Investigating Money Laundering And Terrorist Financing: Federal Law Enforcement Agencies Face Continuing Coordination Challenges
Published: 2004-05-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Money laundering provides the fuel for terrorists, drug dealers, arms traffickers, and other criminals to operate and expand their activities. GAO focused on two issues. The first is whether the nation's annual National Money Laundering Strategy has served as a useful mechanism for guiding federal law enforcement efforts to combat money laundering and terrorist financing. Unless reauthorized by the Congress, the annual requirement ended with the 2003 strategy. The second issue is the implementation status of a May 2003 Memorandum of Agreement, signed by the Attorney General and the Secretary of Homeland Security, that was designed to enhance the coordination of terrorist financing investigations conducted by the Federal Bureau of Investigation (FBI) and the U.S. Immigration and Customs Enforcement (ICE).
section_title: What GAO Found
paragraphs: GAO's September 2003 report noted that the annual strategy generally has not served as a useful mechanism for guiding the coordination of federal law enforcement agencies' efforts to combat money laundering and terrorist financing. For example, although expected to have a central role in coordinating law enforcement efforts, interagency task forces created specifically to address money laundering and related financial crimes generally had not yet been structured and operating as intended and had not reached their expectations for leveraging investigative resources or creating investigative synergies. Also, while the Departments of the Treasury and Justice had made progress on some strategy initiatives designed to enhance interagency coordination of money laundering investigations, most initiatives had not met expectations. Moreover, even though adjusted in 2002 to reflect a new federal priority--combating terrorist financing--the strategy did not address agency and task force roles and interagency coordination procedures for investigating terrorist financing, which contributed to duplication of efforts and disagreements over which agency should lead investigations. GAO's February 2004 report noted that the FBI and ICE had implemented or taken concrete steps to implement most of the key provisions in the May 2003 Memorandum of Agreement on terrorist financing investigations. For instance, the agencies had developed collaborative procedures to determine whether applicable ICE investigations or financial crimes leads may be related to terrorism or terrorist financing--and, if so, determine whether these investigations or leads should thereafter be pursued under the auspices of the FBI. However, as of May 2, 2004, the FBI and ICE had not yet issued a joint report on the implementation status of the Agreement, which was required 4 months from its effective date. Also, GAO noted that the FBI and ICE have confronted and will continue to confront a number of operational and organizational challenges, such as ensuring that the financial crimes expertise and other investigative competencies of both agencies are appropriately and effectively utilized.

section_title: Letter
paragraphs: I am pleased to be here today to discuss federal law enforcement agencies’  efforts to cooperatively investigate money laundering and terrorist  financing. Money laundering—the process of disguising or concealing  illicit funds to make them appear legitimate—is a serious crime, with an  estimated $500 billion to $1 trillion laundered worldwide annually,  according to the United Nations Office of Drug Control and Prevention.  Money laundering provides the fuel for terrorists, drug dealers, arms  traffickers, and other criminals to operate and expand their activities,  which can have devastating social and economic consequences. Terrorist  financing is generally characterized by different motives than money  laundering, and the funds often originate from legitimate sources.  However, investigations of money laundering and investigations of  terrorist financing often involve similar approaches or techniques because  the methods used for hiding the movement of funds also involve  similarities.
As requested, my testimony will focus on recent strategic plans and  organizational changes designed to improve the interagency coordination  of money laundering and terrorist financing investigations. Specifically, I  will discuss two important issues:    The first issue is whether the nation’s annual National Money  Laundering Strategy (NMLS), required by 1998 federal legislation, has  served as a useful mechanism for guiding the coordination of federal  law enforcement agencies’ efforts to combat money laundering and  terrorist financing. Unless reauthorized by the Congress, the  requirement for an annual NMLS ended with the 2003 strategy, which  was issued on November 18, 2003.
The second issue is the implementation status of a May 2003  Memorandum of Agreement on terrorist financing investigations. The  Agreement, signed by the Attorney General and the Secretary of  Homeland Security, contained various provisions designed to enhance  interagency coordination of terrorist financing investigations  conducted by two of the nation’s law enforcement agencies—the  Federal Bureau of Investigation (FBI) and the U.S. Immigration and  Customs Enforcement (ICE), a component of the Department of  Homeland Security.
My statement today is based on two reports we have provided to the  Congress on these issues—that is, our September 2003 report on  implementation of the annual NMLS and our February 2004 report on  implementation of the Memorandum of Agreement.
subsections: section_title: Background
paragraphs: The Money Laundering and Financial Crimes Strategy Act of 1998  (Strategy Act) required the President—acting through the Secretary of the  Treasury and in consultation with the Attorney General and other relevant  federal, state, and local law enforcement and regulatory officials—to  develop and submit an annual NMLS to the Congress by February 1 of  each year from 1999 through 2003. The goal of the Strategy Act was to  increase coordination and cooperation among the various law  enforcement and regulatory agencies and to effectively distribute  resources to combat money laundering and related financial crimes. The  1998 Strategy Act required that each NMLS define comprehensive,  research-based goals, objectives, and priorities for reducing money  laundering and related financial crimes in the United States. The annual  NMLS generally has included multiple priorities to combat money  laundering to guide federal agencies’ activities.
Another provision of the Strategy Act authorized the Secretary of the  Treasury to designate High Intensity Money Laundering and Related  Financial Crime Areas (HIFCA), in which federal, state, and local law  enforcement would work cooperatively to develop a focused and  comprehensive approach to targeting money-laundering activity. As  envisioned by the Strategy Act, HIFCAs were to represent a major NMLS  initiative and were expected to have a flagship role in the U.S.  government’s efforts to disrupt and dismantle large-scale money  laundering operations. They were intended to improve the coordination  and quality of federal money laundering investigations by concentrating  the investigative expertise of federal, state, and local agencies in unified  task forces, thereby leveraging resources and creating investigative  synergies.
The former U.S. Customs Service, which is now part of ICE, and the FBI  both have a long history of investigating money laundering and other  financial crimes. In response to the terrorist attacks of September 11,  Treasury and Justice both established multiagency task forces dedicated  to combating terrorist financing. Treasury established Operation Green  Quest, led by Customs, to augment existing counterterrorist efforts by  targeting current terrorist funding sources and identifying possible future  sources. In addition to targeting individuals and organizations, Operation  Green Quest was designed to attack the financial systems that may be  used by terrorists to raise and move funds, such as fraudulent charities  and the shipment of bulk currency. In January 2003, Customs expanded  Operation Green Quest by doubling the personnel commitment to a total  of approximately 300 agents and analysts nationwide to work solely on  terrorist financing matters. In March 2003, Operation Green Quest was  transferred to ICE, within the Department of Homeland Security.
On September 13, 2001, the FBI formed a multiagency task force—which  is now known as the Terrorist Financing Operations Section (TFOS)—to  combat terrorist financing. The mission of TFOS has evolved into a broad  role to identify, investigate, prosecute, disrupt, and dismantle all terrorist- related financial and fundraising activities. The FBI also took action to  expand the antiterrorist financing focus of its Joint Terrorism Task Forces  (JTTF)—teams of local and state law enforcement officials, FBI agents,  and other federal agents and personnel whose mission is to investigate and  prevent acts of terrorism. In 2002, the FBI created a national JTTF in  Washington, D.C., to collect terrorism information and intelligence and  funnel it to the field JTTFs, various terrorism units within the FBI, and  partner agencies.
The attacks of September 11 emphasized the need for federal agencies to  wage a coordinated campaign against sources of terrorist financing.  Following September 11, representatives of the FBI and Operation Green  Quest met on several occasions to attempt to delineate antiterrorist  financing roles and responsibilities. However, such efforts were largely  unsuccessful until May 2003, when the Attorney General and the Secretary  of Homeland Security signed a Memorandum of Agreement that contained  a number of provisions designed to resolve jurisdictional issues and  enhance interagency coordination of terrorist financing investigations.  According to the Agreement, the FBI is to lead terrorist financing  investigations and operations, using the intergovernmental and intra- agency national JTTF at FBI headquarters and the JTTFs in the field. The  Agreement also specified that, through TFOS, the FBI is to provide overall  operational command to the national JTTF and the field JTTFs. Further, to  increase information sharing and coordination of terrorist financing  investigations, the Agreement required the FBI and ICE to (1) detail  appropriate personnel to each other’s agency and (2) develop specific  collaborative procedures to determine whether applicable ICE  investigations or financial crimes leads may be related to terrorism or  terrorist financing. Also, the Agreement required the FBI and ICE to  produce a joint written report on the status of the implementation of the  Agreement 4 months from its effective date.
section_title: Opportunities Exist to Improve the National Money Laundering Strategy
paragraphs: In September 2003, we reported that, as a mechanism for guiding the  coordination of federal law enforcement agencies’ efforts to combat  money laundering and related financial crimes, the NMLS has had mixed  results but generally has not been as useful as envisioned by the Strategy  Act. For example, we reported that HIFCA task forces were expected to  have a central role in coordinating law enforcement agencies’ efforts to  combat money laundering but generally had not yet been structured and  operating as intended and had not reached their expectations for  leveraging investigative resources or creating investigative synergies. The  NMLS called for each HIFCA to include participation from all relevant  federal, state, and local agencies. However, in some cases, federal law  enforcement agencies had not provided the levels of commitment and  staffing to the task forces called for by the strategy. We found, for  instance, that most of the HIFCAs did not have FBI or Drug Enforcement  Administration (DEA) agents assigned full time to the task forces. FBI  officials cited resource constraints as the primary reason why the bureau  did not fully participate. A DEA official told us that, because of differences  in agencies’ guidelines for conducting undercover money laundering  investigations, DEA would not dedicate staff to HIFCA task force  investigative units but would support intelligence-related activities. Also,  we noted that four of the five operating HIFCAs had little or no  participation from state and local law enforcement agencies. Various task  force officials mentioned lack of funding to compensate or reimburse  participating state and local law enforcement agencies as a barrier to their  participation in HIFCA operations. While recognizing that law  enforcement agencies have resource constraints and competing priorities,  we noted that HIFCA task forces were expected to make more effective  use of existing resources or of such additional resources as may be  available. As called for in the 2002 NMLS, Treasury and Justice are in the  process of reviewing the HIFCA task forces to enhance their potential and  remove obstacles to their effective operation. The results of this review  could provide useful input for an evaluation report on the HIFCA program,  which the Strategy Act requires Treasury to submit to the Congress in  2004.
We further reported that, while Treasury and Justice had made progress  on some NMLS initiatives designed to enhance interagency coordination of  money laundering investigations, most had not achieved the expectations  called for in the annual strategies, including plans to (1) use a centralized  system to coordinate investigations and (2) develop uniform guidelines for  undercover investigations. Headquarters officials cited differences in the  various agencies’ anti-money laundering priorities as a primary reason why  initiatives had not achieved their expectations.
In our September 2003 report, we noted that our work in reviewing  national strategies for various crosscutting issues has identified several  critical components needed for their development and implementation,  including effective leadership, clear priorities, and accountability  mechanisms. For a variety of reasons, these critical components generally  have not been fully reflected in the development and implementation of  the annual NMLS. For example, the joint Treasury-Justice leadership  structure that was established to oversee NMLS-related activities generally  has not resulted in (1) reaching agreement on the appropriate scope of the  strategy; (2) ensuring that target dates for completing strategy initiatives  were met; and (3) issuing the annual NMLS by February 1 of each year, as  required by the Strategy Act.
Also, although Treasury generally took the lead role in strategy-related  activities, it had no incentives or authority to get other departments and  agencies to provide necessary resources or compel their participation.  And, the annual strategies have not identified and prioritized issues that  required the most immediate attention. Each strategy contained more  priorities than could be realistically achieved, the priorities have not been  ranked in order of importance, and no priority has been explicitly linked to  a threat and risk assessment. Further, although the 2001 and 2002  strategies contained initiatives to measure program performance, none  had been used to ensure accountability for results. Officials attributed this  to the difficulty in establishing such measures for combating money  laundering. In addition, we noted that Treasury had not provided annual  reports to the Congress on the effectiveness of policies to combat money  laundering and related financial crimes, as required by the Strategy Act.
As mentioned previously, unless reauthorized by the Congress, the  requirement for an annual NMLS ended with the issuance of the 2003  strategy. To assist in congressional deliberations on whether there is a  continuing need for an annual NMLS, we reviewed the development and  implementation of the 1999 through 2002 strategies. Our September 2003  report recommended that—if the Congress reauthorizes the requirement  for an annual NMLS—the Secretary of the Treasury, working with the  Attorney General and the Secretary of Homeland Security, should take  appropriate steps to    strengthen the leadership structure responsible for strategy  development and implementation by establishing a mechanism that  would have the ability to marshal resources to ensure that the  strategy’s vision is achieved, resolve disputes between agencies, and  ensure accountability for strategy implementation;  link the strategy to periodic assessments of threats and risks, which  would provide a basis for ensuring that clear priorities are established  and focused on the areas of greatest need; and   establish accountability mechanisms, such as (1) requiring the  principal agencies to develop outcome oriented performance measures  that must be linked to the NMLS’s goals and objectives and that also  must be reflected in the agencies’ annual performance plans and (2)  providing the Congress with periodic reports on the strategy’s results.
In commenting on a draft of the September 2003 report, Treasury said that  our recommendations are important, should the Congress reauthorize the  legislation requiring future strategies; Justice said that our observations  and conclusions will be helpful in assessing the role that the strategy  process has played in the federal government’s efforts to combat money  laundering; and Homeland Security said that it agreed with our  recommendations.
Our review of the development and implementation of the annual  strategies did not cover the 2003 NMLS, which was issued in November  2003, about 2 months after our September 2003 report. While we have not  assessed the 2003 NMLS in detail, we note that it emphasized that “the  broad fight against money laundering is integral to the war against  terrorism” and that money laundering and terrorist financing “share many  of the same methods to hide and move proceeds.” In this regard, one of the  major goals of the 2003 strategy is to “cut off access to the international  financial system by money launderers and terrorist financiers more  effectively.” Under this goal, the strategy stated that the United States will  continue to focus on specific financing mechanisms—including charities,  bulk cash smuggling, trade-based schemes, and alternative remittance  systems—that are particularly vulnerable or attractive to money  launderers and terrorist financiers.
section_title: Most Key Memorandum of Agreement Provisions Have Been Implemented, but Terrorist Financing Investigations Still Present Operational and Organizational Challenges
paragraphs: As mentioned previously, the NMLS was adjusted in 2002 to reflect new  federal priorities in the aftermath of the September 11 attacks, including a  goal to combat terrorist financing. However, due to difficulties in reaching  agreement over which agency should lead investigations, the 2002 NMLS  did not address agency and task force roles and interagency coordination  procedures for investigating terrorist financing. Law enforcement officials  told us that the lack of clearly defined roles and coordination procedures  contributed to duplication of efforts and disagreements over which agency  should lead investigations. To help resolve these long-standing  jurisdictional issues, in May 2003, the Attorney General and the Secretary  of Homeland Security signed a Memorandum of Agreement regarding roles  and responsibilities in investigating terrorist financing.
In our February 2004 report, we noted that most of the key Memorandum  of Agreement provisions had been implemented or were in the process of  being implemented. For example, in accordance with the Agreement, the  FBI and ICE have cross detailed key management personnel at the  headquarters level, with an ICE manager serving as Deputy Section Chief  of TFOS and an FBI manager detailed to ICE’s financial crimes division.  Also, the FBI and ICE have developed collaborative procedures to  determine whether appropriate ICE money laundering investigations or  financial crime leads may be related to terrorism or terrorist financing.
Further, as an integral aspect of the collaborative procedures, ICE created  a joint vetting unit, in which ICE and FBI personnel—who have full access  to ICE and FBI databases—are to conduct reviews to determine whether a  potential nexus to terrorism or terrorist financing exists in applicable ICE  investigations or financial crimes leads. If so, the matter is to be referred  to TFOS, where the FBI Section Chief is to provide the ICE Deputy Section  Chief with information demonstrating the terrorism nexus, as well as the  stage and development of the corresponding FBI investigation. Then, the  Section Chief and the ICE Deputy Section Chief are to discuss the  elements of the terrorism nexus, ICE’s equity or commitment of resources  to date in the investigation, violations being pursued by ICE before the  Memorandum of Agreement, and the direction of the investigation. After  this collaborative consultation, the FBI and ICE are to decide (1) whether  the ICE investigation will be conducted under the auspices of a JTTF and  (2) agency roles in pursuing related investigations. Specific investigative  strategies generally are to be developed at the field level by FBI, ICE, and  U.S. Attorneys Office personnel. The Terrorist Financing Unit of the  Counterterrorism Section in Justice’s Criminal Division is involved in  coordinating and prosecuting matters and cases involving terrorist  financing, which are investigated by both the FBI and ICE.
Another Agreement provision—requiring ICE to detail a significant  number of appropriate personnel to the national JTTF and JTTFs in the  field—is being handled on a location-specific, case-by-case basis. In  response to our inquiries, FBI and ICE officials said that this provision was  not intended to refer to a specific number of personnel and certainly was  not intended to imply that all former Operation Green Quest agents were  to be detailed to JTTFs. According to ICE officials, as of February 2004, a  total of 277 ICE personnel (from various legacy agencies) were assigned  full time to JTTFs—a total that consisted of 161 former Immigration and  Naturalization Service agents, 59 Federal Air Marshals, 32 former Customs  Service agents, and 25 Federal Protective Service agents. ICE officials said  that this total does not include ICE agents who will be assigned to JTTFs  in consonance with vetted cases being transitioned to JTTFs, nor does it  include ICE investigators who participate part time on JTTFs.
Another provision in the May 2003 Memorandum of Agreement required  that the FBI and ICE jointly report to the Attorney General, the Secretary  of Homeland Security, and the Assistant to the President for Homeland  Security on the implementation status of the Agreement 4 months from its  effective date. As of May 2, 2004, the FBI and ICE had not yet produced the  required joint report on the implementation status.
The Memorandum of Agreement, by granting the FBI the lead role in  investigating terrorist financing, altered ICE’s role in investigating  terrorism-related financial crimes. However, while the Agreement  specified that the FBI has primary investigative jurisdiction over  confirmed terrorism-related financial crimes, the Agreement does not  preclude ICE from investigating suspicious financial activities that have a  potential (unconfirmed) nexus to terrorism—which was the primary role  of the former Operation Green Quest. Moreover, the Agreement generally  has not affected ICE’s mission or role in investigating other financial  crimes. Specifically, the Agreement did not affect ICE’s statutory  authorities to conduct investigations of money laundering and other  traditional financial crimes. ICE investigations can still cover the wide  range of financial systems—including banking systems, money services  businesses, bulk cash smuggling, trade-based money laundering systems,  illicit insurance schemes, and illicit charity schemes—that could be  exploited by money launderers and other criminals. According to ICE  headquarters officials, ICE is investigating the same types of financial  systems as before the Memorandum of Agreement.
Further, our February 2004 report noted that—while the Memorandum of  Agreement represents a partnering commitment by the FBI and ICE— continued progress in implementing the Agreement will depend largely on  the ability of these law enforcement agencies to meet various operational  and organizational challenges. For instance, the FBI and ICE face  challenges in ensuring that the implementation of the Agreement does not  create a disincentive for ICE agents to initiate or support terrorist  financing investigations. That is, ICE agents may perceive the Agreement  as minimizing their role in terrorist financing investigations. Additional  challenges involve ensuring that the financial crimes expertise and other  investigative competencies of the FBI and ICE are effectively utilized and  that the full range of the agencies’ collective authorities—intelligence  gathering and analysis as well as law enforcement actions, such as  executing search warrants and seizing cash and other assets—are  effectively coordinated. Inherently, efforts to meet these challenges will be  an ongoing process. Our interviews with FBI and ICE officials at  headquarters and three field locations indicated that long-standing  jurisdictional and operational disputes regarding terrorist financing  investigations may have strained interagency relationships to some degree  and could pose an obstacle in fully integrating investigative efforts.
section_title: Concluding Observations
paragraphs: From a strategic perspective, the annual NMLS has had mixed results in  guiding the efforts of law enforcement in the fight against money  laundering and, more recently, terrorist financing. Although expected to  have a flagship role in the U.S. government’s efforts to disrupt and  dismantle large-scale money laundering operations, HIFCA task forces  generally are not yet structured and operating as intended. Treasury and  Justice are in the process of reviewing the HIFCA task forces, which  ultimately could result in program improvements. Also, most of the NMLS  initiatives designed to enhance interagency coordination of money  laundering investigations have not yet achieved their expectations. While  the annual NMLS has fallen short of expectations, federal law enforcement  agencies recognize that they must continue to develop and use interagency  coordination mechanisms to leverage existing resources to investigate  money laundering and terrorist financing.
Through our work in reviewing national strategies, we identified critical  components needed for successful strategy development and  implementation, but, to date, these components have not been well  reflected in the annual NMLS. The requirement for an annual NMLS ended  with the issuance of the 2003 strategy. If the Congress reauthorizes the  requirement for an annual NMLS, we continue to believe that  incorporating these critical components into the strategy—a strengthened  leadership structure, the identification of key priorities, and the  establishment of accountability mechanisms—could help resolve or  mitigate the deficiencies we identified.
Also, regarding investigative efforts against sources of terrorist financing,  the May 2003 Memorandum of Agreement signed by the Attorney General  and the Secretary of Homeland Security represents a partnering  commitment by two of the nation’s law enforcement agencies, the FBI and  ICE. In the 12 months since the Agreement was signed, progress has been  made in waging a coordinated campaign against sources of terrorist  financing. Continued progress will depend largely on the agencies’ ability  to establish and maintain effective interagency relationships and meet  various other operational and organizational challenges.
Mr. Chairman, this concludes my prepared statement. I would be happy to  respond to any questions that you or Members of the Subcommittee may  have.
section_title: Appendix I: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
paragraphs: For further information about this testimony, please contact  Richard M. Stana at (202) 512-8777. Other key contributors to this  statement were Danny R. Burton and R. Eric Erdman.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. It may be reproduced and distributed in its entirety without further  permission from GAO. However, because this work may contain copyrighted images or  other material, permission from the copyright holder may be necessary if you wish to  reproduce this material separately.