Anti-Money Laundering
Better Communication Could Enhance the Support FinCEN Provides to Law Enforcement Gao ID: GAO-10-622T April 28, 2010Financial investigations are used to combat money laundering and terrorist financing, crimes that can destabilize national economies and threaten global security. The Financial Crimes Enforcement Network (FinCEN), within the Department of the Treasury, supports law enforcement agencies (LEAs) in their efforts to investigate financial crimes by providing them with services and products, such as access to financial data, analysis, and case support. This statement discusses the extent to which the law enforcement community finds FinCEN's support useful in its efforts to investigate and prosecute financial crimes. This statement is based on work GAO completed and issued in December 2009.
In December 2009, we reported that the majority of 25 LEAs GAO surveyed found FinCEN's support useful in their efforts to investigate and prosecute financial crimes, but FinCEN could enhance its support by better informing LEAs about its services and products and actively soliciting their input. Of the 20 LEAs that responded to a question GAO posed about which FinCEN services they found most useful, 16 LEAs cited direct access to Bank Secrecy Act data--records of financial transactions possibly indicative of money laundering that FinCEN collects--as the most valuable service FinCEN provides. Additionally, 11 federal LEAs cited a tool that allows federal LEAs to reach out, through FinCEN, to financial institutions nationwide to locate financial information related to ongoing investigations as a key service offered by FinCEN. To further enhance the value and relevance of its analytic work to LEAs, FinCEN has sought to increase development of complex analytic products, such as reports identifying trends and patterns in money laundering. Sixteen law enforcement agencies GAO surveyed reported that they generally found these complex analytic products useful. However, we reported that three of five LEAs that are among FinCEN's primary federal customers stated that FinCEN does not provide detailed information about the various types of complex analytic products it can provide. Three of FinCEN's primary customers also stated that they would like more information about when completed products become available. In December 2009, we recommended that FinCEN clarify the types of complex analytic products it can provide to LEAs. FinCEN agreed with our recommendation and in April 2010 outlined plans to improve communication with law enforcement regarding FinCEN's services, products, and capabilities. All five LEAs also reported that FinCEN does not actively seek LEAs' input about ongoing or planned analytic products, though four of these LEAs believed that doing so could improve the quality and relevance of the products FinCEN provides to its customers. We recommended that FinCEN establish a process for soliciting input regarding the development of its analytic products. FinCEN agreed with our recommendation and in April 2010 outlined a number of steps it plans to take to better assess law enforcement needs, including ongoing efforts to solicit input from LEAs. Finally, liaisons from four of FinCEN's top five federal LEAs reported that their agencies do not have sufficient opportunities to provide input when FinCEN is considering regulatory changes because their comments often contain sensitive information that may compromise investigative techniques or strategies used in ongoing investigations. We recommended that FinCEN develop a mechanism to collect sensitive information regarding regulatory changes from LEAs. In April 2010, FinCEN reported that it developed an approach for collecting sensitive information without making the comments publicly available.
GAO-10-622T, Anti-Money Laundering: Better Communication Could Enhance the Support FinCEN Provides to Law Enforcement
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Testimony:
Before the Subcommittee on Oversight and Investigations, Financial
Services Committee, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 2:00 p.m. EDT:
Wednesday, April 28, 2010:
Anti-Money Laundering:
Better Communication Could Enhance the Support FinCEN Provides to Law
Enforcement:
Statement of Eileen R. Larence:
Director, Homeland Security and Justice:
GAO-10-622T:
GAO Highlights:
Highlights of GAO-10-622T, a testimony before the Subcommittee on
Oversight and Investigations, Financial Services Committee, House of
Representatives.
Why GAO Did This Study:
Financial investigations are used to combat money laundering and
terrorist financing, crimes that can destabilize national economies
and threaten global security. The Financial Crimes Enforcement Network
(FinCEN), within the Department of the Treasury, supports law
enforcement agencies (LEAs) in their efforts to investigate financial
crimes by providing them with services and products, such as access to
financial data, analysis, and case support. This statement discusses
the extent to which the law enforcement community finds FinCEN‘s
support useful in its efforts to investigate and prosecute financial
crimes. This statement is based on work GAO completed and issued in
December 2009.
What GAO Found:
In December 2009, we reported that the majority of 25 LEAs GAO
surveyed found FinCEN‘s support useful in their efforts to investigate
and prosecute financial crimes, but FinCEN could enhance its support
by better informing LEAs about its services and products and actively
soliciting their input. Of the 20 LEAs that responded to a question
GAO posed about which FinCEN services they found most useful, 16 LEAs
cited direct access to Bank Secrecy Act data”records of financial
transactions possibly indicative of money laundering that FinCEN
collects”as the most valuable service FinCEN provides. Additionally,
11 federal LEAs cited a tool that allows federal LEAs to reach out,
through FinCEN, to financial institutions nationwide to locate
financial information related to ongoing investigations as a key
service offered by FinCEN. To further enhance the value and relevance
of its analytic work to LEAs, FinCEN has sought to increase
development of complex analytic products, such as reports identifying
trends and patterns in money laundering. Sixteen law enforcement
agencies GAO surveyed reported that they generally found these complex
analytic products useful.
However, we reported that three of five LEAs that are among FinCEN‘s
primary federal customers stated that FinCEN does not provide detailed
information about the various types of complex analytic products it
can provide. Three of FinCEN‘s primary customers also stated that they
would like more information about when completed products become
available. In December 2009, we recommended that FinCEN clarify the
types of complex analytic products it can provide to LEAs. FinCEN
agreed with our recommendation and in April 2010 outlined plans to
improve communication with law enforcement regarding FinCEN‘s
services, products, and capabilities. All five LEAs also reported that
FinCEN does not actively seek LEAs‘ input about ongoing or planned
analytic products, though four of these LEAs believed that doing so
could improve the quality and relevance of the products FinCEN
provides to its customers. We recommended that FinCEN establish a
process for soliciting input regarding the development of its analytic
products. FinCEN agreed with our recommendation and in April 2010
outlined a number of steps it plans to take to better assess law
enforcement needs, including ongoing efforts to solicit input from
LEAs. Finally, liaisons from four of FinCEN‘s top five federal LEAs
reported that their agencies do not have sufficient opportunities to
provide input when FinCEN is considering regulatory changes because
their comments often contain sensitive information that may compromise
investigative techniques or strategies used in ongoing investigations.
We recommended that FinCEN develop a mechanism to collect sensitive
information regarding regulatory changes from LEAs. In April 2010,
FinCEN reported that it developed an approach for collecting sensitive
information without making the comments publicly available.
What GAO Recommends:
In December 2009, GAO recommended that, among other things, FinCEN
clarify the types of complex analytic products it can provide to LEAs;
establish a process for soliciting input regarding the development of
analytic products; and develop a mechanism to collect sensitive
information from LEAs regarding regulatory changes. FinCEN agreed with
our recommendations and outlined efforts it plans to take in response
to our findings.
View [hyperlink, http://www.gao.gov/products/GAO-10-622T] or key
components. For more information, contact Eileen Larence at (202) 512-
8777 or larencee@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss the services and products
that the Department of the Treasury's Financial Crimes Enforcement
Network (FinCEN) provides to law enforcement in support of their
efforts to investigate money laundering, terrorist financing, and
other financial crimes. Successful investigations into financial
crimes can support the prosecution of money laundering, drug
trafficking, and terrorist financing--crimes that have the potential
to destabilize national economies and threaten global security. The
Bank Secrecy Act (BSA), enacted in 1970, authorized the Secretary of
the Treasury to establish anti-money laundering record keeping and
reporting requirements for domestic financial institutions to help
prevent abuse of the nation's financial system.[Footnote 1] The BSA
has three main objectives: create an investigative audit trail through
regulatory reporting standards; impose civil and criminal penalties
for noncompliance; and improve the detection of criminal, tax, and
regulatory violations. Under the BSA's reporting requirements,
financial institutions must retain records and file BSA reports when
doing so would have a high degree of usefulness in criminal, tax, and
regulatory investigations or in the conduct of intelligence activities
to protect against international terrorism. For example, suspicious
activity reports (SARs) are filed by financial institutions to inform
the federal government of any suspicious transaction related to a
possible violation of law or regulation.[Footnote 2]
FinCEN, established in 1990 to oversee the administration of the BSA,
helps to prevent financial crime by serving as a governmentwide,
service-oriented, financial information-sharing agency to more than
275 federal and state law enforcement agencies. In supporting law
enforcement, FinCEN administers the financial transaction reporting
system for the recordkeeping and reporting requirements mandated or
authorized under the BSA. FinCEN is also responsible for the
administration of BSA compliance in the financial industry and, as
such, indirectly works to support law enforcement by developing and
implementing regulatory standards so that law enforcement agencies
have accurate and relevant information for conducting financial crimes
investigations. Among other things, the support FinCEN provides to
domestic law enforcement agencies in their efforts to investigate and
prosecute financial crimes includes providing access to the BSA data
to identify individuals, financial transactions, or accounts suspected
of being connected to money laundering, terrorist financing, or other
financial crimes. FinCEN also responds to requests from law
enforcement agencies for information pertaining to specific
investigations, and produces analytic products covering a range of
issues related to financial crimes.[Footnote 3] For example, FinCEN
has produced strategic reports examining the processes and actors,
both licit and illicit, involved in the flow of currency between the
United States and neighboring countries along various regions of the
U.S. borders. We issued a report in December 2009 that addressed
FinCEN's role in supporting law enforcement efforts to investigate and
prosecute financial crimes such as money laundering and terrorist
financing.[Footnote 4] My statement today highlights findings and
recommendations from that report and addresses the extent to which the
law enforcement community finds FinCEN's support useful in their
efforts to address such crimes.
For our December 2009 report, among other things, we surveyed a
nonprobability sample of 29 federal and state law enforcement agencies
that included the primary users of FinCEN's services and products in
fiscal years 2001 through 2007. In total, we received usable
questionnaires from 25 of the 29 agencies we surveyed. We asked them
about the extent to which they found FinCEN's services and products
useful.[Footnote 5] We also interviewed officials from 8 of the 25
federal and state law enforcement agencies responding to our
questionnaire including the agencies that FinCEN has identified as its
top five federal law enforcement customers regarding the extent to
which FinCEN's support has contributed to their investigations of
financial crimes.[Footnote 6] We also reviewed a number of FinCEN
reports and strategic plans including an internal assessment of the
support FinCEN's Analysis and Liaison Division (ALD) provides to its
domestic law enforcement customers.[Footnote 7] We conducted this work
in accordance with generally accepted government auditing standards.
More detail on our scope and methodology is included in our December
2009 report.[Footnote 8]
Law Enforcement Finds a Number of FinCEN's Services and Products
Useful, but Would Like More Information about Select Products and
Opportunities to Provide FinCEN with Input about Some Types of Support:
In our December 2009 report, we found that law enforcement agencies we
surveyed generally reported finding FinCEN's services and products
useful, citing direct access to BSA data, on-site liaisons, and access
to financial information on people or organizations suspected of being
involved in significant money laundering or terrorist financing
activities--known as the 314(a) process--as those that are among the
most useful.[Footnote 9] However, we found that FinCEN could (1)
better inform law enforcement of the types of complex analytic
products that it can provide, (2) more clearly define the types of
requests for complex analytic support that it will accept, and (3)
actively solicit input on the development of complex analytic products
in order to help law enforcement better utilize FinCEN's expertise and
enhance the value of the products it provides to law enforcement.
Finally, we found that while FinCEN has taken initial steps to more
actively solicit law enforcement input on proposed regulatory actions,
FinCEN lacks a mechanism to allow law enforcement agencies to submit
sensitive information regarding the potential impact of proposed
regulatory actions on financial crimes investigations.
Law enforcement agencies cited direct access to BSA Data, the 314(a)
process, and on-site liaisons as the most useful services FinCEN
provides. Most law enforcement agencies responding to our survey (16
out of 20) cited direct access to BSA data as most useful and 19 out
of 22 agencies responding indicated that BSA data was the FinCEN
service they used most often.[Footnote 10] Liaisons from three of
FinCEN's top five federal law enforcement customers noted that direct
access to the BSA database provides law enforcement a means to access
these data in order to help identify, deter, and detect money
laundering or other potential financial crimes related to a range of
criminal activity. As a result of the Uniting and Strengthening
America By Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (USA PATRIOT Act), FinCEN also
introduced a new tool to further assist federal law enforcement
agencies in their investigations of financial crimes.[Footnote 11]
This tool, developed by FinCEN in response to Section 314(a) of the
USA PATRIOT Act, enables federal law enforcement agencies to reach out
to financial institutions across the country for potential information
related to financial crimes investigations. FinCEN facilitates the
314(a) process through the use of a secure communications system. This
system allows law enforcement to quickly locate financial data, such
as open accounts and financial transactions related to ongoing
investigations of persons, entities, or organizations suspected of
being involved in significant money laundering or terrorist financing
activities. Federal law enforcement agencies reported that the 314(a)
process is a key service offered by FinCEN that provides case-specific
and timely information to support ongoing law enforcement
investigations. Specifically, all 11 federal agencies we surveyed that
had a basis to judge the 314(a) process responded that it was either
very or extremely helpful. Finally, law enforcement agencies reported
that being able to maintain agency liaisons on-site at FinCEN is
another valuable service FinCEN provides, facilitating law enforcement
agency access to FinCEN's services and products.[Footnote 12]
Specifically, all 9 of the federal law enforcement agencies responding
to the questionnaire that indicated they had on-site liaisons reported
that it was extremely helpful.
FinCEN has sought to increase its production of more complex analytic
products, which law enforcement agencies report are also helpful in
financial crimes investigations. As more law enforcement agencies
gained the ability to directly access the BSA data and conduct their
own searches of the data, their reliance on FinCEN to conduct basic
queries on their behalf has decreased. We reported that from 2004
through 2007, requests to FinCEN to conduct such queries decreased 80
percent from 2,048 to 409.[Footnote 13]As a result, FinCEN has
identified a need to redefine its role in supporting law enforcement
agencies and to enhance the value and relevance of its analytic work.
As part of this effort, in recent years FinCEN has sought to increase
its production of more sophisticated complex analytic products. These
products range from complex tactical case support requiring large-
scale BSA data analysis, to a variety of strategic projects, studies,
and trend analyses intended to identify and explain money laundering
methodologies or assess threats posed by large-scale money laundering
and terrorist financing activities. For example, in 2007 FinCEN
provided a study to one law enforcement agency that identified
currency flows between the United States and another country which
helped this agency to identify potential patterns in drug trafficking.
Based on responses to our survey and interviews, law enforcement
agencies reported general satisfaction with FinCEN's analytic
products. For example, when asked why they requested analytic support
from FinCEN, 15 out of 17 agencies that indicated they had made such
requests reported that they did so because they believed FinCEN has
unique expertise related to analyzing the BSA data.[Footnote 14]
Additionally, liaisons from all of FinCEN's top five federal law
enforcement customers specifically highlighted technical reference
manuals as one of the most useful complex analytic products FinCEN
produces. FinCEN's technical reference manuals provide practical
information on a variety of issues, including how particular financial
transfer or payment mechanisms may be used to launder money.
FinCEN could better inform law enforcement about the types of complex
analytic products it can provide and when those products become
available. We reported that according to liaisons from three of
FinCEN's top five federal law enforcement customers, FinCEN does not
provide detailed information about each type of product that would
help law enforcement agencies to fully understand the various types of
support FinCEN can provide.[Footnote 15] Senior ALD officials also
acknowledged that they could clarify and better communicate to their
law enforcement customers the various types of complex analytic
products FinCEN can provide. In addition, in both interviews and in
response to open-ended survey questions, officials from 7 of the 25
law enforcement agencies we surveyed, including three of FinCEN's top
five federal law enforcement customers, also indicated that they would
like more information about when completed products become available.
[Footnote 16] These liaisons noted that because FinCEN does not
actively communicate with them about when completed products are
available, they may not be aware of all of FinCEN's products that
could be useful in their investigations of financial crimes.
Similarly, an official from one of FinCEN's top five federal law
enforcement customers noted that, in some cases, analyses FinCEN
conducts for one customer might also be useful to the investigations
of other financial crimes.
In an internal report generated by ALD staff in August 2008, ALD
officials acknowledged that law enforcement liaisons reported that
they would like FinCEN to provide clear guidance on the dissemination
of its products.[Footnote 17] FinCEN officials also noted that they
typically observe the "third-party rule" on dissemination of
information obtained from the requesting agency and, in some cases,
this may limit their ability to share products that are completed in
response to a request from a single customer. The rule generally
provides that information properly released by one agency to another
agency cannot be released by the recipient agency to a third agency
without prior knowledge and consent of the agency that originally
provided the information. The third-party rule applies to all data and
information FinCEN receives from the agencies with which it works on a
specific project. However, officials further stated that they are
committed to looking for ways to better publicize FinCEN's analytic
work and will continue to do so within the framework of adequately
protecting the information provided to them. While we recognize the
need for FinCEN to protect sensitive information, establishing a
process to clarify and communicate to law enforcement when and under
what circumstances FinCEN can or will attempt to share analytic
products with other law enforcement customers will help ensure that it
is effectively carrying out its mission to support the investigation
and prosecution of financial crimes. We recommended that FinCEN
clarify and communicate to law enforcement agencies the various types
of complex analytic products FinCEN can provide and establish a
process for informing law enforcement agencies about the availability
of these products. FinCEN agreed with our recommendation and outlined
plans it would take in order to improve communication with law
enforcement regarding the services, products, and capabilities FinCEN
offers. In response to our report, FinCEN officials stated that they
would compile an inventory of analytic products historically produced,
those FinCEN should produce, and those requested by law enforcement.
FinCEN officials reported that it would consult with law enforcement
partners to refine its recommendations, and then categorize and
describe the types of analytic products for law enforcement.
In April 2010, we obtained updated information from FinCEN on the
status of its efforts to address our recommendations. Specifically,
FinCEN officials stated that its Office of Law Enforcement Support
(OLE) created a draft "Menu of Products and Services" which is
intended to clarify the types of products and services FinCEN's
analytical operation can provide. According to FinCEN officials, OLE
also created a draft "Menu of Resources" which describes the data
sources and other tools available to FinCEN analysts that can be
utilized in the course of their analytical support operations. These
officials explained that, while these documents are still in draft
form, once they are finalized, they will be distributed to its law
enforcement customers through FinCEN's Secure Outreach Portal, on
their intranet, and through direct and e-mail contact between FinCEN
personnel and external agencies.
Defining the types of requests for complex analytic support that
FinCEN will accept could also help law enforcement better utilize
FinCEN's expertise in analyzing the BSA data. While FinCEN has
informed law enforcement that it is now focusing the support it
provides predominantly on those requests that it considers to be for
complex analytic support, we found that it could better inform law
enforcement about its decision-making process regarding what requests
it will accept or reject. Law enforcement agencies may submit requests
for complex analysis in support of specific investigations;[Footnote
18] however, in interviews with officials from FinCEN's top five
federal law enforcement customers, liaisons from two of these agencies
stated that they did not fully understand what types of cases FinCEN
is willing and able to support.[Footnote 19] Furthermore, in response
to an open-ended survey question on FinCEN's analytic support,
officials from two other law enforcement agencies reported that they
do not fully understand FinCEN's decision-making process for accepting
or rejecting requests for support. These agencies indicated that while
they understand that FinCEN has limited staff and resources to
dedicate to analytic support, FinCEN has not been consistent in
responding to their requests for support and does not always provide
explanations why specific requests were rejected.
In addition, in the internal report generated by ALD staff in August
2008, ALD officials acknowledged confusion among law enforcement
customers about the types of requests FinCEN will accept, as well as
law enforcement agencies' concern that FinCEN does not sufficiently
explain the reasons for declining specific requests for support.
Senior officials acknowledged the report's findings and as a first
step, reorganized ALD in October 2009 in order to realign resources to
better meet law enforcement's needs. For example, FinCEN officials
reported that they created a new office within ALD that is responsible
for providing proactive analysis of BSA data and communicating
regularly with law enforcement agents in the field. The officials
stated that they believe the creation of this office will allow them
to leverage analytical assets and abilities across FinCEN to better
inform all of their partners within the law enforcement, intelligence,
regulatory, and financial communities. ALD also identified the
development and implementation of processes to improve communication
with its law enforcement customers as a 2010 priority. We recommended
that FinCEN complete a plan, including identifying the specific
actions FinCEN will take to better assess law enforcement needs, and
make the division's operations more transparent to FinCEN's law
enforcement customers. This plan should include a mechanism for FinCEN
to communicate to law enforcement agencies its decision-making process
for selecting complex analytic products to pursue and why FinCEN
rejects a request. FinCEN agreed with our recommendation and stated
that in October 2009, it began an effort to address communication with
law enforcement on three levels: analytical products, workflow
process, and outreach. The teams assessing workflow processes and
outreach efforts will make recommendations that will include
provisions for better assessment of law enforcement needs and more
insight into FinCEN's decision-making on complex analytical products.
In April 2010, FinCEN officials reported that they have taken steps to
collect information about law enforcement customer's priorities,
needs, and plans. For example, FinCEN officials reported plans to
create a survey to capture law enforcement agencies' specific
investigative focus and needs. Furthermore, the officials stated that
personnel from the Office of Law Enforcement Support working in
consultation with law enforcement representatives drafted a new data
collection form for documenting requests for analytic support from law
enforcement. FinCEN officials also reported that they have established
a process for reviewing and responding to requests and informing the
requester of FinCEN's final decision. According to FinCEN officials,
once requests have been reviewed, completed forms will be scanned and
retained for future reference so that requestors may be informed as to
why requests were accepted or denied.
Actively soliciting input on the development of complex analytic
products could help FinCEN enhance their value to law enforcement
agencies. While FinCEN communicates with its law enforcement customers
about a variety of issues, we reported that the agency could enhance
the value of its complex analytic work by more actively soliciting law
enforcement's input about ongoing or planned analytic work. In
interviews with officials from FinCEN's top five federal law
enforcement customers, liaisons from all five agencies reported that
FinCEN does not consistently seek their input about ongoing or planned
analytic work. Four of the liaisons stated that, as a result, they do
not have regular opportunities to provide FinCEN with meaningful input
about what types of products would be useful to them, potentially
creating a gap between the products the agency generates and the
products that its law enforcement customers need and want. Similarly,
three other law enforcement liaisons noted that FinCEN does not
provide them with regular opportunities to make proposals regarding
the types of complex analytic products FinCEN should undertake.
According to FinCEN officials, while the agency primarily relies on ad
hoc communication with law enforcement agencies--such as talking with
law enforcement representatives located on-site, with law enforcement
representatives at conferences, or with individual agents in the
field--FinCEN does not have a systematic process for soliciting input
from law enforcement agencies on the development of its complex
analytic work.
In their August 2008 internal report, ALD officials acknowledged the
concerns of its law enforcement customers regarding their lack of
opportunities to provide input on FinCEN's planned complex analytic
work, and that FinCEN does not always solicit or incorporate law
enforcement input in the selection of these products. As a solution,
the internal report recommended that the law enforcement roundtable be
used as a forum to discuss proposals for analytic products with
FinCEN's law enforcement customers.[Footnote 20] While this is a
productive step, relying solely on the roundtable may not allow
opportunities for some of FinCEN's other law enforcement stakeholders
to provide input because the roundtable is typically only attended by
federal law enforcement customers. Furthermore, not all of FinCEN's
federal law enforcement customers are able to regularly attend these
meetings.[Footnote 21]
FinCEN does use annual surveys and feedback forms to obtain feedback
from law enforcement on the usefulness of some completed products,
although these surveys and forms are not designed to obtain detailed
information on the full range of services and products FinCEN
provides. For example, the annual surveys do not cover other analytic
products such as FinCEN's strategic analysis reports or its technical
reference guides. Actively soliciting stakeholder input and providing
transparency with regard to decision making are GAO-identified best
practices for effectively meeting stakeholder needs. Incorporating
these best practices could help FinCEN maximize the usefulness of its
support. FinCEN officials emphasized that law enforcement also has a
responsibility to provide constructive input on FinCEN's services and
products. While we recognize that communication between FinCEN and its
law enforcement customers is a shared responsibility, actively
soliciting stakeholder input will allow FinCEN to capture stakeholder
interests and better incorporate law enforcement perspectives into the
development of complex analytic products. As a result, we recommended
that FinCEN establish a systematic process for actively soliciting
input from law enforcement agencies and incorporating this input into
the selection and development of its analytic products. FinCEN agreed
with this recommendation and outlined efforts it plans to undertake in
response to our findings. In October 2009, according to FinCEN
officials, ALD established an Office of Trend and Issue Analysis (OTI)
which is to focus on the development of strategic-level analysis of
Bank Secrecy Act data. FinCEN officials also reported that ALD
reassigned a number of its field representatives to OLE in order to
better utilize their experience and to enhance communication with law
enforcement customers. Finally, FinCEN stated that it also plans to
design an institutional process for collecting the kind of information
required to gain broader insight into its law enforcement partners'
priorities. In providing updates on their efforts to address our
recommendations, FinCEN officials stated that they are making a
concerted effort to engage their law enforcement customers at a
variety of organization levels to determine their key priorities and
how FinCEN can best support their priorities and strategic goals.
FinCEN has taken initial steps to more actively solicit law
enforcement input on proposed regulatory actions, but lacks a
mechanism for collecting sensitive information about these actions.
Regulatory changes instituted by FinCEN can affect the content or
structure of BSA data used in law enforcement investigations as well
as law enforcement's efforts to indict and prosecute financial crimes.
However, we reported that liaisons from four of FinCEN's top five
federal law enforcement customers reported concerns that their
agencies do not have sufficient opportunities to provide input when
FinCEN is considering proposed regulatory changes. The internal report
ALD generated in August 2008 also recognized that changes to BSA
regulations have the potential to alter the kind of information that
financial institutions report. The report also acknowledged federal
law enforcement agencies' concerns that FinCEN does not generally
engage them in the identification and resolution of regulatory issues
that might influence law enforcement operations. According to senior
FinCEN officials, the agency recognizes the need to do a better job of
obtaining law enforcement input on proposed regulatory changes in the
future and did so in one recent case. Specifically, in developing
regulations in 2009 related to stored value cards, such as prepaid
debit cards and gifts cards, FinCEN held multiple meetings with
representatives from its top five federal law enforcement customers
specifically designed to obtain their input and provide
recommendations on developing the proposed regulation.[Footnote 22]
FinCEN also used the law enforcement roundtable to inform agencies
about the planned regulatory changes. FinCEN's efforts to actively
solicit law enforcement input in this case are encouraging, and
continuing such efforts would help ensure that law enforcement input
is considered before regulatory changes are made.
Once FinCEN has decided to move forward with a proposed regulatory
change, it follows the process laid out in the Administrative
Procedure Act (APA) for obtaining official comments on the proposal
from interested stakeholders including regulators, financial
institutions, and law enforcement agencies. The APA prescribes uniform
standards for rulemaking and most federal rules are promulgated using
the APA-established informal rulemaking process, also known as "notice
and comment" rulemaking. Generally, a notice of proposed rulemaking
(NPRM) is published in the Federal Register announcing an agency's
intent to promulgate a rule to the public.[Footnote 23] However, we
reported that liaisons from four of FinCEN's top five federal law
enforcement customers reported that the public record is not always
the most appropriate venue for providing comments on proposed
regulatory changes because their comments often contain law
enforcement sensitive information. According to these officials,
raising these concerns in a public forum may compromise key
investigative techniques or strategies used in ongoing investigations.
According to FinCEN officials, at the time of our review, they did not
have a systematic process for soliciting law enforcement-sensitive
comments on proposed regulatory changes in a nonpublic docket. The
importance of stakeholder input in the process of proposing regulatory
changes is well established--it is the basis for the public comment
period in the NPRM process. In order to improve FinCEN's efforts to
receive important information necessary to making decisions about
proposed regulatory changes, we recommended that FinCEN develop a
mechanism to collect law enforcement sensitive information from law
enforcement agencies during the public comment period of the NPRM
process. FinCEN agreed with our recommendation and stated that it
would determine and implement appropriate ways to communicate to the
law enforcement community its ability to receive and use law
enforcement sensitive information in this context. In April 2010,
FinCEN officials stated that they have developed an approach for
collecting law enforcement sensitive information during the public
notice and comment period of the NPRM process without making the
comments publicly available. According to FinCEN officials, FinCEN
will advise law enforcement, through the law enforcement liaisons,
that they may provide law enforcement sensitive information at the
time of publication of each NPRM and inform them that FinCEN will not
post those comments or make them publicly available.
Mr. Chairman, this concludes my statement. I would be pleased to
respond to any questions that you or other Members of the Subcommittee
may have.
Contacts and Acknowledgments:
For questions about this statement, please contact Eileen R. Larence
at (202) 512-8777 or larencee@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this statement.
In addition to the contact above, individuals making key contributions
to this statement include Kirk Kiester, Assistant Director; Samantha
Carter, and Linda Miller. Additionally, key contributors to our
December 2009 report include Hugh Paquette, Miriam Hill, David
Alexander, George Quinn, Jr., Billy Commons, Jan Montgomery, and Sally
Williamson.
[End of section]
Footnotes:
[1] Bank Secrecy Act, titles I and II of Pub. L. No. 91-508, 84 Stat.
1114 (1970) (codified as amended in 12 U.S.C. §§ 1829b, 1951-1959; 31
U.S.C. §§ 5311-5332). The BSA requires financial institutions to
maintain records on financial transactions including suspicious
activity that may be related to money laundering or other financial
crimes.
[2] Under the regulations administered by FinCEN, a SAR is generally
required when a transaction is conducted or attempted by, at, or
through a financial institution that involves or aggregates at least
$5,000 in funds or other assets and the institution knows, suspects,
or has reason to suspect that the transaction: involves funds derived
from illegal activities; is intended or conducted in order to hide or
disguise funds or assets derived from illegal activities as part of a
plan to violate or evade any federal law or regulation or to avoid any
transaction reporting requirement under federal law or regulation; is
designed to evade any reporting requirement under federal law or other
BSA requirement; has no business or apparent lawful purpose; or the
transaction is not the sort in which the customer would normally be
expected to engage and there is no reasonable explanation known for
the transaction; or involves use of the institution to facilitate
criminal activity. See 31 C.F.R. §§ 103.15-.21.
[3] FinCEN also collaborates with international counterparts in other
countries to facilitate sharing of financial information between
domestic and international law enforcement agencies. For more
information, see GAO, International Financial Crime: Treasury's Roles
and Responsibilities Relating to Selected Provisions of the USA
PATRIOT Act, [hyperlink, http://www.gao.gov/products/GAO-06-483]
(Washington, D.C.: May 12, 2006).
[4] GAO, Anti-Money Laundering: Improved Communication Could Enhance
the Support FinCEN Provides to Law Enforcement, [hyperlink,
http://www.gao.gov/products/GAO-10-141] (Washington, D.C.: Dec. 14,
2009).
[5] Nonprobability sampling is a method of sampling when
nonstatistical judgment is used to select members of the sample, using
specific characteristics of the population as criteria. Results from
nonprobability samples cannot be used to make inferences about a
population, because in a nonprobability sample some elements of the
population being studied have no chance or an unknown chance of being
selected as part of the sample.
[6] FinCEN has identified the following agencies as its top five
federal law enforcement customers: the Drug Enforcement
Administration, the Federal Bureau of Investigation, Immigration and
Customs Enforcement, the U.S. Secret Service, and the Internal Revenue
Service's Criminal Investigation Division.
[7] FinCEN's Analysis and Liaison Division (ALD) is the division
primarily responsible for providing support to law enforcement
agencies.
[8] [hyperlink, http://www.gao.gov/products/GAO-10-141].
[9] The "314(a) process" refers to section 314(a) of the USA PATRIOT
Act which required the Secretary of the Treasury to issue regulations
to encourage further cooperation among financial institutions,
financial regulatory authorities, and law enforcement authorities to
promote sharing information regarding individuals, entities, and
organizations engaged in or reasonably suspected of engaging in
terrorist acts or money laundering activities, and to permit the
sharing of information by law enforcement and regulatory authorities
with financial institutions regarding persons reasonably suspected of
engaging in terrorist acts or money laundering activity. 31 U.S.C. §
5311 note (Cooperative Efforts to Deter Money Laundering). See also 31
C.F.R. § 103.100.
[10] Although a total of 25 law enforcement agencies responded to our
questionnaire, all 25 agencies did not provide responses to each
question. For example, a total of 20 agencies responded to the
question regarding which FinCEN service or product they found to be
most useful, and 22 agencies responded to the question regarding which
FinCEN service they use most often.
[11] Pub. L. No. 107-56, 115 Stat. 272 (2001).
[12] FinCEN provides office space for law enforcement agencies to
locate full-time liaisons at FinCEN's headquarters in Vienna, Virginia
to facilitate their agencies' access to FinCEN's services and products.
[13] FinCEN did not track the number of basic queries requested by law
enforcement agencies before fiscal year 2004, so FinCEN was unable to
provide us these data for fiscal years 2001 through 2003.
[14] Law enforcement agencies were asked about their reasons for
requesting any type of analytic support from FinCEN, including
requests for both basic and complex analytic products.
[15] Our interviews with law enforcement agencies including interviews
with the liaisons of the five federal agencies that use the most
FinCEN services and products involved aspects of each agency's
experiences working with FinCEN. As a consequence, we did not ask the
same questions of all liaisons in these interviews. Officials with
these agencies volunteered this information; therefore, we do not know
the extent to which the other agencies had concerns regarding outreach.
[16] Because officials volunteered this information in both interviews
and in response to open-ended survey questions, we do not know the
extent to which other agencies had similar concerns.
[17] In 2008, ALD conducted an internal assessment of the support the
division provides to its domestic law enforcement customers. The
resulting internal report, provided to senior FinCEN management in
August 2008, assesses the division's efforts to measure the
requirements of FinCEN's law enforcement customers and align the
resources and efforts of ALD personnel to satisfy those requirements.
This report outlined several recommendations designed to enhance
FinCEN support and better meet the needs of its law enforcement
customers.
[18] This type of support may involve large-scale, in-depth BSA data
analysis related to specific law enforcement investigations.
[19] Because officials volunteered information about their concerns
during interviews, we do not know the extent to which the other three
agencies may have similar concerns.
[20] FinCEN holds a series of bimonthly meetings with some federal law
enforcement representatives, known as the law enforcement roundtable.
The roundtable is primarily used for general information sharing, such
as discussing the current missions of participating agencies or
providing updates about the 314(a) process. According to FinCEN
officials, the agency does not use the roundtable to discuss ongoing
investigations or to solicit input from law enforcement about the
development and prioritization of its complex analytic products.
[21] FinCEN's state and local law enforcement customers do not attend
the law enforcement roundtable.
[22] Stored value cards are prepaid debit cards that use magnetic
stripe technology to store information about funds that have been
prepaid to the card. Payroll cards, government benefit cards, gift
cards, and telephone cards are examples of stored value cards. Stored
value cards often allow holders to transfer money values anonymously
without being subject to the same controls required of institutions
that deal with credit and debit cards. While there are many forms and
uses of stored value cards in the marketplace, there are two main
categories: (1) single-purpose or "closed-loop" cards, such as gift
cards, which can only be used to purchase goods at particular
retailers, or prepaid telephone cards, which can only be used to make
telephone calls, and (2) multipurpose or "open-loop" cards, which can
be used to make debit transactions at a wide variety of retail
locations, as well as for other purposes, such as receiving direct
deposits and withdrawing cash from ATMs.
[23] The APA requires that the NPRM include a statement of the time,
place, and nature of the public rulemaking proceedings, reference to
the legal authority under which the rule is proposed, and the terms or
substance of the proposed rule or a description of the subjects and
issues involved. The NPRM also generally includes the timing and
manner in which the public may comment on the proposed rule. E.O.
12866 states that most rulemakings should include a comment period of
60 days, and most agencies do provide a 60-day or longer comment
period for complex or controversial rules. After issuance of the NPRM,
agencies are generally required to place public comments as well as
other supporting materials in a rulemaking docket which must be
available for public inspection.
[End of section]
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