finalized until the USA PATRIOT Act required that they be
developed. For example, section 314 of the USA PATRIOT Act was designed
to enhance cooperation among certain entities involved in the detection
of money laundering. Section 314(a) encourages regulatory authorities
and law enforcement authorities to share with financial institutions
information regarding individuals, entities, and organizations engaged
in or reasonably suspected based on reliable evidence of engaging in
terrorist acts or money laundering activities. Section 314(b)
encourages information sharing among financial institutions
themselves. In addition, rules promulgated by FinCEN under section 314
allow law enforcement authorities to make requests to financial
institutions through FinCEN of certain account information for
individuals, entities, and organizations that may be engaged in
terrorist acts or money laundering activities. Information is provided
to FinCEN, who gives the law enforcement entities a comprehensive
product. SEC worked with FinCEN on a proposed broker-dealer SAR
requirement from 1999 to 2001. However, a final rule was not issued
until 2002, when it was required under the USA PATRIOT Act.
Each NMLS has called for the federal bank regulators as a group or OCC
individually to lead a review of their bank examination procedures
regarding anti-money laundering efforts and to implement the results of
these reviews. While the financial regulators have been involved in a
variety of different tasks and working groups in the NMLS, they served
as leads only in these reviews.[Footnote 26] Table 4 lists annual NMLS
initiatives to review bank examination procedures, the lead agency or
agencies, and the status of the initiatives.
Table 4: NMLS Initiatives to Review Bank Examination Procedures, as of
July 2003:
NMLS year: 1999; NMLS initiative[A]: Federal bank regulators, in
cooperation with the Department of the Treasury, will conduct a review
of existing bank examination procedures relating to the prevention and
detection of money laundering at financial organizations, to be
completed within 180 days.[B] Lead: None designated; Status:
Completed.
NMLS year: 2000;
NMLS initiative[A]: The federal bank supervisory
agencies will implement the results of their 180-day review of bank
examinations procedures relating to the prevention and detection of
money laundering at financial organizations. Lead: OCC. Examples of
anticipated actions:
NMLS initiative[A]: OCC will (1) update Comptroller's
Handbook for Bank Examiners, including a new requirement to perform
transactional testing of high-risk accounts at every bank examination
and (2) implement a program to target for examination those
institutions that are considered most vulnerable to money laundering;
Status: (1) Completed; (2) Completed.
NMLS initiative[A]: FDIC will amend examination procedures
on enhanced guidance to bank examiners on high-risk activities to
include guidance on foreign correspondent accounts; Status:
Completed.
NMLS initiative[A]: FDIC and OCC will continue to develop
interagency anti-money laundering training modules, which will be
completed in 2000; Status: Completed.
NMLS initiative[A]: The Federal Reserve will: (1) implement
new procedures that will concentrate on ensuring that banks implement
effective operating systems and procedures to manage operations legal
and reputational risks as they pertain to BSA anti-money laundering
efforts; (2) provide guidance on appropriate levels of enhanced
scrutiny for high-risk customers and services; and (3) increase
emphasis on maintaining systems to detect and investigate suspicious
activity throughout every business sector of a banking organization;
Status: (1) Completed; (2) Completed; (3) Ongoing.
NMLS initiative[A]: OTS will assess the efficacy of its
recently revised risk-focused BSA examination procedures and will
implement enhancements developed by benchmarking with other agencies;
Status: Completed.
NMLS year: 2001;
NMLS initiative[A]: Continue to identify and implement
enhancements to examination procedures where necessary to address the
ever-changing nature of money laundering. Lead: All federal bank
regulators; Status: Ongoing.
NMLS year: 2002;
NMLS initiative[A]: Review current examination
procedures of the federal supervisory agencies to determine whether
enhancements are necessary to address the ever-changing nature of money
laundering, including terrorist financings. Lead: OCC and Treasury;
Status: Ongoing.
Source: 1999 to 2002 NMLS and financial regulatory data.
[A] The NMLS for 1999 and 2000 used the term "Action Item," and the
NMLS for 2001 and 2002 used the term "Priority.":
[B] Although NCUA officials said they also completed these initiatives,
the NMLS named only FRB, OCC, FDIC, and OTS as agencies responsible for
these initiatives.
[End of table]
The financial regulators have also worked with Treasury as the lead
agency for the U.S. government's international anti-money laundering
efforts. Over time, the NMLS has called for the United States to
strengthen international cooperation and collaboration and to work to
strengthen the anti-money laundering efforts of other countries. Much
of Treasury's effort in this area has been done as part of
multinational bodies, such as the Financial Action Task Force, and
international financial institutions, such as the World Bank and the
International Monetary Fund.[Footnote 27] Treasury's efforts, working
with these bodies, have focused on making anti-money laundering
assessments a permanent part of the International Monetary Fund and
World Bank surveillance and oversight of financial sectors and
providing technical assistance and training to jurisdictions willing to
make the necessary changes to their anti-money laundering regimes.
Treasury officials involved in international anti-money laundering
efforts said that the NMLS has served as a useful tool to plan and
coordinate their international efforts that include the financial
regulators, which provide technical assistance and participate in
international meetings of these bodies. Officials from the FRB, OCC,
FDIC, OTS, SEC, and CFTC all said that they had worked with Treasury on
international anti-money laundering efforts, including the preparation
for or participation in meetings of the Financial Action Task Force and
of international financial institutions.
The Annual NMLS Has Not Reflected Critical Components Identified by GAO
as Key to Developing and Implementing National Strategies:
In recent years, our work in reviewing national strategies for various
crosscutting issues has identified several critical components needed
for their development and implementation; however, key components have
not been well reflected in the NMLS.[Footnote 28] These components
include clearly defined leadership, with the ability to marshal
necessary resources; setting clear priorities and focusing resources on
the greatest areas of need, as identified by threat and risk
assessments; and established accountability mechanisms to provide a
basis for monitoring and assessing program performance. We identified a
number of ways in which these critical components could be better
reflected in the development and implementation of the annual NMLS,
should it be reauthorized.
NMLS Leadership Structure Generally Has Not Resulted in Consensus on
the Approach NMLS Should Take:
Our past work in reviewing various national strategies has consistently
concluded that having clearly defined leadership, with the ability to
marshal necessary resources, is a critical component of any national
strategy. For instance, our work has noted the importance of
establishing a focal point or executive-level structure to provide
overall leadership that would rise above the interests of any one
department or agency. Regarding the annual NMLS, we found that the
joint Treasury-Justice leadership structure generally has not been able
to reach consensus in developing and implementing the strategies--
particularly in recent years when the structure did not include
representatives from the two departments' top leadership. This has
resulted in an inability to reach agreement on the appropriate scope of
the strategy and ensure that target dates for completing strategy
initiatives were met.
The Strategy Act required the President, acting through the Secretary
of the Treasury and in consultation with the Attorney General, to
produce an annual NMLS. However, Treasury and Justice officials told us
that the Strategy Act did not provide additional funding or otherwise
enhance either department's ability to develop and implement the annual
strategies. Rather, development and implementation of the annual NMLS
has been dependent largely on consensus-building efforts between
Treasury and Justice--with Treasury having de facto lead
responsibility. In this regard, Treasury officials told us that, while
the department could request participation from other agencies, it had
no incentives it could use to marshal necessary resources or compel
participation in implementing initiatives or action items. The Treasury
officials noted, for example, that the department's inability to compel
action by other agencies was a contributing factor to delays in
producing each annual NMLS. As shown in table 5, none of the four
annual strategies issued to date was submitted to the Congress by
February 1 of each year, as required by the Strategy Act. As of
September 24, the 2003 strategy had yet to be submitted.
Table 5: Annual NMLS--Dates Submitted to Congress:
Annual NMLS: Annual 1999; Required issue date: February 1999; Date
submitted: September 1999; Months late: 7.
Annual NMLS: Annual 2000; Required issue date: February 2000; Date
submitted: March 2000; Months late: 1.
Annual NMLS: 2001; Required issue date: February 2001; Date submitted:
September 2001; Months late: 7.
Annual NMLS: 2002; Required issue date: February 2002; Date submitted:
July 2002; Months late: 5.
Annual NMLS: 2003; Required issue date: February 2003; Date submitted:
Not yet issued; Months late: More than 7.
Source: Annual NMLS.
[End of table]
The initial NMLS (1999) established a joint leadership structure for
implementing the strategy. Specifically, the strategy noted that
overall implementation of the strategy would be guided by an
interagency Steering Committee chaired by the Deputy Secretary of the
Treasury and the Deputy Attorney General, with participation of
relevant departments and agencies. The Steering Committee was to be
responsible for overseeing action items and timelines and, as
appropriate, making specific assignments. Also, with respect to action
items that involved international aspects of anti-money laundering
efforts, the National Security Council was to have a central role and
was to advise the Steering Committee, as necessary. The 2000 NMLS also
called for the Steering Committee to oversee implementation of
initiatives, although the strategy did not mention a specific role for
the National Security Council.
According to Treasury officials, the Steering Committee was not
reconvened to oversee the development and implementation of the 2001
NMLS, in part because of the change in administrations and the timing
in making political appointments. Instead, overall responsibility for
developing and implementing the 2001 NMLS was assumed by two lower-
level officials--a Treasury Deputy Assistant Secretary (Money
Laundering and Financial Crimes) and a Justice Criminal Division
Section Chief (Asset Forfeiture and Money Laundering). The 2002 NMLS
called for Treasury and Justice to reconvene the Steering Committee to
provide coordination and cooperation among all the participating
departments and agencies. However, according to Treasury and Justice
officials, the Steering Committee was not reestablished. Treasury and
Justice officials with responsibility for developing the strategy and
overseeing its implementation at those departments said the benefits of
the Steering Committee were that it brought together the officials who
were needed to make decisions when those below them could not agree and
that it could hold those responsible for implementing certain
priorities accountable for getting things done.
Moreover, the role of the National Security Council in overseeing
implementation of the annual NMLS remains somewhat unclear.[Footnote
29] On the one hand, the National Security Council does have a
designated policy coordination committee responsible for overseeing
antiterrorist financing activities, including those related to
implementation of the 2002 NMLS. On the other hand, Treasury and
Justice officials told us that this policy coordination committee has
no responsibility for addressing other aspects of the strategy. The
officials said that they were unaware of any National Security Council
component responsible for overseeing all aspects of NMLS
implementation.
NMLS Initiatives Have Not Been Clearly Prioritized:
Our past work in reviewing various national strategies has recognized
the importance of identifying and prioritizing issues that require the
most immediate attention. While each NMLS (1999 through 2002)
identified some "top" priorities, each strategy contained more
priorities--of seemingly equal importance--than could be realistically
achieved. Our prior strategy work also has shown that threat and risk
assessments can be useful in establishing priorities; however, none of
the money laundering strategies issued to date was preceded or guided
by such an assessment.
Annual Strategies Have Contained More Priorities Than Could
Realistically Be Accomplished:
The Strategy Act called for the NMLS to include comprehensive,
research-based goals, objectives, and priorities for reducing money
laundering and related financial crimes in the United States. The 1999
NMLS included a total of 66 priorities, which laid out actions to be
taken by Treasury, Justice, and the financial regulators; the number
decreased to 50 in the 2002 NMLS (see table 1). According to Treasury
officials, Treasury's vision for the annual strategies was to provide
Congress and the public with a comprehensive document identifying
current and planned anti-money laundering (and in 2002, antiterrorist
financing) initiatives. The officials also said that the strategies did
identify some top priorities for each respective year and that the most
important priorities generally were discussed in the each strategy's
executive summary. Nonetheless, the officials acknowledged that, in
retrospect, each strategy probably contained more priorities than
realistically could have been completed during the annual strategy
year.
Similarly, Justice and regulatory officials told us that the annual
strategies generally have been too long and included too many
initiatives and priorities to deal with in a given year. The officials
noted that the strategies looked good on paper and contained important
issues and concepts but served more as reference documents than
strategies. The officials said that the annual strategies generally did
not affect how their agencies set policy direction or aligned
resources. Also, Justice officials told us that the strategies
generally did not affect field offices or how field agents conducted
their work. Justice and regulatory officials told us they would prefer
a broader, more conceptual and focused strategy with fewer priorities
and more realistic goals that could be achieved during the year.
Justice officials noted that target dates for completing strategy
priorities generally were not met, because there were too many
priorities and there was no funding or new resources provided to
implement the plan. Justice officials said that by focusing on too many
priorities, the strategy can divert resources from investigations and
other law enforcement activities.
Threat and Risk Assessments Have Not Been Used to Assist in
Establishing Priorities:
Our past work in reviewing various national strategies has shown that
threat and risk assessments can serve to better target use of funds,
set priorities, and avoid duplication of effort.[Footnote 30] For
example, regarding federal efforts to combat terrorism, the importance
of setting priorities on the basis of risks was highlighted in our 1998
testimony before the Subcommittee on National Security, International
Affairs and Criminal Justice, House Committee on Government Reform and
Oversight. Our statement emphasized that:
"— a critical piece of the equation in decisions about establishing and
expanding programs to combat terrorism is an analytically sound threat
and risk assessment using valid inputs from the intelligence community
and other agencies. Threat and risk assessments could help the
government make decisions about how to target investments in combating
terrorism and set priorities on the basis of risk; identify program
duplication, overlap, and gaps; and correctly size individual agencies'
levels of efforts."[Footnote 31]
However, regarding the annual NMLS, none of the four strategies (1999
through 2002) issued to date was preceded or guided by such an
assessment. Further, in response to our inquiries, Treasury and Justice
officials indicated that the 2003 NMLS would not be based on a formal
assessment of threats and risks.
Law enforcement officials generally had favorable views on the need for
the NMLS to be driven by some consideration of a threat and risk
assessment. Justice officials noted that money laundering
investigations take a lot of expertise, money, and time, and that, in
their view, a formal assessment of threats and risks would help to set
NMLS priorities and assist law enforcement in focusing its limited
resources. Justice officials told us that they drafted a money
laundering threat assessment in late 2002 and circulated it to other
law enforcement agencies.[Footnote 32] The officials planned to use the
assessment as a basis for setting 2003 NMLS priorities. Treasury
officials generally agreed with the concept of a money laundering
threat assessment to drive priorities, but told us that the assessment
prepared by Justice was not useful. The officials added that, in their
view, Justice's threat assessment mostly contained information that was
already widely known and, thus, probably was at least implicitly
considered in setting priorities while drafting the 2003
strategy.[Footnote 33]
Accountability Mechanisms Have Recently Been Included in the NMLS, But
None Had Yet Been Completed:
Our past work in reviewing various national strategies has recognized
the importance of establishing accountability mechanisms to assess
resource utilization and program performance. The 2001 and 2002
strategies presented various initiatives designed to establish
performance measures related to federal anti-money laundering efforts.
As of July 2003, efforts were ongoing on many of them, while others had
not been addressed. Another potential accountability mechanism required
in the Strategy Act was annual reports to Congress on the effectiveness
of anti-money laundering policies; however, Treasury has not provided
such reports.
NMLS Initiatives to Establish Performance Measures Have Not Been
Addressed or Are Ongoing:
Establishing and implementing performance measures for the NMLS would
assist in monitoring and evaluating law enforcement and financial
regulatory agencies' anti-money laundering and antiterrorist financing
efforts. The 2001 strategy was the first annual strategy to call for
the creation of performance measures and indicators to evaluate results
against stated goals. The 2002 NMLS continued on the work started under
the 2001 strategy. Both strategies designated components of Treasury
and Justice to co-lead the initiatives. As shown in table 6, the 2002
NMLS contained five initiatives to measure the effectiveness and
results of federal anti-money laundering activities. As of July 2003,
Treasury and Justice had not yet completed any of these initiatives,
although efforts were still ongoing to complete some of them.
Table 6: Status of 2002 NMLS Initiatives Designed to Measure
Performance:
2002 NMLS initiative: Develop a "traffic light" (e.g., red, yellow, or
green) system for scoring progress on NMLS goals and providing an
indication of where the strategy stands at a given point in time;
Target date for completion: To be presented in 2003 NMLS; Target date
met?: No[B]; Status (as of July 2003)[A]: Not addressed.
2002 NMLS initiative: Devise and implement a uniform case reporting
system to measure the results of federal law enforcement agencies'
anti-money laundering efforts.
2002 NMLS initiative: 1. Consider adapting the case reporting system
used by an existing federal agency for use by federal law enforcement
agencies; Target date for completion: (1) Not specified; Target date
met?: Not applicable; Status (as of July 2003)[A]: (1) Ongoing.
2002 NMLS initiative: 2. Develop recommendations for how qualitative
factors, such as case significance, can be incorporated into
quantitative measures of success; Target date for completion: (2)
November 2002; Target date met?: No; Status (as of July 2003)[A]: (2)
Ongoing.
2002 NMLS initiative: Establish a standardized reporting system for
Treasury and Justice to use to quantify assets forfeited or seized
pursuant to money laundering investigations; Target date for
completion: Not specified; Target date met?: Not applicable; Status (as
of July 2003)[A]: Ongoing[C].
2002 NMLS initiative: Analyze "cost of doing criminal business"
initiatives to develop a pricing model for laundering money in non-
narcotics-related cases.[D]; Target date for completion: Not specified;
Target date met?: Not applicable; Status (as of July 2003)[A]: Ongoing.
2002 NMLS initiative: Review the costs and resources devoted to anti-
money laundering efforts. Analyze results from budget data requests,
and work to ensure that data requests relating to work against
terrorist financing are also incorporated.[E]; Target date for
completion: December 2002; Target date met?: No; Status (as of July
2003)[A]: Not addressed.
Source: 2002 NMLS and interviews with Treasury and Justice officials.
[A] "Not addressed" indicates that Treasury and Justice took little or
no action on the NMLS initiative and that no future action is planned.
"Ongoing" indicates that Treasury and Justice had not completed the
initiative by its target date, but that there was ongoing or planned
future work related to the initiative.
[B] According to Treasury officials, the 2003 NMLS will not include the
traffic light scorecard.
[C] According to Treasury officials, the department has had systems in
place to measure assets forfeited or seized pursuant to Treasury's
money laundering investigations. EOUSA officials told us that Justice,
EOUSA, and the U.S. Attorneys Offices--working closely with other
Justice law enforcement agencies--have ongoing efforts to develop a
reporting system to accurately measure assets forfeited or seized. The
officials noted that developing such a system is a complicated and
time-consuming process. Also, the officials said that future efforts to
develop a standardized reporting system inevitably would have to
include DHS.
[D] In 2001, the Customs Service's Money Laundering Coordination Center
completed a study to determine the percentage commission charged to
launder money in narcotics cases. The study was to serve as a baseline
for tracking changes in the commission rate over time. The 2002 NMLS
also noted that another federal agency had conducted a study relating
to the cost of doing business for alien smuggling. The 2002 strategy
called for FinCEN to lead an effort to examine these business model
assessments to determine if a systematic model could be constructed to
apply to all types of money laundering cases.
[E] In 2001, the Office of Management and Budget obtained budget data
from law enforcement and financial regulatory agency units that were
involved in the prevention, investigation, or prosecution of money
laundering.
[End of table]
Generally, the purpose of the 2002 NMLS measurement initiatives was to
provide Congress and other policymakers a basis for (1) evaluating
federal agencies' anti-money laundering efforts and results and (2)
deciding how to deploy limited public resources most effectively. For
example, the traffic-light scorecard was intended to provide
information on the overall performance of the federal government's
efforts to combat money laundering and assess how well the government
was executing each of the six goals described in the 2002 strategy (and
future strategies). Also, the 2002 NMLS notes that the initiative to
review law enforcement and financial regulatory costs and resources
devoted to anti-money laundering activities was designed to permit
Congress and other policymakers to draw informed conclusions about the
effectiveness of those activities.
The 2002 NMLS noted that, while deceptively easy to articulate in the
abstract, the task of developing meaningful performance measures for
federal agencies engaged in combating money laundering has proven to be
quite difficult. Treasury officials also told us that (1) the 2002
strategy was not published until July 2002, which did not leave much
time for either implementation or evaluation and (2) several
measurement initiatives were put on hold pending the reorganization
associated with DHS. Further, the officials noted that Treasury
generally had no plans to report on performance progress (results and
accomplishments) made under the 2002 strategy.
The 2002 strategy did provide, for the first time in an NMLS, some
baseline facts and figures designed to help determine how well the
federal government was succeeding in its efforts to detect, prevent,
and deter money laundering. For example, the strategy published U.S.
Sentencing Commission data for fiscal year 2000 regarding defendants
sentenced in federal court for the principal offense of money
laundering. The 2002 strategy noted that the Sentencing Commission data
could be tracked over a period of years and, thereby, serve as one
measure for evaluating progress in combating money laundering.
Treasury Has Not Met the Requirement for Annual Effectiveness Reports:
The Strategy Act required that--at the time each NMLS was transmitted
to the Congress (other than the first transmission of any such
strategy)--the Secretary of the Treasury submit a report containing an
evaluation of the effectiveness of policies to combat money laundering
and related financial crimes.[Footnote 34] As of July 2003, Treasury
had not submitted any effectiveness reports. Treasury officials said
they did not see this as a requirement to submit a separate report and,
in their view, the strategy itself has been used to report on the
effectiveness of the government's anti-money laundering efforts. The
officials explained that the "accomplishment" sections that were added
to the 2002 strategy were intended to meet the Strategy Act's reporting
requirement.
We believe that this information does not fully meet the Strategy Act's
requirement, because the accomplishment sections generally provided
descriptive information about initiatives rather than evaluations of
the effectiveness of policies to combat money laundering and related
financial crimes. For example, an accomplishment section in the 2002
strategy noted that HIFCA task forces initiated over 100 investigations
in 2001, but the section did not address the effectiveness of the HIFCA
concept or the task forces.
Ways to Incorporate Critical Strategy Components into the NMLS:
We identified a number of ways in which the critical components for
national strategies could be incorporated into the NMLS, should
Congress decide to continue the requirement. To incorporate a more
clearly defined leadership structure that has the ability to marshal
resources for a coordinated effort against money laundering and
terrorist financing, a high-level leadership mechanism could be
reestablished or a single official could be designated to carry out
this responsibility. The role of the leadership structure would be to
marshal resources to ensure that the vision laid out in the strategy is
achieved, resolve disputes between agencies, and ensure accountability
for strategy implementation. This leadership mechanism would also be in
a good position to evaluate annual progress and report such progress to
Congress, as is currently required of Treasury. This is especially
critical now that there are three principal departments with anti-money
laundering and antiterrorist financing responsibilities, in addition to
the federal financial regulators.
One way to help set clear priorities and focus resources on the areas
of greatest need would be to require that the strategy be linked to a
periodic threat assessment. Such an assessment would outline what the
lead agencies see as the most significant threats. This would provide a
better basis to draft a strategy to address these threats. Performance
could be measured by the level of progress made in combating these
threats.
One way to improve accountability for the agencies and regulators
following the strategy would be for the strategy to set broad policy
objectives that leave it to the principal agencies to develop outcome-
oriented performance measures that are linked to the NMLS's goals and
objectives. These performance measures would be reflected in the
agencies' annual performance plans. However, our work showed that,
throughout its history, the NMLS has tried to specify detailed
priorities for each objective, many of which were not accomplished or,
in the case of the financial regulators, would have been accomplished
for statutory reasons even without a strategy.
Conclusions:
The annual NMLS has had mixed results in guiding the efforts of law
enforcement and financial regulators in the fight against money
laundering and, more recently, terrorist financing. Through our work in
reviewing other national strategies, we have identified critical
components needed for successful development and implementation; but,
to date, these components have not been well reflected in the annual
NMLS. We believe that incorporating these critical components into the
NMLS would improve its development and implementation. For example, the
current NMLS leadership structure has not reached consensus on the
approach the strategy should take or ensured that goals and objectives
are met, and has failed to issue any of the annual strategies on time.
A clearly defined high-level leadership structure could better ensure
that resources are appropriately marshaled for achieving the strategy's
vision and goals.
Also, without an assessment of threats and risks, it is difficult to
determine what the highest-priority activities should be. Linking the
strategy's development to a periodic assessment of threats and risks
could help set priorities and ensure that resources are focused on the
areas of greatest need. Moreover, such assessments could be helpful in
tracking progress made in combating money laundering and terrorist
financing.
Furthermore, the establishment of accountability mechanisms could help
to provide a basis for monitoring and assessing NMLS implementation.
One possible mechanism would be linking the relevant agencies'
performance plans more closely to NMLS goals and objectives. Another
mechanism would be to ensure that periodic progress reports are
submitted to Congress, as currently required by the Strategy Act.
In sum, if Congress decides to reauthorize the requirement for an
annual NMLS, adoption of these critical components in the agencies'
future efforts could help to resolve or mitigate the deficiencies we
identified.
Recommendations for Executive Action:
If Congress reauthorizes the requirement for an annual NMLS, we
recommend that the Secretary of the Treasury, working with the Attorney
General and the Secretary of Homeland Security, take appropriate steps
to:
* strengthen the leadership structure responsible for strategy
development and implementation by establishing a mechanism that would
have the ability to marshal resources to ensure that the strategy's
vision is achieved, resolve disputes between agencies, and ensure
accountability for strategy implementation;
* link the strategy to periodic assessments of threats and risks, which
would provide a basis for ensuring that clear priorities are
established and focused on the areas of greatest need; and:
* establish accountability mechanisms, such as (1) requiring the
principal agencies to develop outcome-oriented performance measures
that must be linked to the NMLS's goals and objectives and that also
must be reflected in the agencies' annual performance plans and (2)
providing Congress with periodic reports on the strategy's results.
Agency Comments and Our Evaluation:
We provided a draft of this report for review and comment to the
Departments of the Treasury, Justice, and Homeland Security; seven
federal financial regulatory agencies (FRB, FDIC, OCC, OTS, NCUA, SEC,
and CFTC); and the National Security Council.
In written comments, Treasury said that our recommendations for
improving the process for creating the NMLS and enhancing
accountability of all agencies with responsibility for combating
financial crimes and the financing of terrorism are important, should
Congress reauthorize the legislation requiring future strategies.
Justice did not specifically address our recommendations but said that
our observations and conclusions will be helpful in assessing the role
that the strategy process has played in the federal government's
efforts to combat money laundering. For example, Justice concurred with
our conclusion that linking the strategy's development to a threat
assessment could help set priorities and ensure that limited resources
are focused on the areas of greatest need. DHS said that it would work
with the Secretary of the Treasury as recommended and would do its part
to implement necessary actions to address concerns raised in the
report.
Treasury, Justice, and DHS said that the lack of funds to finance NMLS
development and implementation was an impediment and that the success
of the HIFCA program in particular would be enhanced by an independent
funding source. While we did not assess the participating agencies'
funding decisions regarding the NMLS or the HIFCA program, our report
acknowledges that federal law enforcement agencies have resource
constraints and competing priorities. We also note, however, that a
primary purpose of the NMLS was to improve the coordination and quality
of federal anti-money laundering investigations by concentrating and
leveraging existing resources, including funding. Further, the report
notes that HIFCA task force officials said that the lack of funding to
compensate or reimburse participating state and local law enforcement
agencies was a barrier to their participation. The 2002 NMLS called for
an interagency team to examine how to fund the colocation of
participants in HIFCA task forces absent funds appropriated for that
purpose. At the time of our review, this initiative had not yet been
completed.
Treasury also said that it has satisfied the Strategy Act requirement
that it submit a report to Congress--at the time the NMLS is submitted-
-on the effectiveness of policies to combat financial crimes. Treasury
said that (1) evaluations of effectiveness have been contained in the
NMLS itself and (2) any evaluation of effectiveness logically forms a
part of the NMLS. While the annual strategies have contained some
useful information to help Congress better understand programs to
combat money laundering and terrorist financing, the strategies
generally have provided descriptive information about NMLS initiatives
rather than evaluations of the effectiveness of policies. As noted in
our report, Treasury and Justice have efforts under way to measure
performance that, when completed, could provide useful input into an
overall evaluation of the effectiveness of policies to combat financial
crimes.
DHS highlighted the value of its Money Laundering Coordination Center,
stating that the center has provided information to DEA, FBI, and other
outside agencies on at least 46 occasions and that DEA was the most
active outside agency user of the center, with at least 21 requests for
assistance. While the sharing of relevant information is commendable,
as mentioned in our report, DEA officials told us that the center does
not meet DEA's needs and that DEA has created a new database for
information on money laundering investigations related to drugs. DHS
also provided additional information on (1) methods used by ICE to
coordinate terrorist financing investigations with other agencies and
(2) steps taken by ICE and the FBI to implement the May 2003 memorandum
of agreement between Justice and DHS regarding roles and
responsibilities in investigating terrorist financing.
The full text of Treasury's, Justice's, and DHS's written comments are
reprinted in appendix IV, V, and VI, respectively. The three
departments also provided technical comments and clarifications, which
have been incorporated in this report where appropriate.
Of the seven federal financial regulatory agencies, four (FRB, FDIC,
NCUA, and SEC) provided technical comments and clarifications, which
have been incorporated in this report where appropriate. The other
three agencies (OCC, OTS, and CFTC) had no comments. FDIC also said
that, should a national money laundering strategy continue, annual
goals should be achievable and roles and responsibilities clearly
defined.
The National Security Council did not respond to our request for
comments.
As arranged with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report until
30 days after its issue date. At that time, we will send copies of this
report to interested congressional committees and subcommittees. We
will also make copies available to others on request. In addition, the
report will be available at no charge on GAO's Web site at http://
www.gao.gov.
If you or your staffs have any questions about this report or wish to
discuss the matter further, please contact Richard M. Stana at (202)
512-8777 or by e-mail at stanar@gao.gov or Davi M. D'Agostino at (202)
512-8678 or by e-mail at dagostinod@gao.gov. GAO contacts and key
contributors to this report are listed in appendix VII.
Richard M. Stana, Director Homeland Security and Justice:
Davi M. D'Agostino, Director Financial Markets and Community
Investment:
Signed by Richard M. Stana and Davi M. D'Agostino:
[End of section]
Appendix I: Scope and Methodology:
We conducted our work from June 2002 to August 2003 in accordance with
generally accepted government auditing standards.
To determine agency perspectives on the benefit of the annual National
Money Laundering Strategy (NMLS), we interviewed responsible officials
at and reviewed relevant documentation obtained from the principal law
enforcement components with anti-money laundering responsibilities at
the Departments of the Treasury, Justice, and Homeland Security and the
federal financial regulatory agencies. To determine whether the NMLS
has served as a useful mechanism for guiding law enforcement agencies'
efforts, we (1) compared the structure and operation of High Intensity
Money Laundering and Related Financial Crime Area (HIFCA) task forces
to guidance provided in the strategies, (2) assessed whether the
implementation of NMLS initiatives to enhance interagency coordination
has met strategic goals, and (3) assessed the extent to which the 2002
NMLS addressed agency roles in combating terrorist financing. To do
this, we interviewed responsible officials and reviewed documentation
from the four primary agencies responsible for investigating money
laundering and related financial crimes--Treasury's Internal Revenue
Service-Criminal Investigation (IRS-CI), Justice's Federal Bureau of
Investigation (FBI) and Drug Enforcement Administration (DEA), and
Homeland Security's Bureau of Immigration Control and Enforcement
(ICE).[Footnote 35] For investigations of terrorist financing, we
reviewed the roles and activities of and interviewed officials from
ICE's Operation Green Quest (OGQ) and two FBI components--Terrorist
Financing Operations Section (TFOS) and Joint Terrorism Task Forces
(JTTF).[Footnote 36] Our work with law enforcement agencies was
conducted at the principal federal agencies' headquarters in
Washington, D.C., and at field office locations in three major U.S.
financial centers (Los Angeles, Miami, and New York City).
To determine the role of the NMLS in influencing the anti-money
laundering activities of federal financial regulators, we reviewed
their efforts to carry out the NMLS 2002 goal, "Prevent Money
Laundering Through Cooperative Public-Private Efforts and Necessary
Regulatory Measures," and its earlier iterations. We gathered
information on these agencies' anti-money laundering and antiterrorist
financing efforts--including efforts to implement provisions of the
Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT
Act)--and determined the influence of the NMLS on those efforts. We
also examined the role the financial regulators played in supporting
Treasury's efforts under the NMLS goal to strengthen international
cooperation to fight money laundering. To do this work, we interviewed
responsible headquarters officials and reviewed documentation from the
Commodity Futures Trading Commission (CFTC), Federal Deposit Insurance
Corporation (FDIC), Federal Reserve Board (FRB), National Credit Union
Administration (NCUA), Office of the Comptroller of the Currency (OCC),
Office of Thrift Supervision (OTS), Treasury, and Securities and
Exchange Commission (SEC). We also interviewed officials from the law
enforcement agencies listed above to assess coordination between law
enforcement and the financial regulators.
To compare NMLS efforts to the components we have found are necessary
for a successful strategy, we reviewed drafts of the strategies from
1999 to 2002, interviewed officials who had been involved in the
development and implementation of the strategies, and compared the
results from this work with findings from our past work reviewing
national strategies and their implementation.
[End of section]
Appendix II: Legislation Has Expanded the Responsibility to Combat Money
Laundering:
The U.S. government's framework for preventing, detecting, and
prosecuting money laundering has been expanded through additional
pieces of legislation since its inception in 1970 with the Bank Secrecy
Act (BSA).[Footnote 37] The BSA required, for the first time, that
financial institutions maintain records and reports that financial
regulators and law enforcement agencies have determined have a high
degree of usefulness in criminal, tax, and regulatory matters. The BSA
authorizes the Secretary of the Treasury to issue regulations on the
reporting of certain currency transactions. The BSA had three main
objectives: create an investigative audit trail through regulatory
reporting standards; impose civil and criminal penalties for
noncompliance; and improve detection of criminal, tax, and regulatory
violations.
The reporting system implemented under the BSA was by itself an
insufficient response to money laundering because, under the BSA,
anybody who satisfied the reporting requirements would not be subject
to money laundering violations. Thus, Congress enacted the Money
Laundering Control Act of 1986 (MLCA),[Footnote 38] which made money
laundering a criminal offense separate from any BSA reporting
violations. It created criminal liability for individuals or entities
that conduct monetary transactions knowing that the proceeds involved
were obtained from unlawful activity and made it a criminal offense to
knowingly structure transactions to avoid BSA reporting. Penalties
under the MLCA include imprisonment, fines, and forfeiture.
Congress enacted the Money Laundering Prosecution Improvements Act of
1988 to enhance the provisions of the BSA and the MLCA and amended
provisions in both statutes.[Footnote 39] The Improvements Act aimed to
increase the cooperation that the government receives from financial
institutions by imposing liability and fines on facilitators, such as
negligent bankers. It also expanded the definition of a financial
institution under the BSA and permitted government agencies to
undertake sting operations.
The Annunzio-Wylie Anti-Money Laundering Act of 1992 amended the BSA in
a number of ways.[Footnote 40] It authorized Treasury to require
financial institutions to report any suspicious transaction relevant to
a possible violation of a law. It also authorized Treasury to require
financial institutions to carry out anti-money laundering programs and
create record-keeping rules relating to fund transfer transactions.
Annunzio-Wylie also made the operation of an illegal money transmitting
business a crime.
As authorized by Annunzio-Wylie, in 1996, Treasury issued a rule
requiring that banks and other depository institutions use a Suspicious
Activity Report (SAR) form to report activities involving possible
money laundering. During the same year, bank regulators issued
regulations requiring all depository institutions to report suspected
money laundering as well as other suspicious activities using this
form. The bank regulators also placed SAR requirements on the
subsidiaries, including broker-dealer firms, of the depository
institutions and their holding companies under their jurisdiction.
The Money Laundering and Financial Crimes Strategy Act of 1998
(Strategy Act)[Footnote 41] amended the BSA to require the President,
acting through the Secretary of the Treasury, in consultation with the
Attorney General and other relevant agencies, including state and local
agencies, to coordinate and implement a national strategy, produced
annually for 5 years beginning in 1999, to address money laundering. In
addition, it requires the Secretary of the Treasury to designate
certain areas as high-risk areas for money laundering and related
financial crimes and to establish a Financial Crime-Free Communities
Support Program. The purpose of demarcating areas as high risk is to
designate the communities that experience severe problems with money
laundering that need more help. The Strategy Act also authorizes
federal funding of efforts by state and local law enforcement agencies
to investigate money laundering activities. In 1999, Treasury consulted
with 18 federal agencies, bureaus, and offices in developing the NMLS.
By 2002, that number had increased to over 25. The Strategy Act
provides that the NMLS should include:
1. Goals for reducing money laundering and related financial crimes in
the United States.
2. Goals for coordinating regulatory efforts to prevent the
exploitation of financial systems in the United States through money
laundering.
3. A description of operational initiatives to improve the detection
and prosecution of money laundering and related financial crimes and
the seizure and forfeiture of the proceeds derived from those crimes.
4. The enhancement of partnerships between the private financial sector
and law enforcement agencies with regard to the prevention and
detection of money laundering and related financial crimes.
5. The enhancement of cooperative efforts between the federal
government and state and local officials, including state and local
prosecutors and other law enforcement officials; and cooperative
efforts among the several states and between state and local officials,
including state and local prosecutors and other law enforcement
officials.
In the wake of the September 11 terrorist attacks, Congress enacted the
Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act) on
October 25, 2001.[Footnote 42] The passage of the USA PATRIOT Act was
prompted, in part, by the enhanced awareness of the importance of
combating terrorist financing as part of the U.S. government's overall
anti-money laundering efforts, because terrorist financing and money
laundering both involve similar techniques. Title III of the USA
PATRIOT Act, among other things, expands Treasury's authority to
regulate the activities of U.S. financial institutions; requires the
promulgation of regulations; imposes additional due diligence
requirements; establishes new customer identification requirements;
and requires financial institutions to maintain anti-money laundering
programs. In addition, title III adds activities that can be prosecuted
as money laundering crimes and increases penalties for activities that
were money laundering crimes prior to enactment of the USA PATRIOT Act.
Further, title III amends various sections of the BSA, the MLCA, and
other statutes. Appendix III contains a detailed summary of key
provisions in title III of the USA PATRIOT Act.
[End of section]
Appendix III: Summary of Key Anti-Money Laundering Provisions in Title
III of the USA PATRIOT Act and Rules:
[See PDF for image]
[End of figure]
[End of section]
Appendix IV: Comments from the Department of the Treasury:
DEPARTMENT OF THE TREASURY WASHINGTON, D.C. 20220:
September 15, 2003:
Mr. Richard M. Stana Director:
Homeland Security and Justice:
United States General Accounting Office
Washington, D.C. 20548:
Ms. Davi M. D'Agostino
Director:
Financial Markets and Community Investment
United States General Accounting Office
Washington, D.C. 20548:
Dear Mr. Stana and Ms. D'Agostino:
Thank you for the opportunity to comment on the September 2003 draft
report entitled, "Combating Money Laundering: Opportunities Exist to
Improve the National Strategy" (GAO-03-813). We welcome the assessment
of both the successes and challenges associated with the National Money
Laundering Strategy (NMLS). In particular, we believe that your
recommendations for improving the process for creating the NMLS and
enhancing accountability of all agencies with responsibility for
combating financial crime and the financing of terrorism are important,
should Congress reauthorize the enabling legislation.
Treasury is committed to working across agency and departmental lines
to develop a cohesive strategy for attacking financial crime and
terrorist financing through all available channels, including criminal
investigations, the domestic regulatory regime, and the international
financial system. In the assessment of the process for creating such a
strategy, we appreciate the GAO's recognition of the practical
difficulties associated with ensuring accountability for the goals and
priorities identified. The dedicated professionals within the U.S.
Government share the common goal of stemming the flow of illicit funds
and funds intended to finance terrorism; however, that overarching goal
and related activities are certainly affected by competing priorities
and limited resources. Thus, priorities identified within the NMLS may
well shift or be adapted throughout the year to allow for attention to
be focused on equally, or even more, important objectives that may
arise.
We concur with the assessment that outside events and legislation have
a strong influence on the regulatory agenda, and believe that this is
appropriate. This is reflected in recent strategies in which we have
identified goals and priorities of Treasury and the regulators that
arise out of legislation. Treasury, law enforcement, the regulatory
community, and the financial services industry have been able to attain
a new level of cooperation as a result of recent events, such as the
passage of the USA PATRIOT Act. The results have been palpable, such as
the issuance of smarter regulations tailored to the financial
institutions affected and an enhanced ability to fight financial crime
and the financing of terrorism. We have made it part of our strategy to
continue to foster this cooperation.
An important purpose of the GAO report on the NMLS is to inform
Congress' consideration of whether to reauthorize the legislation
requiring future strategies. With this in mind, Treasury has two
important comments concerning certain aspects of the draft report as
outlined below because we believe that such issues are relevant to
Congress' consideration of whether to renew the Strategy Act and, if
so, in what form. Specifically:
* The draft report discusses problems associated with the High Intensity
Money Laundering and Related Financial Crime Areas (HIFCAs). While the
discussion acknowledges the lack of additional resources associated
with a HIFCA designation, we think it important to emphasize this point
further. In our view, the lack of funds to finance HIFCA operations is
an impediment to their creation and viability. Should the Congress
choose to reauthorize the HIFCA program, the likelihood of success of
that program will in large measure be enhanced by attaching an
independent source of funding.
* Treasury takes the position that the requirement contained in 31
U.S.C. § 5341(c) - that the Secretary submit a report to Congress, at
the time the NMLS is submitted, evaluating the effectiveness of
policies to combat financial crime - has been satisfied by the
evaluations of effectiveness contained in the NMLS itself. The draft
GAO report suggests that Treasury has not complied with this
requirement. Treasury believes that any evaluation of effectiveness
logically forms a part of the NMLS.
Treasury remains committed to developing a cohesive strategy to combat
the financing of terrorism and financial crime. We look forward to
continuing to work with Congress and the GAO to discuss prior
strategies and our views concerning the possible reauthorization of the
Strategy Act. Thank you for the opportunity to review and comment on
the draft report.
Sincerely,
Signed by:
Juan C. Zarate:
Deputy Assistant Secretary:
Executive Office for Terrorist Financing & Financial Crimes:
[End of section]
Appendix V: Comments from the Department of Justice:
U.S. Department of Justice:
SEP 15 2003:
Washington, D.C 20530:
Mr. Richard M. Stana
Director, Justice Issues
General Accounting Office
Washington, D.C. 20548:
Dear Mr. Stana:
Thank you for the opportunity to review the final draft of the General
Accounting Office (GAO) report entitled "COMBATING MONEY LAUNDERING:
Opportunities Exist to Improve the National Strategy, GAO-03-813." This
draft report was reviewed by representatives of the Department of
Justice's (DOJ) Criminal Division, Federal Bureau of Investigation,
Drug Enforcement Administration and the Executive Office of the United
States Attorneys. This letter constitutes the DOJ's formal comments and
I request that it be included in the final report. The DOJ's technical
comments are provided under separate cover and I understand they will
be incorporated appropriately in the final report.
The extensive effort that your staff has put into this report and the
opportunity to work with them on this important issue is appreciated.
The draft report's analysis of the issues surrounding the National
Money Laundering Strategy (NMLS) represents a comprehensive analysis of
the strategy process
issues over the past five years. We believe that the report's
discussion of the strengths and weaknesses of the strategy process will
make a significant contribution to future endeavors of this nature.
We would like to comment on several aspects of the draft report.
However, preliminarily, we would like to emphasize that, even though we
agree that the strategy did not reach its potential for integrating and
harmonizing the nation's efforts to combat money laundering, there
should be no doubt that the DOJ was fully committed to the strategy
process. Over the past five years, the DOJ, along with the Department
of the Treasury (Treasury), devoted considerable resources to the
strategy process. This is especially true with respect to the High
Intensity Money Laundering and Related Financial Criminal Area (HIFCA)
program. After the Money Laundering and Financial Crimes Strategy Act
(the Strategy Act) was passed in 1998, the Treasury set up an
interagency HIFCA Working Group to develop and implement the HIFCA
program. This group met industriously over the five-year period to
develop a program without any additional resources. All of the
participating agencies put forth their best efforts to work together to
find the best way to operate the program. The HIFCA Working Group is
now in the process of conducting a review of the five years of the
HIFCA program. While the results of the HIFCA program and the strategy
process as a whole have been varied, this was not due to a lack of
commitment or effort despite the unfunded mandate.
With respect to the substance of the draft report, the DOJ agrees with
several of the report's observations and conclusions. First, as we
stated to the analysts and as reflected in the draft report (p. 48),
the Strategy Act did not provide additional funding or otherwise
enhance the DOJ or Treasury's ability to develop and implement the
annual strategies. As a result, any resources devoted to the strategy
process were diverted from other ongoing duties. This limited the
amount of resources that could be devoted to the strategy process. The
lack of additional resources was especially critical with respect to
the HIFCA program, where prosecutors and law enforcement agents in the
field were asked to take on additional responsibilities without any
resource enhancements. Without supplemental resources, it is difficult
to develop and implement a new program.
Second, the DOJ agrees with the conclusion that the strategy process
suffered from the lack of a threat assessment and the lack of clear
prioritization. We concur with the conclusion that linking the
strategy's development to a threat assessment could help set priorities
and ensure that limited resources are focused on the areas of greatest
need. Without a threat assessment, it is difficult to establish
priorities and focus resources.
In conclusion, the DOJ would like to commend the GAO analysts who
worked on this report. DOJ representatives met with them on several
occasions and they worked diligently to analyze all aspects of this
issue in a fair and constructive manner. Their observations and
conclusions will be most helpful in assessing the role that the
strategy process has played in the federal government's efforts to
combat money laundering. The DOJ is committed to continuing and
improving our efforts in this regard and looks forward to working with
the GAO in the future on the important issue of money laundering.
Sincerely,
Signed by:
Paul Corts:
Assistant Attorney General for Administration:
cc:
Julie Wellman, Audit Liaison, Criminal Division Donna Enos, Audit
Liaison, USA:
Marji Snider, Audit Liaison, DEA Monica McLean, Audit Liaison, FBI:
[End of section]
Appendix VI: Comments from the Department of Homeland Security:
U.S. Department of Homeland Security:
Bureau of Immigration and Customs Enforcement:
425 I Street NW Washington, DC 20229:
SEP 25 2003:
Mr. Richard M. Stana:
Director, Homeland Security and Justice Issues:
Ms. Davi M. D'Agostino Director, Financial Markets and Community
Investment:
U.S. General Accounting Office 441 G Street, NW:
Washington, DC 20548:
Dear Mr. Stana and Ms. D'Agostino:
We have received your draft report, Combating Money Laundering:
Opportunities Exist to Improve the National Strategy, GAO-03-813 and
appreciate being provided the opportunity to comment. Overall we agree
to work with the Secretary of the Treasury as recommended and we will
do our part to implement necessary actions to address concerns raised
in the report. Below we have commented on each recommendation as well
as on information presented in the report.
Recommendation: Strengthen the leadership structure responsible for
strategy development and implementation by establishing a mechanism
that would have the ability to marshal resources to ensure the
strategy's vision is achieved, resolve disputes between agencies, and
ensure accountability for strategy implementation.
We wish to note the lack of funding to support the High Intensity
Laundering and Related Financial Crime Areas (HIFCA) program, one of
the major initiatives in the National Money Laundering Strategy (NMLS)
to enhance information sharing and coordinated investigative activity
among federal, state and local law enforcement agencies, impacted the
effectiveness of implementing the strategy. The establishment of the
Department of Homeland Security should, in time, eliminate duplicative
functions and enhance coordination of intelligence and investigative
efforts among its component law enforcement agencies.
Recommendation: Link the strategy to periodic assessments of threats and
risks, which would provide a basis for ensuring that clear priorities
are established and focused on the areas of greater need.
We agree with the intent of the recommendation.
Recommendation: Establish accountability mechanisms, such as (1)
requiring the principal agencies to develop outcome-oriented
performance measures that must be linked to the NMLS' goals and
objectives and that also must be reflected in the agencies' annual
performance plans and (2) providing Congress periodic reports on the
strategy's results.
We agree that Congress should be provided with periodic reports
analyzing the results and effectiveness of the NMLS, and we look
forward to working on an interagency basis to provide this information
to the Congress.
Additional Departmental Comments:
HIFCA task forces generally had not yet been structured and operating
as intended.
Page 21 (first paragraph) states that HIFCAs were expected to have a
key role in the
Federal Government's efforts to disrupt and dismantle large-scale money
laundering. They were intended to improve the coordination and quality
of federal money laundering investigations by concentrating the
investigative expertise of federal, state, and local agencies in
unified
task forces, thereby leveraging resources and creating investigative
synergies. While neither the Money Laundering and Financial Crimes
Strategy Act nor the annual NMLS specified a
time frame for when designated HIFCAs were to become fully operational,
we found the task forces had made some progress but generally had not
yet been structured and operating as intended.
DHS Comments: A significant impediment was that no source of permanent
funding was provided for HIFCA. Funds have not been available to support
co-location of facilities and equipment, which would have facilitated
collaboration and joint investigations by federal, state and local law
enforcement.
NMLS initiatives to enhance coordination of law enforcement investi atg
ions generally were not addressed or were still ongoing.
Page 31 (second paragraph) states Drug Enforcement Administration (DEA)
and Federal Bureau of Investigation (FBI) officials told the Government
Accounting Office (GAO) their agencies did not use the Money Laundering
Coordination Center because they could not reach a satisfactory
memorandum of understanding regarding participation, including
controls over the dissemination of information. DEA officials added the
center does not meet DEA's needs because it is used for deconfliction
only.
DHS Comments: On scores of occasions, the Money Laundering Coordination
Center provided information to the DEA, FBI, Internal Revenue Service
and U.S. Postal Inspection Service. The Money Laundering Coordination
Center identifies crossovers between money laundering operations and
investigations worldwide; coordinates the exchange of money laundering
information between agencies; and identifies methodologies and trends
gathered from financial investigations, outbound currency operations,
and Foreign Investigative Teams. DEA was the most active outside agency
user of the Money Laundering Coordination Center with over 20 requests
for assistance.
Most law enforcement coordination initiatives were not addressed or
were still ongoing.
Page 32 (second paragraph) states according to the 2002 NMLS and our
discussions with:
law enforcement officials, the lack of uniform guidelines inhibits some
agencies from participating in investigations that have an
international component. For example, a DEA official told us DEA
guidelines generally are more restrictive than guidelines used by
Customs (as part of U.S. Immigration and Customs Enforcement (ICE)) in
(1) obtaining approval to initiate and continue undercover
investigations and (2) coordinating activities with foreign
counterparts. Therefore, the officials noted that DEA generally could
not participate in
international undercover money laundering investigations led by U.S.
Immigration and Customs Enforcement.
DHS Comments: U.S. Immigration and Customs Enforcement's Undercover
Review Committee, of which the Department of Justice is a participant,
reviews the progress of each certified undercover operation every 6
months. If the undercover operation is not achieving minimum goals or
its performance is unsatisfactory, the operation is closed. Department
of Justice representatives at committee meetings are extended an
opportunity to vote in favor of or disapprove all undercover
operations.
Agencies did not -fully coordinate terrorist financing investigations.
Page 37 (first paragraph) states at the operational level, GAO found
some interagency coordination of terrorist financing investigations
existed between agency Headquarters' components. For example, Operation
Green Quest and the Terrorist Financing Operations Section had assigned
one agent to each other's Headquarters in Washington, DC. The FBI also
was to provide information on its activities to Operation Green Quest
through daily downloads from the FBI's terrorist financial database.
Further, Operation Green Quest and FBI officials told GAO that local
mechanisms existed around the country to deconflict investigations.
DHS Comments: The interagency participation, including FBI, at the
Operation Green Quest Headquarters task force was specifically designed
to deconflict and coordinate field investigations. This process
included complete access to investigative data and vetting of
information to insure no duplication of effort occurred at the
Headquarters and field office levels.
Agencies did not fully coordinate terrorist financing investigations.
(Continued):
Page 37 (second paragraph) states that while Operation Green Quest and
the FBI task forces took steps to inform each other about the targets
of their investigations, GAO found the task forces did not fully
coordinate their activities. For example, at the three locations GAO
visited:
(Los Angeles, Miami, and New York City), Operation Green Quest and
Joint Terrorism Task Force officials told GAO they generally were not
aware of each other's financial investigations and the task forces
generally did not share investigative information. Several officials
indicated there were problems with conflicting or competing
investigations, including disagreements over which task force should
lead investigations. Officials at all three locations noted the
Government's anti-terrorist financing efforts could be improved if the
task forces worked more closely with each other or were combined.
DHS Comments: Coordination of terrorist financing investigations was
conducted at both the Headquarters and field levels. Operation Green
Quest had a targeting and coordination center located at ICE
Headquarters in Washington, DC. Staffed by agents and analysts from the
various participating agencies, including the FBI, the center
collected, managed, and disseminated financial leads to ICE field
agents around the country. The center also coordinated and deconflicted
all terrorist-financing investigations with the participating member
task force agencies to minimize duplication of investigative efforts
aimed at terrorist financing networks. This deconfliction took place on
a daily basis at Headquarters and through ICE agents assigned to the
Joint Terrorism Task Force at field offices.
May 2003 Interagency Agreement defined agency roles.
Page 38 (third paragraph) states that on May 13, 2003, the Attorney
General and the Secretary of Homeland Security signed a Memorandum of
Agreement (MOA) regarding the anti-terrorist financing roles of the
respective departments and component agencies. In general, the
agreement gives the FBI the lead role in investigating terrorist
financing and specifies that DHS is to pursue terrorist financing
investigations solely through its participation in FBI-led task forces,
except as expressly approved by the FBI.
DHS Comments: Under the MOA, ICE and the FBI developed collaborative
procedures to determine whether a case is related to terrorism or
terrorist financing and should be referred to the Joint Terrorism Task
Forces. These procedures govern all past, current and future cases with
terrorist links. The MOA promotes the sharing of intelligence and
information between the two organizations. To facilitate the exchange
of information we have created a Joint Vetting Unit within the
Financial Investigations Division at ICE Headquarters. The Joint
Vetting Unit uses the existing Operation Green Quest vetting
methodology to identify financial leads or investigations with a nexus
to terrorism or terrorism financing. It will be staffed by ICE and FBI
personnel who will have full access to relevant databases to conduct
reviews to determine whether ICE leads the appropriate investigation or
determine if the investigations have a nexus to terrorism or terrorist
financing.
Additionally, as per the MOA, the Financial Investigations Division has
assigned two agents to the FBI, one of whom is a senior manager,
currently in the position of Deputy Section Chief of Terrorist
Financing Operations Centers.
Thank you again for the opportunity to respond to the draft report. If
you have any questions, please contact Kathleen Stanley, Audit Liaison,
U.S. Immigration and Customs Enforcement, at (202) 353-8031.
Signed by:
Michael J. Garcia:
Acting Assistant Secretary:
[End of section]
Appendix VII: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Davi M. D'Agostino, (202) 512-8678 Richard M. Stana, (202) 512-8777:
Acknowledgments:
In addition to those named above, Allison Abrams, Thomas Conahan, Eric
Erdman, Barbara Keller, Marc Molino, Jan Montgomery, Robert Rivas,
Barbara Roesmann, and Sindy Udell made key contributions to this
report.
[End of section]
Related GAO Products:
Internet Gambling: An Overview of the Issues. GAO-03-89. Washington,
D.C.: December 2, 2002.
Interim Report on Internet Gambling. GAO-02-1101R. Washington, D.C.:
September 23, 2002.
Money Laundering: Extent of Money Laundering through Credit Cards is
Unknown. GAO-02-670. Washington, D.C.: July 22, 2002.
Money Laundering: Oversight of Suspicious Activity Reporting at Bank-
Affiliated Broker-Dealers Ceased. GAO-01-474. Washington, D.C.: March
22, 2001.
Suspicious Banking Activities: Possible Money Laundering by U.S.
Corporations Formed for Russian Entities. GAO-01-120. Washington, D.C.:
October 31, 2000.
Money Laundering: Observations on Private Banking and Related Oversight
of Selected Offshore Jurisdictions. GAO/T-GGD-00-32. Washington, D.C.:
November 9, 1999.
Private Banking: Raul Salinas, Citibank, and Alleged Money Laundering.
GAO/T-OSI-00-3. Washington, D.C.: November 9, 1999.
Private Banking: Raul Salinas, Citibank, and Alleged Money Laundering.
GAO/OSI-99-1. Washington, D.C.: October 30, 1998.
Money Laundering: Regulatory Oversight of Offshore Private Banking
Activities. GAO/GGD-98-154. Washington, D.C.: June 29, 1998.
Money Laundering: FinCEN's Law Enforcement Support Role Is Evolving.
GAO/GGD-98-117. Washington, D.C.: June 19, 1998.
Money Laundering: FinCEN Needs to Better Manage Bank Secrecy Act Civil
Penalties. GAO/GGD-98-108. Washington, D.C.: June 15, 1998.
Money Laundering: FinCEN's Law Enforcement Support, Regulatory, and
International Roles. GAO/T-GGD-98-83. Washington, D.C.: April 1, 1998.
Money Laundering: FinCEN Needs to Better Communicate Regulatory
Priorities and Timelines. GAO/GGD-98-18. Washington, D.C.: February 6,
1998.
Private Banking: Information on Private Banking and Its Vulnerability
to Money Laundering. GAO/GGD-98-19R. Washington, D.C.: October 30,
1997.
Money Laundering: A Framework for Understanding U.S. Efforts Overseas.
GAO/GGD-96-105. Washington, D.C.: May 24, 1996.
Money Laundering: U.S. Efforts to Combat Money Laundering Overseas.
GAO/T-GGD-96-84. Washington, D.C.: February 28, 1996.
Money Laundering: Stakeholders View Recordkeeping Requirements for
Cashier's Checks As Sufficient. GAO/GGD-95-189. Washington, D.C.: July
25, 1995.
Money Laundering: U.S. Efforts to Fight It Are Threatened by Currency
Smuggling. GAO/GGD-94-73, Washington, D.C.: March 9, 1994.
Money Laundering: Characteristics of Currency Transaction Reports Filed
in Calendar Year 1992. GAO/GGD-94-45FS. Washington, D.C.: November 10,
1993.
Money Laundering: Progress Report on Treasury's Financial Crimes
Enforcement Network. GAO/GGD-94-30. Washington, D.C.: November 8, 1993.
Money Laundering: The Use of Bank Secrecy Act Reports by Law
Enforcement Could Be Increased. GAO/T-GGD-93-31. Washington, D.C.: May
26, 1993.
Money Laundering: State Efforts to Fight It Are Increasing but More
Federal Help Is Needed. GAO/GGD-93-1. Washington, D.C.: October 15,
1992.
Money Laundering: Civil Penalty Referrals for Violations of the Bank
Secrecy Act Have Declined. GAO/T-GGD-92-57. Washington, D.C.: June 30,
1992.
Tax Administration: Money Laundering Forms Could Be Used to Detect
Nonfilers. GAO/T-GGD-92-56. Washington, D.C.: June 23, 1992.
Money Laundering: Treasury Civil Case Processing of Bank Secrecy Act
Violations. GAO/GGD-92-46. Washington, D.C.: February 6, 1992.
Money Laundering: The Use of Cash Transaction Reports by Federal Law
Enforcement Agencies. GAO/GGD-91-125. Washington, D.C.: September 25,
1991.
Money Laundering: The U.S. Government Is Responding to the Problem.
GAO/NSIAD-91-130. Washington, D.C.: May 16, 1991.
Money Laundering: Treasury's Financial Crimes Enforcement Network. GAO/
GGD-91-53. Washington D.C.: March 18, 1991.
FOOTNOTES
[1] Pub. L. 105-310, 112 Stat. 2941 codified as 31 U.S.C. §§ 5340-42,
5351-55 (1998).
[2] 18 U.S.C. § 1956-57 (1994).
[3] Currency and Foreign Transactions Reporting Act (commonly referred
to as the Bank Secrecy Act), Pub. L. No. 91-508, 84 Stat. 1114 (1970)
(codified as amended in 12 U.S.C. §§ 1829(b), 1951-1959; 31 U.S.C. §§
5311-5330.
[4] Such an "area" could be a geographic area, financial system,
industry sector, or financial institution.
[5] The anti-money laundering provisions are contained in Title III of
the USA PATRIOT Act, Pub. L. No. 107-56, 115 Stat. 272 (2001).
[6] The federal financial regulators include the Federal Reserve Board,
Federal Deposit Insurance Corporation, Office of the Comptroller of the
Currency, Office of Thrift Supervision, the National Credit Union
Administration, the Securities and Exchange Commission, and the
Commodity Futures Trading Commission.
[7] GAO continues to develop critical success factors for evaluating
national strategies and will report on this work later this year.
[8] Among other duties, Treasury's Executive Office for Terrorist
Financing and Financial Crimes is charged with developing and
implementing the NMLS and U.S. government strategies to combat
terrorist financing. These duties were previously conducted by
Treasury's Office of Enforcement, which was disbanded in March 2003.
[9] Justice's Asset Forfeiture and Money Laundering Section (AFMLS) is
the department's focal point for NMLS issues.
[10] According to the Strategy Act, several factors are to be
considered in making HIFCA designations, including the population of
the area, the number of bank and nonbank financial institution
transactions, and observed changes in trends and patterns of money
laundering activity.
[11] Generally, the Secretary and the Attorney General can make
designations on their own initiative, at the suggestion of other
federal agencies, or at the formal request of a state or local official
involved in money laundering detection, prevention, or enforcement.
[12] The Southwest Border HIFCA was designated to focus on a specific
money laundering system--i.e., the smuggling of bulk cash between the
United States and Mexico--rather than a specific geographic area. It
was to include three U.S. judicial districts--the Southern District of
Texas, the Western District of Texas, and the District of Arizona.
[13] Pursuant to regulations issued by Treasury as authorized by the
BSA and each of the bank regulators, certain financial institutions are
required to file SARs with FinCEN to report transactions involving
$5,000 or more that they suspect involve funds derived from illegal
activity. These reports provide information that can enable law
enforcement agencies to generate investigative leads, understand
financial relationships in ongoing investigations, and identify
forfeitable assets.
[14] As discussed later in this report, the 2002 NMLS called for
Treasury and Justice to develop uniform guidelines for undercover money
laundering investigations.
[15] Treasury and Justice were to jointly oversee the HIFCA task
forces. To assist their efforts, the departments created an interagency
HIFCA working group. Regarding the 2002 NMLS, the group was to include
representatives from the Customs Service, DEA, EOUSA, the Executive
Office for Organized Crime Drug Enforcement Task Forces, FBI, Federal
Law Enforcement Training Center, FinCEN, IRS-CI, Justice's Asset
Forfeiture and Money Laundering Section, Office of National Drug
Control Policy, U.S. Postal Inspection Service, Secret Service, and
Treasury's Office of Enforcement.
[16] Each of the four published annual strategies (1999 through 2002)
presented one or more initiatives to enhance interagency coordination
of money laundering investigations. Collectively, the four strategies
presented 14 such initiatives.
[17] Deconfliction is a process that law enforcement agencies use to
help ensure officer safety during tactical activities such as drug
stings. For example, by logging each planned activity into a central
location or deconfliction unit, officers try to ensure that they are
not targeting another investigation's subjects or otherwise
compromising an ongoing investigation.
[18] In March 2003, the Customs Service and the Money Laundering
Coordination Center were transferred from Treasury to DHS's ICE.
[19] According to the 2002 NMLS, SAR review teams also can review
selected wire transfers. The strategy noted that expanding the work of
the teams to include the selective review of wire transfers could help
law enforcement agencies coordinate their efforts to investigate and
prosecute money laundering organizations.
[20] In commenting on a draft of this report, Justice said that, in
summary, 18 U.S.C. § 2332b(f) assigned to the Attorney General primary
investigative responsibility for all federal crimes of terrorism
generally, and that 18 U.S.C. § 2339B(e) directed the Attorney General
specifically to conduct any investigation of a possible violation of
the federal terrorism financing statutes.
[21] In March 2003, Customs and OGQ were transferred from Treasury to
DHS's ICE.
[22] Committee participants include representatives from the
Departments of the Treasury, Justice, and State; the National Security
Council; and the intelligence community.
[23] Not all BSA regulations have been implemented for banks and
broker-dealers at the same time. The suspicious activity reporting
requirement for banks was adopted by Treasury in 1996. The suspicious
activity reporting requirement for most broker-dealers was adopted by
Treasury in 2002. Broker-dealers affiliated with bank holding companies
were subject to the earlier 1996 reporting requirement.
[24] The Financial Action Task Force is an international body with 33
member countries, territories, and organizations that sets
international standards to assist countries in their efforts to combat
money laundering and terrorist financing. The U.S. delegation to the
Financial Action Task Force includes representatives from the
Departments of the Treasury, Justice, and State.
[25] The 1999 NMLS did not designate leads for priority or action
items, but the 2000, 2001, and 2002 NMLS did.
[26] However, OCC, along with the Departments of the Treasury and
State, was designated as lead in the 2001 NMLS for initiating counter
measures against noncooperative countries and territories.
[27] As mentioned previously, in addition to Treasury, the U.S.
delegation to the Financial Action Task Force includes representatives
from the Departments of Justice and State.
[28] See U.S. General Accounting Office, Combating Terrorism:
Observations on National Strategies Related to Terrorism, GAO-03-519T
(Washington D.C.: Mar. 3, 2003); Homeland Security: A Framework for
Addressing the Nation's Efforts, GAO-01-1158T (Washington D.C.: Sept.
21, 2001); International Crime Control: Sustained Executive-Level
Coordination of Federal Response Needed, GAO-01-629 (Washington D.C.:
Aug. 13, 2001); and Managing for Results: Next Steps to Improve the
Federal Government's Management and Performance, GAO-02-439T
(Washington D.C.: Feb. 15, 2002). In addition, GAO continues to develop
critical success factors for evaluating national strategies related to
homeland security and terrorism and will report on this topic later
this year.
[29] In response to our request, National Security Council officials
declined to meet with us to discuss the Council's role regarding the
annual NMLS.
[30] U.S. General Accounting Office, Combating Terrorism: Threat and
Risk Assessments Can Help Prioritize and Target Program Investments,
GAO-NSIAD-98-74 (Washington D.C.: Apr. 9, 1998).
[31] U.S. General Accounting Office, Combating Terrorism: Observations
on Crosscutting Issues, GAO/T-NSIAD-98-164 (Washington D.C.: Apr. 23,
1998).
[32] We reviewed a copy of the draft threat assessment at Justice
headquarters. However, since the document was never finalized or
published, we were not in a position to comment on it.
[33] As mentioned previously, the 2003 strategy had not yet been issued
as of September 24, 2003.
[34] 31 U.S.C. § 5341(c).
[35] Our work at ICE primarily involved the same Customs Service
officials we contacted at Treasury before they were transferred to
Homeland Security in March 2003.
[36] OGQ operated through two components--a targeting and coordination
center located in Washington, D.C., and financial investigation groups
in 20 U.S. cities. The FBI's TFOS, also located in Washington, D.C.,
was created to provide a centralized component to conduct and
coordinate terrorist financing investigations. The FBI's 66 JTTFs are
located throughout the nation to investigate and prevent acts of
terrorism.
[37] Currency and Foreign Transactions Reporting Act (commonly referred
to as the Bank Secrecy Act), Pub. L. No. 91-508, 84 Stat. 1114 (1970)
(codified as amended in 12 U.S.C. §§ 1829(b), 1951-1959; 31 U.S.C. §§
5311-5330.
[38] 18 U.S.C. §§ 1956 -1957 (1994).
[39] Pub. L. No. 100-690, 102 Stat. 4354-59, 4378 (1988) (codified as
amended in scattered sections of 12 U.S.C., 18 U.S.C. and 31 U.S.C.).
[40] Pub. L. No. 102-550, 106 Stat. 4044-47 (1992) (codified as amended
in scattered sections of 12 U.S.C., 18 U.S.C., and 22 U.S.C.).
[41] 31 U.S.C. §§ 5340-42, 5351-55 (1998).
[42] Pub. L. No. 107-56, 115 Stat. 272 (2001).
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