Money Laundering: FinCEN Needs to Better Communicate Regulatory Priorities and Time Lines
Published: 1998-02-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Pursuant to a congressional request, GAO reviewed the regulatory role of the Financial Crimes Enforcement Network (FinCEN), focusing on the: (1) process FinCEN followed for developing and issuing Bank Secrecy Act (BSA) regulations; and (2) status of FinCEN's efforts to develop and issue BSA regulations.
section_title: What GAO Found
paragraphs: GAO noted that: (1) 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; (2) overall, FinCEN's regulatory process was designed to reflect the Administrative Procedure Act (APA) standardized procedures that federal agencies are to follow when developing and issuing regulations; (3) moreover, FinCEN follows a partnership strategy, which emphasizes frequent consultations with representatives of the law enforcement, regulatory, and financial services communities; (4) regarding the status of FinCEN's efforts to develop and issue regulations, as of December 1997, more than 3 years since passage of the Money Laundering Suppression Act (MLSA), FinCEN had not promulgated final regulations for five of eight regulatory initiatives related to the 1994 BSA amendments; (5) FinCEN has issued final regulations for three initiatives, has proposed regulations for four initiatives, and has not yet taken regulatory action on one initiative; (6) generally, until final regulations are promulgated, many of the intended benefits of the MLSA cannot be fully achieved; (7) FinCEN officials said that they recognized that the emphasis on issuing quality regulations has the effect of extending the time needed to develop and issue regulations; (8) thus, FinCEN followed a regulation-development process that emphasized quality over timeliness; (9) a majority of the members of the BSA Advisory Group with whom GAO spoke generally concurred with this characterization of FinCEN's regulatory process; (10) GAO believes that FinCEN could better inform appropriate congressional committees of its rulemaking plans, especially when those plans will result in FinCEN's failing to meet statutory completion dates; (11) although GAO 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; (12) FinCEN communicated the agency's regulatory plans to Congress by various means, including testimony at congressional hearings; and (13) congressional committees were not in a good position to assess FinCEN's regulatory initiatives, the time lines for issuing final regulations, and the allocation of resources necessary for completing these initiatives.

section_title: Letter
paragraphs: 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. 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. Recent amendments were made by the Money Laundering Suppression Act of 1994 (MLSA). 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?
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)and Executive Order 12866 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 initiatives that are authorized or required by MLSA amendments to the BSA: designate a single recipient for suspicious activity reports (SAR) 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 specify selected entities as being exempt (mandatory exemptions) from filing currency transaction reports (CTR) to substantially reduce the number of CTRs filed by depository institutions and to enhance the usefulness of CTRs to law enforcement; 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), 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. 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, which includes representatives from the law enforcement, regulatory, and financial services communities. Also, we reviewed relevant literature and our past reports to identify any potential best practices for developing and issuing regulations.
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.
subsections: section_title: Background
paragraphs: 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 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.
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.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, 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.
section_title: FinCEN’s Regulatory Process Was Designed to Reflect Standardized Procedures
paragraphs: 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. In its regulatory plan for fiscal year 1996, 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.
FinCEN’s fiscal year 1997 regulatory plan 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; 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. 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 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.
section_title: FinCEN’s Prioritization of Work Deferred Issuance of Final Rules for Several MLSA-Related Regulatory Initiatives
paragraphs: 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.
subsections: section_title: FinCEN Prioritized Regulatory Needs
paragraphs: 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 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.
section_title: FinCEN Issued Final Rules for Some of the MLSA-Related Provisions, but Actions Are Pending for Others
paragraphs: 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.
Regarding the registration of MSBs and related issues, FinCEN published a set of three notices of proposed rulemaking on May 21, 1997. 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. 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 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 and (2) annual staff commentaries on the BSA regulations. 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.
section_title: FinCEN Did Not Fully Communicate Its Regulatory Priorities and Time Lines
paragraphs: 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 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.
section_title: Conclusions
paragraphs: 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 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.
section_title: Recommendations to the Director, FinCEN
paragraphs: 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.
section_title: Agency Comments and Our Evaluation
paragraphs: 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 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 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.
section_title: Regulatory Initiatives Related to Provisions of the Money Laundering Suppression Act of 1994
paragraphs: 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), (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.
subsections: section_title: Single Recipient for SARs
paragraphs: 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. “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 . . .  . . . be established to improve coordination among the law enforcement agencies.”
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 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.
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.
section_title: Mandatory and Discretionary CTR Exemptions
paragraphs: 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.
subsections: section_title: Mandatory CTR Exemptions
paragraphs: 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 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.
section_title: Discretionary CTR Exemptions
paragraphs: 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.
section_title: Registration of MSBs
paragraphs: MLSA section 408 requires the Secretary to implement regulations requiring any person who owns or controls a money transmitting business (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” 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 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.
section_title: Reporting and Recordkeeping Requirements for Tribal Gaming and Card Clubs
paragraphs: “ . . . 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 . . .  . . . 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.” “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.” 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.
section_title: Reporting Requirements for Certain Negotiable Instruments Drawn by Foreign Banks
paragraphs: 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 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. “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.”
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.
section_title: Delegation of Civil Penalty Authority
paragraphs: 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 referrals 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 penalties should be assessed against individuals or financial institutions and their officers, employees, and individuals, and if so, the amount of the penalty. “In the past, OFE . . .  . . . 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. 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.”
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.
section_title: FinCEN’s Rulemaking Issuances Since 1994
paragraphs: 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.
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)
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.
Interim rule  related to the exemption of certain transactions from currency transaction  reporting requirements. (61 FR 18204)
Notice of proposed rulemaking to extend BSA reporting and recordkeeping requirements to  card clubs. (61 FR 67260)
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 for suspicious activity reporting by money transmitters and by  issuers, sellers, and redeemers of money orders and traveler's checks. (62 FR 27900)
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)
Final rule related to the exemption of certain transactions from currency transaction reporting  requirements. (62 FR 47141)
Notice of proposed rulemaking for certain discretionary exemptions from the requirement to  report transactions in currency -- Phase II. (62 FR 47156)
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 FinCEN 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.
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.
section_title: Purposes and Membership of the Bank Secrecy Act Advisory Group
paragraphs: 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 Act 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 Register to solicit applications for participation in the BSA Advisory Group. The notice stated that the BSA Advisory Group was to be 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.
Table III.1: Membership of the BSA Advisory Group (as of Dec. 1997)
Under Secretary (Enforcement)
American Bankers Association America’s Community Banks Atlantic Bank, N.A. Citibank Cattaraugus County Bank First Union National Bank of Florida Merrill Lynch Co.
Thomas Cook, Inc.
section_title: Objectives, Scope, and Methodology
paragraphs: 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). 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) 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 Group 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 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.
subsections: section_title: Scope and Methodology of Our Work Regarding FinCEN’s Regulatory Process
paragraphs: As a preparatory step, we familiarized ourselves with selected portions of the Administrative Procedure Act and Executive Order 12866 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 reports to identify any potential best practices for developing and issuing regulations.
section_title: Scope and Methodology of Our Work Regarding the Status of Regulations
paragraphs: 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. 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. 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.
section_title: FinCEN Organizational Structure and On-Board Staffing
paragraphs: 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.
Figure V.1: FinCEN Organization Chart and On-Board Staffing (as of Dec. 1997)
Deputy Director          (10) (14) (11) (26) (10)
Indicates a reporting relationship between the designated offices or functions.
Office of the Director, FinCEN 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.   (11) (31) (14)
About 10 staff in FinCEN’s Offices of Legal Counsel, Program Development, and Compliance and Regulatory Enforcement promulgate regulations.
section_title: Comments From the Financial Crimes Enforcement Network
section_title: Major Contributors to This Report
subsections: section_title: General Government Division, Washington, D.C.
section_title: Office of the General Counsel, Washington, D.C.
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