United States General Accounting Office

GAO Report to the Subcommittee on General

Oversight and Investigations, Committee

on Banking and Financial Services,

House of Representatives

February 1998 MONEY

LAUNDERING

FinCEN Needs to

Better Communicate

Regulatory Priorities

and Time Lines

GAO/GGD-98-18

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-276891 

February 6, 1998

The Honorable Spencer Bachus

Chairman

The Honorable Maxine Waters

Ranking Minority Member

Subcommittee on General Oversight

 and Investigations

Committee on Banking and Financial Services

House of Representatives

This report responds to your March 24, 1997, request that we review the

regulatory role of the Financial Crimes Enforcement Network (FinCEN),

which is a Department of the Treasury organization established in

April 1990 to support law enforcement agencies by analyzing and

coordinating financial intelligence information to combat money

laundering.1

 In a May 1994 delegation memorandum, Treasury expanded

FinCEN’s anti-money laundering role to include responsibility for

promulgating regulations under the Bank Secrecy Act (BSA), which has

been amended various times since its enactment in 1970.2

 Recent

amendments were made by the Money Laundering Suppression Act of

1994 (MLSA).3

 The MLSA, in general, directed Treasury to take certain

actions regarding the use of money transmitting businesses by criminals

involved in money laundering. Because you were concerned whether

FinCEN had made progress in addressing this threat and accomplishing

other directives of the MLSA, you asked us to assess FinCEN’s efforts to issue

regulations pursuant to the BSA, as amended. In so doing, this report

addresses the following questions, particularly in reference to the MLSA:

• What process did FinCEN follow for developing and issuing BSA regulations?

• What is the current status of FinCEN’s efforts to develop and issue BSA

regulations? More specifically, what regulations has FinCEN developed thus

far, and what regulations has the agency been authorized or required to

develop but has not done so?

1

Money laundering, in general, is the disguising or concealing of illicit income to make it appear

legitimate. U.S. criminal anti-money laundering law encompasses the money generated from numerous

different crimes—e.g., drug trafficking, murder for hire, racketeering, tax evasion, prostitution, and

embezzlement.

2

Public Law 91-508, 84 Stat. 1114 (1970). BSA’s implementing regulations are promulgated by the

Department of the Treasury at 31 C.F.R. Part 103.

3

The MLSA is Title IV of the Riegle Community Development and Regulatory Improvement Act of 1994

(P.L. 103-325, 108 Stat. 2160, 2243 (1994)).

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B-276891 

To identify the regulatory or rulemaking process that FinCEN followed, we

interviewed FinCEN officials who are responsible for preparing BSA

regulations and reviewed related agency documents. We also interviewed

Treasury and Office of Management and Budget (OMB) officials about their

procedures for reviewing drafts of FinCEN’s regulations before publication.

We examined relevant sections of the Administrative Procedure Act (APA)4

and Executive Order 128665 prescribing procedures that federal agencies

are to follow when developing and issuing regulations. However, the scope

of our work did not constitute a review of FinCEN’s compliance with

applicable statutory and executive order guidance.

To determine the status of FinCEN’s efforts to develop and issue

regulations, as agreed with your offices, we focused on eight regulatory

initiatives6

 that are authorized or required by MLSA amendments to the BSA:

• designate a single recipient for suspicious activity reports (SAR)7 to help

law enforcement agencies make more effective use of these reports (by

statute, to be completed by Mar. 23, 1995);

• extend BSA currency reporting and recordkeeping requirements to certain

gaming institutions operated on tribal lands;

• extend BSA currency reporting and recordkeeping requirements to card

clubs;

• specify selected entities as being exempt (mandatory exemptions) from

filing currency transaction reports (CTR)8

 to substantially reduce the

number of CTRs filed by depository institutions9

 and to enhance the

usefulness of CTRs to law enforcement;

4

Public Law 79-404, 60 Stat. 237 (1946) (codified as amended in scattered sections of 5 U.S.C.).

5

Executive Order 12866, “Regulatory Planning and Review” (58 FR 51735, Oct. 4, 1993).

6

Appendix I provides further details about the eight regulatory initiatives.

7

SARs, in general, must be filed by financial institutions when they know, suspect, or have reason to

suspect that a crime has occurred or that a transaction is suspicious. FinCEN regulations provide, for

example, that a SAR shall be filed for a transaction that has no business or apparent lawful purpose or

that is not the sort in which the particular customer would normally be expected to engage, and the

bank knows of no reasonable explanation for the transaction after examining the available facts,

including the background and possible purpose of the transaction.

8

Financial institutions and certain types of businesses must file a CTR with the Internal Revenue

Service for each deposit, withdrawal, exchange, or other payment or transfer by, through, or to such

financial institutions or businesses that involves more than $10,000 in currency.

9

FinCEN noted in the Federal Register (61 FR 18205, Apr. 1996) that approximately 11.2 million CTRs

were filed between September 24, 1993, and September 23, 1994. Thus, FinCEN stated that the statute

contemplated a reduction of approximately 3.3 million filings per year.

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B-276891 

• define certain types of businesses that can be exempted (discretionary

exemptions) from filing CTRs to further reduce the number of CTRs filed

and enhance the usefulness of these reports to law enforcement (by

statute, to be completed by Sept. 23, 1996);

• extend BSA reporting requirements to certain negotiable instruments

drawn by foreign banks to address the potential use of “foreign bank

drafts” in money laundering schemes;

• require certain money transmitting businesses, which FinCEN has proposed

to redefine as “money services businesses” (MSB),10 to register with

Treasury to address concerns that these entities are particularly

vulnerable to money laundering schemes (by statute, to be completed by

Mar. 23, 1995); and

• delegate authority to assess a civil monetary penalty on depository

institutions under the BSA to the appropriate federal banking regulatory

agencies to increase efficiencies by allowing these agencies to impose civil

penalties directly, rather than make referrals to FinCEN.

In focusing on the eight regulatory initiatives, we reviewed all notices of

proposed and final rulemaking issued by FinCEN since 1994, as published in

the Federal Register.

11 Furthermore, regarding FinCEN’s efforts to develop

and issue regulations, we interviewed FinCEN officials and 6 of the 35

members of the BSA Advisory Group,12 which includes representatives

from the law enforcement, regulatory, and financial services communities.

Also, we reviewed relevant literature and our past reports13 to identify any

potential best practices for developing and issuing regulations.

10The proposed definition of MSBs would include money transmitters; currency dealers, or

exchangers; check cashers; issuers of traveler’s checks, money orders, or stored value (under the

proposed rule, stored value is defined as funds or monetary value represented in digital electronics

format, whether or not specifically encrypted, and stored or capable of storage on electronic media in

such a way as to be retrievable and transferable electronically); sellers or redeemers of traveler’s

checks; and the U.S. Postal Service (except regarding the sale of postage or philatelic products). For

additional information, see appendix I, footnote 1.

11Appendix II provides a time line of all of FinCEN’s rulemaking issuances since 1994.

12In March 1994, pursuant to the Annunzio-Wylie Anti-Money Laundering Act (P.L. 102-550, 106 Stat.

4044 (1992)), the Secretary of the Treasury announced the establishment of the BSA Advisory Group,

whose purpose is to provide Treasury and FinCEN with advice and expertise on BSA-related matters,

including prospective regulations. Appendix III provides additional information about the BSA

Advisory Group. Appendix IV discusses the criteria we used to judgmentally select BSA Advisory

Group members to interview.

13Clear Air Rulemaking: Tracking System Would Help Measure Progress of Streamlining Initiatives

(GAO/RCED-95-70, Mar. 2, 1995) and Regulatory Review: Information on OMB’s Review Process

(GAO/GGD-89-101FS, July 14, 1989).

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B-276891 

We performed our work from April to December 1997, in accordance with

generally accepted government auditing standards. Appendix IV provides

further details about our objectives, scope, and methodology.

We requested comments on a draft of this report from the Director of

FinCEN. A reprint of FinCEN’s written comments can be found in appendix VI,

and our evaluation of those comments follows our recommendation.

Background The U.S. government’s framework for preventing and detecting money

laundering efforts is the BSA, which was enacted in 1970, in part, in

response to concern over the use of financial institutions by criminals to

launder the proceeds of their illicit activity. Despite its name, the BSA,

among other things, is a disclosure law. As originally enacted, the BSA

required, for example, the maintenance of records by financial institutions

and the reporting of certain domestic currency transactions and

cross-border transportation of currency. One purpose of such records and

reports was to create a paper trail for investigators’ use in tracing illicit

funds. The MLSA amendments to the BSA are, among other things, intended

to improve upon this paper trail. For example, one benefit intended by the

MLSA is to enhance the usefulness of CTRs to law enforcement agencies.

Another benefit is to register MSBs, which are entities reportedly

vulnerable to money laundering schemes.

According to FinCEN, its regulatory program priorities and outlines of

specific regulatory projects can originate from various sources. These

sources include statutory mandates or authorities; deficiencies in the

present rules identified by enforcement officials; and suggestions from

financial institutions (e.g., withdrawal of the requirement that would have

mandated certain financial institutions to file CTRs on magnetic media).

The APA establishes certain procedures that an agency must follow when

promulgating rules. Informal rulemaking14 under the APA generally requires

such actions as notification of proposed rulemaking by publication in the

Federal Register, involvement of interested persons through notice and

comment, and publication of a final rule at least 30 days before it becomes

effective.

14Most rulemaking proceedings involve “informal rulemaking,” in contrast to “formal rulemaking,”

which generally requires that an agency use trial-type hearing procedures, keep a formal record, and

base its decision on data compiled in that record.

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FinCEN is a relatively small agency with a fiscal year 1997 budget of about

$23 million and an on-board staffing level of about 160 employees.15

Created in 1990, FinCEN’s original mission centered on supporting law

enforcement agencies’ anti-money laundering efforts. Investigative case

support included, for example, accessing numerous databases and using

advanced technology to identify and analyze relevant financial

transactions. Over the years, FinCEN’s mission has become more

multifaceted, including assumption of a leadership role in international

efforts to combat money laundering. For instance, besides heading the

U.S. delegation to the Financial Action Task Force,16 FinCEN has assisted

other nations to establish financial intelligence units, which are intended

to serve as focal points for these countries’ anti-money laundering efforts.

In May 1994, Treasury expanded FinCEN’s anti-money laundering role to

include responsibility for administration of the BSA. In this role, besides

promulgating BSA regulations, FinCEN interprets the BSA and assesses civil

monetary penalties for BSA violations. FinCEN officials told us that about 10

staff worked on BSA regulations in recent years. FinCEN officials noted,

however, that none of these 10 staff had worked on regulations on a

full-time or exclusive basis; rather, the staff had also been involved in

other mission functions and responsibilities. Notices of proposed

rulemaking and final rules are prepared by FinCEN’s Office of Legal

Counsel, with the participation of staff from FinCEN’s Office of Program

Development and Office of Compliance and Regulatory Enforcement.

Results in Brief FinCEN’s process for developing and issuing regulations generally consisted

of determining what regulations were required or needed, establishing

priorities for which regulations it would promulgate first, and then

promulgating the regulations within the context of applicable statutory

and executive branch guidance. FinCEN published its annual regulatory

priorities each fiscal year since 1995. FinCEN also published notices of

proposed rulemaking and final rules in the Federal Register. Overall,

FinCEN’s regulatory process was designed to reflect APA standardized

procedures that federal agencies are to follow when developing and

issuing regulations. Moreover, FinCEN follows a “partnership strategy,”

which emphasizes frequent consultations with representatives of the law

enforcement, regulatory, and financial services communities.

15Appendix V shows FinCEN’s organizational structure and its on-board staffing as of December 1997.

16Comprised of 26 member nations and headquartered in Paris, France, the Financial Action Task

Force is dedicated to promoting the development of effective anti-money laundering controls and

enhanced cooperation among all countries.

Page 5 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
B-276891 

Regarding the status of FinCEN’s efforts to develop and issue regulations, as

of December 1997, more than 3 years since passage of the MLSA, FinCEN had

not promulgated final regulations for five of eight regulatory initiatives

related to the 1994 BSA amendments. As shown in table 1, FinCEN has issued

final regulations for three initiatives, has proposed regulations for four

initiatives, and has not yet taken regulatory action on one initiative. The

table also shows that FinCEN missed all three statutory deadlines imposed

by the MLSA.

Table 1: Status of FinCEN’s Regulatory Issuances for MLSA-Related Provisions (as of Dec. 1997)

Status of regulatory issuances/rule

Regulatory initiative Final Proposed None

Statutory

deadlines

Most recent

regulatory action

Suspicious Activity Reports:

designate a single recipient

x 03/23/95 02/05/96

Tribal Casinos: make tribal

gaming subject to the BSA

x none 02/23/96

Mandatory CTR Exemptions: 

specify selected entities as

exempted from filing CTRs

x none 09/08/97a

Discretionary CTR Exemptions:

define certain types of businesses

as exempted from filing CTRs

x 09/23/96 09/08/97

Card Clubs: make card clubs

subject to the BSA

x none 12/20/96

Foreign Bank Drafts: impose

reporting requirements

x none 01/22/97

Money Services Businesses: 

require registration of money

services businesses

x 03/23/95 05/21/97

Civil Penalties: delegate to federal

banking regulatory agencies the

authority to assess civil penalties

x none none

Total 3 4 1 n/a n/a

aOn April 24, 1996, FinCEN issued an interim rule with a request for comments. A final rule that

incorporated comments received on the interim rule was subsequently issued on September 8,

1997.

Source: Developed by GAO on the basis of MLSA provisions and Federal Register publications.

Generally, until final regulations are promulgated, many of the intended

benefits of the MLSA cannot be fully achieved. For example, until the

discretionary CTR exemptions are defined by regulation, the reduction in

Page 6 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
B-276891 

the number of CTRs that is intended to enhance their usefulness to law

enforcement agencies cannot be fully realized.

FinCEN officials concluded that the need to issue quality regulations—i.e.,

substantively effective regulations—was important. The officials said that

they recognized that the emphasis on issuing quality regulations had the

effect of extending the time needed to develop and issue regulations. Thus,

FinCEN followed a regulation-development process that emphasized quality

over timeliness. A majority of the members of the BSA Advisory Group with

whom we spoke generally concurred with this characterization of FinCEN’s

regulatory process. Furthermore, FinCEN officials told us that as part of its

process, the agency prioritized its workload to work on two or three

regulatory issues at a time because of the complexities of the issues and

the number of agency staff with regulatory expertise. As previously

mentioned, FinCEN officials told us that the agency had about 10 staff with

regulatory expertise who had worked on BSA regulations in recent years

and none of these 10 staff had worked on the regulations exclusively.

Congress’ inclusion of statutory deadlines with respect to the MLSA

provisions shows that it is intended that those initiatives be completed in a

timely manner. We believe that FinCEN could better inform appropriate

congressional committees of its rulemaking plans or, where delays would

be significant, it could also include a request for legislation to extend the

statutory deadlines, especially when the agency’s plans will result in

FinCEN’s failing to meet statutory completion dates.

Although we found that FinCEN had presented its fiscal year regulatory

priorities in annual plans, which were published in the Federal Register,

these plans did not provide stakeholders with FinCEN’s estimated dates for

issuing final rules for all MLSA-related amendments to the BSA, particularly

those with development phases exceeding 1 year. In commenting on a

draft of this report, FinCEN said that it communicated the agency’s

regulatory plans to Congress by various means, including testimony at

congressional hearings. Our review of FinCEN’s testimonies at hearings over

the past calendar year found, however, that FinCEN did not provide specific

target dates for issuing final rules for MLSA-related directives.

Thus, congressional committees were not in a good position to assess

FinCEN’s regulatory program, including the agency’s prioritization of

regulatory initiatives, the time lines for issuing final regulations, and the

allocation of resources necessary for completing these initiatives. A case

in point is the Subcommittee’s request for this review, which was made

Page 7 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
B-276891 

because it lacked information about FinCEN’s rulemaking plans. Therefore,

we are recommending that FinCEN prepare and submit to the appropriate

congressional committees target dates for issuing final regulations (and

notices of proposed rulemaking, as applicable) for all relevant statutory

BSA-related directives.

FinCEN’s Regulatory

Process Was Designed

to Reflect

Standardized

Procedures

FinCEN’s regulatory process was designed to reflect standardized

procedures that have governmentwide applicability under the APA. The APA

establishes certain procedures that an agency must follow when

promulgating rules. Informal rulemaking under the APA generally requires

such actions as notification of proposed rulemaking by publication in the

Federal Register, involvement of interested persons through notice and

comment, and publication of a final rule at least 30 days before it becomes

effective. Concerning the involvement of interested persons, the APA

generally requires that agencies give such persons an opportunity to

participate in the rulemaking process through submission of written data,

views, or arguments. The APA also requires that agencies incorporate into

each rule a concise general statement of its basis and purpose. Our review

showed that FinCEN published notices of proposed rulemaking and final

rules in the Federal Register.

Also, as an additional means of enhancing public visibility, FinCEN

presented its fiscal year regulatory priorities in annual plans, pursuant to

Executive Order 12866 requirements. Under this executive branch

guidance, each fiscal year, federal agencies are to prepare a regulatory

plan presenting, among other things, the respective agency’s regulatory

priorities and the most significant regulatory actions that the agency

reasonably expects to issue in proposed or final form during the year.17 In

its regulatory plan for fiscal year 1996,18 for example, FinCEN listed three

priority regulatory initiatives related to provisions of the MLSA—mandatory

CTR exemptions, suspicious activity reporting (to designate a single

recipient for these reports), and tribal casinos—and one initiative to

modify two final rules related to wire transfers. During fiscal year 1996,

FinCEN issued an interim rule and two final rules, respectively, for the three

MLSA-related priorities.

17Federal agencies’ regulatory plans are compiled into the fall edition of the Unified Agenda of Federal

Regulatory and Deregulatory Actions, which is published in the Federal Register. A purpose of the

Unified Agenda is to provide uniform reporting of data on regulatory activities under development

throughout the federal government.

1860 FR 59653, November 28, 1995.

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FinCEN’s fiscal year 1997 regulatory plan19 accorded priority to issuing

notices of proposed rulemaking for five topics: (1) registering of MSBs;

(2) reporting of the cross-border transportation of certain monetary

instruments (i.e., foreign bank drafts); (3) extending to securities brokers

and dealers and casinos the requirement to report suspicious transactions;

(4) requiring financial institutions to carry out certain anti-money

laundering programs;20 and (5) delegating civil penalty authority to bank

regulatory agencies. FinCEN accomplished the first two priorities during

fiscal year 1997, but not the last three priorities. Instead, FinCEN found it

necessary to issue additional regulations related to MSBs and issue

regulations related to mandatory (final rule) and discretionary (notice of

proposed rulemaking) CTR exemptions.

According to FinCEN, the reason a priority was placed on the exemption

regulations was to give the banking industry regulatory relief before

adding additional requirements. FinCEN officials said that the proposed MSB

regulations were given priority because FinCEN concluded that Treasury

needed to pay more attention to updating the way the BSA applies to MSBs

and to equalize the money laundering controls to which various types of

financial institutions are subject. According to FinCEN, the need was

identified on the basis of the success of law enforcement efforts in New

York, which used special reporting requirements that were similar to the

proposed regulations.

In addition to standardized procedures, a significant aspect of FinCEN’s

regulatory process is its partnering strategy.21 This strategy emphasized

frequent interaction and consultation with affected public and private

sector representatives in the law enforcement, regulatory, and financial

services communities.

As previously mentioned, one forum that FinCEN used to operationalize its

partnership strategy was the BSA Advisory Group. Generally, the members

we interviewed were complimentary of FinCEN’s participation in and use of

this forum. A majority of the members commented that FinCEN’s process,

rather than focusing on timeliness, was properly focused on

1961 FR 62132, November 29, 1996.

20FinCEN was authorized in a 1992 amendment to the BSA to require financial institutions to carry out

anti-money laundering programs.

21Building partnerships is one of three goals specified in FinCEN’s multiyear strategic plan (1996-2001),

which was developed to meet the requirements of the Government Performance and Results Act of

1993. The plan’s other goals focus on increasing international awareness of the impact of money

laundering and applying technology.

Page 9 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
B-276891 

quality—specifically, on developing and issuing substantively effective

regulations. More specifically, one member noted that FinCEN’s regulations

are excellent and are worth the time invested. A second member noted

that FinCEN has taken some innovative approaches, such as holding public

meetings to discuss proposed regulations. A third member noted that,

while it would be nice to have a faster process, FinCEN’s partnership

approach is good, even though such an approach may increase the time

taken to develop regulations.

FinCEN officials also told us that developing quality regulations takes time.

A FinCEN official said that, to promulgate regulations that can be effectively

implemented, the agency needed to take the time to develop expertise in

particular subject areas and to consult with various stakeholders during

the development process. FinCEN officials believe this approach is

important to help ensure that issued regulations have credibility with law

enforcement agencies, federal regulators, and affected industries.

FinCEN’s

Prioritization of Work

Deferred Issuance of

Final Rules for

Several MLSA-Related

Regulatory Initiatives

In fiscal year 1995, FinCEN began taking action to develop regulations

addressing MLSA provisions; but, as of December 1997, final rules were

pending for five of the eight regulatory initiatives we reviewed. FinCEN

officials told us that, given the number of regulatory initiatives requiring

action, the number of staff with the expertise to develop regulations, and

other reasons, the agency had to prioritize its work. FinCEN’s prioritization

of initiatives resulted in final regulatory actions related to several of the

1994 amendments being deferred into fiscal year 1997 and beyond. While

we have no basis to criticize FinCEN’s regulation-development process or its

resource allocation decisions, we note in this report that FinCEN missed all

three statutory deadlines imposed by the MLSA.

FinCEN Prioritized

Regulatory Needs

According to FinCEN officials, since being delegated the responsibility for

BSA regulations, the agency has worked on only two or three regulatory

issues at a time because of the complexities of the issues, the coordination

required with the affected parties, competing mission demands, and the

number of agency staff with regulatory expertise. As previously

mentioned, FinCEN officials told us that its regulatory program priorities are

influenced by various sources, including statutory mandates or authorities

as well as needs identified by FinCEN or others.

We requested information from FinCEN on the amount of time that FinCEN

staff devoted to developing and issuing regulations. FinCEN officials told us

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that the agency does not track staff use by specific functions or strategic

goals and objectives. According to the officials, 10 staff worked on

developing regulations, but none of the 10 staff worked exclusively on

regulatory efforts. These 10 staff, based upon our rough estimate,

represented about 6 percent of FinCEN’s total staff resources.22

FinCEN Issued Final Rules

for Some of the

MLSA-Related Provisions,

but Actions Are Pending

for Others

FinCEN produced its first rulemaking actions related to the MLSA late in

fiscal year 1995, when FinCEN issued notices of proposed rulemaking to

extend BSA reporting and recordkeeping requirements to tribal casinos

(Aug. 1995) and to designate a single recipient for reporting of suspicious

activities (Sept. 1995). FinCEN issued final rules for these two regulatory

initiatives in fiscal year 1996 (Feb. 1996). Also, during fiscal year 1996,

FinCEN issued an interim rule related to exemption of certain transactions

from CTR requirements. A final rule that incorporated comments received

on the interim rule was issued in fiscal year 1997 (Sept. 1997). During

fiscal year 1997, FinCEN issued five notices of proposed rulemaking that

related to BSA amendments made by the MLSA. No issuances have been

made for one initiative related to the MLSA—delegation of civil penalty

authority to federal banking regulatory agencies.

As of December 1997, FinCEN had not issued final rules for five regulatory

initiatives related to the MLSA. However, as shown in table 2, FinCEN has

issued notices of proposed rulemaking for four of the five pending

regulatory initiatives. For example, FinCEN issued a notice of proposed

rulemaking related to foreign bank drafts on January 22, 1997. According

to a FinCEN official, comments were received, and, as of October 1997, a

final rule was being developed. As presented in the fiscal year 1997 Unified

Agenda, FinCEN had estimated that a final rule for this initiative would be

issued in August 1997. However, in September 1997, a FinCEN official told

us that developing final MSB regulations will be given priority over efforts

to develop the final rule related to foreign bank drafts. Also, regarding the

latter, the FinCEN official noted that senior Treasury managers will need to

be involved. As a result, the FinCEN official said that he was uncertain as to

when a final rule for foreign bank drafts would be published.

22The 6-percent figure is our estimate which is based on 10 of FinCEN’s total staff of 162 people

working on regulations. During fiscal year 1997, FinCEN added three more attorneys to its staff.

However, during the same year, two other staff who had previously worked on the development of

regulations left the agency. These two positions were vacant as of December 1997.

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Table 2: Pending Regulatory Initiatives

for MLSA-Related Provisions (as of

Dec. 1997) Pending rulemaking

Notice of proposed

rulemaking date

Date written comments

were requested

Card clubs December 20, 1996 March 20, 1997

Foreign bank drafts January 22, 1997 April 22, 1997

Registration of MSBs May 21, 1997 September 30, 1997

Discretionary CTR

exemptions

September 8, 1997 December 8, 1997

Delegation of civil penalty

authority

No notice issued n/a

Source: Developed by GAO on the basis of Federal Register publications and discussions with

FinCEN officials.

Regarding the registration of MSBs and related issues, FinCEN published a

set of three notices of proposed rulemaking on May 21, 1997.23 Treasury’s

Under Secretary for Enforcement had asked that FinCEN try to publish final

rules for these three issues by the end of December 1997.24 FinCEN officials

told us that these regulations, given their usefulness to law enforcement,

have a high priority. According to FinCEN officials, adherence to the

December 1997 schedule would have meant that the registration of

existing MSBs would have been accomplished about 6 months later (i.e., by

the end of June 1998).

Another regulatory initiative under development, as table 2 shows,

involves discretionary CTR exemptions. FinCEN issued a notice of proposed

rulemaking on September 8, 1997, and requested that written comments be

provided by December 8, 1997. Subsequently, FinCEN extended the

comment period to January 16, 1998.

Also, table 2 shows that FinCEN has not issued a notice of proposed

rulemaking to delegate to federal banking regulatory agencies the

authority to assess civil monetary penalties for BSA violations. Currently,

such assessment authority is vested solely in FinCEN. In April 1997, in

response to questions we asked in initiating our review, FinCEN officials

told us they had been working with the banking agencies for over a year to

23One notice of proposed rulemaking was in response to the MLSA requirement to register MSBs. The

other two notices of proposed rulemaking were not required by the MLSA.

24In January 1998, in response to our inquiry, a FinCEN official told us that final rules for these

initiatives had not been published because of funding issues involving, among other things, data

collection requirements at the Internal Revenue Service’s Detroit Computing Center. The official noted

that funding issues could impact the scope and parameters of the final regulations, and the official said

that FinCEN had not established a date for issuing the final rules.

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devise an appropriate plan for delegating civil penalty assessment

authority, but some issues still required resolution.

In our follow-up discussions in July and September, 1997, FinCEN officials

described the unresolved issues largely as establishing a common frame of

reference for evaluating BSA violations and, in turn, for determining the

appropriate penalty amounts. Additionally, FinCEN officials noted that, even

with the delegation of assessment authority to the banking agencies,

another unresolved issue is FinCEN’s role in monitoring the various

agencies’ use of that authority. FinCEN also indicated that the federal

banking regulatory agencies may be less inclined to assess BSA penalties

and will instead use their present non-BSA authorities under the general

examination powers granted to them (i.e., Title 12 of the U.S. Code).

Accordingly, FinCEN officials told us they believe oversight of the delegated

authority is necessary, and they are considering proposing that each

banking regulatory agency prepare and submit to FinCEN quarterly reports

of its efforts to enforce the BSA. FinCEN officials told us that they had not

reached a mutual agreement with the federal banking regulators regarding

proposed monitoring requirements. According to a FinCEN official, these

unresolved issues are policy-oriented and will require consultation with

Treasury officials. Also, the FinCEN official noted that the delegation issue

has lower priority than other issues, such as the development of final MSB

rules. As of December 1997, FinCEN had not established a projected

issuance date for either a notice of proposed rulemaking or a final rule.

According to FinCEN officials, the agency’s disinclination to move quickly in

this area reflects its sense that more needs to be learned about the

implications of various approaches for cost-effective enforcement of

banking regulation before the ultimate policy choices are made. FinCEN

officials stated that the issues raised by delegation of civil penalty

authority ultimately go beyond purely enforcement concerns. According to

FinCEN officials, a briefing paper describing the issues for senior-level

Treasury officials is to be prepared and submitted to Treasury by the end

of February 1998.

Another open issue for FinCEN, at the time of our review, involved a

requirement that Treasury publish (1) written rulings interpreting the BSA

Page 13 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
B-276891 

and (2) annual staff commentaries on the BSA regulations.25 To assist

FinCEN, the BSA Advisory Group formed a working group to prepare

summaries that were provided to FinCEN for its use in meeting the

requirement to publish commentaries. According to a FinCEN official, the

agency has begun to review its written rulings to identify information that

can and cannot be made public. This official estimated that redacted

versions of the rulings may be published during the first quarter of

calendar year 1998. On the other hand, the FinCEN official said that 2 or 3

years may be needed to write the commentaries because they involve

more complicated issues.

FinCEN Did Not Fully

Communicate Its

Regulatory Priorities

and Time Lines

FinCEN prepared annual (fiscal year) plans presenting its priorities and

regulatory agenda for the most significant regulatory actions that it

expected to issue in proposed or final form during the applicable 12-month

period. However, a limitation of FinCEN’s annual plans is that they do not

always present what is not being accomplished. For example, FinCEN’s

fiscal year 1996 regulatory plan accorded priority to three MLSA-related

regulatory initiatives (mandatory CTR exemptions, suspicious activity

reporting, and tribal casinos), but the plan did not mention that FinCEN

would not be giving priority to other regulatory initiatives (e.g.,

registration of MSBs) requiring action under the MLSA.

A limitation of the regulatory agenda is that it may not always present

estimated dates for issuing final rules, particularly if a regulatory initiative

involves a period beyond 12 months. For example, FinCEN’s fiscal year 1995

regulatory agenda did not provide estimated dates for issuing final rules

for any of the eight MLSA-related regulatory initiatives we reviewed. In fact,

2 years later, the fiscal year 1997 regulatory agenda represented FinCEN’s

first publication of estimated dates for issuing final rules involving any of

these eight initiatives. The 1997 regulatory agenda provided estimated final

rule issuance dates for three of the eight regulatory initiatives—mandatory

CTR exemptions, card clubs, and foreign bank drafts.

Although FinCEN’s 1995 plan did not address final rules, it did present

estimated dates for issuing notices of proposed rulemaking for seven of

the eight regulatory initiatives. In subsequent annual plans, FinCEN

extended some of these dates. An example is the regulatory initiative

25These publications were required under Title III of the Riegle Community Development and

Regulatory Improvement Act of 1994 (P.L. 103-325, 108 Stat. 2160 (1994)). The Secretary is to

(1) publish all of Treasury’s written rulings interpreting BSA requirements and (2) issue, on an annual

basis, a staff commentary on the BSA regulations. According to the Conference Report on the act,

these publications are to ease the burden on banking institutions and promote compliance with the

BSA.

Page 14 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
B-276891 

involving the delegation of civil penalty assessment authority to the federal

banking regulatory agencies. In the 1995 plan, FinCEN estimated that it

would issue a notice of proposed rulemaking in July 1995. Later, FinCEN

extended the estimated issuance date several times—that is, to March

1996, then to September 1996, and then to February 1997. At the time of

our review, a notice of proposed rulemaking still had not been issued, and

FinCEN had not established a projected issuance date.

Another mechanism that FinCEN has used to inform Congress of its

regulatory agenda has been congressional hearings. We reviewed FinCEN’s

testimony given at hearings held during 1997 and found that agency

officials generally discussed either final rules that had already been issued

or regulatory initiatives that were currently under development. However,

the testimonies did not discuss the MLSA-related directive related to

delegating authority to federal banking agencies to assess civil penalties.

Furthermore, with one exception—a July 1997 hearing that focused on MSB

regulations—none of the testimonies provided specific target dates for

issuing final rules or discussed why statutory deadlines had not been met.

In addition to hearings, FinCEN officials believe that their briefings with

congressional Members and staff have kept appropriate committees

informed of the agency’s regulatory agenda. However, FinCEN officials were

unable to provide us with specific information about whether the

implementation of all of its MLSA-related directives, including specific

target dates for issuing final rules, had been discussed.

Conclusions FinCEN’s process for developing and issuing BSA regulations was generally

designed to reflect applicable procedures set forth in the APA and

Executive Order 12866. For example, FinCEN published notices of proposed

rulemaking and final rules. In addition, FinCEN used a partnering approach

to actively seek input from the law enforcement, regulatory, and financial

services communities.

Since 1994, when it was delegated responsibility for administering the BSA,

FinCEN has issued a number of proposed and final rules pursuant to MLSA

amendments to the BSA. At the time of our review, however, several final

regulations related to the MLSA were still pending, including two

regulations (discretionary CTR exemptions and registration of MSBs) that

had statutory deadlines for implementation of over a year ago. In

recognizing that development of quality regulations can be time

consuming, FinCEN prioritized its regulatory program initiatives by

Page 15 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
B-276891 

considering, among other things, the number of experienced staff

available.

FinCEN did not meet any of the three statutory deadlines imposed by the

MLSA. Clearly, Congress’ inclusion of statutory deadlines with respect to

the MLSA provisions shows that it intended that those initiatives be

completed in a timely manner. We note in this report that the intended law

enforcement benefits of the MLSA amendments cannot be fully achieved

until all of the regulations are implemented.

FinCEN published its annual regulatory plans in the Federal Register.

However, the annual plans do not (1) cover regulatory initiatives that are

not under development but that need to be addressed; (2) prioritize among

all of the open statutory directives and other identified needs; (3) set

target dates for issuing both notices of proposed rulemaking and final

rules; and (4) provide a means for obtaining input on long-range priorities

from the appropriate congressional committees. FinCEN also said that it

communicated the agency’s regulatory plans through various other means,

including testimony at congressional hearings. However, we found that

FinCEN’s testimonies during 1997 generally did not provide specific target

dates for issuing final rules or discuss why statutory deadlines had not

been met.

Thus, congressional committees have not been in a good position to assess

FinCEN’s regulatory program, including the agency’s prioritization of

regulatory initiatives, the time lines for issuing final regulations, and the

allocation of resources necessary for completing these initiatives. An

illustration of this point is our review, which was requested because the

Subcommittee lacked information about FinCEN’s rulemaking plans.

Recommendations to

the Director, FinCEN

We recommend that the Director, FinCEN, establish target dates for

implementing all relevant statutory BSA-related regulatory directives and

provide the appropriate congressional committees with information on the

status of FinCEN’s implementation efforts. This information should include

FinCEN’s plans, priorities, target dates for issuing notices of proposed

rulemaking and final rules, and accomplishments. Where delays would be

significant, it could also include a request for legislation to extend the

statutory completion date. Furthermore, recognizing that circumstances

can change, we recommend that the Director periodically update this

information and transmit it to the appropriate congressional committees.

Page 16 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
B-276891 

Agency Comments

and Our Evaluation

In a letter dated January 8, 1998, FinCEN’s Director provided written

comments on a draft of this report (see app. VI). The Director noted that

the draft report contained a detailed and comprehensive discussion of the

process that FinCEN used to develop and issue regulations and the status of

those regulations. However, the Director had two main disagreements

with the draft report.

First, he commented that the draft report did not accurately describe the

level of effort FinCEN devoted to its regulatory initiatives or reflect the

agency’s other money laundering missions. We believe this report

adequately addresses FinCEN’s efforts to develop regulations and carry out

its other missions. We describe FinCEN’s multiple missions; the number of

staff the agency had working on developing regulations; and its

coordination efforts with the law enforcement, regulatory, and financial

services communities. However, as mentioned in this report, FinCEN does

not track the amount of time staff spend on specific functions or strategic

goals and objectives. Thus, FinCEN could not provide us with, and we could

not report on, more specific information on the level of effort FinCEN

expended on its regulatory initiatives.

Second, the Director commented that the draft report did not describe the

extent to which FinCEN informs Congress of its objectives. According to the

Director, the agency has adequately communicated its rulemaking agenda

to appropriate congressional committees. Furthermore, the Director

commented that the results of our audit work did not support the

recommendation that FinCEN needed to better communicate its regulatory

priorities as indicated in the report and the draft report’s title. In his

comment letter, the Director mentioned that FinCEN had informed Congress

of its work through various hearings, briefings, and other communications

or interactions involving congressional committees and subcommittees

and/or their staff.

We recognize that FinCEN, at various times, has informed certain

committees and subcommittees or their staffs of the progress made on a

number of regulatory initiatives, and we expanded our discussion of these

communications in this report (see pp. 14 and 15). However, these

communications were neither systematic in providing uniform information

to all interested congressional parties nor done on any periodic basis. A

consequence of this type of ad hoc communication is to make it more

difficult for Members of Congress and staff who are not directly involved

in congressional testimonies and briefings to effectively perform their

oversight responsibilities. Moreover, at the time of our review, FinCEN

Page 17 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
B-276891 

could not provide us with any evidence that it had—through the means

described by the Director or through its annual plans—communicated

time-specific goals for implementing all relevant statutory BSA-related

directives. For example, FinCEN had not communicated to Congress

estimated completion dates for final rules for five of the eight statutory

directives that we reviewed, two of which had statutory deadlines. Clearly,

Congress’ inclusion of statutory deadlines with respect to such MLSA

provisions shows an interest in implementing these initiatives in a timely

manner.

The Director attached to his January 8, 1998, letter a summary of the

status of the implementation of MLSA initiatives (“Summary of Status under

the MLSA”), which he offered as an example of the kind of information

provided by FinCEN to Congress. FinCEN added a column labeled “Proposed

Action and Date” to the summary in response to December 1997

discussions with us on a draft of this report. This summary, with the

recently added information, represents progress toward meeting the intent

of our recommendation. Nonetheless, while the additional information is

helpful, the summary still does not provide expected dates for issuing final

rules for three statutory provisions—the discretionary CTR exemption

system (phase II), delegation to federal banking regulatory agencies the

authority to assess civil penalties, and registration of money services

businesses. Two of these—the CTR exemption system and registration of

MSBs —are past their statutory deadlines by more than a year.

In his letter, the Director stated that “it is unprecedented that an agency

should be mandated to provide such a level of detail as to its regulatory

operations in absence of any findings of serious deficiency.” In addressing

this comment, we want to emphasize three points. First, we did not intend

that our recommendation be adopted as a legislative mandate. Rather, we

consider it to be good management practice to provide timely and useful

information for congressional oversight when statutorily mandated

activities have not been achieved in the required time frame. We modified

the wording of the recommendation and the report title to clarify our

intention in this regard.

Second, including estimated completion dates in the regulatory program

status summary that FinCEN provided with its letter would not seem to be a

document that calls for an unwarranted “level of detail.” FinCEN’s ability to

update and modify this existing summary in the short period between our

meeting on December 31, 1997, and the issuance of its letter to us on

Page 18 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
B-276891 

January 8, 1998, is evidence that the preparation and maintenance of such

a report is not an unreasonable burden.

Finally, observers may differ as to whether our finding that FinCEN did not

systematically and periodically inform Congress of when statutory

deadlines, which were not met, and other statutory requirements would be

met describes a “serious deficiency.” From our perspective, however,

FinCEN has the key responsibility of keeping the appropriate congressional

committees informed about its plans, priorities, target dates, and

accomplishments concerning these important statutory directives.

Furthermore, BSA regulations unquestionably are the core of Treasury’s

anti-money laundering efforts, and the intended law enforcement benefits

of the MLSA amendments are being delayed pending the promulgation of

final rules. For these reasons, we continue to believe that FinCEN should

systematically and periodically communicate its plans, priorities, target

dates, and accomplishments concerning relevant statutory BSA-related

directives to all of the appropriate congressional committees.

FinCEN officials also offered several suggestions regarding technical

clarifications, which we incorporated where appropriate in this report.

As agreed with the Subcommittee, we plan no further distribution of this

report until 30 days from its issue date. At that time, we will send copies of

this report to the Senate Banking, Housing, and Urban Affairs Committee;

the Subcommittee on Treasury, Postal Service, General Government, and

Civil Service (Senate Appropriations Committee); the Subcommittee on

Treasury, Postal Service, and General Government (House Appropriations

Committee); the Assistant Secretary of the Treasury (Enforcement); the

Director, FinCEN; the Director, OMB; the BSA Advisory Group; and other

interested parties. We will also make copies available to others on request.

Major contributors to this report are listed in appendix VII. If you have any

questions about this report, please contact me on (202) 512-8777.

Richard M. Stana

Associate Director

Administration of Justice Issues

Page 19 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Contents

Letter 1

Appendix I 

Regulatory Initiatives

Related to Provisions

of the Money

Laundering

Suppression Act of

1994

22

Single Recipient for SARs 22

Mandatory and Discretionary CTR Exemptions 23

Registration of MSBs 25

Reporting and Recordkeeping Requirements for Tribal Gaming

and Card Clubs

26

Reporting Requirements for Certain Negotiable Instruments

Drawn by Foreign Banks

27

Delegation of Civil Penalty Authority 28

Appendix II 

FinCEN’s Rulemaking

Issuances Since 1994

30

Appendix III 

Purposes and

Membership of the

Bank Secrecy Act

Advisory Group

35

Appendix IV 

Objectives, Scope,

and Methodology

38

Scope and Methodology of Our Work Regarding FinCEN’s

Regulatory Process

39

Scope and Methodology of Our Work Regarding the Status of

Regulations

40

Appendix V 

FinCEN

Organizational

Structure and

On-Board Staffing

41

Page 20 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Contents

Appendix VI 

Comments From the

Financial Crimes

Enforcement Network

44

Appendix VII 

Major Contributors to

This Report

54

Tables Table 1: Status of FinCEN’s Regulatory Issuances for

MLSA-Related Provisions (as of Dec. 1997)

6

Table 2: Pending Regulatory Initiatives for MLSA-Related

Provisions (as of Dec. 1997)

12

Table III.1: Membership of the BSA Advisory Group (as of

Dec. 1997)

37

Figures Figure II.1: Time Line of Rulemaking Issuances by FinCEN Since

Being Delegated Responsibility for Developing BSA Regulations

32

Figure V.1: FinCEN Organization Chart and On-Board Staffing (as

of Dec. 1997)

42

Abbreviations

APA Administrative Procedure Act

BSA Bank Secrecy Act

CMIR Report of International Transportation of Currency or

Monetary Instruments

CTR Currency Transaction Report

FinCEN Financial Crimes Enforcement Network

MLSA Money Laundering Suppression Act of 1994

MSB money services business

OMB Office of Management and Budget

SAR suspicious activity report

Page 21 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix I 

Regulatory Initiatives Related to Provisions

of the Money Laundering Suppression Act of

1994

This appendix discusses various regulatory initiatives related to provisions

of the Money Laundering Suppression Act of 1994 (MLSA). Specifically, the

sections below respectively discuss selected provisions of the MLSA in

relation to the following eight regulatory initiatives: (1) designation of a

single recipient for suspicious activity reports (SAR), (2) mandatory

exemptions from filing currency transaction reports (CTR),

(3) discretionary exemptions from filing CTRs, (4) registration of money

services businesses (MSB),1

 (5) reporting and recordkeeping requirements

for tribal casinos, (6) reporting and recordkeeping requirements for card

clubs, (7) reporting requirements for certain negotiable instruments drawn

by foreign banks, and (8) delegation of civil penalty authority.

Single Recipient for

SARs

Section 1517 of the Annunzio-Wylie Anti-Money Laundering Act (1992 Act)

authorized the Secretary of the Treasury to require the reporting of

suspicious transactions. The MLSA, section 403, subsequently required that

the Secretary designate (by Mar. 23, 1995) a single officer or agency of the

United States to which SARs can be filed. The designated agency is, in turn,

responsible for referring any report of a suspicious transaction to any

appropriate law enforcement or federal banking regulatory agency.

In discussing the need for a single recipient for reporting suspicious

transactions, the Conference Report accompanying the MLSA provided that:

“Reporting suspicious currency transactions is a key ingredient in the anti-money

laundering effort . . . . The Conferees believe that Treasury has not capitalized on the

potential of suspicious transaction reporting . . . . Currently, many financial institutions are

asked to file the same report with several different law enforcement agencies . . . . The

Conferees believe that a single collection point . . . [should] . . . be established to improve

coordination among the law enforcement agencies.”2

On February 5, 1996, the Financial Crimes Enforcement Network (FinCEN)

issued a final rule. Generally, under the provisions of the final rule, (1) a

suspicious activity shall be reported by completing a SAR; (2) the SAR shall

be filed with FinCEN in a central location, to be determined by FinCEN, as

indicated in the instructions for the SAR; (3) a bank is required to file a SAR

1

The MLSA used the term “money transmitting business” to name those businesses subject to

registration. However, the Financial Crimes Enforcement Network (FinCEN) believes that the statute’s

use of this term to refer to all of the types of businesses subject to registration and the statute’s later

use of the nearly identical term “money transmitting service” to refer to a particular type of business

subject to registration may lead to confusion. Therefore, FinCEN has proposed that the term “money

services business” be used in reference to businesses subject to registration in place of the term

“money transmitting business.”

2

H.R. Conf. Rep. No. 103-652, at 187-88 (1994).

Page 22 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix I 

Regulatory Initiatives Related to Provisions

of the Money Laundering Suppression Act of

1994

no later than 30 calendar days after the date of initial detection by the

bank of facts that may constitute a basis for filing a SAR; (4) a bank shall

maintain a copy of any SAR filed and the original or business record

equivalent of any supporting documentation for a period of 5 years from

the date of filing the SAR; and (5) no bank or other financial institution, and

no director, officer, employee, or agent of any bank or other financial

institution, which reports a suspicious transaction may notify any person

involved in the transaction that the transaction has been reported.3

The new reporting system went into effect in April 1996. SARs are to be

sent to the Internal Revenue Service’s Detroit Computing Center, which is

to process the forms for FinCEN. Paper forms are accepted, but banks are

encouraged to file electronically.

Mandatory and

Discretionary CTR

Exemptions

MLSA section 402 requires the Secretary to issue rules exempting certain

transactions from CTR requirements. The MLSA also provides that, in

implementing the new mandatory and discretionary CTR exemption

procedures, the Secretary shall seek to reduce, within a reasonable period,

the number of reports filed (in the aggregate) by depository institutions by

at least 30 percent compared with the number filed during the year

preceding the date of enactment of the act.

Mandatory CTR

Exemptions

In general, the Department of the Treasury must exempt a depository

institution from the requirement to report currency transactions

concerning those between the depository institution and the following

categories of entities: (1) another depository institution; (2) a department

or agency of the United States, any state, or any political subdivision of

any state; (3) any entity established under the laws of the United States,

any state, or any political subdivision of any state or under an interstate

compact between two or more states, which exercises governmental

authority on behalf of the United States or any such state or political

subdivision; and (4) any business or category of business the reports on

which have little or no value for law enforcement purposes.

FinCEN issued an interim rule (effective May 1, 1996) and a final rule on

September 8, 1997. According to FinCEN, the format and substance of the

interim rule and final rule were generally the same. The objectives

3

FinCEN and the Securities and Exchange Commission are working together to develop SAR

regulations for broker/dealers, according to officials from both agencies. FinCEN has also issued a

notice of proposed rulemaking to require money transmitters to file SARs, and it plans to issue

regulations requiring casinos to file SARs.

Page 23 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix I 

Regulatory Initiatives Related to Provisions

of the Money Laundering Suppression Act of

1994

identified in the interim rule were to reduce the burden upon financial

institutions of currency transaction reporting and to increase the

cost-effectiveness of Treasury’s counter money laundering policies by

requiring the reporting of information that is of value to law enforcement

and regulatory authorities.

Discretionary CTR

Exemptions

In addition to mandatory CTR exemptions, section 402 of the MLSA also

provided for discretionary exemptions. The Secretary was authorized to

phase in the discretionary exemption process over 2 years.

In general, the Secretary may exempt a depository institution from filing

CTRs for transactions between the depository institution and qualified

business customers of the institution. As defined in the statute, a “qualified

business customer” is a business that (1) maintains a transaction account

at the depository institution, (2) frequently engages in transactions (with

the depository institution) that are subject to the reporting requirements,

and (3) meets the criteria that the Secretary determines are sufficient to

ensure that the CTR exemption is carried out without requiring a report

concerning such transactions.

FinCEN issued a notice of proposed rulemaking in September 1997. In

general, under the proposed rule, a bank would not be required to file a

report regarding any currency transaction between the bank and an

exempt person. The rule would add the following two new classes of

exempt persons: nonlisted business and payroll customers. Generally, the

definition of a nonlisted business details certain commercial enterprises

with a recurring need to deal with currency that are not listed companies,

such as those listed on a national stock exchange. A payroll customer is

generally defined as a person who (1) withdraws solely for payroll

purposes, (2) has been a bank customer for at least 12 months,

(3) operates a firm that regularly withdraws more than $10,000 to pay its

U.S. employees in currency, and (4) is a U.S. resident.

As proposed, banks would be required to provide an annual report to

Treasury for those customers designated as a nonlisted business or a

payroll customer. For example, the annual report would require certain

information regarding the exempt person’s annual currency deposits and

withdrawals through all transaction accounts. Any transaction, whether

involving currency or not, must still be reported if the transaction appears

suspicious.

Page 24 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix I 

Regulatory Initiatives Related to Provisions

of the Money Laundering Suppression Act of

1994

Registration of MSBs MLSA section 408 requires the Secretary to implement regulations requiring

any person who owns or controls a money transmitting business4

 (whether

the business is licensed as a money transmitting business in any state or

not) to register that business with the Secretary. By statute, registration

was to begin no later than March 23, 1995. However, final regulations need

to be issued before registration can be implemented. In May 1995, FinCEN

published a notice (FinCEN Notice 95-1) stating that regulations prescribing

the form and manner of registration would not require initial registration

of MSBs before the 90th day following the effective date of the

implementing regulations.

In addition, section 408, in general, required the Secretary to issue

regulations requiring money transmitting businesses to maintain lists

containing the names and addresses of their agents and to make those lists

available on request to appropriate law enforcement agencies. The MLSA

also required the Secretary to issue regulations establishing a dollar

threshold for treating an agent of a money transmitting business as a

registrable money transmitting business. Regarding the threshold

determinations for agents, the intent of the conferees was to eliminate the

need for all agents of money transmitting businesses to register with the

Secretary, since such a massive registration of thousands of agents would

create a costly administrative burden.

Regarding the registration requirement, the conferees intended for such a

requirement to apply only to money transmitting businesses that are not

already regulated by other agencies. The conferees also added that this

provision of the MLSA does not require the registration of persons or

entities registered with, and regulated or examined by, the Securities and

Exchange Commission or the Commodity Futures Trading Commission.

Under FinCEN’s proposed rule, issued May 21, 1997, a new category of

regulated entities called “money services businesses”5

 would be required

to register with Treasury and to maintain a current list of their agents for

examination on request by any appropriate law enforcement agency. As

defined by FinCEN, MSBs, in general, would include currency dealers or

exchangers; check cashers; issuers of traveler’s checks, money orders, or

stored value; sellers or redeemers of traveler’s checks, money orders, or

4

The law defines “money transmitting business,” in general, as any business that provides check

cashing, currency exchange, or money transmitting or remittance services or issues or redeems money

orders, traveler’s checks, and other similar instruments. However, depository institutions are to be

excluded from the registration requirement.

5

FinCEN has adopted the term “money service business” in place of the term “money transmitting

business.” For additional information, see footnote 1 of this appendix.

Page 25 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix I 

Regulatory Initiatives Related to Provisions

of the Money Laundering Suppression Act of

1994

stored value; money transmitters; and the U.S. Postal Service (except

regarding the sale of postage or philatelic products). The proposed rule

generally would treat most of these entities as financial institutions only if

they engage in transactions involving more than $500 for any person on

any day.

Reporting and

Recordkeeping

Requirements for

Tribal Gaming and

Card Clubs

MLSA section 409, in general, expanded the statutory definition of a

financial institution subject to the Bank Secrecy Act’s (BSA) reporting and

recordkeeping requirements to cover Indian gaming operations and

certain other gaming establishments that have an annual gaming revenue

of more than $1 million. According to the Conference Report on the MLSA,

expanding the definition of financial institution to tribal gaming was

“ . . . necessary to eliminate confusion about which currency reporting system applies to

Indian casinos. The confusion originated in 1988, when Congress enacted the Indian

Gaming Regulatory Act, 25 U.S.C. 2701 et seq. This act governs gaming operations

conducted on Indian lands. Section 20(d)(1) of the act provides that certain provisions of

the Internal Revenue Code, including section 6050I, shall apply to Indian gaming

operations. As a result of the act, Indian casinos are presently subject only to the limited

currency reporting requirements under Section 6050I. In comparison, the BSA mandates a

comprehensive currency reporting and detailed recordkeeping system with numerous

anti-money laundering safeguards.

“IRS . . . [the Internal Revenue Service] . . . recommended that Congress adopt a statutory

amendment to the BSA to specify that Indian Gaming operations are subject to that law’s

requirements . . . . IRS stated that the comprehensive nature of the BSA would provide

additional safeguards to the tribes, while providing law enforcement the paper trail

necessary to conduct financial investigations.”6

FinCEN issued a final rule in February 1996 amending the BSA’s

implementing regulations to extend the reporting and recordkeeping

requirements and anti-money laundering safeguards of the BSA to tribal

casinos. The rule, in part, amended the definition of “casino” to explicitly

include casinos operating on Indian lands. More specifically, the term

“casino” includes any casino duly licensed or authorized to do business in

the United States under the Indian Gaming Regulatory Act or other

federal, state, or tribal law or arrangement affecting Indian lands. The

notice of proposed rulemaking for this rule referenced the preamble of a

1985 final rule bringing casinos within the BSA, which stated that:

6

H.R. Conf. Rep. No. 103-652, at 193 (1994).

Page 26 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix I 

Regulatory Initiatives Related to Provisions

of the Money Laundering Suppression Act of

1994

“[I]n recent years Treasury found that an increasing number of persons are using gambling

casinos for money laundering and tax evasion purposes. In a number of instances,

narcotics traffickers have used gambling casinos as substitutes for other financial

institutions in order to avoid the reporting and recordkeeping requirements of the BSA.”

Also, in December 1996, under the authority of MLSA section 409, FinCEN

issued a proposed rule that would expand the range of gaming

establishments to which the BSA applies to include “card clubs.”7

 As

proposed, this term would, in general, include any establishment referred

to as “card room,” “gaming club,” or “gaming room” or any similar gaming

establishment that is duly licensed or authorized to do business either

under state law; under laws of a particular political subdivision within a

state; under the Indian Gaming Regulatory Act; or under other federal,

state, or tribal law or arrangement affecting Indian lands. Generally, under

the proposed rule, card clubs would be subject to the same rules as

casinos.

In the proposed rule, FinCEN noted that card clubs are a fast-growing

segment of the gaming industry. The rule further noted two primary

reasons for extending BSA reporting and recordkeeping requirements to

card clubs: (1) many of these entities now offer their customers a wide

range of financial services and (2) card clubs are at least as vulnerable as

other gaming establishments to being used by money launderers and those

seeking to commit tax evasion or other financial crimes because of the

card clubs’ size and lack of regulatory controls.

Reporting

Requirements for

Certain Negotiable

Instruments Drawn by

Foreign Banks

BSA regulations have long required that the transportation—either into or

out of the United States—of currency or certain other monetary

instruments exceeding $10,000 must be reported to Treasury. This

reporting procedure is generally referred to as the “CMIR” requirement,

which is a reference to the Report of International Transportation of

Currency or Monetary Instruments.

The CMIR requirement is a component of the BSA’s anti-money laundering

structure, which enables law enforcement agencies to “follow the money

trail.” For example, a cross-border money laundering cycle may involve

smuggling criminally derived funds from the United States into another

country and then seeking a means for reentering the funds with an

apparently foreign origin. As reported by law enforcement officials, one

7

Under the proposed rule, BSA reporting and recordkeeping requirements would cover all applicable

card clubs, not just those on tribal or Indian lands.

Page 27 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix I 

Regulatory Initiatives Related to Provisions

of the Money Laundering Suppression Act of

1994

money laundering technique found on the southwest border is the use of

U.S. currency smuggled into Mexico to purchase Mexican bank drafts,

which then are subsequently negotiated in U.S. banks.

For purposes of the CMIR requirement, MLSA section 405, in general,

expanded the definition of “monetary instrument” to include instruments

drawn by foreign banks on accounts in the United States. As explained in

the Conference Report on the MLSA:

“The Conferees’ concern about these instruments stems from reports by Treasury that they

are frequently used in money laundering schemes . . . . These drafts are U.S.

dollar-denominated checks drawn by the foreign bank on its own account at a U.S. bank

and sold to customers like cashier’s checks.”8

FinCEN issued a notice of proposed rulemaking on January 22, 1997.

Reflecting MLSA section 405, the proposed rule would expand the definition

of monetary instrument to include official bank checks, cashier’s checks,

drafts, and similar instruments issued or made out by a foreign bank on an

account in the name of, or maintained on behalf of, such a foreign bank in

the United States.

Delegation of Civil

Penalty Authority

The BSA, as amended, requires financial institutions to maintain certain

records and to file certain reports (e.g., CTRs) that are useful in criminal,

tax, and regulatory investigations, such as money laundering cases. Failure

to file BSA reports can result in criminal and/or civil penalties, depending

on the nature of the violation. Generally, civil penalties can range from

$25,000 to $100,000 per willful violation.

In May 1994, the Assistant Secretary (Enforcement) of the Treasury

delegated civil penalty authority to the Director of FinCEN. The disposition

of BSA civil penalty matters is conducted within FinCEN’s Office of

Compliance and Regulatory Enforcement. Among other things, FinCEN’s

role includes receiving and assessing referrals9

 of alleged civil violations of

the BSA by banks; casinos; money transmitters; check cashers; currency

exchangers; security brokers and dealers; issuers or redeemers of money

orders, traveler’s checks, and other similar instruments; and individuals

who attempt to evade the reporting requirements of the BSA. FinCEN’s Office

of Compliance and Regulatory Enforcement determines whether civil

8

H.R. Conf. Rep. No., 103-652, at 189 (1994).

9

Referrals are received from the Internal Revenue Service, the federal banking regulatory agencies, and

other entities.

Page 28 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix I 

Regulatory Initiatives Related to Provisions

of the Money Laundering Suppression Act of

1994

penalties should be assessed against individuals or financial institutions

and their officers, employees, and individuals, and if so, the amount of the

penalty.

Historically, there have been concerns about the timely processing of BSA

civil penalty cases. For example, according to the Conference Report on

the MLSA:

“In the past, OFE . . . [Treasury’s Office of Financial Enforcement]10 . . . did not process BSA

civil penalty cases in a timely manner. In some instances, OFE was so slow that cases had

to be closed because the statute of limitations expired. From 1985-1991, case processing

times averaged 21 months, according to GAO.

11 While OFE’s record has improved

substantially in the last few years, the Conferees believe that it would be more efficient to

allow the Federal banking agencies to impose civil penalties directly.”12

MLSA section 406 directed the Secretary to delegate by regulation to

appropriate federal banking regulatory agencies the authority to assess

civil monetary penalties for BSA violations. The intent of such delegation,

as described in the MLSA’s conference report, is to increase efficiency by

allowing the federal banking agencies to impose civil penalties directly,

rather than to make referrals to FinCEN.

During our review, FinCEN officials told us that they have been working

with the federal banking regulatory agencies for some time to devise an

appropriate plan for delegating civil penalty assessment authority.

However, these officials noted that certain policy issues must be resolved

by Treasury before assessment authority can be delegated.

10In May 1994, the Office of Financial Enforcement was merged with FinCEN.

11See Money Laundering: Treasury Civil Case Processing of Bank Secrecy Act Violations

(GAO/GGD-92-46, Feb. 6, 1992) and Money Laundering: Civil Penalty Referrals for Violations of the

Bank Secrecy Act Have Declined (GAO/T-GGD-92-57, June 30, 1992).

12H.R. Conf. Rep. No. 103-652, at 190 (1994).

Page 29 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix II 

FinCEN’s Rulemaking Issuances Since 1994

Two recent acts amending the Bank Secrecy Act (BSA) are the

Annunzio-Wylie Anti-Money Laundering Act (1992 Act) and the Money

Laundering Suppression Act (MLSA). Since 1994, the Financial Crimes

Enforcement Network (FinCEN) has promulgated regulations pursuant to

specific provisions in the 1992 Act and MLSA as well as under its broad BSA

authority.

FinCEN has promulgated 19 regulatory issuances since May 1994, which is

when the agency was delegated responsibility for BSA regulations. Figure

II.1, which presents a time line of these rulemaking issuances, shows that

FinCEN had eight regulatory issuances in fiscal year 1995, four in fiscal year

1996, and seven in fiscal year 1997.

As shown in the figure, several of FinCEN’s regulatory issuances in fiscal

year 1995 involved needs that existed before 1994. For example, FinCEN’s

two October issuances in fiscal year 1995 involved topics dating back to at

least 1990, and the December issuance involved modification of a final rule

published in March 1993.

Page 30 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix II 

FinCEN’s Rulemaking Issuances Since 1994

Page 31 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix II 

FinCEN’s Rulemaking Issuances Since 1994

Figure II.1: Time Line of Rulemaking Issuances by FinCEN Since Being Delegated Responsibility for Developing BSA

Regulations

Withdrawal of a notice of proposed rulemaking (published in Sept. 1990) that would have 

required aggregation of currency transactions for certain financial institutions and magnetic 

media reporting of currency transaction reports. (59 FR 52275)

Recision of parts of a final rule (published in May 1990) requiring that financial institutions 

verify and record certain identifying information when issuing or selling bank checks or 

drafts, cashier's checks, money orders, or traveler's checks in amounts of $3,000 or more 

in currency. (59 FR 52275)

Modification of a final rule (published in Mar. 1993) related to reporting and recordkeeping 

requirements for casinos. (59 FR 61660)

Final rule (the "recordkeeping rule") requiring enhanced recordkeeping for certain wire 

transfers (which include funds transfers and transmittals of funds) by financial institutions.

(60 FR 220)

Final rule (the "travel rule") requiring banks and nonbank financial institutions to include 

certain information in transmittal orders sent to receiving financial institutions. (60 FR 234)

Actions to delay the effective dates of the recordkeeping rule (60 FR 44144) and the travel 

rule (60 FR 44144) and to amend the recordkeeping rule (60 FR 44146) and the travel rule 

(60 FR 44151).

Notice of proposed rulemaking that would extend BSA reporting and recordkeeping 

requirements and anti-money laundering safeguards to tribal casinos. (60 FR 39665)

Notice of proposed rulemaking related to banks' and other depository institutions' reporting 

of suspicious transactions and designation of a single recipient for such reports. 

(60 FR 46556)

December 

January 

October 1995

September

August

Subject

Fiscal

Month year

Legal basis

1992 Act MLSA BSA

Page 32 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix II 

FinCEN’s Rulemaking Issuances Since 1994

Subject

Fiscal

Month year

Legal basis

Interim rule related to the exemption of certain transactions from currency transaction 

reporting requirements. (61 FR 18204)

a

Notice of proposed rulemaking to require money transmitters and their agents to report and 

retain records of certain transactions in currency or monetary instruments. (62 FR 27909)

Notice of proposed rulemaking for certain discretionary exemptions from the requirement to 

report transactions in currency -- Phase II. (62 FR 47156)

Notice of proposed rulemaking related to the reporting of cross-border transportation of certain 

monetary instruments, i.e., foreign bank drafts. (62 FR 3249)

Notice of proposed rulemaking for registration of certain money services businesses.

(62 FR 27890)

Notice of proposed rulemaking to extend BSA reporting and recordkeeping requirements to 

card clubs. (61 FR 67260)

Notice of proposed rulemaking for suspicious activity reporting by money transmitters and by 

issuers, sellers, and redeemers of money orders and traveler's checks. (62 FR 27900)

Final rule related to the exemption of certain transactions from currency transaction reporting 

requirements. (62 FR 47141)

January

May

December 1997

September

1992 Act MLSA BSA

Final rule relating to the reporting of suspicious transactions by banks and other depository 

institutions and the designation of a single recipient for such reports. (61 FR 4326)

Final rule related to tribal casinos. (61 FR 7054)

Amendment of the recordkeeping rule (61 FR 14383) and the travel rule (61 FR 14386) to 

reflect amended definitions and to reduce the cost of complying with the rules' 

requirements. 

February

April

1996

Legend:

1992 Act = Annunzio-Wylie Anti-Money Laundering Act of 1992

BSA = Bank Secrecy Act (refers to FinCEN’s general regulatory authority under the act)

MLSA =Money Laundering Suppression Act of 1994

aFinCEN issued an interim rule (with a request for comments), instead of issuing a notice of

proposed rulemaking with a comment period. A final rule was issued September 8, 1997.

Page 33 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Source: Developed by GAO on the basis of Federal Register information and discussions with

FinCEN officials.

As figure II.1 further shows, FinCEN’s two final rule issuances in

January 1995 and one set of issuances in August 1995 involved provisions

related to 1992 legislation. Specifically, for the two January issuances, one

final rule required enhanced recordkeeping for certain wire transfers, and

the other final rule related to orders for transmittals of funds by financial

institutions. The August issuances amended the two previous rules and

extended the effective date for each of them. FinCEN’s last two issuances in

fiscal year 1995 were notices of proposed rulemaking for tribal casinos

and suspicious activity reports (SAR), respectively.

In fiscal year 1996, three of FinCEN’s four regulatory issuances addressed

provisions related to the MLSA. As figure II.1 shows, the two issuances in

February 1996 represented FinCEN’s first issuances of final rules under the

MLSA.

In fiscal year 1997, six of the seven FinCEN’s regulatory issuances involved

provisions related to the MLSA. Five of these six issuances were notices of

proposed rulemaking rather than final rules. Under the MLSA, a final rule

was issued in September 1997 related to exemption of certain transactions

from currency transaction reporting requirements. Under its general BSA

authority, FinCEN had a seventh issuance in May 1997. Specifically, a notice

of proposed rulemaking (to require that money transmitters and their

agents report and retain records of certain transactions in currency or

monetary instruments) was developed and issued on the basis of a

deficiency identified by FinCEN.

Page 34 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix III 

Purposes and Membership of the Bank

Secrecy Act Advisory Group

The Annunzio-Wylie Anti-Money Laundering Act (1992 Act) directed that

the Secretary of the Treasury establish (within 90 days after the date of the

act’s enactment) a Bank Secrecy Act (BSA) Advisory Group consisting of

representatives from the Department of the Treasury, the Department of

Justice, the Office of National Drug Control Policy, and other interested

persons and financial institutions subject to the currency reporting

requirements of the BSA or section 6050I of the Internal Revenue Code. The

1992 Act further provided that the Federal Advisory Committee Act1

 shall

not apply to the BSA Advisory Group.

The BSA Advisory Group is to serve as a means by which the Secretary

• informs private sector representatives, on a regular basis, of the ways in

which information from currency transaction reports, suspicious activity

reports, and other reports submitted pursuant to BSA requirements have

been used and

• receives advice on the manner in which the BSA reporting requirements

should be modified to enhance the ability of law enforcement agencies to

use the information for law enforcement purposes.

According to FinCEN officials, the BSA Advisory Group also discusses issues

related to domestic and international money laundering and the programs

created to fight financial crimes. Furthermore, the BSA Advisory Group is a

forum that allows the Secretary to advise the financial services industries

of anticipated changes in Treasury’s anti-money laundering programs, and

that, in turn, provides members the opportunity to share with the

Secretary their thoughts and expertise on BSA matters. At times, the BSA

Advisory Group forms subgroups to discuss specific issues, such as the

(1) impact that the fight against money laundering may have on the privacy

of U.S. citizens or (2) revisions needed in reporting forms.

After the 1992 Act was passed, Treasury held discussions about how the

BSA Advisory Group should be created, the size of the group, and how to

determine membership. In June 1993, Treasury published a notice in the

Federal Register2

 to solicit applications for participation in the BSA

Advisory Group. The notice stated that the BSA Advisory Group was to be

1

Passed in 1972, the Federal Advisory Committee Act (P.L. 92-463, 86 Stat. 770), as amended, governs

the establishment of advisory committees and places various procedural requirements on advisory

committee operations. For example, the act provides, in general, that meetings are to be open to the

public and that detailed minutes are to be kept. The act also contains provisions relating to the

termination, renewal, or continuation of advisory committees.

2

“Intent to Establish a Treasury Bank Secrecy Act Advisory Group on Reporting Requirements” (58 FR

31785 (June 4, 1993)).

Page 35 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix III 

Purposes and Membership of the Bank

Secrecy Act Advisory Group

convened by the Secretary on a regular basis in Washington, D.C., and that

members were not to be reimbursed for their time, services, or travel.

Also, the notice stated that Treasury was seeking broad-based

representation from all aspects of the industries affected by the BSA

reporting requirements.

In March 1994, the Secretary announced the establishment of the BSA

Advisory Group, and its first meeting was held on April 8, 1994. The BSA

Advisory Group has met about two or three times a year.

Table III.1 shows that, as of December 1997, the BSA Advisory Group had

35 members representing federal and state law enforcement and federal

regulatory agencies and the private sector. Except for the Chairman and

one Co-Vice Chairman (i.e., the Director, FinCEN), the members are selected

on an individual basis rather than on the basis of being the incumbent in a

given organization or position.

Page 36 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix III 

Purposes and Membership of the Bank

Secrecy Act Advisory Group

Table III.1: Membership of the BSA Advisory Group (as of Dec. 1997) 

Membership Organization Title

Chairman Department of the Treasury Under Secretary (Enforcement)

Co-Vice Chairmen FinCEN, Department of the Treasury

Bank of America

Wachovia Corporation

Director

Executive Vice President

Chairman of the Board

Federal law enforcement and regulatory

agency members

Department of the Treasury

Department of the Treasury

FinCEN, Department of the Treasury

Internal Revenue Service

Internal Revenue Service

Department of the Treasury

Department of Justice

Department of Justice

Federal Deposit Insurance Corporation

Board of Governors of the Federal

Reserve System

Securities and Exchange Commission

Office of National Drug Control Policy

Deputy Assistant Secretary, Financial

Institutions Policy 

General Counsel

Associate Director, Regulatory Policy

and Enforcement

Assistant Commissioner (Examination)

Assistant Commissioner (Criminal

Investigation)

Deputy Chief Counsel, Office of the

Comptroller of the Currency 

Office of the Deputy Assistant

Attorney General, Criminal Division, 

Chief, Asset Forfeiture-Money

Laundering Section, Criminal Division

Deputy General Counsel

Special Counsel, Special Investigations

and Examinations Section

Director, Division of Market Regulation

Money Laundering Analyst

State government members National Association of Attorneys

General

Florida Department of Banking and

Finance

Florida Department of Banking and

Finance

Executive Director and General Counsel

Director, Division of Financial

Investigations

Assistant Director, Division of

Banking

Industry and other members American Bankers Association

America’s Community Banks

Atlantic Bank, N.A.

Citibank

Cattaraugus County Bank

First Union National Bank of Florida

Merrill Lynch Co.

GE Capital Services

Thomas Cook, Inc.

National Check Cashers Association

Coopers and Lybrand

New Jersey Casino Association

Sutherland, Asbill & Brennan

Howrey and Simon

Gibson, Dunn & Crutcher

College of Law, University of Kentucky

Senior Legislative Counsel

Program Manager

President and Chief Executive Officer 

Vice President, Legal Affairs

President and Chief Executive Officer

Vice President, Loss Prevention,

Mortgage Backed Securities, Custody

First Vice President and Assistant

General Counsel

Senior Vice President and Director

Global Compliance

Senior Vice President and General

Counsel

General Counsel

Director

Attorney at Law

Attorney at Law

Attorney at Law

Attorney at Law

Professor of Law

Source: FinCEN.

Page 37 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix IV 

Objectives, Scope, and Methodology

In a letter dated March 24, 1997, the Chairman and the Ranking Minority

Member of the Subcommittee on General Oversight and Investigations,

House Committee on Banking and Financial Services, requested that we

review the Financial Crimes Enforcement Network’s (FinCEN) progress in

promulgating regulations under the Bank Secrecy Act (BSA).1

 As agreed

with the requesters’ offices, we focused our work on the following

questions, particularly in reference to the Money Laundering Suppression

Act of 1994 (MLSA)2

 amendments to the BSA:

• What process did FinCEN follow for developing and issuing BSA regulations?

• What is the current status of FinCEN’s efforts to develop and issue BSA

regulations? More specifically, what regulations has FinCEN developed thus

far, and what regulations has the agency been authorized or required to

develop but has not done so?

In addressing these questions, we initially conducted a literature search of

information on FinCEN and BSA regulations (including Federal Register

publications of BSA-related proposed and final rules). Also, we reviewed

the minutes of all the BSA Advisory Group3

 meetings since its inception in

1994.

Moreover, we interviewed six members of the BSA Advisory Group to

obtain their perspectives on FinCEN’s regulatory process and its efforts to

develop and issue regulations. We judgmentally selected these 6 members

from the BSA Advisory Group’s 35-person membership (see app. III) to

ensure that we interviewed at least 1 member from each of the 3 relevant

communities—law enforcement, regulatory, and financial services.

Specifically, from the law enforcement community, we interviewed the

Chief, Asset Forfeiture-Money Laundering Section, Criminal Division, U.S.

Department of Justice. According to the Criminal Division official, this

section of Justice works closely with FinCEN on money laundering issues.

We interviewed two members from the regulatory community—(1) the

Special Counsel, Special Investigations and Examinations Section, Board

of Governors of the Federal Reserve System and (2) the Deputy Chief

Counsel, Office of the Comptroller of the Currency, Department of the

1

Public Law 91-508, 84 Stat. 1114 (1970).

2

The MLSA is Title IV of the Riegle Community Development and Regulatory Improvement Act of 1994

(P.L. 103-325, 108 Stat. 2160, 2243 (1994)).

3

The BSA Advisory Group—which represents a partnering of industry and government expertise to

help combat financial crime while reducing regulatory burdens—includes members from the financial

services industry as well as from federal and state law enforcement and federal regulatory agencies.

The Secretary of the Treasury announced the establishment of the BSA Advisory Group in March 1994,

pursuant to the Annunzio-Wylie Anti-Money Laundering Act (P.L. 102-550, 106 Stat. 3672, 4044 (1992)).

Page 38 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix IV 

Objectives, Scope, and Methodology

Treasury. These agencies, in general, have primary responsibility for

ensuring that national and certain state banks, respectively, comply with

BSA regulations. From the financial services community, we interviewed

the Senior Federal Legislative Counsel, American Bankers Association,

and two attorneys with law firms in Washington, D.C., who represent

financial services businesses.

More details about the scope and methodology of our work regarding each

of our objectives is presented in separate sections as follows.

Scope and

Methodology of Our

Work Regarding

FinCEN’s Regulatory

Process

As a preparatory step, we familiarized ourselves with selected portions of

the Administrative Procedure Act4

 and Executive Order 128665 that

prescribe procedures federal agencies are to follow when developing and

issuing regulations. To specifically determine the process that FinCEN

followed for developing and issuing BSA regulations, we interviewed FinCEN

officials within the component offices—primarily the Office of Legal

Counsel and the Office of Program Development (see app. V)—that are

responsible for preparing and interpreting BSA regulations. Also, to obtain

an understanding of the “review and clearance” steps involved in

developing and issuing BSA regulations, we interviewed the appropriate

Treasury and Office of Management and Budget (OMB) officials.

During our interviews with officials at FinCEN, Treasury, and OMB, we

solicited comments on FinCEN’s “regulatory performance,” including

suggestions for improving the agency’s policies and procedures. Similarly,

we solicited such comments and suggestions from the six selected BSA

Advisory Group members previously listed. Also, we reviewed relevant

literature and our past reports6

 to identify any potential best practices for

developing and issuing regulations.

4

P.L. 79-404, 60 Stat. 237 (1946) (codified as amended in scattered sections of 5 U.S.C.).

5

Executive Order 12866, “Regulatory Planning and Review,” was issued on September 30, 1993 (58 FR

51735, Oct. 4, 1993). This executive order was intended to improve regulatory planning and

coordination.

6

Clear Air Rulemaking: Tracking System Would Help Measure Progress of Streamlining Initiatives

(GAO/RCED-95-70, Mar. 2, 1995) and Regulatory Review: Information on OMB’s Review Process

(GAO/GGD-89-101FS, July 14, 1989).

Page 39 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix IV 

Objectives, Scope, and Methodology

Scope and

Methodology of Our

Work Regarding the

Status of Regulations

To identify FinCEN’s regulatory initiatives and progress since May 1994,

when FinCEN was first delegated the responsibility for BSA regulations, we

reviewed applicable sections of the Regulatory Plan and the Unified

Agenda of Federal Regulatory and Deregulatory Actions.

7

 The Regulatory

Plan serves as a statement of the administration’s regulatory and

deregulatory policies and priorities. The Unified Agenda, which is

maintained by the Regulatory Information Service Center, provides

uniform reporting on regulatory activities under development throughout

the federal government. Although the Service Center is an organizational

component of the General Services Administration, it is responsible for

tracking federal agencies’ rulemaking activities (e.g., by maintaining the

Unified Agenda) for OMB’s Office of Information and Regulatory Affairs.

As agreed with the requesters’ offices, our detailed analyses of FinCEN’s

efforts focused on eight regulatory initiatives mandated or authorized by

the MLSA.

8

 In determining the status of FinCEN’s efforts to develop and issue

relevant regulations, we (1) interviewed appropriate FinCEN officials,

(2) reviewed applicable Federal Register notices of proposed and final

rulemaking, and (3) developed a time line of FinCEN’s regulatory issuances.

Also, because several provisions of the MLSA have statutory completion

dates, we reviewed relevant conference and committee reports in the act’s

legislative history to ascertain if there was a stated basis for the respective

dates. Furthermore, we interviewed FinCEN officials to obtain their views

on the statutory completion dates set out in the MLSA.

In addition, following FinCEN’s issuance of three notices of proposed

rulemaking (in May 1997), we attended the first two of five public

meetings that FinCEN scheduled for obtaining comments on the proposed

rules. The first public meeting was held on July 22, 1997 (Vienna, VA), and

the second meeting was held on July 28, 1997 (New York, NY). Also, we

reviewed copies of the transcripts prepared for these two meetings and for

the two meetings held in August 1997.

7

The Regulatory Flexibility Act (P.L. 96-354, 94 Stat. 1164 (1980)), in general, requires agencies to

publish semiannual regulatory agendas, in October and April, describing regulatory actions that they

are developing. (Executive Order 12866 directs that, as part of their submissions to the October edition

of the Unified Agenda, agencies are to prepare a Regulatory Plan of the most important regulatory

actions that the agency reasonably expects to issue in proposed or final form during the upcoming

fiscal year.)

8

Appendix I provides further details about the eight regulatory initiatives.

Page 40 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix V 

FinCEN Organizational Structure and

On-Board Staffing

Figure V.1 depicts FinCEN’s organizational structure and on-board staffing

as of December 1997. As shown in the figure, 13 offices report directly to

the Office of the Director. Also, the figure shows the distribution of

FinCEN’s 162 total staff. The numbers in parentheses represent the total

number of on-board staff for the principal office and its components. For

example, the 10 staff shown for the Office of the Director include the staff

in four component offices—the Executive Assistant, Counselor, Legal

Counsel, and Security. As another example, the 14 staff shown for the

Associate Director for Management include the Director for Management

and the personnel, budget, logistics, and training offices.

Page 41 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix V 

FinCEN Organizational Structure and

On-Board Staffing

Figure V.1: FinCEN Organization Chart and On-Board Staffing (as of Dec. 1997)

Executive Assistant

Counselor

Director

Deputy Director

 (10)

A

Associate Director

Management

(14)

Personnel

Budget

Logistics

Training

Legal Counsel

Security

a

B

Artificial Intelligence

 Development

FinCEN Database

Network

Compliance and

Regulatory 

Enforcement

(10)

Information

Technology

(19)

Communications

(11)

International

Programs

(26)

International Support

 and Technical 

Assistance

Customer Compliance

Service

Congressional/

Public Affairs

Regional/Country

Desks

Regulatory

Coordination

Telecommunications Communication

Services

International

Organizations

a

Indicates a reporting relationship between the designated offices

or functions.

Thirteen offices report directly to the Office of the Director

( ) Numbers in parentheses represent the total number of 

on-board staff for the principal office and its components. 

Office of the Director, FinCEN

Page 42 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix V 

FinCEN Organizational Structure and

On-Board Staffing

Associate Director

Program Development

(11)

Program

Development

Liaisons

A

B

Research/Analysis

(18)

Laboratory

Analysis

Data Systems

Support

(14)

Gateway

Suspicious Activity

Reporting System

Statistician/

Economist

Program

Enhancement

Platforms

Investigative

Support

(31)

Operations Center

Case Triage/

Investigative Liaison

a

Note: As of December 7, 1997, FinCEN had 162 total staff on board.

aAbout 10 staff in FinCEN’s Offices of Legal Counsel, Program Development, and Compliance

and Regulatory Enforcement promulgate regulations.

Source: FinCEN.

Page 43 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix VI 

Comments From the Financial Crimes

Enforcement Network

Page 44 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix VI 

Comments From the Financial Crimes

Enforcement Network

Page 45 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix VI 

Comments From the Financial Crimes

Enforcement Network

Page 46 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix VI 

Comments From the Financial Crimes

Enforcement Network

Page 47 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix VI 

Comments From the Financial Crimes

Enforcement Network

Page 48 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix VI 

Comments From the Financial Crimes

Enforcement Network

Page 49 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix VI 

Comments From the Financial Crimes

Enforcement Network

Page 50 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix VI 

Comments From the Financial Crimes

Enforcement Network

Page 51 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix VI 

Comments From the Financial Crimes

Enforcement Network

Page 52 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix VI 

Comments From the Financial Crimes

Enforcement Network

Page 53 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
Appendix VII 

Major Contributors to This Report

General Government

Division, Washington,

D.C.

Danny R. Burton, Assistant Director

Linda R. Watson, Evaluator-in-Charge

Patricia J. Scanlon, Senior Evaluator

David P. Alexander, Senior Social Science Analyst

Michael H. Little, Communications Analyst

Office of the General

Counsel, Washington,

D.C.

Geoffrey R. Hamilton, Senior Attorney

(182032) Page 54 GAO/GGD-98-18 FinCEN’s Regulatory Process and Status
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