International Financial Crime: Treasury's Roles and
Responsibilities Relating to Selected Provisions of the USA
PATRIOT Act (12-MAY-06, GAO-06-483).
Money laundering and terrorist financing can severely affect the
nation's economy and also result in loss of lives. To combat
these transnational crimes, the Treasury Department (Treasury)
and its component bureau, the Financial Crimes Enforcement
Network (FinCEN), have key roles. Section 330 of the USA PATRIOT
Act encourages the federal government to engage foreign
jurisdictions in negotiations to ensure that foreign banks and
financial institutions maintain adequate records to combat
international financial crime. Treasury plays a lead role in
facilitating such efforts. In accordance with its various
responsibilities codified by section 361, FinCEN is to coordinate
with its foreign counterparts--financial intelligence units
(FIU). This report describes (1) Treasury's approach for
negotiating with foreign jurisdictions, (2) how FinCEN has
contributed to establishing FIUs in foreign countries and
enhancing the capabilities of these units, and (3) what actions
FinCEN is taking to maximize its performance as a global partner.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-483
ACCNO: A53961
TITLE: International Financial Crime: Treasury's Roles and
Responsibilities Relating to Selected Provisions of the USA
PATRIOT Act
DATE: 05/12/2006
SUBJECT: Counterterrorism
Criminal activities
Interagency relations
Intergovernmental relations
International relations
Law enforcement
Money laundering
Terrorism
Terrorist financing
Treasury Financial Crimes Enforcement
Network
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GAO-06-483
* The Congress Has Encouraged International Cooperative Effort
* Treasury and the Interagency Community Engage in Multilatera
* Treasury Views Section 330 as a Congressional Endorsement of
* Treasury Considers Section 311 as Particularly Relevant for
* The Number of Financial Intelligence Units Has Increased Sig
* Growth in the Number of Financial Intelligence Units Is Attr
* Capabilities of Financial Intelligence Units: Some Aspects A
* Dealing with FIU Shortcomings or Noncompliance with Standard
* Challenges for FinCEN Include Redirecting Its Efforts to Mor
* Modernizing the Egmont Secure Web: Technology Is Critical to
* Management Information and Customer Feedback Are Important T
* Treasury Department Efforts to Accomplish Goals Articulated
* FinCEN Contributions to Establishing FIUs in Foreign Countri
* Actions FinCEN Is Taking to Maximize Its Performance as a Gl
* Order by Mail or Phone
Report to the Chairman, Committee on the Judiciary, House of
Representatives
United States Government Accountability Office
GAO
May 2006
INTERNATIONAL FINANCIAL CRIME
Treasury's Roles and Responsibilities Relating to Selected Provisions of
the USA PATRIOT Act
GAO-06-483
Contents
Letter 1
Results in Brief 3
Background 5
Treasury Department Has a Key Role in Promoting International Cooperation
to Combat Money Laundering and Terrorist Financing 7
Enhancing the Capabilities of Financial Intelligence Units Is a Continuing
Challenge 12
FinCEN Is Taking Various Actions to Maximize Its Performance as a Global
Partner, but More Comprehensive Feedback from Financial Intelligence Units
Would Be Useful 23
Conclusions 33
Recommendation for Executive Action 34
Agency Comments and Our Evaluation 34
Appendix I Objectives, Scope, and Methodology 36
Objectives 36
Scope and Methodology 37
Data Reliability 41
Appendix II Financial Action Task Force and Related Regional Bodies 42
The Financial Action Task Force and Related Regional Bodies Encompass
Member Jurisdictions around the Globe 42
FATF Recommendations Provide a Set of Countermeasures against Money
Laundering and Terrorist Financing 44
A Widely Adopted Methodology Is Used for Monitoring Compliance with
Financial Action Task Force Recommendations 51
Appendix III The Egmont Group of Financial Intelligence Units 53
The Egmont Group of Financial Intelligence Units Has Grown Significantly
since 1995 53
The Egmont Group Provides a Network for Exchanging Information 54
Tables
Table 1: Main Weaknesses Identified in Assessments of Compliance with FATF
Recommendations for Combating Money Laundering and Terrorist Financing 19
Table 2: Financial Intelligence Units Connected to Egmont Secure Web and
Number of User Accounts per Country (as of February 2006) 27
Table 3: Case-Management Statistics-Foreign FIU and FinCEN Requests for
Assistance 29
Table 4: Number and Names of Foreign Customer Entities That Requested
Assistance from FinCEN in Fiscal Year 2005 (as of July 25, 2005) 31
Table 5: Establishment Dates and Membership of FATF and FATF-style
Regional Bodies 43
Table 6: FATF Recommendations on Money Laundering and Terrorist Financing
45
Table 3: Essential Criteria Used in the Methodology for Monitoring
Implementation of FATF Recommendation 26 52
Table 8: Egmont Group Membership by Year and Jurisdiction 54
Figure
Figure 1: Annual Growth in the Number of Financial Intelligence Units 13
Abbreviations
BSA Bank Secrecy Act FATF Financial Action Task Force on Money Laundering
FBI Federal Bureau of Investigation FinCEN Financial Crimes Enforcement
Network FIU financial intelligence unit IDW Investigative Data Warehouse
IMF International Monetary Fund SAR suspicious activity report USA PATRIOT
(Act) Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism (Act)
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separately.
United States Government Accountability Office
Washington, DC 20548
May 12, 2006
The Honorable Jim Sensenbrenner, Jr. Chairman Committee on the Judiciary
House of Representatives
Dear Mr. Chairman:
Money laundering and terrorist financing are transnational crimes that can
have devastating effects, involving severe economic consequences as well
as loss of lives. The combating of these crimes demands not only effective
U.S. interagency efforts but also concerted international cooperation. Key
roles are played by the Department of the Treasury (Treasury) and one of
its components, the Financial Crimes Enforcement Network (FinCEN). 1
Section 330 of the USA PATRIOT Act2 expresses the sense of the Congress
that the President should direct the Secretary of State, the Attorney
General, or the Secretary of the Treasury to enter into negotiations with
foreign jurisdictions to ensure that foreign banks and other financial
institutions maintain records of transactions and account information
relating to terrorist organizations or their members and to ensure that
such records are made available to U.S. law enforcement and domestic
financial institutions when appropriate. State Department, Justice
Department, and Federal Reserve Board officials told us that the Treasury
Department plays a lead role in addressing the efforts encouraged by
section 330. According to Treasury Department officials, the U.S.
interagency community has been acting to accomplish the goals articulated
in section 330 through ongoing efforts to combat international financial
crime. Section 361 of the USA PATRIOT Act3 established FinCEN as a
statutory bureau in the Treasury Department and listed its various duties
and powers, which include coordinating with its foreign counterparts-that
is, financial intelligence units (FIUs) in other countries. These units
are specialized governmental agencies created to combat money laundering,
terrorist financing, and other financial crimes. Each FIU is the
respective nation's central agency responsible for obtaining information
(e.g., suspicious transaction reports) from financial institutions,
processing or analyzing the information, and then disseminating it to
appropriate authorities.
1Among other functions, FinCEN is responsible for administering the Bank
Secrecy Act, Pub. L. No. 91-508, 84 Stat. 1115 (1970) (codified as amended
at 12 U.S.C. S:S: 1951 et seq.), which is a record-keeping and reporting
law designed to prevent financial institutions from being used as
intermediaries for the transfer or deposit of money derived from criminal
activity. See also 31 U.S.C. S: 5301 et seq.
2Uniting and Strengthening America by Providing Appropriate Tools Required
to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, Pub. L. No.
107-56, S: 330, 115 Stat. 272, 320.
3Codified as amended at 31 U.S.C. S: 310.
This report addresses the following questions regarding efforts under
sections 330 and 361 of the USA PATRIOT Act to combat money laundering and
terrorist financing:
o Under section 330, how has the Department of the Treasury
interacted or negotiated with foreign jurisdictions to promote
cooperative efforts to combat money laundering and terrorist
financing?
o Under section 361, how has FinCEN contributed to establishing
FIUs in foreign countries and enhancing the capabilities of these
units to combat money laundering and terrorist financing?
o What actions is FinCEN taking to maximize its performance as a
global partner in combating money laundering and terrorist
financing?
To address these questions, we interviewed responsible officials at and
analyzed relevant documentation obtained from the Departments of Justice,
State, and the Treasury and applicable components. Also, in further
reference to promoting international cooperation, we focused on obtaining
information about Treasury's role and activities regarding multilateral
organizations-particularly the Financial Action Task Force on Money
Laundering (FATF), an intergovernmental entity that has developed
international standards for combating money laundering and terrorist
financing, and the various FATF-style regional bodies that implement the
standards.4 We obtained information about FinCEN's participation in the
Egmont Group, the association of FIUs worldwide, whose purpose is to
facilitate transnational cooperation and information sharing to combat
money laundering and terrorist financing. Regarding statistical
information that we obtained from FinCEN-such as the number of requests
for assistance submitted by foreign FIUs to FinCEN-we discussed the
sources of the data with FinCEN officials and worked with them to resolve
any discrepancies. We determined that these data were sufficiently
reliable for the purposes of this review. We conducted our work from May
2005 through March 2006 in accordance with generally accepted government
auditing standards. Appendix I presents more details about our objectives,
scope, and methodology.
4FATF-style regional bodies represent nations in seven geographic areas,
respectively, Asia/Pacific, Caribbean, Europe, Eurasia, South America,
Eastern and Southern Africa, and Middle East and North Africa.
Results in Brief
According to Treasury Department officials, the U.S. interagency community
has been seeking to accomplish the goals articulated in section 330
through ongoing efforts to combat international financial crime by
actively engaging and negotiating with foreign jurisdictions through the
medium of FATF, the related FATF-style regional bodies, the International
Monetary Fund, and the World Bank. Treasury officials also commented that
enactment of section 330 represents a welcomed congressional endorsement
of long-standing U.S. government policy to work with these entities to
develop a global system to ensure that all countries adopt and are
assessed against international standards for protecting financial systems
and jurisdictions from money laundering and terrorist financing. Further,
as an incentive or pressure mechanism that can be used in conjunction with
foreign negotiations, Treasury considers section 311 of the USA PATRIOT
Act to be particularly relevant.5 For example, section 311 authorizes the
Secretary of the Treasury (following appropriate interagency consultation
and consideration of multiple factors) to designate a foreign jurisdiction
or an institution as being of "primary money laundering concern"-which, in
turn, could result in the Secretary of the Treasury taking one or more
special measures, such as prohibiting or imposing conditions upon the
opening of correspondent accounts with the designated entity. Since the
USA PATRIOT Act was signed into law in October 2001, three foreign
jurisdictions (Burma, Nauru, and Ukraine) and certain financial
institutions in Belarus, Latvia, the Macau Special Administrative Region
(China), Syria, and the "Turkish Republic of Northern Cyprus"6 have been
designated primary money laundering concerns. Special measures have not
been imposed in most of these cases, but the prospect of imposing them has
led to some corrective actions.
5Codified as amended at 31 U.S.C. S: 5318A.
6The quotes indicate that the U.S. government has not officially
recognized the "Turkish Republic of Northern Cyprus."
As a member of the Egmont Group since 1995, FinCEN has focused its global
efforts particularly on assisting jurisdictions to establish new FIUs and
improving the capabilities of existing units. Over the past decade, the
number of FIUs recognized by the Egmont Group has increased more than
sevenfold, from 14 in 1995 to 101 as of July 2005, partly because of
federal interagency efforts, including training and technical support
provided by FinCEN and Treasury's Office of Technical Assistance as well
as funding provided by the Department of State.7 According to FinCEN,
given the dynamic growth in the number of FIUs, future efforts will
involve giving more attention to improving the capabilities of existing
units, especially in reference to combating terrorist financing-an
operational task now included in the Egmont Group's definition of an FIU.
During our review, State Department officials noted one area where they
would like to augment U.S. assistance to nascent FIUs; that is, ensuring
the nascent FIUs have appropriate information technology (hardware and
software) because such technology is essential to appropriately
functioning FIUs. The State Department and FinCEN are engaged in ongoing
discussions on how to augment such assistance.
To maximize its performance as a global partner in combating money
laundering and terrorist financing, FinCEN is undertaking various actions.
Following passage of the USA PATRIOT Act, FinCEN's most important
operational priority has been to provide counterterrorism support to the
law enforcement and intelligence community. In this regard, FinCEN in
January 2006 assigned an analyst to the Federal Bureau of Investigation's
(FBI) Terrorist Financing Operations Section. Also, FinCEN currently is
modernizing the Egmont Secure Web-an Internet-based system used primarily
for its encrypted e-mail capability to exchange sensitive case
information. Most (96) of the Egmont Group's 101 members are connected to
the Egmont Secure Web, which is operated and maintained by FinCEN, and the
system is considered to be of paramount importance to the operations of
FIUs. By operating and improving the Egmont Secure Web, FinCEN plays a key
role in fostering the exchange of information among FIUs. Further, to
enhance its own responsiveness to information requests submitted by
foreign FIUs, FinCEN is allocating additional staff resources to its
Office of Global Support, which is responsible for processing requests
from foreign FIUs, and FinCEN is developing a new case management system,
which is targeted for completion in fiscal year 2008. FinCEN periodically
surveys its customers to help assess its responsiveness to domestic and
international requests for assistance. However, FinCEN's most recent
customer satisfaction survey of external clients had limited coverage of
FIUs; less than half of all Egmont Group members were invited to
participate, and only two provided responses. This report recommends that
the Director of FinCEN take appropriate steps to help ensure that future
surveys of FIUs are sufficiently inclusive and responsive to achieve the
intended purpose of providing performance-based information as a basis for
evaluating services, including the identification of areas warranting
improvement. The Department of the Treasury agreed with our
recommendation.
7The most recent Egmont Group plenary meeting was held June 30 to July 1,
2005, in Washington, D.C. At the plenary meeting, the Egmont Group
recognized 7 new members to its global network of FIUs, bringing the total
membership to 101.
Background
In an international context, the Treasury Department is the United States'
counterpart to other nations' ministries of finance. The department's
responsibilities, among other things, include safeguarding the U.S.
financial system from abuse by money launderers, terrorists, and other
criminals. Over the years, in carrying out this responsibility, the
department has established relationships with finance ministries, central
banks, and other financial institutions in nations around the world as
well as with multilateral organizations such as FATF, the FATF-style
regional bodies, the International Monetary Fund (IMF), and the World
Bank.
FATF is an intergovernmental entity whose purpose is to establish
international standards and to develop and promote policies for combating
money laundering and terrorist financing. At its formation in 1989 by the
United States and other industrialized nations, FATF's original focus was
to establish anti-money-laundering standards and monitor the progress of
nations in meeting the standards. In 1990, FATF issued its "Forty
Recommendations on Money Laundering" to promote the adoption and
implementation of anti-money-laundering measures. For instance, the
recommendations encouraged nations to enact legislation criminalizing
money laundering and requiring financial institutions to report suspicious
transactions. Following the events of September 11, 2001, FATF expanded
its role to combat terrorist financing. Specifically, in October 2001,
FATF adopted "Eight Special Recommendations on Terrorist Financing." Among
other actions, these recommendations committed members to criminalize the
financing of terrorism and to freeze and confiscate terrorist assets. In
October 2004, FATF published a ninth special recommendation on terrorist
financing to target cross-border movements of currency and monetary
instruments ("cash couriers").
Collectively, FATF's "40 plus 9" recommendations are widely recognized as
the international standards for combating money laundering and terrorist
financing (see app. II). In monitoring nations' progress in implementing
the recommendations, FATF collaborates with other multilateral
organizations, particularly the FATF-style regional bodies that represent
nations in seven geographic areas. These regional groups are to help
nations in the region to implement the international standards developed
by FATF. Also, these standards have been recognized and endorsed by the
World Bank and IMF for use in conducting evaluations and assessments of
nations' progress in implementing measures to counter money laundering and
terrorist financing. To be compliant with FATF recommendations, a nation
must, among other measures, establish an effective FIU.
The United States' FIU is FinCEN, which was administratively established
in 1990 as a Treasury Department component. FinCEN was 1 of the 14 charter
members of the Egmont Group, which was formed in 1995 to enhance
information sharing among FIUs (see app. III). In 2001, section 361 of the
USA PATRIOT Act established FinCEN as a statutory bureau in the Treasury
Department. Organizationally, FinCEN is part of Treasury's Office of
Terrorism and Financial Intelligence, which is the department's policy and
enforcement entity regarding terrorist financing, money laundering,
financial crime, and sanctions issues. Treasury's budget request for
fiscal year 2007 included $91.3 million (and 352 full-time-equivalent
personnel) to support FinCEN's mission of safeguarding the financial
system from abuses of money laundering, terrorist financing, and other
financial crime. FinCEN carries out this broad mission by, among other
means, administering the Bank Secrecy Act (BSA)8 and networking with
domestic regulatory, law enforcement, and intelligence agencies as well as
with foreign counterparts.
8Pub. L. 91-508, 84 Stat. 1115 (1970).
Treasury Department Has a Key Role in Promoting International Cooperation to
Combat Money Laundering and Terrorist Financing
Section 330 of the USA PATRIOT Act expresses the sense of the Congress
that the President should direct the Secretary of State, the Attorney
General, or the Secretary of the Treasury to enter into negotiations with
foreign jurisdictions to facilitate cooperative efforts to combat money
laundering and terrorist financing. State Department, Justice Department,
and Federal Reserve Board officials told us that the Treasury Department
plays a lead role in addressing these efforts. According to Treasury
Department officials, the U.S. interagency community has been acting to
accomplish the goals articulated in section 330 through its interactions
with FATF and the FATF-style regional bodies to ensure global compliance
with international standards for combating money laundering and terrorist
financing. Treasury officials also told us that enactment of section 330
provided a welcomed congressional endorsement of long-standing U.S.
government policy to actively engage and negotiate with foreign
jurisdictions through the medium of FATF and the related FATF-style
regional bodies. Further, in conjunction with foreign negotiations,
Treasury considers another provision of the USA PATRIOT Act-section 311-to
be a useful mechanism for helping to promote compliance with standards.
The Congress Has Encouraged International Cooperative Efforts
Through section 330 of the USA PATRIOT Act, Congress has encouraged the
United States to engage in international cooperative efforts to combat
money laundering and terrorism. Specifically, section 330 specifies, "It
is the sense of the Congress that the President should direct the
Secretary of State, the Attorney General, or the Secretary of the
Treasury, as appropriate, and in consultation with the Board of Governors
of the Federal Reserve, to seek to enter into negotiations with the
appropriate financial supervisory agencies and other officials of any
foreign country the financial institutions of which do business with
United States financial institutions or which may be utilized by any
foreign terrorist organization (as designated under section 219 of the
Immigration and Nationality Act), any person who is a member or
representative of any such organization, or any person engaged in money
laundering or financial or other crimes."
In carrying out such negotiations, section 330 further specifies the sense
of the Congress that
"the President should direct the Secretary of State, the Attorney General,
or the Secretary of the Treasury, as appropriate, to seek to enter into
and further cooperative efforts, voluntary exchanges, the use of letters
rogatory,9 mutual legal assistance treaties, and international agreements
to (1) ensure that foreign banks and other financial institutions maintain
adequate records of transaction and account information relating to any
foreign terrorist organization (as designated under section 219 of the
Immigration and Nationality Act), any person who is a member or
representative of any such organization, or any person engaged in money
laundering or financial or other crimes; and (2) establish a mechanism
whereby such records may be made available to United States law
enforcement officials and domestic financial institution supervisors, when
appropriate."
Section 330 does not constitute an express mandate-that is, section 330
does not impose an affirmative obligation on any agency or official to
enter into negotiations. Nonetheless, the language of section 330 does
suggest that efforts should be undertaken to engage in appropriate
negotiations.
Treasury and the Interagency Community Engage in Multilateral Efforts to Promote
International Cooperation
State Department, Justice Department, and Federal Reserve Board officials
told us that the lead role regarding the efforts encouraged by section 330
of the USA PATRIOT Act is held by the Treasury Department. According to
the Treasury Department, the U.S. interagency community is fulfilling
section 330 by actively engaging and negotiating with foreign
jurisdictions through the medium of FATF and the related FATF-style
regional bodies. The U.S. delegation to FATF, which is headed by the
Deputy Assistant Secretary of the Treasury's Office of Terrorist Finance
and Financial Crime, includes representatives of the Departments of
Homeland Security, Justice, and State; the federal financial regulators;
and the National Security Council.
Regarding efforts encouraged by section 330, Treasury's Office of
Terrorist Finance and Financial Crime said that the United States-working
through FATF, the FATF-style regional bodies, the International Monetary
Fund, and the World Bank-has led efforts to develop a global system to
ensure that all countries adopt and are assessed against international
standards for protecting financial systems and jurisdictions from money
laundering and terrorist financing. As mentioned previously, these
international standards consist of the FATF "Forty Recommendations on
Money Laundering" and "Nine Special Recommendations on Terrorist
Financing" (see app. II).
9In this context, a letter rogatory is a method of obtaining assistance
from abroad in the absence of a treaty or executive agreement.
Essentially, this device is a formal request from a court in one country
to a court in another country to seek international judicial assistance in
obtaining testimony or other evidence.
Treasury testimony at a congressional hearing in July 2005 before the
Senate Committee on Banking, Housing, and Urban Affairs also cited the
benefits of international standard-setting bodies. Regarding U.S. efforts
and participation in these bodies, the Treasury Under Secretary's prepared
statement included the following points:10
o "The Financial Action Task Force (FATF) sets the global
standards for anti-money laundering and counter terrorist
financing, and it is also through this venue that we promote
results. Treasury, along with our counterparts at State, Justice,
and Homeland Security, has taken an active role in this 33-member
body which articulates international standards in the form of
recommendations, guidelines, and best practices to aid countries
in developing their own specific anti-money laundering and
counter-terrorist financing laws and regulations. ... The success
and force of FATF lie not only in the mutual evaluation process to
which it holds its own members, but also in the emergence of
FATF-style regional bodies ... that agree to adopt FATF standards
and model themselves accordingly on a regional level."
o "Hawala, a relationship-based system of money remittances,
plays a prominent role in the financial systems of the Middle
East. ... Internationally, Treasury leadership in the FATF has
brought the issue of hawala to the forefront, resulting in
implementation of FATF Special Recommendation VI, which requires
all FATF countries to ensure that individuals and entities
providing money transmission services must be licensed and
registered, and subjected to the international standards set out
by FATF."
o "As governments apply stricter oversight and controls to banks,
wire transmitters, and other traditional methods of moving money,
we are witnessing terrorists and criminals resorting to bulk cash
smuggling. FATF Special Recommendation IX was issued in late 2004
to address this problem and it calls upon countries to monitor
cross-border transportation of currency and to make sanctions
available against those who make false declarations or disclosures
in this regard. This recommendation has already prompted changes
in legislation abroad."
10Testimony of Stuart Levey, Under Secretary, Office of Terrorism and
Financial Intelligence, Department of the Treasury, at a hearing ("Money
Laundering and Terror Financing Issues in the Middle East"), before the
Senate Committee on Banking, Housing, and Urban Affairs, July 13, 2005.
Further, on July 29, 2005, the United Nations Security Council unanimously
adopted a U.S.-sponsored resolution (Resolution 1617) that, among other
matters, "strongly urges" all member states to "implement the
comprehensive, international standards" embodied in the FATF 40 plus 9
recommendations.11 Subsequently, at its most recent plenary meeting
(October 12 to 14, 2005), FATF noted that "formal endorsement of the FATF
standards by the U.N. Security Council is a major step toward effective
implementation of the Recommendations throughout the world."
Regarding the U.S. government's continuing efforts to actively engage and
negotiate with foreign jurisdictions as encouraged by section 330,
Treasury's Office of Terrorist Finance and Financial Crime said that
outreach to the international community to enhance global best practices
to combat money laundering and terrorist financing involves various
challenges. These challenges include ensuring that the international
standards are current in reference to emerging trends and technology and
are balanced and flexible enough to be relevant and applicable to all
countries and situations, as well as ensuring that evaluations or
assessments of countries are conducted on a consistent basis and manner.
Treasury Views Section 330 as a Congressional Endorsement of Long-standing U.S.
Government Policy and a Stimulus for Continued Efforts
According to Treasury's Office of Terrorist Finance and Financial Crime,
interagency efforts to work through FATF and the FATF-style regional
bodies to help ensure global compliance with international standards for
combating money laundering and terrorist financing is a long-standing
policy of the U.S. government-a policy that has had strong support from
the White House. In further elaboration, Treasury officials said that
because working through FATF and the FATF-style regional bodies is a
long-standing policy, no specific guidance was needed from the President
or the White House to implement section 330. That is, Treasury was already
seeking to accomplish the goals articulated in section 330. The officials
commented that passage of section 330 did not cause Treasury or the
interagency community to alter the objectives of ongoing or planned
negotiations. In sum, the Treasury officials stressed that enactment of
section 330 provided a welcomed congressional endorsement of long-standing
U.S. government policy and also provided a stimulus for continued efforts
in negotiating with foreign jurisdictions.
11A primary purpose of Security Council Resolution 1617 was to reaffirm
and strengthen international sanctions on Al-Qaida, the Taliban, and their
associates.
Treasury Considers Section 311 as Particularly Relevant for Negotiating with
Foreign Jurisdictions
As an incentive or pressure mechanism that can be used in conjunction with
foreign negotiations, Treasury considers section 311 of the USA PATRIOT
Act to be particularly relevant for helping to ensure global compliance
with international standards for combating money laundering and terrorist
financing.12 Section 311 authorizes the Secretary of the Treasury-in
consultation with the Secretary of State and the Attorney General and with
consideration of multiple factors-to find that reasonable grounds exist
for concluding that a foreign jurisdiction, a financial institution, a
class of transactions, or a type of account is of "primary money
laundering concern." Such a designation is a precursor or condition
precedent for taking one or more special measures. For instance, following
a designation and with additional consultation and consideration of
specific factors, the Secretary of the Treasury may require U.S. financial
institutions to take certain "special measures" with respect to applicable
jurisdictions, institutions, accounts, or transactions. The special
measures can range from enhanced recordkeeping or reporting obligations to
a requirement to terminate and not open correspondent accounts involving
the primary money laundering concern.
Since the USA PATRIOT Act was signed into law in October 2001, section 311
designations have been announced for three foreign jurisdictions (Ukraine,
Nauru, and Burma). Treasury's first use of section 311 authority was in
December 2002, with the designation of Ukraine and Nauru as being of
primary money laundering concern. A third jurisdiction, Burma, was
designated in November 2003.
In addition to foreign jurisdiction designations, Treasury has also used
section 311 authority to designate certain foreign financial institutions
as being of primary money laundering concern. Examples include Myanmar
Mayflower Bank and Asia Wealth Bank (November 2003), Commercial Bank of
Syria (May 2004), First Merchant Bank of the "Turkish Republic of Northern
Cyprus" and Infobank of Belarus (August 2004), and Multibanka and VEF
Banka of Latvia (April 2005). More recently, in September 2005, Treasury
designated Banco Delta Asia SARL, which is located in the Macau Special
Administrative Region, China.
12Codified as amended at 31 U.S.C. S: 5318A.
In discussing section 311 with us, Treasury's Office of Terrorist Finance
and Financial Crime officials characterized designations-even without
subsequent special measures being taken-as a very useful tool for bringing
pressure on countries and institutions to meet international standards.
For example, after being designated by Treasury in December 2002, Ukraine
subsequently took steps to address deficiencies by amending its
anti-money-laundering law, its banking and financial services laws, and
its criminal code. Accordingly, Treasury revoked its designation in April
2003.
Enhancing the Capabilities of Financial Intelligence Units Is a Continuing
Challenge
Since 1995, the number of FIUs recognized by the Egmont Group has
increased more than sevenfold. Attributable reasons include FATF-related
efforts, as well as those of the federal interagency community. A
particular focus of FinCEN-working with federal interagency partners-has
been to provide training and technical assistance to help create and
enhance the capabilities of FIUs. Given the significant growth in the
number of FIUs recognized by the Egmont Group, which now totals 101, more
attention is being focused on improving the capabilities of existing
units, especially in reference to combating terrorist financing-an
operational task now included in the Egmont Group's definition of an FIU.
Generally, FIUs are evaluated as part of an overall methodology designed
to assess a country's compliance with the international standards
contained in the FATF 40 plus 9 recommendations for combating money
laundering and terrorist financing. According to FinCEN, its efforts to
improve the capabilities of foreign FIUs must be achieved through
cooperation, collaboration, and consensus-given that the Egmont Group is
responsible for dealing with its members' shortcomings or noncompliance
with standards.
The Number of Financial Intelligence Units Has Increased Significantly Since
1995
Over the past decade, the number of FIUs recognized by the Egmont Group
increased more than sevenfold, from 14 in 1995 to 101 as of July 2005 (see
fig. 1).
Figure 1: Annual Growth in the Number of Financial Intelligence Units
aAs of July 2005.
A goal of the Egmont Group is to provide a forum for FIUs to improve
support to their respective national programs for combating money
laundering and terrorist financing. Egmont Group membership is not
automatic for new or nascent FIUs. Rather, the Egmont Group has a Legal
Working Group responsible for assessing each FIU-candidate to ensure that
the prospective member meets admission criteria. For instance, the
assessment criteria are used to determine whether the FIU-candidate meets
the Egmont definition of an FIU, has reached full operational status, and
is legally capable and willing to cooperate on the basis of Egmont
principles (see app. III). Also, among other responsibilities, an Egmont
Group member that sponsors or mentors the FIU-candidate is expected to
have first-hand experience (including an on-site visit) to confirm the
operational status of the candidate FIU.
Growth in the Number of Financial Intelligence Units Is Attributable to Various
Reasons
The significant growth in the number of FIUs is attributable to various
reasons, including FATF-related efforts to establish international
standards and promote policies for combating money laundering and
terrorist financing. For example, FATF recommendation number 26 (see app.
II) specifies that countries should establish an FIU that serves as a
national center for receiving (and, as permitted, requesting), analyzing,
and disseminating suspicious transaction reports and other information
regarding potential money laundering or terrorist financing. Moreover, a
contributing role has been played by the Egmont Group, which has an
Outreach Working Group to identify candidate countries for membership and
help them meet international standards.
Further, the growth in the number of FIUs is attributable partly to
federal interagency efforts, including training and technical support
provided by FinCEN and Treasury's Office of Technical Assistance, as well
as funding provided by the State Department. As a member of the Egmont
Group since 1995, FinCEN in particular has focused its global efforts on
assisting jurisdictions establish new FIUs and improving existing units.
For instance, in helping to establish new FIUs, FinCEN's assistance has
included a variety of activities, such as performing country assessments,
advising or commenting on draft FIU legislation, providing seminars on the
combating of money laundering, conducting training courses for FIU
personnel, and furnishing technical advice on computer systems. According
to FinCEN, much of its work now involves strengthening existing FIUs. In
this regard, FinCEN's activities include conducting personnel exchanges
(from foreign FIU to FinCEN and vice versa) and participating in
operational workshops and other training initiatives. Also, FinCEN noted
that much of its assistance involves regional or multilateral efforts,
such as working closely with the Egmont Group of FIUs, the United Nations,
and multilateral development banks.
As an example of a recent FIU-related activity, FinCEN reported that it
sent a four-person team to Saudi Arabia in the first quarter of fiscal
year 2006 to conduct an on-site assessment and provide various
presentations (covering, for example, information exchange issues) to
employees of the Saudi FIU. In addition, FinCEN's activities for fiscal
year 2005 included providing training (either abroad or at FinCEN) to FIU
representatives from various nations, such as Argentina, Brazil, China,
Guatemala, South Korea, Paraguay, and Sri Lanka. For fiscal year 2004,
FinCEN reported that it joined with the United Arab Emirates to host
representatives from Afghanistan, Bangladesh, Maldives, Pakistan, and Sri
Lanka on developing FIUs. Also, FinCEN's reported activities for fiscal
year 2003 include
o conducting personnel exchanges with Egmont Group allies from
several Baltic nations (i.e., Estonia, Latvia, and Lithuania),
Bolivia, Turkey, South Korea, Ukraine, and Russia;
o co-hosting regional training workshops in Malaysia and
Mauritius; and
o sponsoring Bahrain, Mauritius, and South Africa as new members
into the Egmont Group-with the latter two countries representing
Africa's first representatives in the group.
Similarly, according to the State Department, recent activities of
Treasury's Office of Technical Assistance include (1) providing training
and technical assistance to FIUs in Paraguay and Peru, (2) helping the
Senegal FIU achieve operational status, and (3) working with Ukraine to
streamline its national FIU.13
Generally, U.S. government assistance in creating and strengthening FIUs
can be viewed as being one strategic element among several designed to
enhance the capacity of global partners. For instance, the training and
technical assistance that U.S. agencies provide to vulnerable countries
are intended to help the countries develop five elements that, according
to the State Department, are needed for an effective anti-money-laundering
and counter-terrorism-financing regimes-a legal framework, a financial
regulatory system, law enforcement capabilities, judicial and
prosecutorial processes, and an appropriate FIU. However, despite the
formation of an interagency coordination entity-the Terrorist Financing
Working Group-U.S. efforts to coordinate the delivery of training and
technical assistance lack an integrated strategic plan, as we recently
reported.14 Among other matters, our October 2005 report noted
disagreements between the State and Treasury departments on procedures and
practices for delivering training and technical assistance as well as
disagreements regarding interagency leadership and coordination
responsibilities. The report recommended that the Secretary of State and
the Secretary of the Treasury develop an integrated strategic plan and
enter into an agreement specifying the roles of each department, bureau,
and office with respect to conducting needs assessments and delivering
training and technical assistance. In March 2006, the State Department
provided the Congress a written statement (as required under 31 U.S Code
S: 720) regarding action taken on the recommendation. State commented that
several steps were being taken to enhance interagency coordination. The
written statement noted, for example, that the National Security Council
and the departments of State, Justice, the Treasury, and Homeland Security
were reviewing the work of the Terrorist Financing Working Group in light
of recent years' experience, with a view to making any appropriate updates
and adjustments to enhance its effectiveness.
13Department of State, Bureau for International Narcotics and Law
Enforcement Affairs, International Narcotics Control Strategy Report,
Volume II, Money Laundering and Financial Crimes (March 2006).
14GAO, Terrorist Financing: Better Strategic Planning Needed to Coordinate
U.S. Efforts to Deliver Counter-Terrorism Financing Training and Technical
Assistance Abroad, GAO-06-19 (Washington, D.C.: Oct. 24, 2005).
Also, during our review, State Department officials noted one area where
they would like to augment U.S. assistance to nascent FIUs. This area
involves ensuring that nascent FIUs have appropriate information
technology (hardware and software). The officials emphasized that such
technology is essential to appropriately functioning FIUs. In this regard,
the officials said that the State Department and FinCEN are engaged in
ongoing discussions on how to augment such assistance.
Further regarding future directions, FinCEN's Deputy Director (who also
chairs the Egmont Committee15) commented that there will be continuing
efforts to establish new FIUs, particularly in priority regions (such as
the Middle East and Central Asia) critical to combating money laundering
and terrorist financing. Moreover, given the dynamic growth in the Egmont
Group's membership, the Deputy Director noted that the Egmont Committee
will be giving more attention to improving the capabilities or
effectiveness of existing FIUs.
15The Egmont Committee is composed of a chair, two co-vice chairs, the
chairs of the Egmont Group's five working groups (information technology,
legal, operational, training, and outreach), and regional representation
from Africa, Asia, Europe, the Americas, and Oceania. The committee
functions as the consultation and coordination mechanism for FIU heads and
the five working groups.
Capabilities of Financial Intelligence Units: Some Aspects Are Covered in
Assessments of Compliance with FATF Recommendations
Generally, FIUs are evaluated as part of an overall methodology designed
to assess a country's compliance with the international standards
contained in the FATF 40 plus 9 recommendations for combating money
laundering and terrorist financing (see app. II).
As mentioned previously, FATF recommendations provide international
standards for combating money laundering and terrorist financing. In this
regard:
"A key element in the fight against money laundering and the financing of
terrorism is the need for countries to be monitored and evaluated, with
respect to these international standards. The mutual evaluations conducted
by the FATF and the FATF-style regional bodies, as well as assessments
conducted by the IMF and the World Bank, are a vital mechanism for
ensuring that the FATF Recommendations are effectively implemented by all
countries."16
Our research and inquiries identified one published study that presented
comparative or multicountry results based on mutual evaluations of
nations' compliance with the FATF recommendations. The study-Twelve-Month
Pilot Program of Anti-Money-Laundering and Combating the Financing of
Terrorism (AML/CFT) Assessments-Joint Report on the Review of the Pilot
Program, March 10, 2004-was prepared jointly by IMF and the World Bank.
The study summarized the results of the mutual evaluations of 41
jurisdictions, conducted during the 12-month period that ended in October
2003.17 The assessments used a common methodology adopted by FATF and
endorsed by the Executive Boards of IMF and the World Bank.18 Of the 41
assessments, 33 were conducted by IMF or the World Bank, and 8 were
conducted by FATF and the FATF-style regional bodies.
16International Monetary Fund, Legal Department, AML/CFT Standards and
Reference Materials, April 2004.
17At the time of the March 2004 report by IMF and the World Bank, the FATF
recommendations were 40 plus 8. Later, in October 2004, FATF published a
ninth special recommendation on terrorist financing (see app. II).
18The common methodology reflects the principles of the FATF
recommendations. See International Monetary Fund and World Bank, Joint
Report on the Methodology for Assessing Compliance with the FATF 40
Recommendations and the FATF 8 Special Recommendations-Supplementary
Information (March 16, 2004). Also, appendix II of this report briefly
discusses an updated version of the methodology-Methodology for Assessing
Compliance with the FATF 40 Recommendations and the FATF 9 Special
Recommendations (updated as of February 2005).
In their March 2004 joint report, IMF and the World Bank presented
assessment findings for the 41 jurisdictions in a summary format, rather
than associating compliance levels or deficiencies with any individual
country. For instance, the report made the following general observations:
o "Overall compliance with the FATF 40+8 Recommendations is
uneven across jurisdictions. Many jurisdictions show a high level
of compliance with the original FATF 40 Recommendations. The most
prevalent deficiency among all assessments is weaker compliance
with the Eight Special Recommendations on terrorist financing."
o "There is generally a higher level of compliance in high and
middle income countries than in low income countries. Higher
income countries typically have well developed AML/CFT regimes but
with specific gaps, especially concerning the Eight Special
Recommendations on terrorist financing."
The joint report did not separately present or discuss assessment
findings related to the functioning or effectiveness of FIUs.
However, two of the 13 main weaknesses identified are directly
related to FIUs. These two weaknesses (see table 1) are topic 12
(no requirement to report promptly to the FIU if financial
institutions suspect that funds stem from criminal activity) and
topic 13 (poor international exchange of information relating to
suspicious transactions and to persons or corporations involved).
Table 1: Main Weaknesses Identified in Assessments of Compliance with FATF
Recommendations for Combating Money Laundering and Terrorist Financing
Assessed countries
found "materially
noncompliant" or
Weakness identified "noncompliant"
Total number
Reference of countries Percent
number Topic assessed Number of total
1 Poor assistance to other 40 19 48%
countries' financing of
terrorism investigations
2 Poor attention to transactions 41 18 44
with higher risk countries.
3 Poor detection and analysis of 40 17 43
unusual large or otherwise
suspicious transactions
4 No criminalization of the 40 17 43
financing of terrorism and
terrorist organizations
5 Inadequate systems to report 39 16 41
suspicious transactions linked
to terrorism
6 Inadequate anti-money-laundering 40 16 40
programs in supervised banks,
financial institutions or
intermediaries; authority to
cooperate with judicial and law
enforcement
7 Inadequate guidelines for 41 16 39
suspicious transactions'
detection
8 Inadequate measures to freeze 40 14 35
and confiscate terrorist assets
9 No requirement to take 41 14 34
reasonable measures to obtain
information about customer
identity
10 Inadequate procedures for mutual 41 14 34
assistance in criminal matters
for production of records,
search of persons and premises,
seizure and obtaining of
evidence for money laundering
investigations and prosecutions
11 Inadequate internal policies, 40 13 33
procedures, controls, audit, and
training programs
12 No requirement to report 41 13 32
promptly to the financial
intelligence unit if financial
institutions suspect that funds
stem from a criminal activity
13 Poor international exchange of 41 13 32
information relating to
suspicious transactions and to
persons or corporations involved
Source: International Monetary Fund and World Bank, Twelve-Month Pilot
Program of Anti-Money-Laundering and Combating the Financing of Terrorism
(AML/CFT) Assessments-Joint Report on the Review of the Pilot Program
(March 10, 2004, annex II, table 12, p, 55).
Notes: The assessments were conducted during the 12-month period ending in
October 2003.
According to the joint report, the 41 assessments in the pilot program
included compliance ratings for 27 of the FATF 40 Recommendations and 7 of
the 8 Special Recommendations. Some recommendations were not rated because
they had not yet fully come into force or they were not explicitly
assessable, given their nature. The assessment methodology called for use
of a four-grade rating scale-compliant, largely compliant, materially
noncompliant, and noncompliant.
The joint report noted that assessments using the common methodology are
increasingly used as a diagnostic tool to identify technical assistance
needs, including assistance for creating and strengthening FIUs.
Although not published, an overview of more recent FIU-related assessment
findings was presented on July 1, 2005, in Washington, D.C., at the annual
plenary meeting of the Egmont Group. Specifically, an IMF representative
presented summary information covering 29 countries, whose names were not
disclosed. The IMF representative noted that the information was derived
from the results of mutual evaluations or assessments conducted during
2003 to 2005 using the common methodology endorsed by FATF, IMF, and the
World Bank. According to the presentation, the findings of the assessments
indicated that many of the FIUs had shortcomings, such as a shortage of
staff (one-third of the total), a lack of political independence
(one-fourth), and legal obstacles to international cooperation
(one-third). Other shortcomings cited were (scope not quantified) lack of
clear legal framework, lack of strategic analysis tools, lack of access to
appropriate information and databases, excessive transmission of
information to law enforcement agencies, lack of guidelines on the
identification of suspicious behavior, lack of feedback, lack of powers to
sanction failure to report, and legal obstacles to the transmission of
suspicious transaction reports.
In its January 2006 response to our inquiry, the State Department said
that the U.S. government and other major donors generally are well
informed about the existence of FIUs (and their capabilities and
deficiencies) in those jurisdictions in which the donors wish to
participate. State commented that while mutual evaluations are but one
source of information and can be outdated before being discussed at
meetings of the FATF-style regional bodies, these evaluations are useful
in identifying deficiencies and prompting corrective action by the
respective jurisdiction.
Dealing with FIU Shortcomings or Noncompliance with Standards Is a
Responsibility of the Egmont Group
According to FinCEN's Deputy Director (and chair of the Egmont Committee),
the Egmont Group is responsible for dealing with its members' shortcomings
or noncompliance with standards. That is, even though influential, FinCEN
has only one vote within the 101-member Egmont Group. Therefore, FinCEN's
efforts to improve the capabilities of foreign FIUs must be achieved
through cooperation, collaboration, and consensus.
To better address Egmont Group members' shortcomings or noncompliance with
standards, the Deputy Director commented that his preference is for full
transparency of assessment findings. In this regard, in its most recent
annual report, FATF announced a new process for reporting assessment
teams' findings that are compiled in mutual assessment reports.
Specifically, according to FATF,
"A summary of each report will be published on the FATF website and FATF
members have agreed in principle to make public the full mutual evaluation
reports (with the ultimate decision being left to each FATF member for its
own report). The FATF intends to provide comprehensive information on its
members' actions in combating money laundering and terrorist financing."19
The Deputy Director also commented that the most significant functional
change for the Egmont Group in recent years was expansion of the
definition of an FIU in response to the terrorist attacks of September 11.
Shortly thereafter, at an October 2001 special meeting of the Egmont Group
in Washington, D.C., the members expressed a sense that the group's
operational functions should expand beyond money laundering to address
terrorist financing. Later, at the Egmont Group's 12th plenary
meeting-held during June 21 to 25, 2004, and hosted in Guernsey, Channel
Islands-the definition of "financial intelligence unit" was amended to
include a reference to terrorist financing. This new definition is
reflected in the Statement of Purpose of the Egmont Group of Financial
Intelligence Units, which resulted from the Guernsey plenary meeting.
Thus, combating terrorist financing now is included in the definition of
tasks an FIU is required to perform.
According to the Deputy Director, existing FIUs have a grace period of at
least 2 years to become compliant with the new definition. He noted that
throughout the history of the Egmont Group, no member has ever been
excluded from continuing participation. The Deputy Director added,
however, that plenary meetings in recent years have begun to address the
issue of noncompliance. For example, according to documentation of Egmont
Group meetings:20
19Financial Action Task Force on Money Laundering, Annual Report
2004-2005, June 10, 2005, p. 9.
o The 11th Egmont Group plenary, held July 21 to 25, 2003, in
Sydney, Australia, marked the "first attempt to establish a
procedure for dealing with members that may no longer meet Egmont
standards."
o At the 12th Egmont plenary session, held June 21 to 25, 2004,
in Guernsey, Channel Islands, "a paper was drafted which outlines
the procedures to address those Egmont members that may no longer
meet the established definitions and standards of the Egmont
Group, or that fail to exchange information."
The Deputy Director said that a paper on noncompliance was also presented
at the most recent Egmont plenary meeting, held June 30 to July 1, 2005,
in Washington, D.C. He added that the issue will be revisited at the 2006
plenary meeting in Cyprus. He explained that dealing with noncompliance
will be a difficult issue and likely will reflect a go-slow approach. For
instance, the Deputy Director opined that before administrative action
(such as exclusion) is taken, the noncompliant member probably would be
offered ameliorating assistance over an extended period of time.
20Egmont Group, "Egmont Meetings at a Glance," www.egmontgroup.org (2006).
FinCEN Is Taking Various Actions to Maximize Its Performance as a Global
Partner, but More Comprehensive Feedback from Financial Intelligence Units Would
Be Useful
Since the events of September 11, FinCEN's most important operational
priority has been to provide counterterrorism support to the law
enforcement and intelligence community. In January 2006, to enhance its
support role, FinCEN assigned an analyst to the FBI's Terrorist Financing
Operations Section. Also, among other actions to maximize performance as a
global partner in combating money laundering and terrorist financing,
FinCEN is modernizing the Egmont Secure Web-the Internet-based system
developed and maintained by FinCEN and used by FIUs worldwide to exchange
information. Further, FinCEN is allocating additional staff resources to
facilitate responding to foreign requests for assistance and is developing
a new case management system. However, FinCEN's most recent customer
satisfaction survey of FIUs had limited coverage and a very low response
rate, partly because there was no follow-up with nonrespondents. Future
surveys would need to be more inclusive and incorporate better survey
development and administration practices, such as follow-up efforts to
achieve higher response rates, if the surveys are to serve as a useful
management information tool for monitoring and enhancing performance.
Challenges for FinCEN Include Redirecting Its Efforts to More Complex Cases as
well as Supporting the Nation's Focus on Detecting and Preventing Terrorist
Financing
FinCEN has recognized that it faces various challenges, such as
redirecting its efforts to more complex cases, some of which inevitably
have international linkages. Another important challenge is to support the
nation's focus on detecting and preventing terrorist financing, which also
can involve international linkages.
At a congressional hearing held on April 29, 2004, the FinCEN Director
testified that FinCEN must step up its international engagement with
counterparts around the world by, among other means, enhancing
"the FinCEN analytical product we provide to our global counterparts when
asked for information. Today, we are primarily providing the results of a
data check. We think we owe our colleagues more. ... [W]e will also be
making more requests for information and analysis from our
partners-particularly when the issue involves terrorist financing or money
laundering." 21
21Statement of William J. Fox, Director, FinCEN, at a hearing
("Counterterror Initiatives and Concerns in the Terror Finance Program")
before the Senate Committee on Banking, Housing, and Urban Affairs, April
29, 2004.
Similarly, FinCEN's strategic plan for fiscal years 2006 to 2008 noted
that "a strategic challenge is to make the transition away from relatively
simple query services that we have historically provided to law
enforcement agencies, so that we can redirect our efforts toward more
complex analysis and investigative support."22 Also, the strategic plan
stated:
"Like the rest of America, the Financial Crimes Enforcement Network is
still adapting to changes triggered by the events of 9/11. These changes
include ... supporting the Department of the Treasury's new focus on
detecting and preventing terrorist financing. ... While the Financial
Crimes Enforcement Network has historically developed the information,
analytical processes, and tools required to detect money laundering, we
need to develop additional tools-and to gain access to additional data,
including classified data-in order to better detect terrorist financing."
Further elaboration of planned efforts to enhance FinCEN's analytical
capabilities is presented in Treasury's budget submission for fiscal year
2006:
"FinCEN must upgrade the quality of its analysis related to terrorist
financing and money laundering. FinCEN has begun a major initiative to
enhance the ability of FinCEN analysts to consider all information
sources, including, as appropriate, classified data, when analyzing money
laundering and terrorist financing methods. To be successful, this will
require an overall upgrade to the security environment, significant
investments in training and building analytical skills relating to
terrorist financing, upgrade of the analytical software related to text
mining, enhanced availability of classified sources ... and an increase in
overall personnel security classifications to allow the integration of all
information sources."23
A primary data source used by FinCEN analysts is the government's database
of BSA-related forms, including suspicious activity reports (SARs) filed
by financial institutions. An integral part of FinCEN's counterterrorism
strategy involves reviewing and referring all SARs related to terrorist
financing to law enforcement and intelligence agencies. For instance, as
of September 2005, FinCEN reported that it had proactively developed and
referred a total of 526 potential terrorist financing leads to appropriate
agencies, such as the FBI's Terrorist Financing Operations Section and
Joint Terrorism Task Forces.
22Financial Crimes Enforcement Network, Strategic Plan, FY 2006-2008:
Safeguarding the Financial System from the Abuse of Financial Crime
(February 2005).
23Department of the Treasury, Financial Crimes Enforcement Network, Fiscal
Year 2006 Congressional Budget Submission (Feb. 7, 2005), p. 4.
In 2004, the FBI contacted the Director of FinCEN and requested bulk
access to BSA reports for ingestion into the FBI's system, the
Investigative Data Warehouse (IDW). The FinCEN Director recognized the
benefits of having the data available in this format and approved the
request. According to the FBI:
"[The IDW] is a centralized, web-enabled, closed system repository for
intelligence and investigative data. This system, maintained by the FBI,
allows appropriately trained and authorized personnel throughout the
country to query for information of relevance to investigative and
intelligence matters. In addition to BSA data provided by FinCEN, IDW
includes information contained in myriad other law enforcement and
intelligence community databases. The benefits of IDW include the ability
to efficiently and effectively access multiple databases in a single
query. As a result of the development of this robust information
technology, a review of data that might have previously taken days or
months now takes only minutes or seconds."24
The FBI noted that FinCEN provides the IDW with regular updates of the BSA
data. Also, the FBI told us that it has not had any discussions with
FinCEN regarding ways to enhance FinCEN's link-analysis capability.
Generally, link analysis involves use of data mining and other
computerized techniques to identify relationships across organizations,
people, places, events, etc. Rather, the FBI noted that it requested
FinCEN to assign an analyst to the FBI's Terrorist Financing Operations
Section. Such an assignment, the FBI explained, would provide FinCEN
access to additional data sources, which would be useful to FinCEN in
performing its various roles. FinCEN told us that it accepted this offer
almost immediately, and, subsequently, in January 2006, the designated
FinCEN analyst reported to the FBI to begin initial training (2 weeks)
with Terrorist Financing Operations Section personnel. More recently, in
March 2006, in providing us feedback on this arrangement and other
interactions, the FBI commented that it highly values its strong
partnership with FinCEN.
24Statement of Michael F. A. Morehart, Section Chief, Terrorist Financing
Operations Section, Counterterrorism Division, FBI, at a hearing before
the House Committee on Financial Services (May 26, 2005).
In further reference to analyzing SARs and developing
counterterrorism-related leads, we note that FinCEN developed and
transmitted a total of four referrals to FIUs during the past 4 fiscal
years, 2002 through 2005. Of these four referrals, according to FinCEN,
two were sent to Spain's FIU, one was sent to the United Kingdom's FIU,
and one was sent to both Canada's FIU and the United Kingdom's FIU. In
addition to these proactive referrals, FinCEN emphasized that it regularly
interacts with foreign FIUs to explore opportunities for working on issues
of mutual interest. These efforts, according to FinCEN, essentially
achieve the same goals and results as proactive referrals-and perhaps in a
more tailored and effective manner.
Modernizing the Egmont Secure Web: Technology Is Critical to Information
Sharing, a Core Function of Financial Intelligence Units
Facilitating the cross-border exchange of information is a core function
of FIUs. FinCEN plays a key role in fostering the secure exchange of
information among FIUs, given that FinCEN operates and maintains the
Egmont Secure Web. An Internet-based system, the Egmont Secure Web is used
by FIUs primarily for its encrypted e-mail capability to exchange
sensitive case information. In 1997, FinCEN initially launched the Egmont
Secure Web, and its development was funded solely by the Treasury
Forfeiture Fund.25
Operationally, according to FinCEN, the Egmont Secure Web is of paramount
importance to FIUs. For instance, the Egmont Group's guidelines-Best
Practices for the Exchange of Information between Financial Intelligence
Units-state that, where appropriate, FIUs should use the Egmont Secure
Web, which permits secure online information sharing among members.
According to FinCEN, the system has encouraged unprecedented cooperation
among FIUs because of security, ease of use, and quick response time.
Also, FinCEN officials explained that the Egmont Secure Web provides
online access to many reference materials, such as official Egmont
procedural documents, FIU contact information, case examples, recently
noted trends, and minutes from all Egmont meetings.
25The Treasury Forfeiture Fund is the receipt account for the deposit of
nontax forfeitures made pursuant to laws enforced or administered by the
Internal Revenue Service-Criminal Investigation and Department of Homeland
Security components (including U.S. Immigration and Customs Enforcement,
U.S. Customs and Border Protection, U.S. Secret Service, and U.S. Coast
Guard).
A large majority (96) of the Egmont Group's 101 members are connected to
the Egmont Secure Web. As of February 2006, 67 of the 96 FIUs each had one
Egmont Secure Web user account, and 29 other FIUs each had two or more
user accounts (see table 2). With 49 user accounts, FinCEN's total is
nearly three times that of Belgium's FIU, which has the second largest
number of user accounts (18). For fiscal year 2004, FinCEN reported that
it supported 844 law enforcement cases via information exchanges with
foreign jurisdictions and that an estimated 98 percent of FinCEN's
responses to these jurisdictions went through the Egmont Secure Web.
Table 2: Financial Intelligence Units Connected to Egmont Secure Web and
Number of User Accounts per Country (as of February 2006)
Number and names of countries connected to
Egmont Secure Web
Number of
Egmont Secure Total number
Web user of Egmont
accounts per Number of Secure Web
country countries Names of countries user accounts
1 67 Albania, Andorra, Anguilla, 67
Aruba, Austria, Bahrain,
Barbados, Belize, Bermuda,
Bolivia, Bosnia and Herzegovina,
Brazil, Bulgaria, Cayman Islands,
Colombia, Cook Islands, Costa
Rica, Croatia, Cyprus, Czech
Republic, Dominica, Dominican
Republic, Egypt, Estonia,
Finland, Germany, Gibraltar,
Grenada, Guatemala, Guernsey,
Hong Kong, Hungary, Iceland,
Ireland, Isle of Man, Israel,
Japan, Jersey, Lebanon,
Lithuania, Luxembourg, Macedonia,
Malaysia, Malta, Marshall
Islands, Mexico, Monaco,
Netherlands Antilles, New
Zealand, Panama, Paraguay, Peru,
Portugal, Qatar, Romania, Russia,
San Marino, Singapore, Slovakia,
St. Vincent and the Grenadines,
Sweden, Switzerland, Taiwan,
Turkey, United Arab Emirates,
Vanuatu, and Venezuela
2 15 Antigua & Barbuda, Denmark, 30
France, Georgia, Italy, Korea,
Latvia, Liechtenstein, Mauritius,
Montenegro, Norway, Poland,
Serbia, South Africa, and United
Kingdom
3 5 Bahamas, Chile, Indonesia, 15
Netherlands, and Slovenia
4 2 Honduras and Spain 8
5 2 Argentina and Canada 10
6 2 Thailand and Ukraine 12
12 1 Australia 12
18 1 Belgium 18
49 1 United States 49
Total 96 221
Source: FinCEN data.
Note: An Egmont Secure Web user account is issued to an authorized user
within an FIU that has been admitted into the Egmont Group. The request
for a user account is submitted to FinCEN by an official within the
foreign FIU. The account grants access to the Egmont Secure Web system and
enables "view only" use of the Web content, including pages and documents
posted for all FIUs. Also, the account includes the use of secure
e-mail-enabling exchange of sensitive documents between FIUs.
FinCEN is in the process of modernizing the system by acquiring upgraded
hardware and software. FinCEN officials estimated that the upgrade will be
completed by mid-2006 and cost approximately $631,000. Further, the
officials noted the following information:
o The U.S. government is the owner of the system and all other
users are stakeholders. In effect, FinCEN is providing a service
to a group (i.e., the Egmont Group)-of which, FinCEN itself is a
member.
o The Egmont Secure Web meets or exceeds the requirements for
information systems that handle sensitive but unclassified
information.
o The issuance of a digital certificate gives some assurance that
users have met security requirements, but the burden is on the
respective FIU to be responsible.26
As a further safeguard, the officials noted that the Egmont Secure Web
does not give foreign FIUs access to FinCEN's internal systems-for
example, the FIUs have no direct access to BSA data.
Management Information and Customer Feedback Are Important Tools for Monitoring
and Improving Performance
Important tools for monitoring and improving performance of any
organization include implementing an effective management information
system and obtaining feedback from customers. Such tools are particularly
relevant for FinCEN, a networking organization that has a significant role
and responsibilities in combating international financial crime.
26Generally, before obtaining access to a federal computerized information
system, a potential user must first be issued a digital certificate by a
government-approved certificate authority. A digital certificate
essentially is an electronic "credit card" that establishes a person's
credentials when doing business or other transactions on the Web. The
certificate contains the person's name, a serial number, expiration date,
a copy of the certificate holder's public key (used for encrypting
messages and digital signatures), and the digital signature of the
certificate-issuing authority so that a recipient can verify that the
certificate is real. FinCEN is the authority for issuing digital
certificates for use of the Egmont Secure Web.
Case Management: New Information System Being Developed to Better Manage
Requests for Assistance
In response to our inquiry about what trends are reflected in data
regarding the timeliness of FinCEN's responses to foreign FIU requests for
assistance, FinCEN officials said that their management information system
does not lend itself easily to the identification of trends. The officials
noted, however, that FinCEN was developing a new case management system to
make statistical information more readily available. According to FinCEN
officials, full implementation of the new system is scheduled for the last
quarter of fiscal year 2008. The officials told us that as of March 2006,
no decision had been reached on the new system's hardware or software
platform. However, the officials noted that in developing the new system,
FinCEN is coordinating with Treasury's Enterprise Architecture Office and
also is complying with applicable guidance from the Office of Management
and Budget.
Available case-management statistics show that FinCEN receives more
requests from foreign FIUs than it submits to these counterparts. As table
3 indicates, the number of incoming requests to FinCEN has been about
twice the number of outgoing requests in recent fiscal years.
Table 3: Case-Management Statistics-Foreign FIU and FinCEN Requests for
Assistance
Foreign FIU requests to FinCEN requests to foreign FIUs
Fiscal year FinCEN (incoming requests) (outgoing requests)
2002 510 341
2003 529 211
2004 612 292
2005 (through 561 238
7/25/05)
Source: FinCEN data.
Note: The data in table 3 quantify only those requests in which FinCEN was
a party that either received or submitted a request for information. Thus,
the data do not include, for example, requests submitted by a foreign FIU
to another foreign FIU.
In managing and processing incoming requests, FinCEN's policy is to give
priority to terrorism-related requests and other "expedite" requests, such
as those involving imminent law enforcement action or other extenuating
time-sensitive circumstances. FinCEN officials said that responses are
prepared to meet these deadlines. Otherwise, the officials said that
requests from foreign FIUs are to be handled on a first-come, first-served
basis. Generally, the officials noted that the timeliness of FinCEN in
responding to requests from foreign FIUs can depend on a variety of
factors, such as the volume of requests, the types and amount of
information being requested, the number of subjects involved (e.g.,
persons and accounts), whether additional clarifications of the requests
are needed, and even the extent of time zone differences between FinCEN
and the foreign FIUs.
According to FinCEN data, the average time for responding to foreign
requests was 106 days in fiscal year 2002 and increased to 124 days in
fiscal year 2004. The FinCEN officials attributed this increase to various
reasons, including the growing number of FIUs and a loss of contract staff
who handled the majority of the requests from foreign FIUs. More recently,
FinCEN officials said that the average response time had decreased to 63
days for fiscal year 2005 (through July 25, 2005). To further improve
response times, the officials indicated that FinCEN was (1) shifting
additional employees to its Office of Global Support (within the Analysis
and Liaison Division), which is responsible for processing requests from
foreign FIUs, and (2) hiring contract staff to specifically handle FIU
requests for information.
Customer Satisfaction Survey of Financial Intelligence Units: Limited Coverage
and Low Response Rate
For fiscal year 2005 (through July 25, 2005), a total of 561 requests were
made to FinCEN by 75 foreign customers, primarily FIUs. Sixteen FIUs
accounted for two-thirds of the total requests, as table 4 shows.
Table 4: Number and Names of Foreign Customer Entities That Requested
Assistance from FinCEN in Fiscal Year 2005 (as of July 25, 2005)
Foreign customers (75) that requested Foreign requests to FinCEN for
assistance from FInCEN assistance
Jurisdiction and Number of Percentage of total
Number entity requests foreign requests
1 Ukraine FIU 44
2 Belgium FIU 40
3 Isle of Man FIU 39
4 Russia FIU 28
5 Poland FIU 27
6 Hungary FIU 26
7 Bulgaria FIU 23
8 Romania FIU 19
9 Brazil FIU 18
10 France FIU 18
11 Ireland FIU 18
12 Switzerland FIU 16
13 Israel FIU 15
14 Spain FIU 15
15 Latvia FIU 14
16 Croatia FIU 13
Subtotal (1 through
16) 373 66
All 59 others (17
through 75)a 188 34
Total 561 100
Source: FinCEN.
aThe number of requests submitted by each of these 59 entities (primarily
FIUs) ranged from 1 to 9. Foreign customers other than FIUs were
relatively few and included, for example, Interpol.
One management priority of FinCEN is to periodically conduct customer
satisfaction surveys. The purpose of such surveys is to "identify
strengths and opportunities to improve services to external clients."27
FinCEN contracted with an independent research organization to conduct the
most recent survey, which was designed and implemented during August to
October 2005. 28 To obtain feedback on FinCEN's support for investigative
cases, one survey instrument was used for both domestic law enforcement
customers (federal, state, and local) and international customers (FIUs).
The survey instrument was designed to obtain feedback on various aspects
of FinCEN's services provided during fiscal year 2005, such as the ease of
making requests, the timeliness of responses, and the value or usefulness
of information provided.
27Financial Crimes Enforcement Network, Strategic Plan FY 2006 - 2008,
Safeguarding the Financial System from the Abuse of Financial Crime
(February 2005, p. 22).
28FinCEN's previous survey was conducted in September to October 2003.
To facilitate distribution of the survey instrument, FinCEN provided the
contractor with a list of 325 customers, a total consisting of both
domestic and international customers. According to FinCEN, this total
represented all customers who had requested assistance from FinCEN in
fiscal year 2005 and for whom FinCEN had valid e-mail addresses. All 325
customers were invited via e-mail to participate in the Web-based survey.
Of the 325 customers, 41 were FIUs. In answering our inquiry, FinCEN
officials were unable to explain why all FIUs that requested assistance
from FinCEN in fiscal year 2005 were not included in the survey.
Subsequently, from the 325 domestic and international customers invited to
participate in the survey, a total of 78 responses were collected, giving
an overall response rate of 24 percent. Although not broken out separately
in the contractor's final report, the FIU-related response rate was much
lower, with only 2 of the 41 FIUs responding.
As a result of the low response rate from the FIUs, insufficient
information was received to help FinCEN identify strengths and
opportunities to improve services to external clients. FinCEN did receive
feedback on the level of satisfaction for two FIUs, which is helpful;
however, the experiences of the two FIUs cannot be interpreted as
representing the experiences of other FIUs.
Generally, in conducting a survey, various efforts to promote the highest
possible response rate can be considered during both survey development
and survey administration. During survey development, consideration can be
given to individual and organization characteristics that may affect the
prospective respondents' level of cooperation in completing the survey.
For instance, the prospective respondents may not want to be critical of
the survey's sponsor. Another factor that affects cooperation is the
burden that completing the survey instrument imposes on prospective
respondents in terms of their time and the level of effort required to
understand the questions and formulate responses. Pretesting the survey
instrument is a way to help evaluate whether the potentially adverse
effects of these types of factors have been minimized. Further, during
survey administration, follow-up efforts with prospective respondents can
help to promote the highest possible response rate. Such follow-up efforts
can include e-mail messages, letters, or telephone calls. FinCEN officials
told us they were unaware why the response rate from FIUs was low or
whether the survey included any follow-up efforts to obtain responses from
additional FIUs.
In perspective, periodic surveys of customers are not the only method used
by FinCEN to obtain performance feedback. For instance, in responding to
each request for assistance from FIUs, the practice of FinCEN is to
include an accompanying form that solicits feedback regarding the
timeliness of FinCEN's response and the usefulness of the specific
information provided. According to FinCEN officials, many of the feedback
forms either are not returned or are returned with annotations indicating,
for example, that the usefulness of the information provided by FinCEN may
not be known until some future date. However, even if request-specific
feedback is obtained, FinCEN officials recognize the benefits of
conducting more comprehensive efforts, such as the periodic customer
satisfaction surveys. This recognition, as mentioned previously, is
reflected in FinCEN's Strategic Plan.
Conclusions
FinCEN plays a critically important role in international efforts to
combat money laundering and terrorist financing. It has been a leader in
the adoption and implementation of international money laundering
countermeasures and supporting and advancing the Egmont Group's principles
and activities. A key part of FinCEN's international role has been its
efforts to respond to requests for information related to possible
international financial crime. Yet, FinCEN's method for obtaining
performance feedback data from global partners is flawed. Relevant
feedback data include whether FIUs find the information provided by FinCEN
to be substantive, timely, and useful-or how information-sharing efforts
could be improved. Without such data, FinCEN is not in the best position
to help the international community combat financial crime.
In its Strategic Plan, FinCEN recognizes the importance of periodically
surveying its customers to "identify strengths and opportunities to
improve services." However, FinCEN's most-recent customer satisfaction
survey of its global partners had limited coverage-with less than one-half
of all FIUs being invited to participate. Also, the response rate was very
low, with no follow-up efforts directed specifically at nonresponding
FIUs. In the future, FinCEN's customer satisfaction surveys of FIUs need
to be more inclusive and reflect higher response rates if the surveys are
to serve as a useful management information tool for monitoring and
enhancing performance. The importance of monitoring and improving
performance by obtaining feedback from customers is highlighted by the new
operational role of FIUs in combating terrorist financing-a role in which
the sharing or exchanging of information can be especially time critical.
Recommendation for Executive Action
We recommend that the Director of FinCEN take appropriate steps in
developing and administering future customer satisfaction surveys to help
ensure more comprehensive coverage of and higher response rates from FIUs.
For example, such steps could include pretesting the survey instrument and
following-up with nonresponding FIUs.
Agency Comments and Our Evaluation
We provided a draft of this report for comment to the departments of the
Treasury, State, Homeland Security, and Justice, and the Federal Reserve
Board. We received written responses from each agency.
The Department of the Treasury responded that it supports our
recommendation that the Director of FinCEN take appropriate steps in
developing and administering future customer satisfaction surveys to help
ensure more comprehensive coverage of and higher response rates from FIUs.
The Department of the Treasury commented that it is committed to ensuring
that customer surveys provide reliable performance feedback.
The Department of State commented that our October 2005 report-Terrorist
Financing: Better Strategic Planning Needed to Coordinate U.S. Efforts to
Deliver Counter-Terrorism Financing Training and Technical Assistance
Abroad ( GAO-06-19 )-was not relevant for discussion in this report. In
our view, however, the October 2005 report provides relevant perspectives
on interagency coordination and strategic planning, so we retained a
brief discussion of it in this report. The Department of State also
provided a technical comment regarding section 311 of the USA PATRIOT Act,
which we incorporated where appropriate.
The Department of Homeland Security and the Federal Reserve Board
responded that they had no comments on this report. The Department of
Justice provided technical comments only, which we incorporated in this
report where appropriate.
As arranged with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days after
the date of this report. 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, this report will
be available at no charge on GAO's Web site at http://www.gao.gov .
If you or your staff have any questions about this report or wish to
discuss the matter further, please contact me at (202) 512-8777 or
[email protected] . Contact points for our Offices of Congressional Relations
and Public Affairs may be found on the last page of this report. Other key
contributors to this report were Danny Burton, Frederick Lyles, Natasha
Ewing, Thomas Lombardi, and Evan Gilman.
Sincerely yours,
Richard M. Stana Director, Homeland Security and Justice Issues
Appendix I: Objectives, Scope, and Methodology
Objectives
In response to a request from the Chairman, House Committee on the
Judiciary, we reviewed the global or international-related efforts of the
Department of the Treasury and the Financial Crimes Enforcement Network
(FinCEN) to combat money laundering and terrorist financing. Section 330
of the USA PATRIOT Act expresses the sense of the Congress that the
President should direct the Secretary of State, the Attorney General, or
the Secretary of the Treasury, in consultation with the Board of Governors
of the Federal Reserve, to seek to enter into negotiations with foreign
jurisdictions that may be utilized by a foreign terrorist organization in
order to further cooperative efforts to ensure that foreign banks and
other financial institutions maintain adequate records of transactions and
account information relating to any foreign terrorist organization or
member thereof.1 The negotiators should also seek to establish a mechanism
whereby those records would be made available to U.S. law enforcement
officials and domestic financial institution supervisors, when
appropriate.
Section 361 of the USA PATRIOT Act established FinCEN as a statutory
bureau in the Treasury Department and listed FinCEN's various duties and
powers, which include coordinating with foreign counterparts-that is,
financial intelligence units (FIUs) in other countries.2 These units are
specialized governmental agencies created to combat money laundering,
terrorist financing, and other financial crimes. Each FIU is the
respective nation's central agency responsible for obtaining information
(e.g., suspicious transaction reports) from financial institutions,
processing or analyzing the information, and then disseminating it to
appropriate authorities.
Specifically, our review focused on the following questions regarding
efforts under sections 330 and 361 of the USA PATRIOT Act to combat money
laundering and terrorist financing:
1Uniting and Strengthening America by Providing Appropriate Tools Required
to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, Pub. L. No.
107-56, S: 330, 115 Stat. 272, 320.
2Codified as amended at 31 U.S.C. S: 310.
o Under section 330 of the USA PATRIOT Act, how has the
Department of the Treasury interacted or negotiated with foreign
jurisdictions to promote cooperative efforts to combat money
laundering and terrorist financing?
o Under section 361, how has FinCEN contributed to establishing
FIUs in foreign countries and enhancing the capabilities of these
units to combat money laundering and terrorist financing?
o What actions is FinCEN taking to maximize its performance as a
global partner in combating money laundering and terrorist
financing?
Scope and Methodology
Initially, in addressing the principal questions, we reviewed sections 330
and 361 of the USA PATRIOT Act and relevant legislative histories. Also,
we reviewed information available on the Web sites of federal entities,
including the departments of the Treasury (and FinCEN), Justice, State,
and Homeland Security. Similarly, we reviewed information available on the
Web sites of relevant multilateral or international bodies, such as (1)
the Financial Action Task Force on Money Laundering (FATF), an
intergovernmental entity whose purpose is to establish international
standards and to develop and promote policies for combating money
laundering and terrorist financing;3 (2) the various FATF-style regional
bodies; (3) the International Monetary Fund; (4) the World Bank; and (5)
the Egmont Group of FIUs.4 To obtain additional background and overview
perspectives, we conducted a literature search to identify relevant
reports, studies, articles, and other documents-including congressional
hearing testimony-regarding U.S. and multilateral efforts to combat money
laundering and terrorist financing.
3FATF has issued "Forty Recommendations on Money Laundering" and "Nine
Special Recommendations on Terrorist Financing." Collectively, FATF's "40
plus 9" recommendations are widely recognized as the international
standards for combating money laundering and terrorist financing.
4On June 9, 1995, representatives of various nations (including the United
States) and international organizations met at the Egmont-Arenberg palace
in Brussels, Belgium, to discuss ways to enhance mutual cooperation in
combating the global problem of money laundering. A result was creation of
the Egmont Group, whose members are the specialized anti-money-laundering
organizations known as FIUs.
Treasury Department Efforts to Accomplish Goals Articulated under Section 330 of
the USA PATRIOT Act
Regarding section 330 of the USA PATRIOT Act, to determine how the
Department of the Treasury has interacted or negotiated with foreign
jurisdictions to promote cooperative efforts to combat money laundering
and terrorist financing, we interviewed responsible officials at and
reviewed relevant documentation obtained from the departments of the
Treasury, Justice, and State and the Federal Reserve Board. Also, because
our preliminary inquiries indicated that efforts to accomplish the goals
articulated under section 330 largely involve interactions with
multilateral organizations-particularly FATF-we focused especially on the
efforts of Treasury's Office of Terrorist Finance and Financial Crime,
which leads the U.S. delegation to FATF and is the department's policy and
enforcement entity regarding money laundering and terrorist financing.
Further, because section 330 does not specify any consequences or
penalties for noncooperative parties or countries, we determined the
availability of incentive or pressure mechanisms that could be used in
conjunction with negotiations. In this regard, on the basis of Treasury's
response to our inquiry, we identified federal actions taken under USA
PATRIOT Act section 311, which authorizes the Secretary of the Treasury-in
consultation with the Secretary of State and the Attorney General-to find
that reasonable grounds exist for concluding that a foreign jurisdiction,
a financial institution, a class of transactions, or a type of account is
of "primary money laundering concern."5 If such a finding is made, U.S.
financial institutions could be required to take certain "special
measures" against the applicable jurisdictions, institutions, accounts, or
transactions. The special measures can range from enhanced record keeping
or reporting obligations to a requirement to terminate correspondent
banking relationships with the designated entity.
FinCEN Contributions to Establishing FIUs in Foreign Countries and Enhancing
Their Capabilities
In addressing this topic, we first obtained data on the annual growth in
the number of FIUs over the past decade-from 1995, when the Egmont Group
of FIUs was formed, to the present. Also, we obtained overview information
on the history, purposes, and functioning of FIUs. For instance, the
overview information-which was available on the Egmont Group's Web site (
www.egmontgroup.org ) or was otherwise published-included the following:
5Codified as amended at 31 U.S.C. S: 5318A.
o Statement of Purpose of the Egmont Group of Financial
Intelligence Units,
o Principles for Information Exchange Between Financial
Intelligence Units for Money Laundering and Terrorism Financing
Cases,
o Best Practices for the Exchange of Information between
Financial Intelligence Units, and
o International Monetary Fund and World Bank, Financial
Intelligence Units-An Overview, 2004.
In further reference to establishing FIUs and enhancing their
capabilities, we obtained information on the efforts (e.g., training and
technical support) of FinCEN and other federal contributors, such as
Treasury's Office of Technical Assistance and the State Department. In so
doing, we interviewed responsible officials at and reviewed relevant
documentation obtained from FinCEN, Treasury, and State. The federal
officials we contacted included FinCEN's Deputy Director, who chairs the
Egmont Committee, which functions as the consultation and coordination
mechanism for FIU heads and the Egmont Group's five working groups
(information technology, legal, operational, training, and outreach).6 The
documentation we reviewed included FinCEN's annual reports and strategic
plans as well as the international narcotics control strategy reports
released annually by the State Department's Bureau for International
Narcotics and Law Enforcement Affairs-reports that present information on
FinCEN's and other federal agencies' efforts to create and improve FIUs.
In identifying these federal efforts, we did not attempt to disaggregate
or separately quantify contributions attributable to the respective
federal agency. Rather, we made inquiries regarding any potential issues
involving interagency coordination of federal efforts.
Further regarding the capability of FIUs, we identified and reviewed
available studies or reports. In particular, we reviewed a report prepared
by the International Monetary Fund (IMF) and the World Bank that presented
comparative or multicountry results based on mutual evaluations of
nations' compliance with the FATF recommendations. The study-Twelve-Month
Pilot Program of Anti-Money-Laundering and Combating the Financing of
Terrorism (AML/CFT) Assessments-Joint Report on the Review of the Pilot
Program, March 10, 2004-summarized the results of the mutual evaluations
of 41 jurisdictions, conducted during the 12-month period that ended in
October 2003. The assessments used a common methodology adopted by FATF
and endorsed by the Executive Boards of IMF and the World Bank.7
6The Egmont Committee is composed of a chair, two co-vice chairs, the
chairs of the Egmont Group's five working groups, and regional
representation from Africa, Asia, Europe, the Americas, and Oceania.
To obtain more current transnational perspectives on the capability of
FIUs, we attended (as an observer) the most recent annual plenary meeting
(June 30 to July 1, 2005) of the Egmont Group. At the plenary meeting,
held in Washington, D.C., a summary of FIU-related assessment findings was
presented. The information was derived from the results of mutual
evaluations or assessments (of 29 countries) conducted from 2003 to 2005
using the common methodology endorsed by FATF, IMF, and the World Bank.
Actions FinCEN Is Taking to Maximize Its Performance as a Global Partner in
Combating Money Laundering and Terrorist Financing
We inquired about FinCEN's efforts to update or modernize the Egmont
Secure Web, which is the Internet-based communications system developed
and maintained by FinCEN and used by FIUs worldwide to share or exchange
information. Generally, the Egmont Secure Web is considered to be of
paramount importance to the operations of FinCEN and foreign FIUs. For
instance, the Egmont Group's guidelines-Best Practices for the Exchange of
Information between Financial Intelligence Units-state that, where
appropriate, FIUs should use the Egmont Secure Web, which permits secure
online information sharing among members. FinCEN is in the process of
modernizing the system's 1997 architecture by acquiring upgraded hardware
and software. A large majority (96) of the Egmont Group's 101 members are
connected to the Egmont Secure Web.
Also, we reviewed annual statistical information on international-related
requests for assistance in developing or investigating cases.
Specifically, for fiscal years 2002 to 2005, we obtained statistics on
requests for assistance submitted by foreign FIUs to FinCEN. To the extent
permitted by available data, we analyzed the statistical information on
incoming requests in reference to the subject matter of the request, the
country of submission, and the timeliness of FinCEN's response to the
submitting FIU. We did not analyze the quality of FinCEN's responses to
the incoming requests for assistance. However, we reviewed the results of
the most recent customer feedback survey conducted by FinCEN. Also, we
inquired about FinCEN's efforts to better monitor or improve timeliness
performance by developing a new case management system and assigning
additional employees to the Office of Global Support, which is responsible
for processing requests from foreign FIUs.
7The common methodology reflects the principles of the FATF
recommendations. See International Monetary Fund and World Bank, Joint
Report on the Methodology for Assessing Compliance with the FATF 40
Recommendations and the FATF 8 Special Recommendations-Supplementary
Information (March 16, 2004). The common methodology was updated in
2005-Methodology for Assessing Compliance with the FATF 40 Recommendations
and the FATF 9 Special Recommendations (updated as of February 2005).
Further, we inquired about FinCEN's efforts to enhance its analytical
capabilities to handle more complex cases and support the nation's focus
on detecting and preventing terrorist financing. For example, we contacted
the Federal Bureau of Investigation's (FBI) Terrorist Financing Operations
Section and the Foreign Terrorist Tracking Task Force.
Data Reliability
We conducted our work from June 2005 to March 2006 in accordance with
generally accepted government auditing standards. Regarding the
statistical information we obtained from FinCEN-i.e., information
concerning requests for assistance submitted by foreign FIUs to FinCEN-we
discussed the sources of the data with FinCEN officials and worked with
them to resolve discrepancies we identified with the data they provided.
As resolved and presented in this report, we determined that these data
were sufficiently reliable for the purposes of this review.
Appendix II: Financial Action Task Force and
Related Regional Bodies
This appendix presents summary information regarding the purposes and
functioning of the Financial Action Task Force on Money Laundering and the
various FATF-style regional bodies-international entities whose mission
focuses on combating money laundering and terrorist financing. The summary
information is derived largely from FATF's Web site ( www.fatf-gafi.org ),
which provides links to the regional bodies. Also, we discussed the
information with Treasury Department officials.
The Financial Action Task Force and Related Regional Bodies Encompass Member
Jurisdictions around the Globe
Initially, FATF was created in 1989 by the G7 nations in response to
growing concerns about money laundering.1 However, after the events of
September 11, FATF's mission was expanded to combat the financing of
terrorism. The mission of FATF consists of three principal activities-(1)
setting standards for combating money laundering and terrorist financing,
(2) evaluating the progress of nations in implementing measures to meet
the standards, and (3) identifying and studying methods and trends
regarding money laundering and terrorist financing. In fulfilling this
mission, FATF is assisted by various FATF-style regional bodies that have
been established since 1992. As table 5 indicates, FATF and the related
regional bodies encompass member jurisdictions around the globe.
1The group of G7 nations-Canada, France, Germany, Italy, Japan, the United
Kingdom, and the United States-has been expanded to include Russia. Annual
G8 summits bring together the leaders of these nations-with participation
of the European Union (represented by the President of the European
Council and the President of the European Commission)-to discuss a
broad-based agenda of international, economic, political, and social
issues.
Table 5: Establishment Dates and Membership of FATF and FATF-Style
Regional Bodies
Number and names
of member
jurisdictions
FATF and (as of July
FATF-style Year 2005)
regional bodies established Number Names
FATF 1989 33 Argentina, Australia,
Austria, Belgium, Brazil,
Canada, Denmark, Finland,
France, Germany, Greece,
Hong Kong, China, Iceland,
Ireland, Italy, Japan,
Luxembourg, Mexico, the
Kingdom of the Netherlands,
New Zealand, Norway,
Portugal, the Russian
Federation, Singapore,
South Africa, Spain,
Sweden, Switzerland,
Turkey, United Kingdom,
United States, the European
Commission,a and the Gulf
Cooperation Councilb
Caribbean 1992 30 Antigua and Barbuda,
Financial Action Anguilla, Aruba, The
Task Force Bahamas, Barbados, Belize,
Bermuda, the British Virgin
Islands, the Cayman
Islands, Costa Rica,
Dominica, Dominican
Republic, El Salvador,
Grenada, Guatemala, Guyana,
Republic of Haiti,
Honduras, Jamaica,
Montserrat, the Netherlands
Antilles, Nicaragua,
Panama, St. Kitts and
Nevis, St. Lucia, St.
Vincent and the Grenadines,
Suriname, the Turks and
Caicos Islands, Trinidad
and Tobago, and Venezuela
Asia/Pacific 1997 29 Australia, Bangladesh,
Group on Money Brunei Darussalam,
Laundering Cambodia, Chinese Taipei,
Cook Islands, Fiji Islands,
Hong Kong (China), India,
Indonesia, Japan, Republic
of Korea, Macau (China),
Malaysia, the Marshall
Islands, Mongolia, Nepal,
New Zealand, Niue,
Pakistan, Palau, the
Philippines, Samoa,
Singapore, Sri Lanka,
Thailand, Tonga, the United
States,c and Vanuatu
Select Committee 1997 27d Albania, Andorra, Armenia,
of Experts on the Azerbaijan, Bosnia and
Evaluation of Herzegovina, Bulgaria,
Anti-Money Croatia, Cyprus, Czech
Laundering Republic, Estonia, Georgia,
Measures Hungary, Latvia,
(MONEYVAL) Liechtenstein, Lithuania,
Macedonia, Malta, Moldova,
Monaco, Poland, Romania,
the Russian Federation, San
Marino, Serbia and
Montenegro, Slovakia,
Slovenia, and Ukraine
Eastern and South 1999 12 Botswana, Kenya, Malawi,
Africa Anti-Money Mauritius, Mozambique,
Laundering Group Namibia, Swaziland,
Seychelles, Tanzania,
Uganda, Zambia, and
Zimbabwe
GAFISUD (South 2000 9 Argentina, Bolivia, Brazil,
America) Chile, Colombia, Ecuador,
Paraguay, Peru, and
Uruguay.
Eurasia FATF 2004 6 Belarus, China, Kazakhstan,
Kyrgyz Republic, the
Russian Federation, and
Tajikistan
Middle East and 2004 14 Algeria, Bahrain, Egypt,
North Africa FATF Jordan, Kuwait, Lebanon,
Morocco, Oman, Qatar, Saudi
Arabia, Syria, Tunisia, the
United Arab Emirates, and
Yemen
Source: GAO, based on review of Web sites of FATF and regional bodies and
verification by Treasury Department officials.
aThe European Commission is the executive arm of the European Union and is
responsible for implementing the decisions of the European Parliament and
the Council of the European Union.
bThe Gulf Cooperation Council-officially known as the Cooperation Council
for the Arab States of the Gulf-was established in 1981 to promote
stability and economic cooperation among the Persian Gulf nations of
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
Although the Gulf Cooperation Council is a full member of FATF, the
individual member countries are not.
cThe United States is a founding member of the Asia/Pacific Group on Money
Laundering.
dIn addition to its 27 permanent members, MONEYVAL has 2 temporary members
designated on a 2-year basis by the FATF presidency. For the period
2005-2006, the 2 temporary members are France and the Netherlands.
FATF Recommendations Provide a Set of Countermeasures against Money Laundering
and Terrorist Financing
FATF recommendations are designed to ensure that each nation has in place
a set of countermeasures against money laundering and terrorist financing.
In 1990, FATF issued its "Forty Recommendations on Money Laundering." In
October 2001, the month following the terrorist attacks in the United
States, FATF issued "Eight Special Recommendations on Terrorist
Financing." More recently, in October 2004, FATF published a ninth special
recommendation on terrorist financing to target cross-border movements of
currency and monetary instruments. Table 6 summarizes the "Forty
Recommendations on Money Laundering" and the "Nine Special Recommendations
on Terrorist Financing."
Table 6: FATF Recommendations on Money Laundering and Terrorist Financing
Forty Recommendations on Money Laundering
Number Recommendation
1 Scope of the criminal offense of money laundering: Countries should
criminalize money laundering on the basis of United Nations
Convention against Illicit Traffic in Narcotic Drugs and
Psychotropic Substances, 1988 (the Vienna Convention) and United
Nations Convention against Transnational Organized Crime, 2000 (the
Palermo Convention). Countries should apply the crime of money
laundering to all serious offenses, with a view to including the
widest range of predicate offenses. Predicate offenses may be
described by reference to all offenses, or to a threshold linked
either to a category of serious offenses or to the penalty of
imprisonment applicable to the predicate offense (threshold
approach), or to a list of predicate offenses, or a combination of
these approaches.
2 Criminal intent/legal persons: Countries should ensure that (a) The
intent and knowledge required to prove the offense of money
laundering is consistent with the standards set forth in the Vienna
and Palermo Conventions, including the concept that such mental
state may be inferred from objective factual circumstances. (b)
Criminal liability and, where that is not possible, civil or
administrative liability should apply to legal persons. This should
not preclude parallel criminal, civil, or administrative
proceedings with respect to legal persons in countries in which
such forms of liability are available. Legal persons should be
subject to effective, proportionate, and dissuasive sanctions. Such
measures should be without prejudice to the criminal liability of
individuals.
3 Provisional measures and confiscation: Countries should adopt
measures similar to those set forth in the Vienna and Palermo
Conventions, including legislative measures, to enable their
respective competent authorities to confiscate property laundered,
proceeds from money laundering or predicate offenses,
instrumentalities used in or intended for use in the commission of
these offense, or property of corresponding value, without
prejudicing the rights of bona fide third parties.
4 Financial secrecy: Countries should ensure that financial
institution secrecy laws do not inhibit implementation of FATF
recommendations.
5 Customer due diligence: Financial institutions should not keep
anonymous accounts or accounts in obviously fictitious names.
Financial institutions should undertake customer due diligence
measures, including identifying and verifying the identity of their
customers.
6 Politically exposed persons: Financial institutions should, in
relation to politically exposed persons, in addition to performing
normal due diligence measures (a) have appropriate risk management
systems to determine whether the customer is a politically exposed
person, (b) obtain senior management approval for establishing
business relationships with such customers, (c) take reasonable
measures to establish the source of wealth and source of funds, and
(d) conduct enhanced ongoing monitoring of the business
relationship. Examples of politically exposed persons include
individuals who are heads of state or of government; senior
politicians; senior government, judicial, or military officials;
senior executives of state-owned corporations; and important
political party officials.
7 Cross-border correspondence: Financial institutions should, in
relation to cross-border correspondent banking and other similar
relationships, in addition to performing normal due diligence
measures (a) gather sufficient information about a respondent
institution to understand fully the nature of the respondent's
business and to determine from publicly available information the
reputation of the institution and the quality of supervision,
including whether it has been subject to a money laundering or
terrorist financing investigation or regulatory action; (b) assess
the respondent institution's anti-money-laundering and terrorist
financing controls; (c) obtain approval from senior management
before establishing new correspondent relationships; (d) document
the respective responsibilities of each institution; and (e) with
respect to payable-through accounts, be satisfied that the
respondent bank has verified the identity of and performed ongoing
due diligence on the customers having direct access to accounts of
the correspondent and that it is able to provide relevant customer
identification data upon request to the correspondent bank.
8 Non-face-to-face business relationships or transactions: Financial
institutions should pay special attention to any money laundering
threats that may arise from new or developing technologies that
might favor anonymity, and take measures, if needed, to prevent
their use in money laundering schemes. In particular, financial
institutions should have policies and procedures in place to
address any specific risks associated with non-face-to-face
business relationships or transactions.
9 Intermediaries/introduced business: Countries may permit financial
institutions to rely on intermediaries or other third parties to
perform elements...of the customer due diligence process or to
introduce business, provided that...[specified] criteria...are met.
Where such reliance is permitted, the ultimate responsibility for
customer identification and verification remains with the financial
institution relying on the third party.
10 Record keeping: Financial institutions should maintain, for at
least 5 years, all necessary records on transactions, both domestic
or international, to enable them to comply swiftly with information
requests from the competent authorities. Such records must be
sufficient to permit reconstruction of individual transactions
(including the amounts and types of currency involved if any) so as
to provide, if necessary, evidence for prosecution of criminal
activity. Financial institutions should keep records on the
identification data obtained through the customer due diligence
process (e.g., copies or records of official identification
documents like passports, identity cards, driving licenses or
similar documents), account files and business correspondence for
at least 5 years after the business relationship is ended. The
identification data and transaction records should be available to
domestic competent authorities upon appropriate authority.
11 Attention to complex, unusual transactions: Financial institutions
should pay special attention to all complex, unusual large
transactions, and all unusual patterns of transactions, which have
no apparent economic or visible lawful purpose. The background and
purpose of such transactions should, as far as possible, be
examined, the findings established in writing, and be available to
help competent authorities and auditors.
12 Customer due diligence and record keeping for designated
nonfinancial businesses and professions: The customer due diligence
and recordkeeping requirements set out in Recommendations 5, 6, and
8 to 11 apply to designated non-financial businesses and
professions in...[certain] situations. [Note: These entities
include casinos; real estate agents; dealers in precious metals and
stones; lawyers, notaries, other independent legal professionals
and accountants; and trust and company service providers.]
13 Suspicious transaction reporting: If a financial institution
suspects or has reasonable grounds to suspect that funds are the
proceeds of a criminal activity, or are related to terrorist
financing, it should be required, directly by law or regulation, to
report promptly its suspicions to the financial intelligence unit.
14 Protection for suspicious transaction reporting/tipping off:
Financial institutions, their directors, officers, and employees
should be (a) protected by legal provisions from criminal and civil
liability for breach of any restriction on disclosure of
information imposed by contract or by any legislative, regulatory,
or administrative provision, if they report their suspicion in good
faith to the financial intelligence unit, even if they did not know
precisely what the underlying criminal activity was, and regardless
of whether illegal activity actually occurred and (b) prohibited by
law from disclosing the fact that a suspicious transaction report
or related information is being reported to the financial
intelligence unit
15 Internal policies and controls/screening, training, audit:
Financial institutions should develop programs against money
laundering and terrorist financing. These programs should include
(a) the development of internal policies, procedures, and controls,
including appropriate compliance management arrangements, and
adequate screening procedures to ensure high standards when hiring
employees; (b) an ongoing employee training program; and (c) an
audit function to test the system.
16 Suspicious transaction reporting and internal controls for
designated non-financial businesses and professions: The
requirements set out in Recommendations 13 to 15 and 21 apply to
all designated non-financial businesses and professions, subject
to... certain] qualifications.
17 Sanctions: Countries should ensure that effective, proportionate,
and dissuasive sanctions, whether criminal, civil, or
administrative, are available to deal with natural or legal persons
covered by these Recommendations that fail to comply with
anti-money laundering or terrorist financing requirements.
18 Shell banks: Countries should not approve the establishment or
accept the continued operation of shell banks. Financial
institutions should refuse to enter into, or continue, a
correspondent banking relationship with shell banks. Financial
institutions should also guard against establishing relations with
respondent foreign financial institutions that permit their
accounts to be used by shell banks.
19 Cross-border transportation of currency: Countries should consider
the feasibility and utility of a system where banks and other
financial institutions and intermediaries would report all domestic
and international currency transactions above a fixed amount, to a
national central agency with a computerized data base, available to
competent authorities for use in money laundering or terrorist
financing cases, subject to strict safeguards to ensure proper use
of the information.
20 Application to other businesses and professions: Countries should
consider applying the FATF Recommendations to businesses and
professions, other than designated non-financial businesses and
professions, that pose a money laundering or terrorist financing
risk. Countries should further encourage the development of modern
and secure techniques of money management that are less vulnerable
to money laundering.
21 Attention to transactions with problem countries: Financial
institutions should give special attention to business
relationships and transactions with persons, including companies
and financial institutions, from countries which do not or
insufficiently apply the FATF Recommendations. Whenever these
transactions have no apparent economic or visible lawful purpose,
their background and purpose should, as far as possible, be
examined, the findings established in writing, and be available to
help competent authorities. Where such country continues not to
apply or insufficiently applies the FATF Recommendations, countries
should be able to apply appropriate counter-measures.
22 Application to branches and subsidiaries: Financial institutions
should ensure that the principles applicable to financial
institutions, which are mentioned above, are also applied to
branches and majority-owned subsidiaries located abroad, especially
in countries which do not or insufficiently apply the FATF
Recommendations, to the extent that local applicable laws and
regulations permit. When local applicable laws and regulations
prohibit this implementation, competent authorities in the country
of the parent institution should be informed by the financial
institutions that they cannot apply the FATF Recommendations.
23 Supervision/regulation; prevention of criminals from positions:
Countries should ensure that financial institutions are subject to
adequate regulation and supervision and are effectively
implementing the FATF Recommendations. Competent authorities should
take the necessary legal or regulatory measure to prevent criminals
or their associates from holding or being the beneficial owner of a
significant or controlling interest or holding a management
function in a financial institution.
24 Supervision/regulation for designated non-financial businesses and
professions: Designated non-financial businesses and professions
should be subject to regulatory and supervisory measures ...
Casinos should be subject to a comprehensive regulatory and
supervisory regime that ensures that they have effectively
implemented the necessary anti-money laundering and
terrorist-financing measures....Countries should ensure that the
other categories of designated non-financial businesses and
professions are subject to effective systems for monitoring and
ensuring their compliance with requirements to combat money
laundering and terrorist financing.
25 Guidelines for detecting suspicious transactions/providing
feedback: The competent authorities should establish guidelines and
provide feedback which will assist financial institutions and
designated non-financial businesses and professions in applying
national measures to combat money laundering and terrorist
financing, and in particular, in detecting and reporting suspicious
transactions.
26 Financial intelligence unit establishment/powers: Countries should
establish a financial intelligence unit that serves as a national
center for the receiving (and, as permitted, requesting), analysis,
and dissemination of suspicious transaction reports and other
information regarding potential money laundering or terrorist
financing. The financial intelligence unit should have access,
directly or indirectly, on a timely basis to the financial,
administrative, and law enforcement information that it requires to
properly undertake its functions, including the analysis of
suspicious transaction reports.
27 Designated law enforcement resources; investigative techniques:
Countries should ensure that designated law enforcement authorities
have responsibility for money laundering and terrorist financing
investigations. Countries are encouraged to support and develop, as
far as possible, special investigative techniques suitable for the
investigation of money laundering, such as controlled delivery,
undercover operations, and other relevant techniques. Countries are
also encouraged to use other effective mechanisms such as the use
of permanent or temporary groups specialized in asset
investigation, and cooperative investigations with appropriate
competent authorities in other countries.
28 Document production, search and seizure powers: When conducting
investigations of money laundering and underlying predicate
offenses, competent authorities should be able to obtain documents
and information for use in those investigations, and in
prosecutions and related actions. This should include powers to use
compulsory measures for the production of records held by financial
institutions and other persons, for the search of persons and
premises, and for the seizure and obtaining of evidence.
29 Supervisory powers to monitor: Supervisors should have adequate
powers to monitor and ensure compliance by financial institutions
with requirements to combat money laundering and terrorist
financing, including the authority to conduct inspections. They
should be authorized to compel production of any information from
financial institutions that is relevant to monitoring such
compliance, and to impose adequate administrative sanctions for
failure to comply with such requirements. "Supervisors" refers to
designated competent authorities responsible for ensuring
compliance by financial institutions with requirements to combat
money laundering and terrorist financing.
30 Adequate resources for competent authorities: Countries should
provide their competent authorities involved in combating money
laundering and terrorist financing with adequate financial, human,
and technical resources. Countries should have in place processes
to ensure that the staff of those authorities are of high
integrity.
31 Domestic cooperation: Countries should ensure that policymakers,
the financial intelligence, law enforcement and supervisors have
effective mechanisms in place which enable them to cooperate, and
where appropriate coordinate domestically with each other
concerning the development and implementation of policies and
activities to combat money laundering and terrorist financing.
32 Maintenance of statistics: Countries should ensure that their
competent authorities can review the effectiveness of their systems
to combat money laundering and terrorist financing systems by
maintaining comprehensive statistics on matters relevant to the
effectiveness and efficiency of such systems. This should include
statistics on the suspicious transaction reports received and
disseminated; on money laundering and terrorist financing
investigations, prosecutions, and convictions; on property frozen,
seized, and confiscated; and on mutual legal assistance or other
international requests for cooperation.
33 Use of legal persons; beneficial ownership: Countries should take
measures to prevent the unlawful use of legal persons by money
launderers. Countries should ensure that there is adequate,
accurate, and timely information on the beneficial ownership and
control of legal persons that can be obtained or accessed in a
timely fashion by competent authorities. In particular, countries
that have legal persons that are able to issue bearer shares should
take appropriate measures to ensure that they are not misused for
money laundering and be able to demonstrate the adequacy of those
measures. Countries could consider measures to facilitate access to
beneficial ownership and control information to financial
institutions undertaking the requirements set out in Recommendation
5.
34 Transparency for legal arrangements/trusts: Countries should take
measures to prevent the unlawful use of legal arrangements by money
launderers. In particular, countries should ensure that there is
adequate, accurate, and timely information on express trusts,
including information on the settler, trustee, and beneficiaries,
that can be obtained or accessed in a timely fashion by competent
authorities. Countries should consider measures to facilitate
access to beneficial ownership and control information to financial
institutions undertaking the requirements set out in Recommendation
5.
35 International conventions: Countries should take immediate steps to
become a party to and implement fully the Vienna Convention, the
Palermo Convention, and the 1999 United Nations International
Convention for the Suppression of the Financing of Terrorism.
Countries are also encouraged to ratify and implement other
relevant international conventions, such as the 1990 Council of
Europe Convention on Laundering, Search, Seizure and Confiscation
of the Proceeds from Crime, and the 2002 Inter-American Convention
against Terrorism.
36 Mutual legal assistance: Countries should rapidly, constructively,
and effectively provide the widest possible range of mutual legal
assistance in relation to money laundering and terrorist financing
investigations, prosecutions, and related proceedings. In
particular, countries should (a) not prohibit or place unreasonable
or unduly restrictive conditions on the provision of mutual legal
assistance, (b) ensure that they have clear and efficient processes
for the execution of mutual legal assistance requests, (c) not
refuse to execute a request for mutual legal assistance on the sole
ground that the offense is also considered to involve fiscal
matters, and (d) not refuse to execute a request for mutual legal
assistance on the grounds that laws require financial institutions
to maintain secrecy or confidentiality. Countries should ensure
that the powers of their competent authorities required under
Recommendation 28 are also available for use in response to
requests for mutual legal assistance, and if consistent with their
domestic framework, in response to direct requests from foreign
judicial or law enforcement authorities to domestic counterparts.
To avoid conflicts of jurisdiction, consideration should be given
to devising and applying mechanisms for determining the best venue
for prosecution of defendants in the interests of justice in cases
that are subject to prosecution in more than one country.
37 Provision of mutual legal assistance without dual criminality:
Countries should, to the greatest extent possible, render mutual
legal assistance notwithstanding the absence of dual criminality.
Where dual criminality is required for mutual legal assistance or
extradition, that requirement should be deemed to be satisfied
regardless of whether both countries place the offense within the
same category of offense or denominate the offense by the same
terminology, provided that both countries criminalize the conduct
underlying the offense.
38 Freezing, seizing, and confiscating at foreign request; sharing
confiscated assets: There should be authority to take expeditious
action in response to requests by foreign countries to identify,
freeze, seize, and confiscate property laundered, proceeds from
money laundering or predicate offenses, instrumentalities used in
or intended for use in the commission of these offenses, or
property of corresponding value. There should also be arrangements
for coordinating seizure and confiscation proceedings, which may
include the sharing of confiscated assets.
39 Extradition: Countries should recognize money laundering as an
extraditable offense. Each country should either extradite its own
nationals, or where a country does not do so solely on the grounds
of nationality, that country should, at the request of the country
seeking extradition, submit the case without delay to its competent
authorities for the purpose of prosecution of the offenses set
forth in the request. Those authorities should take their decision
and conduct their proceedings in the same manner as in the case of
any other offense of a serious nature under the domestic law of
that country. The countries concerned should cooperate with each
other, in particular on procedural and evidentiary aspects, to
ensure the efficiency of such prosecutions. Subject to their legal
frameworks, countries may consider simplifying extradition by
allowing direct transmission of extradition requests between
appropriate ministries, extraditing persons based only on warrants
of arrests or judgments, and/or introducing a simplified
extradition of consenting persons who waive formal extradition
proceedings.
40 International cooperation and exchange of information: Countries
should ensure that their competent authorities provide the widest
possible range of international cooperation to their foreign
counterparts. There should be clear and effective gateways to
facilitate the prompt and constructive exchange directly between
counterparts, either spontaneously or upon requests, of information
relating to both money laundering and the underlying predicate
offenses. Exchanges should be permitted without unduly restrictive
conditions. In particular, (a) competent authorities should not
refuse a request for assistance on the sole ground that the request
is also considered to involve fiscal matters; (b) countries should
not invoke laws that require financial institutions to maintain
secrecy or confidentiality as a ground for refusing to provide
cooperation; and (c) competent authorities should be able to
conduct inquiries and, where possible, investigations on behalf of
foreign counterparts. Where the ability to obtain information
sought by a foreign competent authority is not within the mandate
of its counterparts, countries are also encouraged to permit a
prompt and constructive exchange of information with
non-counterparts. Cooperation with foreign authorities other than
counterparts could occur directly or indirectly. When uncertain
about the appropriate avenue to follow, competent authorities
should first contact their foreign counterparts for assistance.
Countries should also establish controls and safeguards to ensure
that information exchanged by competent authorities is used only in
an authorized manner, consistent with their obligations concerning
privacy and data protection.
Nine Special Recommendations on Terrorist Financing
Number Recommendations
I Ratification and implementation of UN instruments: Each country
should take immediate steps to ratify and to implement fully
the1999 United Nations International Convention for the Suppression
of the Financing of Terrorism. Countries should also immediately
implement the United Nations resolutions relating to the prevention
and suppression of the financing of terrorist acts, particularly
United Nations Security Council Resolution 1373.
II Criminalizing the financing of terrorism and associated money
laundering: Each country should criminalize the financing of
terrorism, terrorist acts, and terrorist organizations. Countries
should ensure that such offenses are designated as money laundering
predicate offenses.
III Freezing and confiscating terrorist assets: Each country should
implement measures to freeze without delay funds or other assets of
terrorists, those who finance terrorism and terrorist organizations
in accordance with the United Nations resolutions relating to the
prevention and suppression of the financing of terrorist acts. Each
country should also adopt and implement measures, including
legislative ones, which would enable the competent authorities to
seize and confiscate property that is the proceeds of, or used in,
or intended or allocated for use in, the financing of terrorism,
terrorist acts, or terrorist organizations.
IV Reporting suspicious transactions related to terrorism: If
financial institutions, or other businesses or entities subject to
anti-money laundering obligations, suspect or have reasonable
grounds to suspect that funds are linked or related to, or are to
be used for terrorism, terrorist acts or by terrorist
organizations, they should be required to report promptly their
suspicions to the competent authorities.
V International cooperation: Each country should afford another
country, on the basis of a treaty, arrangement, or other mechanism
for mutual legal assistance or information exchange, the greatest
possible measure of assistance in connection with criminal, civil
enforcement, and administrative investigations, inquiries, and
proceedings relating to the financing of terrorism, terrorist acts,
and terrorist organizations. Countries should also take all
possible measures to ensure that they do not provide safe havens
for individuals charged with the financing of terrorism, terrorist
acts, or terrorist organizations, and should have procedures in
place to extradite, where possible, such individuals.
VI Alternative remittance: Each country should take measures to ensure
that persons or legal entities, including agents, that provide a
service for the transmission of money or value, including
transmission through an informal money or value transfer system or
network, should be licensed or registered and subject to all the
FATF recommendations that apply to banks and non-bank financial
institutions. Each country should ensure that persons or legal
entities that carry out this service illegally are subject to
administrative, civil, or criminal sanctions.
VII Wire transfers: Countries should take measures to require financial
institutions, including money remitters, to include accurate and
meaningful originator information (name, address, and account
number) on funds transfers and related messages that are sent, and
the information should remain with the transfer or related message
through the payment chain. Countries should take measures to ensure
that financial institutions, including money remitters, conduct
enhanced scrutiny of and monitor for suspicious activity funds
transfers which do not contain complete originator information
(name, address, and account number).
VIII Non-profit organizations: Countries should review the adequacy of
laws and regulations that relate to entities that can be abused for
the financing of terrorism. Non-profit organizations are
particularly vulnerable, and countries should ensure that they
cannot be misused (a) by terrorist organizations posing as
legitimate entities; (b) to exploit legitimate entities as conduits
for terrorist financing, including for the purpose of escaping
asset freezing measures; and (c) to conceal or obscure the
clandestine diversion of funds intended for legitimate purposes to
terrorist organizations.
IX Cash couriers: Countries should have measures in place to detect
the physical cross-border transportation of currency and bearer
negotiable instruments, including a declaration system or other
disclosure obligation. Countries should ensure that their competent
authorities have the legal authority to stop or restrain currency
or bearer negotiable instruments that are suspected to be related
to terrorist financing or money laundering, or that are falsely
declared or disclosed. Countries should ensure that effective,
proportionate, and dissuasive sanctions are available to deal with
persons who make false declaration(s) or disclosure(s). In cases
where the currency or bearer negotiable instruments are related to
terrorist financing or money laundering, countries should also
adopt measures, including legislative ones consistent with
Recommendation 3 and Special Recommendation III, which would enable
the confiscation of such currency or instruments.
Source: GAO, based on review of FATF materials.
Collectively, these "40 plus 9" recommendations issued by FATF are
recognized as the international standards for combating money laundering
and terrorist financing. Although the FATF recommendations do not
constitute a binding international convention, many countries-e.g., member
nations of FATF and the FATF-style regional bodies-have made a political
commitment to combat money laundering and terrorist financing by
implementing the recommendations. Moreover, the international community
has recognized the need for monitoring to ensure that countries
effectively implement the FATF recommendations.
A Widely Adopted Methodology Is Used for Monitoring Compliance with Financial
Action Task Force Recommendations
One of the means for monitoring compliance with FATF recommendations is a
mutual evaluation process whereby a team of experts conducts on-site
visits to assess the progress of member countries. To guide the assessment
of a country's compliance with international standards, a widely adopted
methodology is used-Methodology for Assessing Compliance with the FATF 40
Recommendations and the FATF 9 Special Recommendations (updated as of
February 2005).2 In addition to its use by FATF mutual evaluation teams,
the Methodology has also been approved or endorsed by the FATF-style
regional bodies and the Executive Boards of the International Monetary
Fund and the World Bank.
The Methodology reflects the principles and follows the structure of the
FATF recommendations. For each of the recommendations, the Methodology
enumerates elements ("essential criteria") that should be present for full
compliance. For instance, table 3 shows the essential criteria used for
assessing implementation of FATF Recommendation 26, which calls for each
nation to establish and empower a financial intelligence unit.
2Copy available at www.fatf-gafi.org .
Table 3: Essential Criteria Used in the Methodology for Monitoring
Implementation of FATF Recommendation 26
Essential criterion
reference number Subject of the essential criteria
26.1 Countries should establish an FIU that serves as a
national center for receiving (and if permitted,
requesting), analyzing, and disseminating disclosures
of suspicious transaction reports and other relevant
information concerning suspected money laundering or
financing of terrorism activities. The FIU can be
established either as an independent governmental
authority or within an existing authority or
authorities.
26.2 The FIU or another competent authority should provide
financial institutions and other reporting parties
with guidance regarding the manner of reporting,
including the specification of reporting forms and the
procedures that should be followed when reporting.
26.3 The FIU should have access, directly or indirectly, on
a timely basis to the financial, administrative, and
law enforcement information that it requires to
properly undertake its functions, including the
analysis of suspicious transaction reports.
26.4 The FIU, either directly or through another competent
authority, should be authorized to obtain from
reporting parities additional information needed to
properly undertake its functions.
26.5 The FIU should be authorized to disseminate financial
information to domestic authorities for investigation
or action when there are grounds to suspect money
laundering or the financing of terrorism.
26.6 The FIU should have sufficient operational
independence and autonomy to ensure that it is free
from undue influence or interference.
26.7 Information held by the FIU should be securely
protected and disseminated only in accordance with the
law.
26.8 The FIU should publicly release periodic reports, and
such reports should include statistics, typologies,
and trends as well as information regarding its
activities.
26.9 Where a country has created an FIU, it should consider
applying for membership in the Egmont Group.
26.10 Countries should have regard to the Egmont Group
Statement of Purpose and its Principles for
Information Exchange Between Financial Intelligence
Units for Money Laundering Cases. (These documents set
out important guidance concerning the role and
functions of FIUs and the mechanisms for exchanging
information between FIUs.)
Source: GAO, based on review of FATF materials.
Appendix III: The Egmont Group of
Financial Intelligence Units
This appendix presents summary information regarding the growth of the
Egmont Group, which is an informal global association of governmental
operating units created to support their respective nation's or
territory's efforts to combat money laundering and terrorism financing.
More detailed information about the purposes and functioning of the Egmont
Group and its members is available at the entity's Web site (
www.egmontgroup.org ).1
The Egmont Group of Financial Intelligence Units Has Grown Significantly since
1995
On June 9, 1995, representatives of various nations (including the United
States) and international organizations met at the Egmont-Arenberg palace
in Brussels, Belgium, to discuss ways to enhance mutual cooperation in
combating the global problem of money laundering. A result was creation of
the Egmont Group, whose members are the specialized anti-money-laundering
organizations known as financial intelligence units. In attendance at the
1995 meeting were representatives of 14 of these governmental units
("disclosure-receiving agencies") that became the first Egmont Group
members. In the decade since 1995, the group's membership has increased
significantly, reaching a total of 101 jurisdictions as of July 2005 (see
table 8).
1Another useful resource is a handbook prepared jointly by the
International Monetary Fund and the World Bank, Financial Intelligence
Units: An Overview (2004).
Table 8: Egmont Group Membership by Year and Jurisdiction
Financial intelligence units
admitted into Egmont Group
membership during the year Cumulative number of Egmont
Calendar Jurisdiction (countries Group members(as of year
year Number and territories) end)
1995 14 Australia, Austria, Belgium, France, Iceland, 14
Luxembourg, Monaco, the Netherlands, Norway, Slovenia,
Spain, Sweden, United Kingdom, and the United States
1996 0 None 14
1997 14 Aruba, Chile, the Czech Republic, Denmark, Guernsey, 28
Hong Kong, Hungary, Ireland, Isle of Man, Italy,
Mexico, New Zealand, Panama, and Slovakia
1998 10 Croatia, Cyprus, Finland, Greece, Jersey, the 38
Netherlands Antilles, Paraguay, Switzerland, Taiwan,
and Turkey
1999 10 Bermuda, Bolivia, Brazil, British Virgin Islands, 48
Bulgaria, Costa Rica, Latvia, Lithuania, Portugal, and
Venezuela
2000 5 Colombia, the Dominican Republic, Japan, Estonia, and 53
Romania
2001 5 The Bahamas, Cayman Islands, El Salvador, 58
Liechtenstein, and Thailand
2002 11 Andorra, Barbados, Canada, Israel, Marshall Islands, 69
Poland, Russia, Singapore, South Korea, United Arab
Emirates, and Vanuatu
15 Albania, Anguilla, Antigua and Barbuda, Argentina, 84
Bahrain, Dominica, Germany, Guatemala, Lebanon,
Malaysia, Malta, Mauritius, Serbia, South Africa, and
2003 St. Vincent and the Grenadines
10 Belize, Cook Islands, Egypt, Georgia, Gibraltar, 94
Grenada, Indonesia, Macedonia, St. Kitts and Nevis,
2004 and Ukraine
7 Bosnia and Herzegovina, Honduras, Montenegro, Peru, 101
2005a Philippines, Qatar, and San Marino.
Source: FinCEN.
aThe admissions in calendar year 2005 and the cumulative total are as of
July 2005.
The Egmont Group Provides a Network for Exchanging Information
The common purpose of every FIU is to combat money laundering and
terrorism financing. This purpose is reflected in the Egmont Group's
definition of an FIU, which is as follows:
"A central, national agency responsible for receiving, (and as permitted,
requesting), analyzing and disseminating to the competent authorities,
disclosures of financial information:
I. concerning suspected proceeds of crime and potential financing
of terrorism, or
II. required by national legislation or regulation, in order to
combat money laundering and terrorism financing."2
2Egmont Group, Statement of Purpose of the Egmont Group of Financial
Intelligence Units, www.egmontgroup.org (2006).
This definition, which was adopted in June 2004 at the Egmont Group's
plenary meeting in Guernsey, reflects an expansion of the role of FIUs to
include combating terrorist financing.
Facilitating cross-border information sharing is a core goal of the Egmont
Group. To enhance such sharing and provide guidelines, the Egmont Group
has generated two documents-(1) Principles for Information Exchange
between Financial Intelligence Units for Money Laundering and Terrorism
Financing Cases and (2) Best Practices for the Exchange of Information
between Financial Intelligence Units. In part, the Principles document
provides that
o "FIUs should be able to exchange information freely with other
FIUs on the basis of reciprocity or mutual agreement and
consistent with procedures understood by the requested and
requesting party. Such exchange, either upon request or
spontaneously, should provide any available information that may
be relevant to an analysis or investigation of financial
transactions and other relevant information and the persons or
companies involved."
o "An FIU requesting information should disclose, to the FIU that
will process the request, at a minimum the reason for the request,
the purpose for which the information will be used and enough
information to enable the receiving FIU to determine whether the
request complies with its domestic law."
o "Information exchanged between FIUs may be used only for the
specific purpose for which the information was sought or
provided."
o "The requesting FIU may not transfer information shared by a
disclosing FIU to a third party, nor make use of the information
in an administrative, investigative, prosecutorial, or judicial
purpose without the prior consent of the FIU that disclosed the
information."
The Best Practices document specifies that "the exchange of information
between FIUs should take place as informally and as rapidly as possible
and with no excessive formal requirements, while guaranteeing protection
of privacy and confidentiality of the shared data" and that, where
appropriate, FIUs should use the Egmont Secure Web. Further, among other
guidelines, the document provides that
o "If necessary the requesting FIU should indicate the time by
which it needs to receive an answer. Where a request is marked
`urgent' or a deadline is indicated, the reasons for the urgency
or deadline should be explained."
o "FIUs should give priority to urgent requests. If the receiving
FIU has concerns about the classification of a request as urgent,
it should contact the requesting FIU immediately in order to
resolve the issue. Moreover, each request, whether or not marked
as `urgent,' should be processed in the same timely manner as
domestic requests for information."
o "As a general principle, the requested FIU should strive to
reply to a request for information, including an interim response,
within 1 week from receipt in the following circumstances:
o if it can provide a positive/negative answer to a
request regarding information it has direct access
to;
o if it is unable to provide an answer due to legal
impediments."
o "Whenever the requested FIU needs to have external databases
searched or query third parties (such as financial institutions),
an answer should be provided within 1 month after receipt of the
request."
o "If the results of the enquiries are still not all available
after 1 month, the requested FIU should provide the information it
already has in its possession or at least give an indication of
when it will be in a position to provide a complete answer. This
may be done orally."
o "FIUs should consider establishing mechanisms in order to
monitor request-related information, enabling them to detect new
information they receive regarding transactions, STRs [suspicious
transaction reports], etc., that are involved in previously
received requests. Such a monitoring system would enable FIUs to
inform former requesters of new and relevant material related to
their prior request."
(440426)
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Highlights of GAO-06-483 , a report to the Chairman, Committee on the
Judiciary, House of Representatives
May 2006
INTERNATIONAL FINANCIAL CRIME
Treasury's Roles and Responsibilities Relating to Selected Provisions of
the USA PATRIOT Act
Money laundering and terrorist financing can severely affect the nation's
economy and also result in loss of lives. To combat these transnational
crimes, the Treasury Department (Treasury) and its component bureau, the
Financial Crimes Enforcement Network (FinCEN), have key roles. Section 330
of the USA PATRIOT Act encourages the federal government to engage foreign
jurisdictions in negotiations to ensure that foreign banks and financial
institutions maintain adequate records to combat international financial
crime. Treasury plays a lead role in facilitating such efforts. In
accordance with its various responsibilities codified by section 361,
FinCEN is to coordinate with its foreign counterparts-financial
intelligence units (FIU). This report describes (1) Treasury's approach
for negotiating with foreign jurisdictions, (2) how FinCEN has contributed
to establishing FIUs in foreign countries and enhancing the capabilities
of these units, and (3) what actions FinCEN is taking to maximize its
performance as a global partner.
What GAO Recommends
GAO recommends that the Director of FinCEN take appropriate steps to
ensure that future customer satisfaction surveys include more
comprehensive coverage of and higher response rates from FIUs. Treasury
agreed.
With Treasury's leadership, the U.S. interagency community has been acting
to accomplish the goals articulated in section 330 of the USA PATRIOT Act.
In particular, according to Treasury, negotiations with foreign
jurisdictions are being accomplished through U.S. interactions with the
Financial Action Task Force on Money Laundering (FATF), an
intergovernmental entity that has developed international standards for
combating money laundering and terrorist financing. Treasury emphasized
that enactment of section 330 provided a welcomed congressional
endorsement of long-standing U.S. policy to combat international financial
crime by negotiating with foreign jurisdictions through multilateral
organizations, such as FATF.
Since its formation in 1995, FinCEN has helped foreign jurisdictions
establish new FIUs and improve the capabilities of existing units. The
number of FIUs has jumped from 14 in 1995 to 101 currently, partly because
of training and technical support provided by FinCEN and Treasury's Office
of Technical Assistance and funding provided by the Department of State.
Given the growth in the number of FIUs, future efforts likely will involve
giving more attention to improving the capabilities of existing units,
especially in reference to combating terrorist financing-an operational
task now included in the formal definition of an FIU.
To maximize performance as a global partner, FinCEN is taking various
actions, such as assigning an analyst to the Federal Bureau of
Investigation's Terrorist Financing Operations Section. Also, FinCEN is
modernizing the Egmont Secure Web, which is used by FIUs worldwide to
exchange sensitive case information. To enhance its responsiveness to FIUs
that request case assistance, FinCEN is allocating additional staff to its
Office of Global Support and also is developing a new case management
system. However, in the most recent customer satisfaction survey, FinCEN
invited less than one-half of FIUs to participate and received only two
responses. Future surveys would need to be more inclusive and incorporate
better survey development and administration practices, such as follow-up
efforts to achieve higher response rates, if the surveys are to serve as a
useful management information tool for monitoring and enhancing
performance.
eeting of FIU Representatives in Washington, D.C. (June 30 to July 1,
2005)
M
*** End of document. ***