Moving Illegal Proceeds
Opportunities Exist for Strengthening the Federal Government's Efforts to Stem Cross-Border Currency Smuggling
Gao ID: GAO-11-407T March 9, 2011
This testimony discusses federal efforts to stem currency smuggling across our nation's borders. Mexican drug-trafficking organizations, terrorist organizations, and other groups with malevolent intent finance their operations by moving funds into or out of the United States. For example, a common technique used for taking proceeds from drug sales in the United States to Mexico is a method known as bulk cash smuggling. The National Drug Intelligence Center (NDIC) has stated that proceeds from drug trafficking generated in this country are smuggled across the southwest border and it estimates that the proceeds total from $18 billion to $39 billion a year. NDIC also estimates that Canadian drug-trafficking organizations smuggle significant amounts of cash across the northern border from proceeds of drugs sold in the United States. In addition to bulk cash smuggling, 21st century methods and technologies of laundering money have emerged. In 2009, NDIC stated that new financial products and technologies present unique opportunities for money launderers as well as unprecedented challenges to the intelligence, law enforcement, and regulatory communities. NDIC and others cited the use of prepaid cards or gift cards that are loaded with currency or value--also called stored value--as presenting a compact and easily transportable method to move money into and out of the United States. U.S. Customs and Border Protection (CBP)--a major component in the Department of Homeland Security (DHS)--is the lead federal agency in charge of securing our nation's borders. In March 2009, the Secretary of Homeland Security called on CBP to help stem the flow of bulk cash and weapons moving south by inspecting travelers leaving the United States for Mexico--an effort called outbound operations. In addition, the Financial Crimes Enforcement Network (FinCEN)--a bureau in the Department of the Treasury (Treasury)--seeks to deter and detect criminal activity and safeguard the financial system from the risk that terrorists and other criminals may fund their operations through financial institutions in the United States. Among other things, FinCEN is responsible for administering laws aimed at preventing criminals from abusing U.S. financial systems. This testimony is based on our October 2010 report on cross-border currency smuggling and updated information on bulk cash seizures and the status of one our recommendations. Like the report, it will cover the following three issues: (1) the actions CBP has taken to stem the flow of bulk cash leaving the country through land ports of entry and the challenges that remain, (2) the regulatory gaps that exist for cross-border reporting and other anti-money laundering requirements involving the use of stored value, and (3) the extent to which FinCEN has taken action to address these regulatory gaps.
In March 2009, CBP reestablished the Outbound Enforcement Program within its Office of Field Operations. As a result of its outbound enforcement activities, CBP seized about $67 million in illicit bulk cash leaving the country at land ports of entry--97 percent of which was seized along the southwest border-- from March 2009 through February 22, 2011. Total seizures account for a small percentage of the estimated $18 billion to $39 billion in illicit proceeds being smuggled across the southwest border annually. CBP has succeeded in establishing an Outbound Enforcement Program, but the program is in its early phases and there is a general recognition by CBP managers and officers that the agency's ability to stem the flow of bulk cash is limited because of the inherent difficulty in identifying travelers who attempt to smuggle cash. Beyond this inherent difficulty, in our October 2010 report we identified management challenges in three main areas. First, addressing limitations in staffing, infrastructure, and technology, among other things, could require substantial capital investments at all ports of entry. For example, license plate readers are available at 48 of 118 outbound lanes on the southwest border and none of the 179 outbound lanes on the northern border. Second, policies and procedures to ensure the safety of officers involved in outbound operations are not in place. In our October 2010 report, we recommended that CBP direct and ensure that managers at land ports of entry develop policies and procedures that address officer safety. At all five ports of entry we visited, we observed that officers used the side of the highway to conduct secondary inspections, while other vehicles moved past, potentially endangering officers. At one port of entry, officers conducted inspections of the underside of vehicles by lying on the ground with their legs exposed while traffic moved by in neighboring lanes at speeds up to approximately 25 miles per hour. CBP concurred with our recommendation and stated that it will, among other things, require each port director to develop procedures that address the safety challenges at the port of entry. Third, CBP has developed a strategic plan for its outbound program, but it has yet to develop a performance measure that assesses the effectiveness of the program. In our October 2010 report, we recommended that CBP develop a performance measure that informs CBP management, Congress, and other stakeholders about the extent to which the Outbound Enforcement Program is effectively stemming the flow of bulk cash and other illegal goods by working with other federal law enforcement agencies. CBP concurred with our recommendation. In February 2011, CBP issued a performance measure for its outbound program that involves the amount of currency and the number of weapons seized, however, this does not fully address our recommendation because it does not measure the degree to which the program is effectively stemming the flow of bulk cash, weapons, and other goods that result from criminal activities. CBP stated in response to our recommendation that it would, among other things, investigate the use of a random sampling process in the outbound environment that would provide statistically valid compliance results for outbound operations.
GAO-11-407T, Moving Illegal Proceeds: Opportunities Exist for Strengthening the Federal Government's Efforts to Stem Cross-Border Currency Smuggling
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United States Government Accountability Office:
GAO:
Testimony:
Before the Senate Caucus on International Narcotics Control:
For Release on Delivery:
Expected at 2:30 p.m. EST:
Wednesday, March 9, 2011:
Moving Illegal Proceeds:
Opportunities Exist for Strengthening the Federal Government's Efforts
to Stem Cross-Border Currency Smuggling:
Statement of Richard M. Stana, Director:
Homeland and Security Issues:
GAO-11-407T:
Chairwoman Feinstein, Ranking Member Grassley, and Members of the
Caucus:
I am pleased to be here today to discuss federal efforts to stem
currency smuggling across our nation's borders. Mexican drug-
trafficking organizations, terrorist organizations, and other groups
with malevolent intent finance their operations by moving funds into
or out of the United States. For example, a common technique used for
taking proceeds from drug sales in the United States to Mexico is a
method known as bulk cash smuggling.[Footnote 1] The National Drug
Intelligence Center (NDIC) has stated that proceeds from drug
trafficking generated in this country are smuggled across the
southwest border and it estimates that the proceeds total from $18
billion to $39 billion a year. NDIC also estimates that Canadian drug-
trafficking organizations smuggle significant amounts of cash across
the northern border from proceeds of drugs sold in the United States.
In addition to bulk cash smuggling, 21st century methods and
technologies of laundering money have emerged. In 2009, NDIC stated
that new financial products and technologies present unique
opportunities for money launderers as well as unprecedented challenges
to the intelligence, law enforcement, and regulatory communities. NDIC
and others cited the use of prepaid cards or gift cards that are
loaded with currency or value--also called stored value--as presenting
a compact and easily transportable method to move money into and out
of the United States.
U.S. Customs and Border Protection (CBP)--a major component in the
Department of Homeland Security (DHS)--is the lead federal agency in
charge of securing our nation's borders. In March 2009, the Secretary
of Homeland Security called on CBP to help stem the flow of bulk cash
and weapons moving south by inspecting travelers leaving the United
States for Mexico--an effort called outbound operations. In addition,
the Financial Crimes Enforcement Network (FinCEN)--a bureau in the
Department of the Treasury (Treasury)--seeks to deter and detect
criminal activity and safeguard the financial system from the risk
that terrorists and other criminals may fund their operations through
financial institutions in the United States. Among other things,
FinCEN is responsible for administering laws aimed at preventing
criminals from abusing U.S. financial systems.
My testimony today is based on our October 2010 report on cross-border
currency smuggling and updated information on bulk cash seizures and
the status of one our recommendations.[Footnote 2] Like the report, it
will cover the following three issues: (1) the actions CBP has taken
to stem the flow of bulk cash leaving the country through land ports
of entry and the challenges that remain, (2) the regulatory gaps that
exist for cross-border reporting and other anti-money laundering
requirements involving the use of stored value, and (3) the extent to
which FinCEN has taken action to address these regulatory gaps.
To conduct our work, we visited and observed outbound operations at
five ports of entry (Blaine, Washington; Buffalo, New York; El Paso,
Texas; Laredo, Texas; and San Ysidro, California) that provided us
examples of outbound operations on the northern and southwest border
with high traffic volume. We reviewed and analyzed data on the amount
of bulk cash seized from March 2009 through June 2010 and for this
testimony updated bulk cash seizure data through February 22, 2011. We
assessed the reliability of these data and concluded that they were
sufficiently reliable for our purposes. We also reviewed CBP's
policies and procedures and strategic plan for its outbound operations
at land ports of entry. For this testimony, we updated the status of
our recommendation to CBP that it establish a performance measure for
its outbound program. We reviewed current regulations and statutes
that govern issuers, sellers, and redeemers of stored value and
interviewed officials or obtained information from DHS, Treasury, and
the Department of Justice. We reviewed relevant legislation and
proposed rules related to stored value.[Footnote 3] More detailed
information on our scope and methodology appears in our October 2010
report. We conducted our work in accordance with generally accepted
government auditing standards.
CBP Has Established an Outbound Enforcement Program, but Further
Actions Are Needed to Address Program Challenges:
In March 2009, CBP reestablished the Outbound Enforcement Program
within its Office of Field Operations. [Footnote 4]As a result of its
outbound enforcement activities, CBP seized about $67 million in
illicit bulk cash leaving the country at land ports of entry--97
percent of which was seized along the southwest border--from March
2009 through February 22, 2011. Total seizures account for a small
percentage of the estimated $18 billion to $39 billion in illicit
proceeds being smuggled across the southwest border annually.
CBP has succeeded in establishing an Outbound Enforcement Program, but
the program is in its early phases and there is a general recognition
by CBP managers and officers that the agency's ability to stem the
flow of bulk cash is limited because of the inherent difficulty in
identifying travelers who attempt to smuggle cash. Beyond this
inherent difficulty, in our October 2010 report we identified
management challenges in three main areas. First, addressing
limitations in staffing, infrastructure, and technology, among other
things, could require substantial capital investments at all ports of
entry. For example, license plate readers are available at 48 of 118
outbound lanes on the southwest border and none of the 179 outbound
lanes on the northern border. Additionally, CBP officials have
estimated that there are a limited number of outbound lanes networked
to support computer stations or wireless computing. However, CBP lacks
data on the benefits and costs of an expanded program and as a result
may be unable to most effectively inform decisions on how to apply
scarce resources. We recommended that CBP collect data on program
costs and benefits to better inform resource decisions. CBP concurred
with this recommendation and stated that it is taking action to
address the recommendation.
Second, policies and procedures to ensure the safety of officers
involved in outbound operations are not in place. In our October 2010
report, we recommended that CBP direct and ensure that managers at
land ports of entry develop policies and procedures that address
officer safety. At all five ports of entry we visited, we observed
that officers used the side of the highway to conduct secondary
inspections, while other vehicles moved past, potentially endangering
officers. At one port of entry, officers conducted inspections of the
underside of vehicles by lying on the ground with their legs exposed
while traffic moved by in neighboring lanes at speeds up to
approximately 25 miles per hour. CBP concurred with our recommendation
and stated that it will, among other things, require each port
director to develop procedures that address the safety challenges at
the port of entry.
Third, CBP has developed a strategic plan for its outbound program,
but it has yet to develop a performance measure that assesses the
effectiveness of the program. In our October 2010 report, we
recommended that CBP develop a performance measure that informs CBP
management, Congress, and other stakeholders about the extent to which
the Outbound Enforcement Program is effectively stemming the flow of
bulk cash and other illegal goods by working with other federal law
enforcement agencies. CBP concurred with our recommendation. In
February 2011, CBP issued a performance measure for its outbound
program that involves the amount of currency and the number of weapons
seized, however, this does not fully address our recommendation
because it does not measure the degree to which the program is
effectively stemming the flow of bulk cash, weapons, and other goods
that result from criminal activities. CBP stated in response to our
recommendation that it would, among other things, investigate the use
of a random sampling process in the outbound environment that would
provide statistically valid compliance results for outbound operations.
Regulatory Gaps Involving Cross-Border Reporting and Other Anti-Money
Laundering Requirements Exist for Stored Value:
Criminals can use other methods of transporting proceeds from illegal
activities across the nation's borders, including stored value.
Regulatory exemptions heighten the risk that criminals may use stored
value to finance their operations. For example, unlike its
requirements for cash, FinCEN does not require travelers to report
stored value in excess of $10,000 to CBP when crossing the border. In
addition, Money Services Businesses (MSBs) that offer stored value
products are exempt from three key anti-money laundering provisions of
the Bank Secrecy Act (BSA).[Footnote 5] These exemptions involve
FinCEN not specifically requiring MSBs (1) that are sole issuers,
sellers, or redeemers of stored value to register with FinCEN, (2) to
develop and implement a customer identification program, and (3) to
report suspicious transactions involving stored value.
Together, these exemptions heighten the risk that criminals may
exploit existing vulnerabilities to move criminal proceeds using
stored value devices. For example, law enforcement has documented at
least two mechanisms for moving currency out of the country using
stored value devices. First, illegal proceeds can be loaded on stored
value devices and physically carried across the border. Second,
illicit proceeds can be moved out of the country by shipping stored
value cards, where co-conspirators can use the cards to make purchases
or to withdraw cash from local ATMs. Our report details specific
examples showing how stored value can be used to transport millions of
dollars in illegal proceeds across the nation's borders.
Efforts Are Underway to Address Regulatory Gaps to Stored Value, but
Much Work Remains:
FinCEN is in the process of developing and issuing regulations to
address the risk associated with the illicit use of stored value, as
required by the Credit Card Accountability Responsibility and
Disclosure Act of 2009 (Credit CARD Act),[Footnote 6] but much work
remains and it is unclear when the agency will issue the final
regulations. In June 2010, FinCEN issued a Notice of Proposed
Rulemaking (NPRM) that addressed regulatory gaps in the following
three areas: (1) providers of prepaid access[Footnote 7] must register
with FinCEN as a MSB, identify each prepaid program for which it is
the provider of prepaid access, and maintain a list of its agents; (2)
providers and sellers of prepaid access must establish procedures to
verify the identity of a person who obtains prepaid access, including
obtaining the person's name, date of birth, and address; and (3) MSBs
must file reports on suspicious activities related to prepaid access.
At the time of today's testimony, FinCEN had not issued the final rule.
The June 2010 NPRM, however, did not address risks related to the
international transport of stored value. FinCEN stated that it plans
to regulate the cross-border transport of stored value in a future
rulemaking. According to FinCEN officials, they did not address the
cross-border transport of stored value in the June 2010 NPRM because
addressing other regulatory gaps had a higher priority.
In our October 2010 report, we identified management challenges
related to FinCEN's efforts in two areas. First, FinCEN's initial
plans for issuing the final rules for stored value did not assess
which risks might affect the project, prioritize risks for further
analysis by assessing their probability of occurrence, or develop
actions to reduce threats to the project as suggested by best
practices for project management. A project management plan that is
consistent with best practices could help FinCEN better manage its
rulemaking effort. In addition to identifying and mitigating risks
associated with the regulatory process, a project management plan
could also help FinCEN (1) track and measure progress on tasks
associated with completing mandated requirements and (2) identify
points throughout the project to reassess efforts under way to
determine whether goals and milestones are achievable or project
changes are necessary. In our October 2010 report, we recommended that
FinCEN update its written plan by describing, at a minimum, target
dates for implementing all of the requirements under the Credit CARD
Act. FinCEN concurred with our recommendation and stated that while it
is challenging to identify target dates for a phased rulemaking, it
will update its plans accordingly.
Second, FinCEN's approach for addressing vulnerabilities with cross-
border currency smuggling and other illicit use of stored value
depends, in part, on ensuring that industry complies with the new
rules. In 2008, FinCEN issued guidance for examiners who monitor MSB
compliance with anti-money laundering requirements. However, this
guidance lacks specific information for examiners to follow when
assessing MSB compliance by issuers, sellers, and redeemers of stored
value. In July 2010, FinCEN officials told us that they intend to
update their 2008 guidance to reflect final rules on MSBs, but they
were uncertain when they will do so. In our October 2010 report, we
recommended that FinCEN revise its guidance manual to include specific
examination policies and procedures, including transaction testing,
for examiners to follow at an MSB that issues, sells, and/or redeems
stored value. FinCEN concurred with our recommendation and stated that
once the initial rulemaking is finalized, it will then update the
manual.
This concludes my prepared testimony. I would be pleased to respond to
any questions that the members of the caucus may have.
Contacts and Acknowledgments:
For further information regarding this testimony, please contact
Richard M. Stana at (202) 512-8777 or stanar@gao.gov. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this statement. Individuals who made key
contributions to this testimony are Michael P. Dino, Assistant
Director; Susan Quinlan, Assistant Director; David Alexander; Neil
Asaba; Chuck Bausell; Willie Commons III; Kevin Copping; Ron LaDue
Lake; Jan Montgomery; Jessica Orr; Jerome Sandau; Wesley Sholtes;
Jonathan Smith, and Katy Trenholme.
[End of section]
Footnotes:
[1] Under 31 U.S.C. § 5332, bulk cash smuggling is defined as
knowingly concealing and transporting or attempting to transport more
than $10,000 in currency or monetary instruments into or out of the
United States with the intent to evade the federal reporting
requirements. Under 31 U.S.C. § 5316, a person or an agent or bailee
of the person must file a report when the person, agent, or bailee
knowingly transports, is about to transport, or has transported,
monetary instruments of more than $10,000 at one time into or out of
the United States.
[2] GAO, Moving Illegal Proceeds: Challenges Exist in the Federal
Government's Effort to Stem Cross-Border Currency Smuggling,
[hyperlink, http://www.gao.gov/products/GAO-11-73] (Washington D.C.:
Oct. 25, 2010).
[3] Amendments to the Bank Secrecy Act Regulations-Definitions and
Other Regulations Relating to Prepaid Access, 75 Fed. Reg. 36589
(proposed June 28, 2010).
[4] Prior to September 11, 2001, the former U.S. Customs Service
conducted outbound inspections. After this date, port directors had
the discretion to continue outbound operations, but only two ports of
entry continued to conduct outbound operations in a routine fashion.
The Outbound Enforcement Program was reestablished, under CBP, on
March 12, 2009, when the Secretary of Homeland Security called on CBP
to stem the flow of cash and weapons that were being taken into Mexico
through land ports of entry.
[5] 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).
[6] Pub. L. No. 111-24, 123 Stat. 1734 (2009).
[7] FinCEN proposes to revise the BSA regulations applicable to MSBs
with regard to stored value by, among other things, renaming "stored
value" as "prepaid access." FinCEN proposes to define "prepaid access"
as an electronic device or vehicle, such as a card, plate, code,
number, electronic serial number, mobile identification number,
personal identification number, or other instrument that provides a
portal to funds or the value of funds that have been paid in advance
and can be retrievable and transferable at some point in the future.
[End of section]
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