Money Laundering: FinCEN Needs to Better Manage Bank Secrecy Act Civil Penalty Cases
Published: 1998-06-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Pursuant to a congressional request, GAO reviewed the Department of the Treasury's Financial Crimes Enforcement Network's (FinCEN) efforts to process civil penalty referrals for violations of the Bank Secrecy Act (BSA), focusing on: (1) whether Treasury has changed its policies and procedures for processing civil penalty cases since 1992; (2) Treasury's performance in processing civil penalty cases during calender years 1992 through 1997; and (3) the status of FinCEN's efforts to develop and issue a final regulation delegating the authority to assess civil penalties for BSA violations to the federal banking regulatory agencies, as required by the Money Laundering Suppression Act.
section_title: What GAO Found
paragraphs: GAO noted that: (1) except for the May 1994 delegation to FinCEN, Treasury's policies and procedures for processing civil penalty cases generally have not changed since 1992; (2) also, the number of staff processing civil penalty cases has remained fairly constant, at about six, before and after the May 1994 delegation to FinCEN; (3) the problem of lengthy processing times for civil penalty cases is growing worse; (4) for example, according to FinCEN's data for cases closed in calendar years 1985 through 1991, the average processing time to close a case was 1.77 years, and the most lengthy time was 6.44 years; (5) in comparison, FinCEN's data for calendar years 1992 through 1997 indicate an average processing time was 3.02 years, and the most lengthy time was 10.14 years; (6) for cases closed in the 2 most recent years, 1996 and 1997, the average processing times were 3.57 years and 4.23 years, respectively; (7) lengthy processing can negatively affect the public's perception of the government's efforts to enforce the BSA, thereby lessening the credibility and deterrent effects of the act's provisions; (8) another result is that the 6-year statute of limitations for BSA civil penalties could expire; (9) according to FinCEN's data, for the period January 1, 1992, through March 27, 1998, a total of 16 cases had one or more BSA violations that could not be pursued because the statute of limitations had expired; (10) insufficient management attention is a significant cause of the lengthy processing times for civil penalty cases; (11) FinCEN officials told GAO, for example, that the agency has never set timeliness goals for processing civil penalty cases; (12) FinCEN has issued neither a notice of proposed rulemaking nor a final regulation to delegate civil penalty assessment authority to the banking regulatory agencies; (13) FinCEN officials told GAO they have been working with the federal banking regulatory agencies for some time to devise an appropriate plan for delegating civil penalty assessment authority, but some issues still required resolution; (14) FinCEN's current strategic plan indicates that such delegation may not occur before 2002; and (15) for several more years, FinCEN could still be responsible for processing civil penalty referrals.

section_title: Letter
paragraphs: This report responds to your request regarding efforts of the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) to process civil penalty referrals for violations of the Bank Secrecy Act (BSA). At a recent hearing held by this Subcommittee, we testified on FinCEN’s various roles, including the processing of civil penalty cases. This report provides a more detailed analysis of BSA civil penalty cases and FinCEN’s related efforts.
FinCEN receives civil penalty referrals for BSA violations from various sources, including the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), other federal banking regulatory agencies, and the Internal Revenue Service’s (IRS) Examination Division. In February 1992, after analyzing statistics for calendar years 1985 through 1991 (as of October 24, 1991), we reported that civil penalty cases had not been processed in a timely manner by the then-responsible Treasury component, the Office of Financial Enforcement. In May 1994, Treasury’s Assistant Secretary for Enforcement transferred this responsibility within the Department from the Office of Financial Enforcement to FinCEN. In September 1994, Congress passed and the President signed the Money Laundering Suppression Act (MLSA). Among other provisions, the MLSA required the Secretary of the Treasury to delegate authority to impose civil penalties for BSA violations to the appropriate federal banking regulatory agencies. The purpose of this delegation requirement was to increase efficiency by allowing these agencies to impose civil penalties directly, rather than referring violations to FinCEN.
As agreed with your office, in developing updated information on civil penalties for BSA violations, we focused our work on the following questions:
How, if at all, has Treasury changed its policies and procedures for processing civil penalty cases since 1992?
Based upon workload and related statistics, what was Treasury’s performance in processing civil penalty cases during calendar years 1992 through 1997?
What is the status of FinCEN’s efforts to develop and issue a final regulation delegating the authority to assess civil penalties for BSA violations to the federal banking regulatory agencies, as required by the MLSA?
In addressing these questions, we interviewed cognizant FinCEN officials and reviewed relevant documentation on FinCEN’s policies and procedures for processing civil penalty cases. Also, we reviewed civil penalty case inventory and processing timeliness data for calendar years 1985 through 1997. Further, to determine the status of the delegation of civil penalty authority, we interviewed Treasury and FinCEN officials to obtain their views on (1) when a final regulation is expected to be issued and (2) if applicable, whether any substantive or procedural issues must be resolved before a final rule can be promulgated.
We performed our work from December 1997 to May 1998 in accordance with generally accepted government auditing standards. Appendix I provides more details about our objectives, scope, and methodology.
We requested comments on a draft of this report from the Acting Director, FinCEN. A reprint of FinCEN’s written comments can be found in appendix IV, and our evaluation of those comments follows our recommendation.
subsections: section_title: Background
paragraphs: The BSA and its implementing regulations, in general, require financial institutions to maintain certain records and to file certain reports (e.g., currency transaction reports) that are useful in criminal, tax, or 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. Criminal investigations are the responsibility of IRS’ Criminal Investigation Division. Civil penalties are currently assessed by FinCEN, and the agency is to send each referral to IRS for review before any administrative or civil enforcement action is taken.
Treasury has issued guidelines to assist regulatory agencies in determining which BSA violations warrant referral to Treasury for consideration of criminal and/or civil penalties. For example, according to the guidelines, violations customarily warranting referral include a pattern of failing to file currency transaction reports on applicable transactions.
After receiving a referral, FinCEN’s role includes evaluating the circumstances of the alleged violation and determining whether some type of civil action, including seeking the imposition of a civil monetary penalty, should be taken against the person or financial institution. Generally, FinCEN disposes of the majority of its civil penalty cases with one of three courses of action: (1) close the case without contacting the subject of the referral, (2) issue a letter of warning to the subject institution or individual, or (3) assess a civil monetary penalty. The Director, FinCEN, makes the final decisions. Civil monetary penalties generally can range from $25,000 to $100,000 per willful violation. In addition, civil monetary penalties may be assessed for each negligent violation of the BSA up to $500. Appendix II provides more information about FinCEN’s procedures.
section_title: Treasury’s Policies and Procedures Generally Unchanged Since 1992
paragraphs: Except for the delegation of responsibility to FinCEN in 1994, Treasury’s policies and procedures for processing civil penalty referrals for BSA violations generally have remained unchanged since our 1992 report.
Treasury’s Office of Financial Enforcement was established in 1985 to, among other things, develop referrals of alleged civil violations of the BSA and make recommendations as to whether civil penalties should be assessed against noncompliant financial institutions and their officers, directors, employees, and individuals, and if so, the amounts of the penalties. Treasury’s Assistant Secretary for Enforcement was responsible for making the final decision to assess a penalty.
In May 1994, the Assistant Secretary for Enforcement delegated civil penalty authority to FinCEN. Presently, civil penalty referrals are processed by FinCEN’s Office of Compliance and Regulatory Enforcement (OCRE). According to FinCEN, in processing civil penalty referrals, OCRE staff follow the same policies and procedures that existed before the 1994 delegation.
Also, the number of staff processing civil penalty referrals has remained fairly constant, at about six, before and after the 1994 delegation of authority to FinCEN. FinCEN officials told us that the staff of Treasury’s Office of Financial Enforcement—the unit previously responsible for processing civil penalty referrals—was merged into OCRE in 1994. FinCEN officials noted, however, that none of OCRE’s six staff work on civil penalty referrals on a full-time or exclusive basis; rather, they spend about one-half of their time performing other mission functions and responsibilities.
As a result of the merger, several staffing changes occurred. For example, four former Office of Financial Enforcement senior analysts who had worked on referral cases were transferred into other divisions within FinCEN, while four other FinCEN staff members, with no experience in administering the BSA, were transferred into OCRE.
FinCEN officials told us that there have been several personnel departures during the past year, which have affected the management and expertise in this area. For example, OCRE’s chief and deputy chief left the agency. As of May 1998, these positions were still vacant.
section_title: The Problem of Lengthy Processing Times for Civil Penalty Cases Is Growing Worse
paragraphs: In the past, civil penalty cases have not been processed in a timely manner. That was the conclusion we reached in our 1992 report, which analyzed Treasury’s case inventories between 1985 and 1991. Our current work, which analyzed case inventory data provided by FinCEN for 1992 through 1997, shows that the problem of lengthy processing times is growing worse.
subsections: section_title: Fewer Cases Closed in Recent Years
paragraphs: For the period 1985 through 1997, data from Treasury’s Office of Financial Enforcement and/or FinCEN showed a total of 648 closed civil penalty cases. Of this total, 430 cases were closed during 1985 through 1991 (a 7-year period), and the remaining 218 cases were closed during 1992 through 1997 (a 6-year period).
Our analyses show that relatively few cases have been closed in recent years, particularly after 1994.
Case closures in each of the 3 most recent years, 1995 through 1997, dropped below 30 for the first time since 1985 (see fig. 1).
Civil penalty cases closed represented 22 percent, 8 percent, and 13 percent, respectively, of FinCEN’s annual workloads in 1995, 1996, and 1997 (see fig. 2).
During each of these 3 years, the number of cases closed was fewer than the number of referrals received, which represented a reversal of the trend in 1990 through 1994 (see fig. 3). For example, in 1997, 19 cases were closed while 34 referrals were received. In contrast, in 1990, 103 cases were closed while 65 referrals were received.
section_title: Processing Times Slower in Recent Years
paragraphs: For 1985 through 1991, Treasury’s data show that the average processing time to close a case was 1.77 years. Processing times for the 430 cases closed during this 7-year period ranged from 4 days to 6.44 years. According to FinCEN’s data, the processing times have slowed during the more recent period, 1992 through 1997 (see fig. 4). Specifically, the average processing time to close a case was 3.02 years. Processing times for the 218 cases closed during this period ranged from 8 days to 10.14 years.
For cases closed in each of the 4 most recent years, 1994 through 1997, figure 4 shows that average processing times were 3 years or higher, a threshold not reached in any of the previous years. “Officials at 2 of... agencies...told us that they believed—although it could not be proved or measured—that the lengthy processing times resulted in a decrease in enforcement efforts.... “We think it would be reasonable to assume that the effectiveness of any penalty as a deterrent to prevent future violations would be directly related to the length of time between the violation and the action taken. Given this assumption, lengthy processing times for civil penalty referrals could affect compliance with the Bank Secrecy Act. “Perhaps the most serious result of civil penalty cases remaining inactive for lengthy periods of time can be the expiration of the statute of limitations....”
According to FinCEN’s data for the period January 1, 1992, through March 27, 1998, a total of 16 cases had one or more BSA violations that could not be pursued because the statute of limitations had expired.
section_title: Insufficient Management Attention to Civil Penalty Case Processing
paragraphs: Our 1992 report, which analyzed civil penalty case inventories between 1985 and 1991, concluded that cases had not been processed in a timely manner. More recently, as shown in figure 4, the average processing times for civil penalty cases closed since 1994 are higher than the average times for previous years.
There may be several reasons for this trend. Regarding recent years, for example, FinCEN officials mentioned staff inexperience and personnel departures as being reasons. Further, the officials noted a change in the kinds of cases being referred to FinCEN. Specifically, the officials said the majority of cases referred to FinCEN now involve nonbank financial institutions (i.e., casinos, check cashers, and currency exchangers). According to FinCEN officials, it generally is more difficult to obtain records and documentary evidence and to reconstruct transactions for these entities than for banks.
In addition, we believe that insufficient management attention has been a significant cause of the lengthy processing times for civil penalty cases. First, FinCEN and its predecessor, Treasury’s Office of Financial Enforcement, did not (1) set timeliness goals for civil penalty case processing and (2) monitor or measure performance against those goals. FinCEN officials told us that the agency has never set timeliness goals for civil penalty processing. The officials also said that any such goals would prove arbitrary since each case varies significantly based on complexity, volume of transactions, and other factors. However, those goals can be valuable performance management tools for improving overall results and can take into account the differences in cases. Moreover, goal setting and performance measurement are widely considered to be good management practices, and these practices are reflected in the Government Performance and Results Act of 1993. Implementing such practices should help FinCEN (1) better identify the key factors that determine the timeliness of processing civil penalty cases and (2) find ways to streamline the management and processing of cases to reverse the trend of increasingly lengthy processing times.
Second, FinCEN’s civil penalty tracking system, which resides on a stand-alone microcomputer, has not been an effective management tool, according to a 1990 report by Treasury’s Inspector General. Generally, the tracking system has remained unchanged since 1990, even though the Inspector General reported that database improvements were needed to assist in prioritizing, managing, and controlling civil penalty cases. The Inspector General’s report noted, for example, that the database was not being used to track the age of referrals and cases nor to track statute of limitation expiration dates.
Third, as previously mentioned, according to FinCEN’s data for the period January 1, 1992, through March 27, 1998, a total of 16 cases were affected by expiration of the statute of limitations. However, FinCEN did not close several of these cases until months or years after expiration of the statute of limitations. In fact, since our inquires about the status of case processing, FinCEN has closed 15 of these 16 cases involving expiration of the statute of limitations. For example, FinCEN’s data for the 16 cases show the following.
One case had a statute of limitations expiration date in 1993, but FinCEN did not close the case until November 1995.
Two cases had statute of limitations expiration dates in 1995, and FinCEN closed one case in February 1998 and one case in March 1998.
Five cases had statute of limitations expiration dates in 1996, but FinCEN did not close the cases until February 1998.
Four cases had statute of limitations expiration dates in 1997, and FinCEN closed two cases in February 1998 and the other two cases in March 1998.
Four cases had statute of limitations expiration dates in either January 1998 or February 1998, and FinCEN closed one case in February 1998 and the other three cases in March 1998.
section_title: FinCEN Has Not Issued a Regulation to Delegate Civil Penalty Authority
paragraphs: Section 406 of the MLSA directed the Secretary of the Treasury to delegate to appropriate federal banking regulatory agencies the authority to assess civil penalties for BSA violations. This statutory section further specified that the Secretary shall prescribe by regulation the terms and conditions that shall apply to any such delegation. 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. The conference report also noted that, after the delegation, FinCEN “would still be able to oversee the process and ensure that penalties are consistently imposed.”
In February 1998, we reported to the Subcommittee that a notice of proposed rulemaking still had not been issued, and FinCEN had not established a projected issuance date. In April 1998, a senior FinCEN official provided us the status of the agency’s efforts substantially as follows:
FinCEN has had numerous meetings with federal bank regulators to begin the process of delegating some or all of FinCEN’s civil penalty enforcement authority. Much progress has been made, but some serious issues are unresolved.
One issue is whether violations will be enforced under BSA provisions or under the bank regulators’ general examination powers granted by Title 12 of the U.S. Code. According to FinCEN, the bank regulators may be less inclined to assess BSA penalties and may instead use their non-BSA authorities under the general examination powers of Title 12. FinCEN prefers that the BSA provisions be used to ensure consistency of interpretation and sanctions for similar violations.
Another issue involves oversight or monitoring by FinCEN. The details of Treasury’s continued oversight responsibility for BSA penalties, even after the delegation, have not yet been worked out.
Further, while not required by the MLSA, FinCEN is studying the possibility of also delegating BSA civil penalty authority to IRS, which conducts BSA compliance examinations of nonbank financial institutions. FinCEN and IRS have engaged in several discussions concerning such a delegation. As a result, IRS is currently studying the relevant policy and resource considerations.
FinCEN’s current strategic plan indicates that delegation of civil penalty authority to the banking regulatory agencies may not occur before 2002.
section_title: Conclusions
paragraphs: Except for the delegation of civil penalty authority to FinCEN in 1994, Treasury’s policies and procedures for processing civil penalty referrals for BSA violations generally have not changed since our 1992 report. Also, the number of staff processing civil penalty referrals has remained fairly constant, at about six, before and after the May 1994 delegation to FinCEN. However, FinCEN officials noted that over the past year, personnel departures—including OCRE’s chief and deputy chief—have affected management and expertise in this area. As of May 1998, these positions remained vacant.
The problem of lengthy processing times for civil penalty cases has grown worse since our 1992 report. Overall, FinCEN’s data showed a smaller percentage of civil penalty cases being closed between 1992 and 1997 than 1985 and 1991, and the annual workload was smaller during the more recent years. Also, in the more recent years, the average processing times to close civil penalty cases are higher than in previous years. Among other reasons, insufficient management attention—as indicated by the absence of timeliness goals and monitoring, ineffective civil penalty tracking system, and 16 cases that could not be pursued because the statute of limitations had expired—contributed to lengthy processing times in recent years. Goal setting and performance measurement are widely considered to be good management practices, and implementing such practices may help FinCEN focus its attention on better managing and processing civil penalty cases and reverse the trend of increasingly lengthy processing times.
FinCEN’s current strategic plan indicates that delegation of civil penalty authority to federal banking regulatory agencies may not occur for another 3 or 4 years. Pending such delegation, FinCEN is still responsible for processing civil penalties.
section_title: Recommendation to the Acting Director, FinCEN
paragraphs: To reduce the lengthy processing times associated with civil penalties, we recommend that the Acting Director, FinCEN, set average timeliness goals for evaluating and disposing of civil penalty cases, taking into account the varying complexity of the cases, and monitor the progress of managers and staff responsible for meeting those goals. We recognize that setting timeliness goals, by themselves, may not necessarily lead FinCEN to resolve all the problems that may have contributed to the lengthy processing times for evaluating and disposing of civil penalty cases. However, setting and managing to meet such goals should help FinCEN better focus its attention on processing civil penalty cases and provide a means to determine what corrective actions might be needed to decrease processing times in the future.
section_title: Agency Comments and Our Evaluation
paragraphs: In a letter dated May 20, 1998, FinCEN’s Acting Director provided written comments on a draft of this report (see app. IV). The Acting Director concurred that greater or more diligent management oversight is needed to ensure that civil penalty cases are processed in an expeditious, yet thorough manner. To address the timeliness issue, the Acting Director noted that FinCEN has taken or has plans to take definitive steps, such as working with OCRE staff to identify individual training needs; assigning two non-OCRE employees the tasks of analyzing open civil penalty referrals, highlighting cases that warrant immediate attention, and providing oversight to ensure that progress continues on those referrals; and developing civil penalty referral procedures that include time lines and due dates.
The Acting Director commented that FinCEN plans to establish strict time lines for the initial assessment of civil penalty referrals, where such guidelines are practicable and predictable. Regarding the adjudicative or disposition phase of case processing, the Acting Director said that FinCEN favored more diligent management oversight (e.g., case reviews by the OCRE Assistant Director) rather than the establishment of strict or arbitrary time lines. However, to provide further management oversight, the Acting Director said that FinCEN had recently reinstated the use of quarterly reports showing the status of BSA referrals, including the number of cases received and closed during the reporting period. Moreover, we note that, at the April 1, 1998, hearing held by this Subcommittee, FinCEN agreed to provide quarterly reports to the Subcommittee.
Generally, if they are fully implemented, we believe that the various steps or initiatives presented by the Acting Director collectively meet the substantive intent of our recommendation. As this report indicates, our principal concern is that insufficient management attention has been a significant cause of the lengthy processing time for civil penalty cases. Agency recognition of the need for greater or more diligent management oversight, including the use of timeliness goals, is a key to corrective action. Nonetheless, we still believe that FinCEN should consider opportunities for using timeliness goals as guides for managing and monitoring all phases of civil case processing, not just the initial case assessment phase.
We are sending copies of this report to the Subcommittee’s Ranking Minority Member; the Chairman and Ranking Minority Member, House Committee on Banking and Financial Services; the Secretary of the Treasury; the Acting Director, FinCEN; and other interested parties. We will also make copies available to others on request.
Major contributors to this report are listed in appendix V. Please contact me on (202) 512-8777 if you or your staff have any questions.
section_title: Objectives, Scope, and Methodology
paragraphs: The Chairman, Subcommittee on General Oversight and Investigations, House Committee on Banking and Financial Services, asked us for information regarding efforts of the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to process civil penalty referrals for violations of the Bank Secrecy Act (BSA). Generally, the request involved two objectives. The first was to update the BSA civil penalty case inventory and processing timeliness statistics that we presented in our 1992 report.
The second was to determine the status of FinCEN’s efforts regarding a provision of the Money Laundering Suppression Act of 1994 (MLSA).
More specifically, as agreed with the Chairman’s office, we focused our work on the following questions:
How, if at all, has Treasury changed its policies and procedures for processing civil penalty cases since 1992?
Based upon workload and related statistics, what was Treasury’s performance in processing civil penalty cases during calendar years 1992 through 1997?
What is the status of FinCEN’s efforts to develop and issue a final regulation delegating the authority to assess civil penalties for BSA violations to the federal banking regulatory agencies, as required by the MLSA?
Preliminarily, in addressing the Chairman’s request, we reviewed our February 1992 report and our subsequent congressional testimony in June 1992 before the Subcommittee on Oversight, House Committee on Ways and Means. Also, we reviewed a relevant 1990 report by Treasury’s Inspector General. In response to our inquiry, FinCEN officials told us that our 1992 report and the Inspector General’s 1990 report were the only previous studies conducted of BSA civil penalty processing.
To address the first question, we interviewed officials in FinCEN’s Office of Compliance and Regulatory Enforcement (OCRE), and we reviewed relevant documentation on policies and procedures (see app. II). Also, we reviewed guidelines that Treasury issued to assist regulatory agencies in determining which BSA violations warranted referral for possible assessment of civil penalties. Further, we obtained information about the number of OCRE staff involved in processing BSA civil penalty cases.
Regarding Treasury’s performance in processing BSA civil penalty cases, we reviewed and compared data for two time periods covering a total of 13 years—(1) calendar years 1985 through 1991 and (2) calendar years 1992 through 1997. In so doing, we developed statistical tables showing annual workload (i.e., beginning inventory plus referrals received), cases closed, processing times, closures by type of action taken, penalty dollar amounts, and referral sources (see app. III).
For the more recent (1992 through 1997) of the two time periods, we selectively verified the data that FinCEN provided to us from its computerized civil penalty tracking system. Specifically, we judgmentally selected and reviewed 15 percent of the cases that were closed by type of action taken in this time period. In our judgmental selections, we included cases representing all three types of case-closure dispositions—(1) cases closed with no contact, (2) cases closed with a letter of warning, and (3) cases closed with a monetary penalty assessed. For each of the selected cases, we reviewed OCRE’s hard copy case files to verify that applicable data had been accurately input into the computerized civil penalty tracking system. Further, we checked the accuracy of the specific query statements that OCRE used in providing us requested data from the computerized civil penalty tracking system. Our verification efforts found three minor discrepancies in the data contained in FinCEN’s civil penalty tracking system. The correction of these discrepancies did not change the results of our analysis.
Also, according to FinCEN, a total of 16 cases during the period January 1, 1992, through March 27, 1998, were affected by expiration of the statute of limitations. We did not independently verify this total nor did we analyze these cases.
Regarding the last question (delegation of civil penalty authority), we interviewed FinCEN officials to update the status of information presented in our
February 1998 report to the Subcommittee’s Chairman and Ranking
April 1998 testimony at a hearing held by the Subcommittee.
Also, we reviewed FinCEN’s multiyear strategic plan, which briefly discusses the delegation issue.
section_title: Procedures for Processing BSA Civil Penalty Cases
paragraphs: In May 1994, Treasury’s Assistant Secretary for Enforcement delegated BSA civil penalty authority to FinCEN. As a result, the Director of FinCEN is responsible for assessing civil penalties for BSA violations by banks and by certain nonbank financial institutions. Following is a description of the process of identifying and assessing penalties for the violations.
subsections: section_title: FinCEN Receives BSA Violation Referrals From Various Sources
paragraphs: FinCEN does not conduct BSA compliance examinations at either banks or nonbank financial institutions. Rather, such examinations are conducted by the following agencies:
Compliance examinations of “banks” are conducted by the five federal bank supervisory or regulatory agencies: the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System (FRS), the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA). IRS’ Examination Division conducts compliance examinations of nonbanks. This category includes 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 BSA’s reporting requirements.
Securities and Exchange Commission (SEC) conducts compliance examinations of securities brokers and dealers.
If warranted by the results of their examinations, these agencies refer their preliminary findings to FinCEN for appropriate action and disposition.
According to FinCEN officials, in addition to BSA violations referred by the various federal agencies, FinCEN also initiates civil investigations based on other sources, such as (1) voluntary disclosures from financial institutions or individuals; (2) formal advisories from IRS’ Detroit Computing Center, which processes currency transaction reports and other BSA-related information; and (3) reports of investigations from state and local law enforcement agencies.
section_title: Each Referral Is Reviewed by IRS for Criminal Potential
paragraphs: Initially, before any administrative or civil enforcement action is taken, FinCEN’s procedures call for sending each incoming matter to IRS’ Criminal Investigation Division for review of criminal potential. According to specified procedures, FinCEN should not proceed with evaluating a BSA civil penalty referral until IRS or a U.S. Attorney’s Office provides written approval for such action. By agreement, IRS has 120 days to complete its review of the matter.
FinCEN officials told us that FinCEN generally receives a clearance to proceed within 30 days. Further, the officials noted that, in cases requiring special or expeditious attention, FinCEN contacts a designated IRS official by telephone to obtain clearance from the Criminal Investigation Division.
After FinCEN receives a clearance from IRS, the matter is assigned a formal case number and given to a financial enforcement specialist within FinCEN’s OCRE.
section_title: FinCEN Develops Information to Evaluate the Case
paragraphs: The duties of the financial enforcement specialist are to conduct a preliminary review of the information presented in the referral and, if needed, to contact other sources to develop further information on the circumstances of the violation and/or the subject of the referral. According to FinCEN, these sources may include one or more of the following: the law enforcement or regulatory agency that discovered and referred the alleged BSA violations to FinCEN, any law enforcement or regulatory authority that has jurisdictional concerns or relevant information on the subject, the financial institution’s primary regulator, IRS’ Detroit Computing Center (to obtain BSA records and background on the subject), the local U.S. Attorney’s Office or IRS office, and the financial institution or person who is the subject of the alleged BSA violations.
According to FinCEN, the financial enforcement specialist is to consider the results of any internal or external audits, any corrective action taken, the institution’s written compliance program and training and instructional materials, and other information relevant to the questioned transactions. Also, FinCEN noted that, to obtain a fuller perspective on the alleged BSA violation, the specialist may ask for and review relevant information that goes beyond just the specific transactions cited in the referral. That is, the specialist may review other account and transaction activity information regarding the subject institution or individual.
section_title: Disposition of Cases
paragraphs: On the basis of the information in the referral and that developed by OCRE, the financial enforcement specialist is to recommend a course of civil or administrative action to the Assistant Director, OCRE, who reviews and decides whether to approve the recommended action. The case is disposed of with one or a combination of the following administrative or civil actions.
The federal regulator may issue a cease and desist order or other sanction.
The subject financial institution may make corrections to any deficient BSA systems and/or backfile any delinquent BSA reports.
FinCEN may close the case without further action or contact with the subject institution or individual.
FinCEN may issue a letter of warning.
FinCEN may assess a civil monetary penalty.
FinCEN officials told us that, if a civil monetary penalty seems appropriate, FinCEN grants the subject institution or individual an opportunity to dispute the allegations and offer a defense of the alleged actions. The officials added that financial institutions and individuals are encouraged to submit any available mitigating evidence in advance of BSA case settlement negotiations with FinCEN. Also, the officials noted that FinCEN’s final disposition of a BSA case, including the dollar amount of the civil penalty, is to be determined by considering the following factors: the severity, volume, and longevity of the BSA violations; the subject’s overall BSA compliance program; self discovery and acknowledgment of the BSA violations to Treasury versus external discovery and notification; cooperation with FinCEN and other applicable agencies; prompt correction of the BSA deficiencies that caused the violations; the outcomes of any prior or subsequent BSA compliance examinations; and any other valid aggravating or mitigating factors, including the subject’s ability to pay the BSA penalty.
According to FinCEN officials, due to the complex nature of BSA cases, FinCEN does not use rigid formulas to determine the appropriate BSA penalty. Rather, all such decisions are to be made on a case-by-case basis and are to reflect consideration of the factors presented above. Also, FinCEN officials noted that the agency does not set timeliness goals for processing civil penalty cases.
According to FinCEN, if a subject refuses to settle the case, FinCEN formally assesses the maximum BSA civil monetary penalty allowed by law for the violations. The matter is then to be referred for internal legal review. Thereafter, if deemed warranted, procedures call for FinCEN to submit the matter to the Department of Justice’s Civil Division to seek collection of the unpaid penalty. After FinCEN assesses a BSA civil penalty, the government has 2 years to initiate collection litigation against the subject. FinCEN officials told us that, to avoid litigation and exposure to the maximum penalty allowed by law, subjects of a BSA action are almost always amenable to settling their BSA liability with FinCEN.
section_title: Data on BSA Civil Penalty Cases
paragraphs: This appendix presents various tables of BSA penalty statistics for calendar years 1985 through 1997. More specifically, the tables show annual workload (i.e., beginning inventory plus referrals received) and cases closed (table III.1); processing times (tables III.2, III.3, and III.4); closures by type of action taken (table III.5); penalty dollar amounts (table III.6); and referral sources (table III.7).
Cases closed as a percentage of annual workload 648 Average time to close case (in years)
Table III.3: Processing Times (by Time Period) for the 648 Civil Penalty Cases That Were Closed During Calendar Years 1985 Through 1997 Table III.4: Average and Range of Processing Times by Type of Action Taken for the 648 Civil Penalty Cases That Were Closed During Calendar Years 1985 Through 1997 Average (in years)
Average (in years)
Average (in years)
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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