Audit Report 

OIG-05-030 

TERRORIST FINANCING/MONEY LAUNDERING: 

Status Report on the Establishment of the Financial Crimes 

Enforcement Network (FinCEN) Office of Compliance 

March 10, 2005

Office of 

Inspector General 

Department of the Treasury 

Contents 

TERRORIST FINANCING/MONEY LAUNDERING: Status Report on the 

Establishment of the FinCEN Office of Compliance (OIG-05-030) 

Page 1 

Audit Report

 Background ......................................................................... ........................ 4 

 Office of Compliance Staffing ......................................................................... 6 

 FinCEN - Federal Regulatory Agency Cooperation.............................................10 

Appendices 

 Appendix 1: Objective, Scope, and Methodology.........................................18 

 Appendix 2: Organizational Chart for FinCEN ..............................................20 

 Appendix 3: Additional Information on the Regulatory Policy & Programs 

 Division and the Office of Compliance......................................21 

 Appendix 4: Status of the Staffing Plan for the Office of Compliance.............25 

 Appendix 5: Management Response ..........................................................26 

 Appendix 6: Report Distribution.................................................................27 

Abbreviations 

 BSA Bank Secrecy Act 

 CFTC Commodities Futures Trading Commission 

 CTR Currency Transaction Report 

 ERC Enforcement Review Committee 

 FBA Federal Banking Agencies 

 FFIEC Federal Financial Institutions Examination Council 

 FDIC Federal Deposit Insurance Corporation 

 FinCEN Financial Crimes Enforcement Network 

 FRB Board of Governors of the Federal Reserve System 

 FTE Full-Time Equivalent 

 FY Fiscal Year 

 GS General Schedule 

 H.R. House Report 

 IRS Internal Revenue Service 

 MOU Memorandum of Understanding or of Agreement 

 NCUA National Credit Union Administration 

 OIG Office of Inspector General 

 OCC Office of the Comptroller of the Currency 

 OTS Office of Thrift Supervision 
Contents 

TERRORIST FINANCING/MONEY LAUNDERING: Status Report on the 

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 RPPD Regulatory Policy & Programs Division (FinCEN) 

 SAR Suspicious Activity Report 

 SEC Securities and Exchange Commission 

 TFI Office of Terrorism and Financial Intelligence (Treasury) 

 Treasury U.S. Department of the Treasury 

 USA PATRIOT Act Uniting and Strengthening America by Providing Appropriate 

 Tools Required to Intercept and Obstruct Terrorism Act 
OIG Audit 

Report

The Department of the Treasury 

Office of Inspector General 

TERRORIST FINANCING/MONEY LAUNDERING: Status Report on the 

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March 10, 2005 

William J. Fox 

Director 

Financial Crimes Enforcement Network 

This report provides the results of our audit to determine the status 

of the Financial Crimes Enforcement Network’s (FinCEN) progress 

in establishing the Office of Compliance. We initiated this audit 

in response to Conference Report (H.R. 108-792) to the 

Consolidated Appropriations Act, 2005, and the related House 

Report (H.R. 108-671). We were specifically directed by the 

Conference Report to assess and provide a report by March 11, 

2005, on: (1) FinCEN’s full-time equivalent (FTE) sufficiency to 

conduct an effective Bank Secrecy Act (BSA) compliance program 

and (2) the level of cooperation being achieved in implementing 

FinCEN’s planned memoranda of agreements with the Federal 

regulatory agencies charged with examination and enforcement 

responsibilities for BSA compliance. 

In brief, we found that FinCEN established the Office of 

Compliance in August 2004. Currently the Office is staffed 

with 5 employees. FinCEN’s expects to increase this staff 

to 22 employees by August 2005, and it is actively recruiting for 

these positions. At this time, however, we are unable to make 

a fully informed assessment of FTE sufficiency, because FinCEN 

management needs to determine the nature and extent of the 

Office of Compliance work load. For example, the number, type, 

and complexity of cases likely to be referred to FinCEN on an 

ongoing basis are not yet known. We also found that FinCEN 

executed a memorandum of understanding (MOU) with 
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the 5 Federal banking agencies (FBA)1 in September 2004 and 

has achieved a satisfactory level of cooperation so far under the 

MOU. However, it is still very early in the life of this MOU, and 

separate MOUs are just being developed with other regulatory 

agencies. For this reason, we plan to revisit this issue at a later 

date. 

We performed our field work during January and February 2005, 

primarily at FinCEN’s offices in the Washington, D.C., area. 

A more detailed description of our objective, scope, and 

methodology is included in Appendix 1. 

In a memorandum dated March 9, 2005 (Appendix 5), FinCEN 

agreed with our assessment of its progress in establishing the 

Office of Compliance and expressed its commitment to the 

effective implementation of the BSA. 

In accordance with the Conference Report, we are providing copies 

of this report to the Senate and House Committees on 

Appropriations. 

Background 

FinCEN, a bureau of the Department of the Treasury, has as its 

mission to safeguard the financial system from the abuses of 

financial crime, including terrorist financing, money laundering, and 

other illicit activity. FinCEN, which reports to the Under Secretary, 

Office of Terrorism and Financial Intelligence (TFI), achieves this 

mission, in part, through the administration of the BSA. 

The BSA, enacted in 1970, authorizes the Secretary of the 

Treasury to issue regulations requiring financial institutions to keep 

 

1

 The 5 FBAs are the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision 

(OTS), the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve 

System (FRB), and the National Credit Union Administration (NCUA). OCC and OTS are bureaus within 

the Department of the Treasury (Treasury). The other FBAs are independent of Treasury. 
TERRORIST FINANCING/MONEY LAUNDERING: Status Report on the 

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records and file reports on certain financial transactions.2 Two 

of the more widely used BSA reports include the Currency 

Transaction Report (CTR) and the Suspicious Activity Report (SAR). 

CTRs are used to report transactions exceeding $10,000, while 

SARs are used to report suspicious financial transactions. 

Under delegated authority of the Secretary of the Treasury, FinCEN 

is the administrator of the BSA. FinCEN has the authority under 

31 U.S.C. to examine financial institutions for compliance with the 

BSA and regulations promulgated under the BSA, as well as to take 

enforcement actions for violations of the BSA and the 

implementing regulations. The Secretary has delegated BSA 

examination authority, but not enforcement authority, to each FBA 

with respect to banking organizations supervised by that FBA. 

The FBAs have separate authority pursuant to 12 U.S.C. to ensure 

that banking organizations comply with all laws and regulations, 

including the BSA. FinCEN’s regulations specify that each agency 

that performs FinCEN’s delegated examination authority shall make 

periodic reports to FinCEN. 

The BSA was amended by Title III of the USA PATRIOT Act,3

which recognized FinCEN’s position as the focal point for 

information relating to money laundering, the financing of 

terrorism, and other financial crimes. 

The terrorist attacks of September 11, 2001, led to increased 

focus on compliance with the BSA. More recently, deficient 

anti-money-laundering systems in the case of Riggs Bank, N.A., 

led to a record civil money penalty of $25 million. In response to 

issues raised during the Riggs case, FinCEN created a new Office 

of Compliance to more aggressively administer and implement the 

BSA and to oversee the examination activities of the agencies 

examining for BSA compliance. 

 

2 Codified at 31 U.S.C. 5311-5330 with implementing regulations at 31 C.F.R. Part 103. 

3

 Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept 

and Obstruct Terrorism Act (USA PATRIOT Act, Public Law No: 107-56) is called the International 

Money Laundering Abatement and Anti-Terrorism Financing Act of 2001. 
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To establish a framework for the Office of Compliance to achieve 

its mission, FinCEN entered into an MOU with the 5 FBAs, 

effective September 30, 2004, setting forth procedures for the 

exchange of certain BSA information.4 The ultimate goal of the 

MOU is to enhance communication and cooperation to help 

financial institutions identify, deter, and interdict terrorist financing 

and money laundering. It should be noted that there is no provision 

or consideration in the MOU for noncompliance by the parties to 

the agreement (i.e., no penalty). FinCEN anticipates entering into 

similar MOUs with other Federal regulatory agencies as well as 

State entities. 

Office of Compliance Staffing 

FinCEN established the Office of Compliance within its Regulatory 

Policy & Programs Division (RPPD) as part of a reorganization 

during August 2004, as reflected in the FinCEN organizational chart 

in Appendix 2. The Office of Compliance’s mission is stated as 

follows: 

The Office of Compliance will work to better ensure industry 

compliance with the Bank Secrecy Act through supporting 

and, as appropriate, overseeing the agencies and 

organizations examining financial institutions for compliance. 

FinCEN has organized the Office of Compliance staff into two 

groups, each headed by a Compliance Program Manager, as shown 

on the next page. The Resources and Reporting Group will have 

responsibility for examination procedures, training (working with 

the FinCEN Training Office), analytical research for all agencies, 

and identification of trends and patterns. The Case Management 

Group will focus on case management, including the handling of 

information received from the FBAs regarding specific banks. 

 

4 The complete requirements of the MOU, which are summarized here, may be found on the Treasury 

web site, under a press release titled Treasury Announces MOU to Strengthen BSA Compliance, dated 

October 1, 2004 (JS-1973) (http://www.ustreas.gov/press/releases/reports/fincenbankingregulatorsmou.pdf). 
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Office of Compliance Structure

Appendix 3 provides additional information on the structure of the 

RPPD and the Office of Compliance’s strategic plan and operational 

goals. 

The Conference Report directed that we assess the FTE sufficiency 

to conduct an effective BSA compliance program. At this point, 

we are unable to make a fully informed assessment, because 

FinCEN management needs to determine the nature and extent of 

the Office of Compliance work load. When it established the 

Office of Compliance during August 2004, FinCEN reassigned 

4 staff members to it from other RPPD offices. The Consolidated 

Appropriations Act, 2005, provided an additional $3 million to hire 

no less than 18 FTEs to assist FinCEN in ensuring compliance by all 

financial industries subject to the BSA. In this regard, some of the 

functions planned for the Office of Compliance are new activities 

not previously undertaken by FinCEN. Considering this, coupled 

with FinCEN’s increased emphasis on BSA generally, there are 

no known benchmarks to gauge the resources necessary to carry 

out all these functions efficiently and effectively. At this point, the 

budget seems to be the most significant driving force behind the 

size of the office. 

FinCEN officials expect that there will be an initial peak in activity 

as the 5 FBAs start reporting under the MOU and then again as 

Assistant Director 

Resources and Reporting Group 

(Compliance Program Manager) 

Case Management Group 

(Compliance Program Manager) 

Compliance Specialists Compliance Specialists 

Administrative Support 
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FinCEN signs MOUs with other regulatory agencies. Therefore, 

they believe it will take some time to get a true picture of the 

volume and type of work that the Office of Compliance will have 

on an ongoing basis. 

As of February 28, 2005, the Office of Compliance was staffed 

with 5 employees - - 1 Assistant Director and 4 Compliance 

Specialists. FinCEN’s goal is to bring the total staff to 22 as 

quickly as possible during FY 2005. While it is still early in the 

process, we believe that FinCEN is taking a reasonable approach to 

staffing the Office of Compliance, using various means to meet this 

goal. 

FinCEN officials pointed out that they face a number of challenges 

in recruiting for the Office of Compliance, including the fact that 

other entities are able to offer salaries and benefits that are more 

competitive. In addition, the Federal hiring process, including the 

required security clearance, takes significant time, particularly for 

non-Federal applicants. 

FinCEN positions are designated as critical-sensitive and require 

an extensive background investigation of new employees prior 

to starting work. In this regard, the FinCEN Office of Security 

estimated that it takes a minimum of 185 days from receipt of the 

complete investigative package from a new-hire to bring that 

employee on board. To accelerate the lead time to hire employees, 

the Office of Security may grant an interim clearance in certain 

circumstances. The interim clearance will take a minimum 

of 45 days, which can be accelerated if an employee has 

a clearance or a recent background investigation. Continued 

employment is conditional on the favorable adjudication of the 

background investigation. 

To address these recruitment challenges and staff up as soon as 

possible, FinCEN has taken or plans to take the following actions: 

• Expedited Classification and Posting The FinCEN Office of 

Human Resources has given top priority to recruitment for 

the Office of Compliance. It classified and posted all 
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remaining Office of Compliance positions by February 14, 

2005. 

• Extended Vacancy Announcement Periods The vacancy 

announcements for all positions except the GS-7 Compliance 

Program Assistant will be open for 45 days, with an initial 

cut-off date 30 days after the posting date. FinCEN believes 

this extended announcement period may attract more 

applicants, while at the same time giving Human Resources 

the opportunity to measure the volume of responses and 

to expedite the process if possible. That is, if an appropriate 

number of applications from qualified individuals has been 

received by the initial cut-off date, the hiring process may 

proceed at that point, rather than waiting until the end of the 

45-day period. 

According to Human Resources, the typical hiring process 

takes at least 3 weeks, but may be longer because of such 

factors as qualifications analysis, assessment of applicants, 

and interviews by managers. 

• Broad Targeted Advertising of Positions In addition to 

posting the vacancy announcements on FinCEN’s web page 

and on the Federal government’s official job site, USAJOBS, 

FinCEN is advertising in the American Banker and on web 

sites targeting those in the accounting, finance, and banking 

arenas. During February, RPPD representatives attended 

two job fairs hosted by the FDIC, which is currently 

undergoing a reduction-in-force. Informal means, such as 

personal contacts within the regulatory community, are also 

being used to recruit staff. 

• Signing Bonus or Relocation Assistance In an attempt at 

parity with other Federal regulators, the Office of 

Compliance plans to offer incentives, as necessary, including 

a one-time signing bonus or relocation assistance.5

 

5 The Office of Personnel Management has established limits on recruitment bonuses and relocation 

bonuses at 25 percent of the annual rate of basic pay.
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Table 2 in Appendix 4 provides additional information about the 

status of positions within the Office of Compliance, including the 

estimated entry-on-duty date. Based on the number of applications 

received to date, FinCEN expects the Office of Compliance, under 

the best circumstances, to be fully staffed in August 2005. 

RPPD managers have discussed other issues related to staffing, 

including the type of classroom and on-the-job training that may 

be necessary. Consideration is being given, for example, to hiring 

under the Outstanding Scholar program for the Office of Regulatory 

Policy Resource Center, with the understanding that as these 

individuals gain knowledge in BSA compliance matters, their 

careers may progress in the Office of Compliance, and perhaps 

later in the RPPD Office of Enforcement, for which the most 

extensive knowledge and experience is required. FinCEN officials 

believe that providing for career advancement may assist with 

retention of staff in a competitive environment. 

FinCEN - Federal Regulatory Agency Cooperation 

The Conference Report also directed that we assess the level of 

cooperation being achieved in implementing the planned MOUs 

with the Federal regulatory agencies charged with examination and 

enforcement responsibilities for BSA compliance. We found that 

the 5 FBAs have provided information in a timely manner as 

prescribed by the September 2004 MOU. Officials of FinCEN and 

the FBAs told us that a cooperative environment has existed during 

the 5 months in which the MOU has been in effect. MOUs are at 

various stages of development with other Federal regulatory 

agencies; specifically, the Internal Revenue Service (IRS), 

the Securities and Exchange Commission (SEC), and the 

Commodities Futures Trading Commission (CFTC). In addition, 

FinCEN is working on establishing similar relationships with State 

regulatory entities. 
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MOU with the FBAs

We found that there has been general compliance with the 

requirements of the September 2004 MOU for which due dates 

have passed. The MOU contains a joint requirement for an annual 

meeting, and separate sections requiring provision of information to 

FinCEN by the FBAs and provision of information to the FBAs by 

FinCEN. Below is an outline of the major requirements of the 

MOU, by section, with a brief summary of the actions that have 

occurred or are planned. As stated previously, it should be noted 

that there is no provision or consideration in the MOU for 

noncompliance by the parties to the agreement (i.e., no penalty). 

I. Assessment of MOU Operation The MOU requires that FinCEN 

and the FBAs meet, no less often than annually, to discuss the 

operation of the MOU, and to identify any issues or adjustments 

that may be required.

Status The first formal annual meeting between FinCEN 

and the FBAs to assess operation of the MOU is planned to be 

held before October 2005. Both FinCEN and the FBAs advised 

us that, in the meantime, there has been ongoing dialogue 

between FinCEN and the FBAs, sometimes on a daily basis, 

with periodic meetings as needed. 

II. Provision of Information to FinCEN by the FBAs

A. Annual Report The MOU requires that each FBA provide a 

summary of its BSA examination program, including, in part, 

the number of financial institutions it examines for BSA 

compliance and a description of its BSA examination 

cycle(s), staffing, resources, and training programs. The 

first annual report was due November 15, 2004. 
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Status FinCEN considered all annual reports to be received 

in a timely manner; specifically, they were received on or 

about the scheduled deadline of November 15, 2004.6

B. Program Documents To the extent FinCEN does not already 

have them, the MOU requires that each FBA provide copies 

of written program documents, including procedures and 

other guidance, pertaining to BSA examination.

Status Although the MOU did not specify a due date, 

FinCEN received the program documents with the first 

annual reports filed by the FBAs. Uniform examination core 

and expanded procedures are currently under joint 

development. 

C. Quarterly Reports The MOU requires that, within 45 days 

after the end of each calendar quarter, each FBA provide 

aggregate information including, in part, the number of BSA 

examinations conducted in various categories, the number of 

banking organizations cited for BSA violations, and data 

about enforcement actions. The first quarterly reports were 

due February 15, 2005. 

Status The quarterly reports, due February 15, 2005, were 

received by FinCEN in a timely manner.7

D. Special BSA Examination Project Information The MOU 

requires that an FBA notify FinCEN prior to conducting any 

special BSA examination initiative.

Status FinCEN officials advised us that no special BSA 

examination initiatives have been conducted to date. 

 

6 Some of the annual reports were received shortly after the due date. Given that these were the first 

annual filings and that each of the FBAs also included program documents with the annual report, 

FinCEN determined that there was substantial compliance by the FBAs with this MOU requirement. 

7 Some of the quarterly reports were received within a few days of the due date. Given that these were 

the first quarterly filings, FinCEN considered them to be filed in a timely manner.
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E. Significant BSA Violations or Deficiencies The MOU requires 

that FBAs notify FinCEN of significant BSA violations or 

deficiencies. The FBAs are also to provide relevant portions 

of the report(s) of examination and other written materials, 

and notification of public enforcement actions and 

information on follow-up and resolution. 

Status FinCEN has begun to receive information on 

what the individual FBAs consider to be significant BSA 

violations or deficiencies. Once it has the opportunity to 

analyze all of the referrals, the Office of Compliance plans to 

meet with the FBAs to refine the process, in part by 

identifying common elements that reach the level of a 

significant violation or deficiency reportable to FinCEN under 

the MOU. 

III. Provision of Information to the FBAs by FinCEN

A. Quarterly Reports The MOU requires that FinCEN provide a 

compilation that summarizes, by FBA, all the data provided 

in the FBA quarterly reports. The first quarterly report is due 

March 16, 2005. 

Status According to FinCEN, the Office of Compliance is on 

target to issue the initial quarterly report by the due date. 

Additionally, this section of the MOU requires FinCEN to 

provide each FBA with a report identifying those banking 

organizations subject to the FBA’s supervision against which 

FinCEN is considering pursuing civil enforcement remedies 

under the BSA. 

Status The status under III.B. also applies to this section, as 

there is some overlap in these two requirements. 

B. FinCEN Enforcement Actions The MOU requires, in part, 

that FinCEN notify the FBA with supervisory authority over 

the banking organization whenever FinCEN determines that 
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the imposition of civil enforcement remedies under the BSA 

may be warranted, and also prior to taking an enforcement 

action against any banking organization. 

Status FinCEN plans first to assess the current inventory in 

the RPPD Office of Enforcement and redistribute cases, as 

appropriate, between the RPPD Office of Enforcement and 

the Office of Compliance. Once that is accomplished, 

FinCEN will provide a separate report, containing institution 

specific information, to each FBA on a monthly basis. As of 

February 28, 2005, there have not been any cases where 

FinCEN was required to give an FBA advance notification 

under this section of the MOU. 

C. FinCEN Analytical Products Under the MOU, FinCEN is to 

provide analytical products that identify common BSA 

compliance deficiencies, patterns and trends in BSA 

compliance, developments in money laundering and terrorist 

financing, and trends and best practices in BSA examination 

to enhance the overall effectiveness of the FBAs’ 

administration of the BSA. 

Status Providing analytical products is a long-term goal for 

the Office of Compliance. According to FinCEN officials, this 

service will likely commence within a year of the Office 

being fully staffed. 

D. Assistance in Identifying BSA Compliance Deficiencies The 

MOU requires that, using information provided pursuant to 

this MOU, as well as BSA data and other information, 

FinCEN provide support to the FBAs in helping to identify 

banking organizations with possible BSA compliance 

deficiencies for the purpose of assisting the FBAs in utilizing 

their examination resources. 

Status According to FinCEN officials, providing this 

assistance is a long-term goal for the Office of Compliance, 

dependent on having the proper resources/personnel, 

including a Case Management System. If an urgent matter 
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were to be brought to FinCEN’s attention, we were told that 

it would be given priority and, if necessary, referrals would 

be made to the appropriate agency to assist with any 

identified BSA compliance deficiencies. 

E. Public Reports In the event that information provided by the 

FBAs is included in any documents that are made public or 

disclosed to any Congressional entity, the MOU requires that 

such documents be provided to the FBAs before they are 

released by FinCEN with as much notice as possible. 

Status FinCEN officials told us that no instances have 

occurred as of February 28, 2005, requiring notification to 

the FBAs under this section of the MOU. 

Relationship with FBAs

There appears to be a satisfactory level of cooperation in 

implementing the MOU with the FBAs. Specifically, FinCEN 

officials cited the open lines of communication and cooperation on 

such items as core and expanded examination procedures for BSA 

compliance. The FBAs submitted the initial annual reports and the 

quarterly reports to FinCEN in a timely manner, and also provided 

all program documents with the annual report, although not 

specifically required to do so. 

Representatives of the 5 FBAs we interviewed in February 2005 

were satisfied with FinCEN’s level of cooperation, stating that 

there had been positive outreach on the part of RPPD staff. 

FBA representatives, however, stated that it may be too early to 

judge the overall relationship under the MOU, in part because the 

Office of Compliance has not yet had the opportunity to staff up 

and begin functioning as intended. The FBA representatives stated 

that they are looking forward to the time when the Office of 

Compliance is able to provide deliverables under the MOU, 

particularly the analytical products that are expected to help the 

FBAs refine their own approach to BSA compliance. 
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Planned MOUs with Other Regulatory Agencies

Planned MOUs with the other regulatory agencies were at various 

stages of development as of February 28, 2005, as reflected in 

Table 1 below. Office of Compliance officials stated that it is 

difficult to provide a projected effective date for these MOUs, 

considering how negotiations between FinCEN and the regulatory 

agencies have been progressing at this time. 

Table 1. Status of MOUs with Other Regulatory Agencies

 

Entity Status

as of February 28, 2005 

IRS IRS staff level and Counsel review.

SEC FinCEN has received comments from the SEC on the 

draft MOU. Fundamental differences remain to be 

addressed.

CFTC Initial draft MOU sent to CFTC, but on hold by 

FinCEN, pending completion of the SEC MOU.

States - Banking 

Regulatory Agencies

FinCEN is finalizing a template MOU with the State 

Supervisory Agencies. This is being coordinated with 

the Conference of State Bank Supervisors. Individual 

State agreements will be negotiated based on the 

template.

States - Other 

Regulatory Agencies

Under consideration pending the implementation of 

regulations covering additional financial industry 

sectors regulated by other State agencies.

* * * * * * * 

We would like to express our appreciation for the cooperation 

and courtesies extended to our staff by FinCEN during the review, 

and to acknowledge the responsiveness of the FBAs to our 

inquiries. 
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If you have any questions, please contact me at (202) 927-6512. 

The major contributors to this report were Maria V. Carmona, 

Audit Manager, Horace A. Bryan, Auditor, and Susan R. Sebert, 

Program Analyst. 

Donald R. Kassel 

Director, Banking and Fiscal Service Audits 
Appendix 1 

Objective, Scope, and Methodology 

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The audit was conducted in response to a Congressional 

requirement. Specifically, House Report 108-671 for the 

Consolidated Appropriations Act, 2005, directed our office provide 

the Senate and House Committees on Appropriations with a status 

report detailing FinCEN’s progress in establishing the Office of 

Compliance. Our report was to include an assessment of FTE 

sufficiency to conduct an effective BSA compliance program 

as well as the level of cooperation being achieved in implementing 

the planned memoranda of agreements with the Federal 

regulatory agencies charged with examination and enforcement 

responsibilities for BSA compliance. The related Conference Report 

(108-792) established a reporting date of March 11, 2005, for our 

assessment. 

Accordingly, our audit objective was to determine the status of the 

creation of the FinCEN Office of Compliance and the level of 

cooperation being achieved between FinCEN and the Federal 

regulatory agencies. The scope of the audit included the actions 

taken by FinCEN to establish the Office of Compliance, and by 

FinCEN and the 5 FBAs to comply with the requirements of the 

MOU. We considered actions taken or planned from the MOU’s 

effective date of September 30, 2004, through February 28, 2005. 

We met with managers and staff from the FinCEN offices with 

primary responsibility for administration of the MOU and those that 

assist in this purpose. Our most detailed discussions were with 

FinCEN’s Associate Director, Regulatory Policy & Programs 

Division, and the Assistant Director, Office of Compliance. We 

also met with, among others, the Associate Directors for the 

Administration & Communications Division, the Analytics Division, 

and the Client Liaison & Services Division; and with the Assistant 

Directors for the Regulatory Policy, Enforcement, Human 

Resources, Financial Management, Regulatory Support, and BSA 

Data Services Offices. 

In addition, we met with representatives of OCC, OTS, FDIC, FRB, 

and NCUA to obtain their perspectives on the level of cooperation 

being achieved under the MOU. We obtained their general 

observations about cooperation, responsiveness, any future needs 

or expectations, and any potential issues. We also obtained 

a general understanding of the organizational structure that each 
Appendix 1 

Objective, Scope, and Methodology 

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FBA has to deal with the MOU requirements and the level of effort 

that has been required. 

We reviewed the initial annual reports that each of the FBAs 

submitted to FinCEN under the MOU, the program documents 

provided, and the first quarterly reports filed by the FBAs. The 

objectives of our audit did not include an assessment of the 

completeness and accuracy of these documents and reports, and 

we did not make such as assessment. We also obtained an 

understanding of the status of MOUs with other entities, and 

reviewed the draft language of these documents. 

FinCEN officials walked us through the planned case processing 

flow, discussing the roles of the Office of Compliance, of the other 

two offices within RPPD, and of the Office of Regulatory Support 

within the Analytics Division. In addition, we observed the 

presentation of a training module that RPPD developed for the 

FFIEC Anti-Money-Laundering course for examiners. 

We conducted our audit during January and February 2005, 

primarily at FinCEN’s offices in the Washington, D.C., area, 

in accordance with generally accepted government auditing 

standards. 
Appendix 2 

Organizational Chart for FinCEN 

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Appendix 3 

Additional Information on the Regulatory Policy & Programs Division 

 and the Office of Compliance 

TERRORIST FINANCING/MONEY LAUNDERING: Status Report on the 

Establishment of the FinCEN Office of Compliance (OIG-05-030) 

Page 21 

Regulatory Policy & Programs Division Structure

As shown in the following organizational chart, RPPD has two 

other offices, each of which works closely with the Office of 

Compliance. The Office of Regulatory Policy develops and 

implements policy through outreach, training, and the issuance of 

regulations and guidance. The Office of Enforcement addresses 

identified instances of noncompliance with the BSA for the purpose 

of penalizing egregious or systemic offenses, compelling corrective 

action, deterring future noncompliance, and providing guidance to 

the industry. 

In considering the establishment of the Office of Compliance, it is 

important to note that there are other initiatives within RPPD that 

complement its work. For example, the Office of Regulatory Policy 

is in the process of creating and staffing a BSA Resource Center 

that intends, in part, to respond to calls to the Financial Institutions 

Hotline and the Regulatory Helpline, and to answer online questions 

received through FinCEN’s Webmaster. As it identifies industry 

needs, RPPD plans to develop and post regulatory and compliance 

frequently asked questions to facilitate its work. As another 

example, RPPD has established an Enforcement Review Committee 

(ERC) to review all proposed enforcement actions and formally 

document recommendations and decisions. The ERC members are 

the Associate Director, RPPD, and the Assistant Directors for the 

Office of Compliance and for the Office of Enforcement. 

In addition to establishing the Office of Compliance, FinCEN is 

devoting significant analytical resources to its regulatory programs 

by creating the Office of Regulatory Support in its Analytics 

Division. According to FinCEN, the primary function of this new 

office is to provide analytical support to RPPD by performing 

Regulatory Policy & Programs Division 

(Associate Director) 

Office of Regulatory Policy 

(Assistant Director) 

Office of Compliance 

(Assistant Director) 

Office of Enforcement 

(Assistant Director) 
Appendix 3 

Additional Information on the Regulatory Policy & Programs Division 

 and the Office of Compliance 

TERRORIST FINANCING/MONEY LAUNDERING: Status Report on the 

Establishment of the FinCEN Office of Compliance (OIG-05-030) 

Page 22 

general research projects, such as studies of selected aspects of 

the banking industry; specific research projects, conducted at the 

request of authorized parties; and case-specific projects requested 

by the Office of Compliance as it accomplishes its MOU-related 

duties. Through this analysis, FinCEN expects to support the 

examination functions of the regulators by helping to identify both 

strategic and tactical examination targets, and emerging 

compliance deficiencies; and to identify and target problem 

financial institutions for examination. It is also expected that 

identification of deficiencies and compliance issues will also allow 

FinCEN to provide guidance to the industry on a more timely basis 

and aid the industry in focusing its compliance resources. 

Office of Compliance Strategic Plan and Operational Goals

The Office of Compliance’s Strategic Plan and Operational Goals, 

FY 2005, identifies outcomes, strategic challenges, customers and 

stakeholders, and key risks and the tools to address them. 

Management and operational inputs and outputs are also identified, 

as are case processing plans. Some key factors in the 

establishment of the office are discussed below: 

• Determination of Case Processing Flow The Office of 

Compliance has planned the major steps that will be taken 

to process a case, identifying key decision points and 

situations in which referrals will be made to other RPPD 

offices and to the Office of Regulatory Support. Plans are 

for cases to be processed in a uniform manner, with staff 

evaluating each case based on an analytical work-up. 

• Creation of a Case Management System The Office of 

Compliance plans to create a case management system 

to store, track, analyze, and generate reports on cases. 

A project manager from the Office of BSA Data Services, 

within the Client Liaison & Services Division, has been 

assigned the lead role in assisting the Office of Compliance 

in acquiring off-the-shelf software that is compatible with 

other FinCEN systems and will require only limited 

modifications to address this need. A detailed project plan 

and software selection matrix have been developed, and 
Appendix 3 

Additional Information on the Regulatory Policy & Programs Division 

 and the Office of Compliance 

TERRORIST FINANCING/MONEY LAUNDERING: Status Report on the 

Establishment of the FinCEN Office of Compliance (OIG-05-030) 

Page 23 

testing has begun. The goal is to implement the Case 

Management System by April 2005. 

• Establishment of Secure Communications. FinCEN 

established, through the Secure Outreach System,8 a secure 

e-mail capability that the Office of Compliance is using to 

send and receive documents from the regulators. One FBA 

has already used this system to file its quarterly report. 

• Development of Examiner Training Materials As part of its 

outreach as administrator of the BSA, RPPD developed a 

training module that it is presenting at 10 Federal Financial 

Institutions Examination Council (FFIEC)9

 Anti-MoneyLaundering training courses for examiners during Fiscal 

Year (FY) 2005. 

The first of these presentations was made on February 3, 

2005.

10 The Office of Compliance also plans to do a 

presentation at the three sessions of the FFIEC Financial 

Crimes Seminar this year. 

• Development of Policies and Procedures The Office of 

Compliance has not established policies and procedures, but 

plans to do so within the next year or so. 

 

8

 FinCEN's Secure Outreach System provides Gateway users (e.g., Federal, State, and local law 

enforcement agencies) with on-line access to records filed under the BSA. Although access to the BSA 

records is the primary use of the system today, the Secure Outreach System also includes secure e-mail 

capability between FinCEN and its customers. 

9

 FFIEC is a formal interagency body empowered to prescribe uniform principles, standards, and report 

forms for the examination of banks by Federal regulators (OCC, OTS, FDIC, FRB, and NCUA) 

established under Title X of the Financial Institutions Regulatory and Interest Rate Control Act of 1978.

10 Approximately 30 bank examiners from the FBAs and the States, as well as observers from FinCEN 

and our audit team, attended the first presentation. The session provided a comprehensive overview of 

responsibilities under the BSA, the roles of the three offices within RPPD (including the Office of 

Compliance), the requirements of the MOU with the FBAs, and the regulatory relationship with other 

agencies. FinCEN’s authority under the BSA and potential factors for referral were also discussed. 
Appendix 3 

Additional Information on the Regulatory Policy & Programs Division 

 and the Office of Compliance 

TERRORIST FINANCING/MONEY LAUNDERING: Status Report on the 

Establishment of the FinCEN Office of Compliance (OIG-05-030) 

Page 24 

• Establishment of Performance Measures The Office of 

Compliance has yet to develop performance measures and 

the corresponding baselines. Measures being considered at 

this time include customer/stakeholder satisfaction and 

processing time.
Appendix 4 

Status of the Staffing Plan for the Office of Compliance 

TERRORIST FINANCING/MONEY LAUNDERING: Status Report on the Establishment of the FinCEN Office of Compliance (OIG-05-030) 

Page 25 

Table 2. Status of the Staffing Plan for the Office of Compliance (as of February 

Position Title Series/Grade No. of 

Positions 

No.1 Open Close 

Filled Vacant 

Assistant Director GS-301-15 1 Compliance Program Manager 

GS-301-14/15 2 20518 

20519 20522 20525 

Feb. 07 Mar. 24 

Compliance Project Officer 

GS-301-13/14 6 20786 

20787 

Feb. 14 Mar. 31 

Compliance Specialist 

GS-301- 9, 11, 12, 13 

4 8 20159 

20162 

Feb. 07 Mar. 24 

Compliance Program Assistant 

GS-303-07 1 20054 

20077 

Jan. 28 Feb. 10 

 Total 5 17 

Notes

1 The vacancy announcement numbers all have the format of FINCP/05-#####PPJ. The numbers shown in this co

each position. 

2 The Estimated Entry-on-Duty Date reflects the most favorable processing estimate in each case. Unexpected del

points during the process. 
Appendix 5 

Management Response 

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Page 26 
Appendix 6 

Report Distribution 

TERRORIST FINANCING/MONEY LAUNDERING: Status Report on the 

Establishment of the FinCEN Office of Compliance (OIG-05-030) 

Page 27 

Department of the Treasury

Under Secretary, Enforcement, and Office of Terrorism 

and Financial Intelligence (TFI) 

Assistant Secretary, Terrorist Financing & Financial Crimes 

Office of Strategic Planning and Performance Management 

Office of Accounting and Internal Control 

Financial Crimes Enforcement Network

Associate Director, Regulatory Policy & Programs Division 

Assistant Director, Office of Compliance 

Assistant Director & Deputy Chief Financial Officer, 

Office of Financial Management 

Office of Management and Budget

OIG Budget Examiner

United States Congress

Senate Committee on Appropriations 

Senate Committee on Appropriations, Subcommittee on 

Transportation, Treasury, the Judiciary, Housing and Urban 

Development, and Related Agencies 

House Committee on Appropriations 

House Committee on Appropriations, Subcommittee on 

Transportation, Treasury, and Housing and Urban Development, 

The Judiciary, District of Columbia