Bank Secrecy Act: Increased Use of Exemption Provisions Could Reduce Currency Transaction Reporting While Maintaining Usefulness to Law Enforcement Efforts
Published: 2008-02-21T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: To aid law enforcement efforts against financial crimes, under the Bank Secrecy Act (BSA) depository institutions must file the Treasury Department's Financial Crimes Enforcement Network's (FinCEN) currency transaction report (CTR) form on their customers' cash transactions of more than $10,000. While FinCEN's regulations allow institutions to exempt certain customers, over 15 million CTRs were filed in 2006. Public Law 109-351 directed GAO to report on (1) the usefulness of CTRs to law enforcement; (2) depository institutions' costs of meeting CTR requirements; and (3) ways to encourage use of exemptions to avoid unnecessary CTRs. Among other things, GAO obtained data from FinCEN on CTRs and exemptions from 2004 to 2006, surveyed 115 state and local law enforcement agencies and 680 depository institutions, held structured interviews with officials of federal agencies and depository institutions, and reviewed relevant laws and regulations.
section_title: What GAO Found
paragraphs: According to federal, state, and local law enforcement officials, CTRs provide unique and reliable information essential to a variety of efforts, and recent advances in technology have enhanced law enforcement agencies' ability to use CTR data by integrating it with other information. In addition to supporting specific investigations, CTR requirements aid law enforcement by forcing criminals attempting to avoid reportable transactions to act in ways that increase chances of detection through other methods. Linking law enforcement's use of CTRs to specific outcomes is difficult, however, because agencies do not track their use of CTRs, which are typically one of many information sources used in investigations. FinCEN does not routinely publish summary information on law enforcement uses of CTR data--as it does for other data required under the BSA--that could help depository institutions understand the value of CTRs. While fewer than 30 of the largest U.S. depository institutions accounted for over half of new CTRs filed during the period GAO examined, all of the nation's approximately 17,000 institutions incur some costs to meet CTR requirements. Institutions must have processes and staff in place to identify when and if a CTR is required, as well as the ability to aggregate same-day cash transactions by or on behalf of the same person; file CTRs correctly; and, if desired, establish and maintain exemptions for certain customers. Institutions GAO contacted were generally unable to quantify these costs, in large part because they use the same processes and staff for other purposes. While automation has made CTR tasks less difficult, almost all institutions reported that they have not completely automated all steps, such as reviews of CTRs by institution officials. GAO's work identified a number of factors that deter use of exemptions, as well as opportunities for increasing their use, thereby reducing the number of CTRs that are likely of little or no value to law enforcement efforts. As reasons for not exempting eligible customers, institutions cited uncertainty about the documentation required to demonstrate that some customers are in fact eligible, along with concern that federal banking regulators (who examine institutions for compliance with CTR requirements) would find fault. Institutions also cited as deterrents the need to meet FinCEN's regulatory requirements to (1) file an exemption form, and annually review the supporting data, particularly for hundreds of customers that are specifically exempted by statute; and (2) biennially renew eligibility for some customers--a process that as a practical matter duplicates the required annual reviews for those customers. Institution officials indicated that additional guidance from FinCEN, as well as Web-based material to help train their staff in making exemption determinations, could increase the use of exemptions. Removing regulatory deterrents and providing additional guidance and Web-based material could help depository institutions avoid filing unnecessary CTRs without harming law enforcement efforts.

section_title: Letter
paragraphs: To assist law enforcement agencies in their efforts to combat money  laundering, the financing of terrorist activities, and other crimes, financial  institutions are required to provide the federal government with  information on customers engaging in certain currency transactions under  the Bank Secrecy Act (BSA). Among other things, the BSA—administered  by the U.S. Department of the Treasury’s Financial Crimes Enforcement  Network (FinCEN)—and its implementing regulations require financial  institutions to file currency transaction reports (CTR) when their  customers make large cash transactions, currently defined by regulation as  those exceeding $10,000. In 2006, the government received about 15  million CTRs, the vast majority of which were filed by depository  institutions (banks, thrifts, and credit unions).
To reduce the number of CTRs with limited usefulness to law enforcement  efforts, in 1994 Congress enacted provisions allowing depository  institutions to exempt two broad categories of customers that meet  specified criteria. For these exempted customers, the institutions do not  have to file CTRs, because the customers’ cash transactions would likely be  of little or no value to law enforcement efforts. First, the law required  FinCEN to provide appropriate exemptions for customers that are another  depository institution; governmental entities, including state and local  governments; certain other entities exercising U.S., state, and local  governmental authority; and “any business or category of business the  reports on which have little or no value for law enforcement purposes,”  which FinCEN has defined through regulations to generally include  companies that are listed on any of three stock exchanges (listed  companies) and subsidiaries that are 51 percent or more owned by a listed  company. Second, the law authorized FinCEN to establish, through  regulation, exemptions for “qualified business customers” that maintain an  account at the depository institution, frequently engage in large cash  transactions, and meet other criteria specified by regulation. FinCEN’s  regulations provide that certain qualified business customers may not  derive more than 50 percent of their gross revenue from activities or lines  of business specifically deemed ineligible, such as the purchase or sale of  automobiles or gaming of most kinds. Because FinCEN promulgated the  regulations for these two categories in separate rule-making phases, the  exemptions are commonly referred to as “Phase I” and “Phase II”  exemptions, respectively. It is up to the depository institutions as to  whether they actually exempt each of their customers who are eligible for  exemption; if they do, the institutions must file an exemption form  documenting the customer’s eligibility and must review and verify  eligibility at least once each year.
Depository institutions have expressed concerns about the cost and effort  required to meet CTR filing requirements—including the steps needed to  establish and maintain exemptions for their customers—as well as doubts  about the usefulness of CTRs to law enforcement agencies. They note that  they are also required, under the BSA, to file with FinCEN Suspicious  Activity Reports (SAR) in cases of certain transactions that may involve  violations of law or regulation, including money laundering. However, law  enforcement officials have maintained that the CTR requirements help  deter money laundering and that CTRs provide information that is highly  useful to their investigations. Data from CTRs are aggregated and stored  electronically in a large database accessible to law enforcement agencies  and maintained for FinCEN by the Internal Revenue Service (IRS). The  database also includes information about customers for which institutions  have filed exemption forms.
The Financial Services Regulatory Relief Act of 2006 required that we  examine several aspects of CTRs, including their usefulness to law  enforcement and the burden on depository institutions filing them, and to  determine whether CTR filing rules could be modified without harming law  enforcement operations. This report discusses (1) the usefulness of CTRs  to federal, state, and local law enforcement agencies; (2) the costs to  depository institutions of meeting CTR requirements; and (3) factors that  affect depository institutions’ decisions to exempt or not exempt eligible  customers, including opportunities for encouraging use of exemptions  while maintaining the usefulness of CTR data to law enforcement agencies.
To examine the usefulness of CTRs to federal, state, and local law  enforcement agencies, we first obtained data from both FinCEN and IRS  indicating the frequency of access to the CTR database by specific  agencies. We conducted structured interviews with officials of 12 federal  agencies and organizations—including those that most frequently accessed  CTR data in 2006, such as FinCEN, IRS, the Federal Bureau of Investigation  (FBI), the Drug Enforcement Administration (DEA), and the U.S.  Department of Homeland Security’s Immigration and Customs  Enforcement (ICE). In addition, we used a Web-based instrument to survey  all 115 state and local law enforcement agencies that had access to CTR  data as of May 2007; our overall response rate was 77 percent. We  supplemented the survey by interviewing officials of 12 state and 5 local  law enforcement agencies, selected to achieve a mix of agencies that had  accessed CTR data frequently and agencies that had not. We asked officials  at the law enforcement agencies to identify how information provided by  CTRs is useful to their efforts and how technological changes have affected  the use of CTR data. To understanding filing trends and obtain information  on depository institutions’ costs to meet CTR requirements, we first  analyzed FinCEN’s CTR and exemption data covering 3 calendar years— 2004, 2005, and 2006—to identify the numbers of CTRs and exemptions  filed by depository institutions of different sizes. For this purpose, we  established four size categories (based on the dollar value of  institutions’assets) for banks and thrifts and three categories for credit  unions. To obtain specific information on the costs of meeting CTR  requirements, we conducted 35 structured interviews with officials of  depository institutions of different sizes. We asked the officials whether  they use manual or automated processes and what costs they incur to meet  CTR requirements, including the costs of filing individual CTRs and  exemption forms. Finally, to identify the factors affecting depository  institutions’ exemption decisions, as well as opportunities for potentially  increasing the use of exemptions, we used a Web-based instrument to  survey 680 of the 3,880 depository institutions that filed at least 120 CTRs in  2006, stratified by asset size category. Our overall response rate was 68  percent. When presenting the survey results, all percentage estimates in  this report have 95 percent intervals of within plus or minus 8 percentage  points of the estimate, unless otherwise noted. This report does not contain  all of the results of our surveys of law enforcement agencies and depository  institutions, but the surveys and a more complete tabulation of the results  can be viewed at http://www.gao.gov/cgi-bin/getrpt?GAO-08-385SP. We also  analyzed statutory and regulatory filing requirements and interviewed  officials and examiners from the five federal banking regulators to obtain  their viewpoints on the difficulties, if any, institutions might confront in  meeting the CTR and exemption filing requirements. We also obtained data  on BSA examinations conducted by each of the regulators for 2005 and  2006, particularly data on their citations of depository institutions for  noncompliance with CTR requirements. Additional details on our methods  are presented in appendix I. We conducted this performance audit from  November 2007 through February 2008 in accordance with generally  accepted government auditing standards. Those standards require that we  plan and perform the audit to obtain sufficient, appropriate evidence to  provide a reasonable basis for our findings and conclusions based on our  audit objectives. We believe that the evidence obtained provides a  reasonable basis for our findings and conclusions based on our audit  objectives.
subsections: section_title: Background
paragraphs: According to BSA’s objectives, CTRs are to have a “high degree of  usefulness” and their uses include criminal, tax, or regulatory  investigations or proceedings. In 2001, the USA PATRIOT Act added a  fourth purpose: the conduct of intelligence or counterintelligence  activities, including analysis, to protect against international terrorism.   CTRs are intended to provide a paper trail for federal, state, and local law  enforcement agencies in their investigations and, thus, potentially hinder  using financial institutions as intermediaries for the transfer or deposit of  money derived from criminal activity. A CTR records account cash  withdrawals and deposits, as well as currency exchanges, and wire  transfers purchased with cash, when the amount of the transaction is more  than $10,000. In addition to the dollar amount of the cash transaction, a  CTR records information about the account owner, including the owner’s  occupation, and the identity of the person actually conducting the  transaction (the conductor), if not the account holder. A depository  institution must file a CTR for transactions that collectively exceed $10,000  during the course of a day if the institution has knowledge that they are for  or on behalf of the same person.
The Money Laundering Suppression Act of 1994 provided basic criteria for  establishing and maintaining exemptions and authorized Treasury to  establish further requirements. FinCEN has done so through both  regulations and “interpretative letters” that supplement the regulations to  provide further guidance. Table 1 summarizes the requirements as outlined  in the statute, implementing regulations, and interpretive letters.
Legislative proposals would alter the basis for establishing exemptions, as  well as raise the reporting threshold amount above $10,000. For example,  in January 2007, the U.S. House of Representatives passed the Seasoned  Customer CTR Exemption Act of 2007 (H.R. 323), which would require the  Secretary of the Treasury to (1) prescribe regulations for exempting  “qualified customers,” including criteria for suspending, rejecting, or  revoking exemptions; and (2) periodically review the threshold amount and  adjust it for inflation as appropriate. H.R. 1447, the CTR Modernization Act,  introduced in March 2007, would raise the threshold amount for insured  depository institutions to $30,000.
FinCEN’s role is to oversee administration of the BSA throughout the  federal government. Pursuant to this role, FinCEN, among other things,  develops policy and provides guidance to other agencies and analyzes BSA  data for trends and patterns. FinCEN relies on the regulators of depository  institutions—the Federal Reserve Board (Federal Reserve), Federal  Deposit Insurance Corporation (FDIC), National Credit Union  Administration (NCUA), Office of the Comptroller of the Currency (OCC),  and Office of Thrift Supervision (OTS)—to ensure that depository  institutions comply with BSA reporting requirements. In addition to CTRs,  depository institutions are required by BSA and its implementing  regulations to make available information on their customers’ transactions  in certain circumstances:  Depository institutions are required to file Suspicious Activity Reports  (SAR) with FinCEN if a transaction involves or aggregates at least  $5,000 in funds or other assets, and the institution knows, suspects, or  has reason to suspect that the transaction is designed to evade any  requirements of the BSA.
Under Section 314(a) of the USA PATRIOT Act, federal law enforcement  agencies, through FinCEN, can reach out to financial institutions to  locate accounts and transactions of persons suspected of engaging in  terrorism or money laundering.
FinCEN is responsible for providing these agencies with assistance in  educating institutions on their BSA responsibilities. To focus and direct  their efforts in supporting the effectiveness of BSA compliance, FinCEN’s  strategic plan for fiscal years 2006-2008 outlines several goals. For  example, to assist law enforcement, the plan calls for FinCEN to reduce the  number of CTRs filed on legitimate financial transactions that are of little  or no value to law enforcement; and, to assist financial institutions, the  plan calls for FinCEN to revise its data collection forms, regulations, and  practices to ensure that FinCEN collects the information necessary to meet  its mission while minimizing reporting burdens on the financial industry. In  addition, FinCEN indicated in its plan that it would consider providing  guidance on BSA requirements through written and Web-based materials  and by means of a call center to respond to specific questions.
FinCEN, together with the IRS, is responsible for managing and storing the  BSA data that financial institutions report. Financial institutions that  submit CTRs in paper form mail them directly to IRS’s Enterprise  Computing Center in Detroit. Institutions that submit data electronically  transmit them directly to FinCEN, which in turn transmits them to the  center. The center collects and stores all BSA data in its Currency Banking  and Retrieval System (CBRS). For fiscal year 2007, the IRS estimated the  total cost of processing CTRs to be about $7 million, including about $3.5  million to convert CTRs submitted on paper to an electronic format. IRS  examiners and investigators access BSA data directly through IRS’s  Intranet, while FinCEN has a direct connection to the Enterprise  Computing Center. Staff at other law enforcement agencies can access BSA  data via the Internet, and certain federal agencies also periodically receive  bulk data downloads of BSA data for use at their agencies, as described  later in this report.
section_title: CTR Requirements Are Useful to Law Enforcement Efforts in a Variety of Ways, but Measuring Their Impact Is Difficult
paragraphs: Federal, state, and local law enforcement officials we interviewed and  surveyed said that information in CTRs provided unique and reliable  information essential to a variety of efforts and that recent advances in  technology, along with FinCEN’s distribution of BSA data in bulk, have  enhanced their ability to use and analyze CTR information. Law  enforcement officials stated that, in addition to supporting specific  investigations, CTR requirements aid their efforts by making it more  difficult for criminals to get their illicit proceeds into the financial system  and forcing them to act in ways that increase chances of detection. Linking  law enforcement’s use of CTRs to specific outcomes is difficult, however,  because agencies do not track their use of CTRs, which are typically one of  many sources of information used to support investigations. FinCEN does  not routinely publish any summary information on law enforcement’s use  of CTR data as it does for Suspicious Activity Reports, such as identified  trends and case examples. Although concerns about revealing investigatory  sources and methods limit dissemination of detailed information on how  law enforcement agencies use CTR data, our interviews with depository  institution officials suggest that they would better understand the value of  meeting their requirements if the institutions were provided with similar  summary information on CTR use.
subsections: section_title: CTRs Provide Unique Information for Investigating Cases and Detecting Criminal Activities
paragraphs: In part due to advances in technology that have enhanced access to, and  analysis of, CTR data, law enforcement officials use CTR data to help  investigate a variety of crimes, including tax evasion, customs violations,  and drug trafficking. They use CTR data both “reactively”—that is, to  support existing investigations of one or more suspects—and  “proactively”—to analyze patterns or trends that can serve as the basis for  initiating new investigations.
subsections: section_title: Technological Advances Have Increased Access and Analytic Capability
paragraphs: In 1993, we reported that CTRs were not used to their full extent by law  enforcement agencies because the large volume of reports made  meaningful analysis difficult and access to the data, particularly at the state  level, was limited and cumbersome. However, access to BSA data at the  federal, state, and local levels has improved and technological advances  have made meaningful analysis of large BSA data sets possible. Consistent  with its strategic goal of facilitating information sharing through electronic  means, FinCEN has increased access to CTR (and other BSA) data in two  ways.
First, FinCEN began providing selected federal agencies with access to  “bulk” CTR data—essentially all of the data resulting from CTRs. In 2004,  FinCEN first provided the FBI with bulk transfer of data, and during 2005  and 2006 FinCEN agreed to provide two federal agencies—the Secret  Service and ICE—and a multiagency program established by the  Department of Justice (the Organized Crime Drug Enforcement Task  Force, or OCDETF Fusion Center) with access to a bulk data set.   Receiving these data in bulk, rather than accessing the database remotely  and querying it for specific records, allows agencies to conduct more  sophisticated analyses by combining the BSA data with other data sets, as  can be seen in the following examples.
The FBI has combined bulk BSA data into its Investigative Data  Warehouse, a collection of more than 50 multisource data sets that  includes counter terrorism data. According to the FBI, access to BSA  bulk data has significantly increased its usage of CTR data (the bureau  reported data that indicated approximately 194,000 CTR views from  2004 through 2006 of the downloaded data). According to FBI officials,  about 40 percent of all FBI terrorism subjects appeared on CTRs that  were filed between January 1, 2000, and June 30, 2006; further, CTR data  were the most viewed data in the warehouse.
OCDETF’s Fusion Center integrated bulk BSA data with drug, financial,  and gang-related investigative data provided by several other federal,  state, and local law enforcement agencies. According to OCDETF  officials, as of June 2007, CTR data had appeared in 61 percent of the  Fusion Center’s analytical products.
ICE has combined BSA data with import and export data for selected  countries to help identify and detect discrepancies or anomalies in  international commerce that might indicate trade-based money  laundering.
Second, FinCEN improved Internet access to CTR data. FinCEN provides  and grants access using its “Gateway” program, through which law  enforcement staff may access the database using a system known as  WebCBRS. With WebCBRS, users can download large volumes of CTR  data—up to 20,000 CTRs on a single query—and export it to a spreadsheet  application, such as Excel. This allows users to more readily conduct  proactive analyses, such as identifying transaction trends by categories.  Most of the law enforcement officials with whom we spoke, as well as  officials of state and local agencies we surveyed, confirmed that WebCBRS  is more user friendly than its predecessor and has greatly improved their  ability to search for and analyze CTR data. (More detailed information  about the technological advances enabling greater use of CTR data, along  with examples of use in specific investigations, is presented in appendix II.  Our survey of law enforcement agencies and a more complete tabulation of  the results can be viewed at http://www.gao.gov/cgi-bin.getrpt?GAO-08- 385SP.)
Perhaps reflecting improvements in the ability to access and analyze CTR  data, the number of agencies using CTR data has increased, and officials at  some agencies noted that they have incorporated a search of CTR data as a  routine part of their investigations. For example, from 2004 through 2006,  the number of agencies that viewed CTR data through the Gateway  program increased from 109 to 136 and, as of October 2007 requests from  an additional 110 agencies for access to CTR data were pending FinCEN’s  review.
section_title: Agencies Value CTRs as a Source of Unique, Reliable, and Timely Data
paragraphs: Officials from law enforcement agencies we interviewed emphasized that  CTRs are important because they provide information that is often  unavailable from other sources, or is more objective or up-to-date than that  obtained from other sources. They cited ways in which CTRs provide more  comprehensive or timely information about a suspect’s banking  transactions than they can obtain using other provisions of law.
More specifically, law enforcement officials frequently identified the name  of the currency transaction’s conductor—the person who actually carries  out a cash transaction at a financial institution, but who is not the holder of  the affected accounts—as useful information that is unique to CTRs. For  example, an FBI official noted a case in which analysis of information  obtained by searching the CTR database conductor field provided the  agency with the investigative lead needed to track the banking activities of  persons who, according to the FBI official, were involved in a cocaine  distribution ring. The conductor information was useful because the main  person under investigation in the ring had associates open bank accounts  in their own names at different banks and then made large currency  transactions into these accounts, resulting in CTRs that recorded the main  person under investigation as the conductor. Further, FinCEN and other  law enforcement officials explained that because multiple individuals may  use the same account to conduct transactions, CTRs often could be used to  identify unknown persons associated with suspects, thereby expanding the  scope of investigations. For example, during a 4-year FBI investigation,  analysis of CTRs showed where suspects were banking as they opened and  closed accounts, and on which day of the week suspects typically made  their deposits, allowing the FBI to better plan its surveillance.
Law enforcement officials also noted that CTRs provide a unique source of  information on the occupations of account holders that often proves  useful. For example, a DEA official reported that analyzing CTRs by the  information in the occupation field has allowed him to identify whether  medical companies or doctors—lines of businesses that typically would not  be dealing in high volumes of cash—were diverting controlled substances  for illegal use. Finally, officials from several federal law enforcement  agencies, including the Bureau of Alcohol, Tobacco, Firearms, and  Explosives, IRS-Criminal Investigation, ICE, and DEA, commented that  because depository institutions are required to file CTRs soon after a  reportable transaction occurs, the CTR database provides up-to-date  information on large cash transactions. Many federal, state, and local  officials we interviewed commented that CTRs provided them with ready  access to information that they could not otherwise obtain in a timely  manner.
Officials contrasted these useful aspects of information from CTRs with  information they may be able to obtain on suspects’ banking activities  under other provisions of the BSA or other laws:  Suspicious Activity Reports (SAR) also provide useful information;  however, depository institutions have some discretion in determining  whether a transaction or customer is “suspicious,” and therefore the  institutions determine whether to file a SAR and, if so, what information  to include. Thus, a SAR might not capture the same level of information  about specific transactions that a CTR routinely would provide. Further,  criminals may use several different banks to conduct their transactions,  and a SAR would reflect the suspicious activity only within the bank  filing the SAR.
The Section 314(a) process, under which federal law enforcement  agencies may reach out to financial institutions to locate accounts and  transactions of persons of interest, is reserved for significant money- laundering or terrorist-financing investigations, and agencies may make  such requests only upon approval by FinCEN, which limits the number  of subjects on the list. Further, according to FinCEN, the request  provides lead information only—law enforcement agencies must meet  the legal standards that apply to the investigative tool that it chooses to  use to obtain documents, such as a subpoena. In addition, officials at  FinCEN and the IRS noted that the 314(a) process provides law  enforcement access only to transactions conducted within the last 6  months, or accounts held within the last 12 months, while the CTR (and  other BSA) data provide access to data going back 10 years.
Obtaining bank records through subpoenas could take months or be  difficult. Further, in order to subpoena a specific institution, officials  would need to know that a suspect banked at that institution. A majority  (55 percent) of the state and local law enforcement officials we  surveyed noted that it would be “somewhat more” or “much more”  difficult to obtain information from bank records in this fashion than  from using CTRs.
Other methods of obtaining information about a suspect’s bank  accounts—including “mail covers” (copies, obtained from the U.S.  Postal Service, of the fronts of envelopes delivered to a suspect),  subpoenas for credit reports, and surveillance—are time consuming and  less likely to provide needed information about a bank account,  according to law enforcement officials. ICE and state officials from New  York and Texas noted that their agencies could wait days to obtain mail  covers, with no guarantee of receiving one bearing an address of the  suspect’s financial institution. New York state law enforcement officials  said that the next best alternative would be to subpoena a suspect’s  credit report, a process that could take 30 days. While the credit report  may provide useful leads—for example, a suspect’s mortgage  application—that the agency might then subpoena, the time required  would further lengthen the investigation.
section_title: Agencies Reported Using CTR Data to Support a Wide Variety of Investigative Cases
paragraphs: Most officials of law enforcement agencies we contacted indicated that  they most often use CTRs reactively, and many routinely review CTRs at  the beginning of each investigation. For example, tax investigators in IRS  routinely query BSA data to identify CTRs with information that suggests  situations such as a business paying employees in cash (and thus not  withholding taxes). However, law enforcement agencies typically did not  use CTRs in isolation to develop a case; rather, they used CTR data to  identify leads for further investigation, in part by comparing CTR  information with information from other sources. As explained by law  enforcement officials, the information in CTRs is useful in corroborating  information contained in other BSA reports. For example, agencies may  compare information from the CTR database to that obtained from Reports  of International Transportation of Currency or Monetary Instruments  (CMIR), which report currency transported into the United States, to track  how businesses dispose of cash. Agencies also consult CTR data to obtain  more detailed information after reviewing SARs. For example, officials  from a High Intensity Money Laundering and Related Financial Crimes  Areas (HIFCA) noted that they used CTR data for 105 of the 120 reports  they filed over a recent 1-year period on investigations initiated after  reviewing SARs. In this regard, many law enforcement officials, including  those from ICE, IRS, and the U.S. Attorney’s office, noted that raising the  CTR filing threshold of $10,000 would affect adversely their ability to deter  money laundering, because the CTR threshold corresponds to those set in  other anti-money-laundering provisions. For example, officials from the  U.S. Attorney’s office indicated that the CTR threshold works in tandem  with three other statutorily mandated reporting thresholds, which are also set at $10,000: the CMIR requirement; the Form 8300 requirement;  and the bulk cash smuggling statute.
That no CTRs have been filed on business activities that might be expected  to generate them also provides valuable leads to law enforcement. For  instance, FinCEN, ICE, and DEA conduct analyses comparing known cash  flows documented through other sources with cash flows they would  expect CTRs to document. Officials at both FinCEN and ICE reported that  a search of BSA data for information on a cash business revealing no CTRs  could alert investigators that the business was not using traditional  depository institutions and direct their focus to nonbank financial  institutions such as money services businesses or to the possibility of  currency smuggling. Similarly, the lack of CTRs relating to particular  individuals or businesses can provide investigative leads. For example,  officials from FinCEN and a Florida law enforcement agency said that the  presence of a CMIR, coupled with an absence of related CTRs, could  provide intelligence that currency transported into the country was  subsequently laundered into the financial mainstream through  “structuring” (making a series of cash transactions in amounts less than  $10,000). Another law enforcement official from Florida indicated that a  lack of CTRs corroborated findings from her agency’s surveillance  operations that certain laundromats, dry cleaners, and travel agencies had  laundered millions of dollars.
As shown in figure 1, the state and local law enforcement agencies we  surveyed found CTRs to be of most use when developing leads for existing  investigations. Officials from law enforcement agencies in California, New  York, and Texas—states that were among the highest users of CTR data— indicated that their investigators typically used CTRs to identify a subject’s  bank account numbers and associates who might be conducting  transactions on behalf of the subject. An official from one of these agencies  indicated that no other source of information enabled investigators to  “map” the financial links between members of a criminal organization as  well as the CTR.
Regarding types of investigations involving CTR data, officials of state and  local agencies we surveyed reported that they primarily use CTRs for  money-laundering, fraud, and drug investigations (see fig. 2). State law  enforcement officials we interviewed told us that they use CTRs for a wide  variety of investigations relating to money laundering, drugs, workers  compensation fraud, Medicaid fraud, mortgage fraud, and white collar  crime.
State and local officials also indicated that the current threshold amount of  $10,000 was important to the usefulness of CTRs. Specifically, about 58  percent of the state and local officials we surveyed stated that increasing  the CTR filing threshold would result in a “very great” or “great” reduction  in the usefulness of the CTR filing requirement to their work. A law  enforcement investigator from Illinois indicated that many of the CTRs that  his agency’s criminal intelligence center reviewed were those that  documented total transaction amounts between $10,000 and $20,000.  Similarly, an investigator with a Minnesota law enforcement agency  indicated that the overwhelming majority of CTRs that he found to be of  use to his investigations were for transactions between $10,000 and  $20,000.
section_title: Law Enforcement Agencies Use Aggregated CTR Data to Help Detect Patterns or Trends
paragraphs: Law enforcement agencies noted that CTR information also contributes to  pattern and trend analyses. For example, at the request of DEA, FinCEN  analyzed CTRs filed by institutions in California by ZIP code, providing a  statistical overview of financial activity occurring within those areas that,  combined with other law enforcement intelligence, allowed DEA analysts  to assess threats on a statewide basis. FinCEN officials indicated that their  analysts routinely analyze information from CTRs in conjunction with  information from SARs or other BSA reports to develop “big picture” views  of suspicious financial activity. In addition, ICE officials noted that their  analysts often analyze the “conductor” and account holder information  from CTRs to identify individuals moving the largest sums of money on  behalf of particular account-holders over time to spot any unusual trends.  Further, ICE officials commented that they proactively search CTR  information to identify individuals moving large sums of money using the  same Social Security number with different personal or business names  (according to the officials, name variations is a common technique  criminals use to hide their activities and avoid detection). According to  FinCEN and IRS officials, analytical tools such as data mining—the  application of database technology and techniques, such as statistical  analysis and modeling, to uncover hidden patterns and subtle relationships  in data—have enhanced their investigative efforts by improving their ability  to identify data patterns and trends indicative of money laundering and  other financial crimes.
section_title: CTR Requirements Can Cause Criminals to Act in Ways That Increase Chances of Detection
paragraphs: According to federal law enforcement officials, criminals are forced to  undertake more risky and suspicious methods of money laundering than  depositing cash into depository institutions because they are well aware of  the $10,000 filing threshold for CTRs and the investigative paper trail that it  creates. While criminals can use a variety of means to launder their money,  law enforcement officials we interviewed pointed to three primary  methods that criminals use to avoid the CTR filing requirement:  structuring; bulk cash smuggling, or physically moving cash across borders  via courier or secreted in cargo; and trade-based money laundering, the  process of disguising the proceeds of crime and moving value through the  use of trade transactions.
Many federal law enforcement officials said that the CTR reporting  requirement was critical in supporting the ability of depository institutions,  as well as their own investigators, to identify suspicious activity based on  the structuring of financial transactions to avoid CTRs. The BSA makes it  illegal to structure transactions to avoid triggering otherwise applicable  reporting requirements, such as the CTR, allowing federal prosecutors to  file charges against individuals who structure their cash transactions.   The structuring in which criminals engage to avoid CTRs may cause a  depository institution to file a SAR. FinCEN analysis of SARs filed by  depository institutions from April 1, 1996, through December 31, 2006,  showed that 1.5 million SARs, or 48 percent of all SARs filed by depository  institutions during this period, were filed based on suspicious activity  related to structuring or money laundering.
Many law enforcement agencies routinely review SARs for evidence of  structuring. For example, IRS-Criminal Investigation officials said that their  agents are required to review SARs that report structuring. Officials we  interviewed at several law enforcement organizations, including three  associated with HIFCAs, indicated that they had formed teams to review  SARs to generate leads for cases based on structuring and said that they  regarded the CTR filing requirement as essential to supporting the ability of  depository institutions to identify suspicious activity. Federal law  enforcement officials also emphasized that the $10,000 CTR threshold  played a key role, by forcing criminals to make many more and smaller  transactions than otherwise would be required—thus making them more  vulnerable to being reported for structuring. Officials from IRS, ICE, FBI,  and U.S. Attorneys Offices indicated that they believed large cash  transactions have become more uncommon as consumer access to credit  and electronic payment options increased in the 30 years since the  threshold was established, making the $10,000 threshold still relevant.
The existence of the CTR filing requirement also can force criminals into  riskier activities such as bulk cash smuggling. According to an ICE  official, smuggling illegal proceeds in bulk cash form makes criminals more  vulnerable to detection because it is easier for agents of law enforcement  to interdict bulk cash shipments. Similarly, an official associated with the  Chicago High Intensity Drug Trafficking Area (HIDTA) reported observing  an increase in bulk cash smuggling because criminals would rather take  their chances smuggling their proceeds in bulk cash to Mexico. In  response, the HIDTA has formed a highway patrol to interdict these cash  shipments. Officials from ICE, FinCEN, and the Justice Department also  reported that the increase in recent years of bulk cash smuggling across the  U.S.-Mexican border was an indicator of CTR success in deterring  criminals from depositing cash into domestic financial institutions.
section_title: Measuring Usefulness of CTRs Is Difficult
paragraphs: Linking law enforcement’s use of CTRs to specific outcome measures is  difficult because agencies do not track their use of CTRs, which are  typically only one of many sources of information used to support  investigations. FinCEN does not routinely publish any information on law  enforcement’s use of CTR data as it does for other information that  financial institutions provide under the BSA. Although concerns about  revealing investigatory sources and methods limit dissemination of detailed  information on how law enforcement agencies use CTR data, our  interviews with depository institution officials suggest that they would  better understand the value of meeting their requirements if the institutions  were provided with summary information on CTR use.
subsections: section_title: Agencies Have Difficulties Linking CTRs to Specific Investigation Outcomes
paragraphs: While CTRs appear to be valuable for law enforcement purposes, linking  their use to specific case outcomes, such as indictments or convictions, is  problematic. First, no requirement exists to track the use of CTR data in  investigations, and almost all of the officials from the federal, state, and  local law enforcement agencies we contacted reported that their agencies  did not track their use of CTRs or how the CTRs contributed to case  outcomes.
As a potential indicator of use, we obtained data from FinCEN and IRS on  the number of CTR “views”—that is, the number of times that agencies  accessed an individual CTR record. IRS tabulates views that occur when  agencies access the database through WebCBRS, including its own views  through its Intranet access, while FinCEN tabulates views occurring  through the Gateway program. For example, data show over 1.6 million  views of CTRs by federal, state, and local agencies in 2006 (see table 2).
According to FinCEN data, among users who accessed the CBRS database  through the Gateway program, state and local law enforcement agencies  accounted for about 33 percent and 3 percent of the total CTR views,  respectively. These users include state bureaus of investigation and  criminal prosecuting offices, such as state offices of attorneys general and  county prosecutors’ offices. The number of these CTR views was  concentrated among a few agencies; for example, 10 agencies from 8 states  accounted for almost 64 percent of the total CTR views made by state and  local law enforcement agencies, according to FinCEN’s data. (For a map  showing views by state, see app. II.)
However, the numbers of views do not provide any indication of CTRs’  usefulness to any specific law enforcement effort or establish a link to any  specific outcome of an investigation. Moreover, data on views during this  period may not reflect future trends because of the changes in access to the  CTR database discussed previously. For example, the numbers of CTRs  viewed by state and local users may increase due to the expanding number  of users with access and with more understanding of how CTRs can assist their efforts. Several officials from state and local law enforcement  agencies we interviewed indicated that they believed the use of CTR data  through Gateway probably would increase as users better understand the  value of BSA data. Also, as noted, FinCEN has recently made bulk  downloads of data available to several federal agencies.
A second difficulty in measuring the impact specifically of CTR  requirements involves the way that CTRs are used—primarily to support  investigations that also draw upon many other sources of information.  Officials from the federal investigative agencies we interviewed generally  stated that outcome measures, such as indictments or convictions, cannot  be linked exclusively to CTRs because they are typically one of many leads  used to develop an investigation. Similarly, most—about 82 percent—of the  state and local agencies we surveyed indicated that the number of  investigative leads provided by CTRs was the best outcome measure of  their CTR use. Further, officials from several local law enforcement  agencies noted that attorneys often negotiate plea agreements with the  defendant long before a case goes to trial; thus, no matter how critical the  role played by a CTR in the investigation, there would be no trial in which  CTRs could be used as evidence. In addition, federal, state, and local law  enforcement officials reported that they were more likely to use CTRs as a  basis for obtaining subpoenas to access specific bank account records than  to use CTRs themselves as evidence in court. Officials from IRS, DEA, and  Justice said that by the time a case moves to the trial phase, the  prosecution is more likely to use bank records as evidence because those  records are generally a more convincing form of evidence of a defendant’s  transactions. However, investigators would use the CTR to locate the  defendant’s bank accounts and identify the correct bank records to  subpoena. Further, according to an IRS official, CTRs generally were  presented in court only when bank records were not available or could not  be made available in a timely manner.
FinCEN officials reported that the agency does not have outcome measures  related to CTR use and analysis because many of the cases FinCEN  supported were complex and might not result in tangible success for  several years. Officials cited the example of “Operation Cash-Out,” where  FBI authorities eventually charged persons with attempting to provide  funding to al Qaeda. During this investigation, conducted between 2000 and  2006, FinCEN identified more than 14,000 CTRs relating to the  investigation.
section_title: FinCEN Does Not Publish Information on CTR Uses As It Does for Other BSA Data
paragraphs: Although FinCEN has taken some steps to promote awareness of CTRs and  their value to the financial community and law enforcement agencies, it  does not systematically report information about the numbers of CTRs  filed or results of CTR use. Bank officials we interviewed and those  responding to our survey strongly questioned whether the CTRs they were  filing, especially on customers that they had determined to be at low risk  for financial crimes, provided any value to law enforcement. Some officials  stated that their resources would be better directed at filing SARs, which  they viewed as having greater value to law enforcement. Other institution  officials noted that law enforcement agencies had never contacted them.
Law enforcement officials have given presentations at banking industry  conferences on how BSA data helps them in their investigations. These  industry conferences typically include presentations on how law  enforcement uses BSA data, but they are not necessarily CTR specific.  Officials we interviewed and those responding to our survey stated that  they largely did not understand how the CTRs they filed were being used by  law enforcement.
In contrast to this general lack of information on CTR use, FinCEN  routinely publishes information on the numbers of SARs filed and  examples of how they have been used by law enforcement agencies. Since  October 2000, in conjunction with law enforcement and regulatory  agencies, FinCEN has been issuing the SAR Activity Review, which  provides information about the preparation, use, and value of SARs that  depository institutions, as well as other financial institutions, filed. For  example, the October 2007 edition contained expanded descriptions of law  enforcement cases to demonstrate the value of BSA data to the law  enforcement community, including cases that were proactively initiated as  a result of BSA reports, as well as trends in certain crimes identified  through SARs. FinCEN also includes some information on the results of  requests to financial institutions under section 314(a) of the USA PATRIOT  Act. FinCEN officials told us that limited resources currently precluded the  agency from routinely analyzing and publishing trend information about  CTRs filed by depository institutions.  However, the officials noted that the  agency recently completed a study of CTR trends and patterns, and they  were considering whether to include information on CTRs in the SAR  Activity Review.  Many officials we interviewed and those responding to  our survey indicated that they were genuinely interested in how CTRs were  being used. Further, our interviews with depository institution officials  suggest that they would better understand the value of meeting their  requirements if the institutions were provided with some information on  CTR use, similar to that reported on uses of SARs.
section_title: Financial Institutions Incur Some Costs to Meet Requirements Regardless of the Number of CTRs They File
paragraphs: Our analysis of CTRs filed during calendar years 2004 to 2006 shows that a  large proportion was filed by a small number of the largest depository  institutions. While these institutions therefore likely incur the greatest  expenditure of time and resources, all depository institutions incur some  costs to meet CTR requirements, regardless of the number of CTRs they  file. This is because institutions must have processes and trained staff in  place to identify when and if a CTR is required, including the ability to  aggregate same-day cash transactions made by or on behalf of the same  person, and to file CTRs correctly. While automation has made these tasks  less difficult, many institutions reported that their processes still include  “manual” steps. Institutions we contacted were generally unable to quantify  their costs for meeting CTR requirements, in large part because they use  the same processes and staff for meeting other BSA requirements or for  other purposes.
subsections: section_title: While Most Depository Institutions File CTRs, a Small Number of the Largest Institutions Account for the Majority
paragraphs: Our analysis of FinCEN’s data on the numbers of CTRs filed annually  shows that, from 2004 to 2006, a relatively small number of the nation’s  approximately 17,000 depository institutions accounted for the large  majority of CTRs filed. For example, in 2006, fewer than 30 very large  banks (those with assets of $50 billion or more) accounted for over half (55  percent) of new CTRs during this period, while banks with assets between  $1 billion and $50 billion accounted for another 30 percent. The largest  credit unions—those with assets of $100 million or more—accounted for  only 1 percent of new CTRs, and credit unions in total accounted for less  than 2 percent. (For illustrative purposes, the remainder of this section  focuses on CTRs filed in 2006. Details on the numbers of CTRs filed during  the 3-year period, including analyses by institutions of different sizes,  appear in app. III.)
In 2006, nearly two-thirds of depository institutions filed at least one CTR— 89 percent of banks and 42 percent of credit unions. However, the CTRs  were concentrated among the larger institutions (see fig. 3). For example,  the 27 very large banks (representing less than one-half of 1 percent of all  banks) filed 55 percent of the CTRs filed.
Further analysis of the CTRs filed in 2006 revealed that the 100 largest  depository institutions filed 7.8 million CTRs, or 65 percent of the total.  One institution—the single largest filer—accounted for 1.7 million CTRs  (14 percent of the total). The median number of CTRs filed by banks in  each size category was as follows: very large banks, 125,202; large, 1,889;  midsize, 154; and small, 17.
section_title: Regardless of the Number of CTRs Filed, Institutions Incur Costs to Establish and Maintain a CTR Filing Process
paragraphs: Some institutions may rarely file CTRs—for example, our analysis showed  that over 5,900 institutions did not file any CTRs in 2006—but nevertheless  incur costs to establish a filing process and train their staff to meet CTR  requirements. All of our survey and interview respondents reported that  they had established processes to file CTRs and thus incurred costs  associated with these processes. While the following briefly summarizes  and depicts a typical process, we found much variation both within  institutions—for example, procedures for filing CTRs resulting from  aggregated transactions differed from those applicable to a single  transaction—and among institutions.
At most institutions, the CTR filing process typically involves a number of  steps and staff members (see fig. 4). The staff may include tellers, branch  supervisors, and compliance officers. A teller typically inputs the  information needed to fill out the CTR form, during or immediately  following a cash transaction greater than $10,000. The teller completes the  form, either by hand or through an automated system, and passes it to a  branch-level supervisor for review. Once this review is complete, the CTR  is sent either electronically or in hard copy to the institution’s compliance  office for an additional review and compliance check. Once the compliance  check is complete, the CTR is signed and sent either electronically to  FinCEN or by mail to the IRS.
To identify cases in which a CTR may be needed if certain individual  transactions are aggregated and for other purposes, depository institutions  generally keep a daily report of transactions across their branches and  service centers and aggregate the transactions by customers’ tax  identification numbers. Typically, compliance office staff review the  aggregation report to see if any of the aggregated transactions made by or  on behalf of the same person meet the CTR filing threshold. Some  depository institution officials we interviewed said that reviewing this  aggregation report could take from 1 to 2 hours a day, while others noted  that it was a time-consuming process because it was a manual or partly  manual process. Further, if information is missing, additional time is  required to obtain it. Our analysis of CTR data shows that in 2006, 65  percent of all CTRs filed resulted from aggregated, rather than single,  transactions.
Many of our survey and interview respondents said that, in general, their  CTR process was not complex: Fifty percent said the process was very or  somewhat simple for their institution to complete. However, 21 percent of  the survey respondents said their process was very or somewhat complex.  Officials we interviewed and surveyed also noted that, in general, a number  of variations to the basic process outlined in figure 4 exist, depending on  circumstances. For example, additional time and effort is needed to fill in  any required information that a teller failed to obtain at the time of a  transaction. Similarly, if an institution filed a CTR with an error,  subsequently filing an amended CTR may involve collecting additional  information about the transaction; and “backfiling” (cases in which an  institution files a CTR after discovering one needed to be filed) may require  time-consuming review of an account’s transactions over a period of time.
In addition, we found that while most depository institutions generally  follow the same process for filing CTRs, significant variations can exist  among them, which may be attributed to the quantity of CTRs filed, the  number of staff involved, the degree of automation, or institutional  preferences in reviewing and processing CTRs.
section_title: Technology Has Expedited Some Steps in the Filing Process, but Institutions Have Not Automated All Steps
paragraphs: Technology has helped some depository institutions expedite and  streamline many or some parts of the CTR process. Overall, 78 percent of  institutions responding to our survey reported that at least one part of their  CTR filing process was mostly or fully automated.  Many of the institutions  we spoke with have software systems that prompt the teller when a CTR is  necessary for a transaction, and some institutions have systems that allow  tellers to electronically access the CTR form at their workstation and enter  the necessary information. Additionally, some depository institutions  reported that they had software systems that automatically fill in some  parts of the form. Also, some banks have invested in software that  processes CTRs for final reviews by their compliance office staff.
However, the extent of automation varied widely among specific steps in  the process (see fig. 5), and no survey respondents reported a completely  automated CTR process.  For instance, 35 percent of survey respondents  said they had a mostly or fully automated process for their tellers to fill out  CTR forms, while 48 percent reported this step was largely manual and 16  percent used a mix of manual and automated steps. The step that was most  likely to be automated was the aggregating of daily cash transactions: 68  percent of survey respondents reported that their systems automatically  generate this aggregation report. The step least likely to be automated was  the supervisory review of CTRs; about 10 percent of survey respondents  reported that the review processes at the branch level had been automated.  While we did not obtain data showing how the extent of automation  compares with the volume of CTRs filed, our structured interviews with  officials from depository institutions suggest that institutions filing the  most CTRs (generally the larger institutions) were more likely to have  highly automated processes than smaller institutions filing fewer CTRs.  Because of the cost, many smaller banks that do not file as many CTRs may  choose not to invest in systems that could provide a greater degree of  automation.
The extent of automation could influence the time needed to process CTRs.  Overall, survey respondents reported a median time of 25.2 minutes to  complete a CTR in 2007 (see fig. 6). In 1998, FinCEN estimated that it took  about 24 minutes to complete a CTR.
Although FinCEN has taken steps to encourage institutions to file CTRs  electronically, 76 percent of our survey respondents said that they filed  CTRs by mail, while 14 percent reported that they filed electronically, 6  percent filed by magnetic media, and 4 percent a combination of these  methods. However, institutions that do not file CTRs electronically may  account for a small proportion of all CTRs. According to FinCEN data, 47  percent of all CTRs filed by financial institutions in 2006 were filed  electronically, while 22 percent were filed by mail, and 31 percent were  filed by magnetic media. Further, the use of electronic filing appears to be  growing; in fiscal year 2003, only about 5 percent of CTRs were filed  electronically. Some depository institution officials said the ability to e-file  has made filing CTRs much easier at their institution. Others stated that  they choose not to file electronically because the volume of CTRs they filed  did not justify the required time and effort involved. According to FinCEN,  electronic filing is best suited for institutions that file a larger volume of  CTRs; however, the overall benefits of e-filing to lower-volume filers—for  example, the e-filing system provides the institution submitting the CTR  with an electronic confirmation of its receipt—in many instances may  outweigh development costs.
section_title: Depository Institutions Could Not Quantify Costs Specific to CTR Requirements
paragraphs: Although they provided some anecdotal estimates, officials of depository  institutions we interviewed had difficulty separating costs for meeting CTR  requirements from other BSA costs, such as preparing Suspicious Activity  Reports. In particular, we found that at some banks, some staff and  automated systems were used to meet CTR and other BSA filing  requirements. While we asked institutions we spoke with to provide  estimates of costs based on categories such as personnel, training, and  technology, not all institutions were able to do so because they do not  typically account for CTR costs in this way. However, officials from  institutions we interviewed did describe general types of costs and  provided some estimates.
In general, personnel costs associated with CTRs may include the cost of  training staff on meeting CTR requirements, as well as the cost of labor  involved in filing CTRs. They may include salary expenses for tellers,  branch managers, and BSA compliance staff. Most institutions said they  provide annual training on when and how to file CTRs, and that staff  members, including tellers, spent an average of about 1 hour each in CTR  training. At smaller institutions, fewer staff may receive training; for  example, a compliance officer at one smaller bank told us that 26 staff  members received four hours of BSA training annually, a portion of which  is dedicated to CTRs. In contrast, the BSA officer at a very large bank said  that 1 hour of CTR training is provided annually to 160,000 staff; officials  from a very large bank said it registers about 40,000 hours in CTR training  each year among its staff. Many depository institutions indicated that  training on CTR requirements was part of a larger BSA training course,  while a few said they offered training modules focused on CTRs. For  example, at a cost of $15,000, one bank has purchased access to a Web- based training program that offers courses on CTRs, as well as other areas  of BSA. Furthermore, officials at one very large institution noted that, in  particular, they had to conduct training more often for tellers because of  high rates of turnover in teller positions.
While all institutions incur some level of costs for training their staff, our  interviews suggest that typically the higher the number of CTRs an  institution filed, the higher the number of associated personnel—and  therefore presumably training costs. Similarly, the labor costs associated  with actually preparing CTRs would be expected to be larger among the  institutions that file the most CTRs—though, as noted, such costs are also  affected by the type of process used, including the degree of automation.  The highest-volume CTR filers reported having staff solely dedicated to  filing CTRs and exemptions; for example, one very large bank employed  more than 190 staff at CTR operations centers, and representatives of  another very large bank reported 60 staff members who worked exclusively  on CTRs. Conversely, representatives of one midsized bank said that they  had one and a half full-time equivalent positions in their compliance office  dedicated to CTRs.
Reflecting the range of numbers of staff that may be involved, officials  provided a wide variance of estimated personnel costs. For example, the  very large bank with more than 190 dedicated staff (which filed over 1  million CTRs in 2006) estimated the cost to be “several” million dollars.  Other large filers also reported high costs for staff salaries that ranged from  just less than $1 million to over $5 million. For example, one very large  bank that filed almost 1 million CTRs in 2006 estimated the cost at $5.4  million—$3.6 million for the approximately 25,000 tellers involved and $1.8  million in personnel costs for staff dedicated to CTRs. In comparison,  officials from one large bank that filed just fewer than 5,000 CTRs in 2006  estimated that personnel costs for tellers and compliance office staff were  slightly more than $76,000 for the year. Similarly, the midsize bank that  reported one and a half full-time equivalent positions dedicated to CTRs,  and filed approximately 2,300 CTRs in 2006, estimated personnel costs of  about $31,000 for the compliance office staff but was unable to provide an  estimate for the costs associated with the tellers’ time. Officials from  smaller institutions we spoke with generally estimated lower costs and  indicated that CTR filing responsibilities at their institutions were handled  by staff that had other responsibilities, as well; one estimated that staff  time for filing 65 CTRs in 2006 cost a little less than $2,000.
As noted above, institutions have automated processes for meeting CTR  requirements to differing extents, and officials cited technology as a  significant cost. For example, one large bank was considering adding a  CTR module to its current software at a cost of between $60,000 and  $70,000; another large bank reported recently spending about $30,000 to  purchase a new software component. However, because many of the  institutions we spoke with also used these systems for other processes,  they were not able to break out the costs exclusively for CTRs. For  example, some officials told us their systems cost in the thousands of  dollars but that they used the systems for monitoring cash transactions for  suspicious activities, as well as for preparing CTRs. As a result, officials we  interviewed said that, even if CTR requirements were eliminated, their  institutions would still incur both personnel and systems costs because of  other BSA compliance activities. An official of a very large bank said that if  the CTR requirement were eliminated, the bank would be able to eliminate  or reassign 14 staff to other activities but still would need to prepare many  of the same reports, such as aggregation reports, because they are used for  other purposes, such as identifying suspicious activity. An official of a large  bank told us if there were no CTR filing requirement, the bank would  realize reductions in some technology costs but would retain staff involved  for their expertise and skills in other parts of its BSA program.
section_title: Uncertainty about Required Documentation and Some Regulatory Requirements May Unnecessarily Discourage Use of Exemptions
paragraphs: FinCEN data show that depository institutions filed about 31,500 Phase I  and 39,300 initial Phase II exemptions during 2004-2006. However,  according to our survey results, many financial institutions with customers  considered eligible for exemptions do not actually exempt them but instead  continue to file CTRs on the customers’ transactions—despite the  institutions’ recognition that making use of the exemption provisions  would enable them to file fewer CTRs. (Complete survey results can be  viewed at http://www.gao.gov/cgi-bin.getrpt?GAO-08-385SP.) Among the  reasons cited by institutions was uncertainty about the documentation  required to demonstrate that some customers are in fact eligible,  accompanied by some concern that examiners from the federal banking  regulators would deem the documentation insufficient and cite them for  BSA noncompliance. Our discussions with examiners revealed variations  in the types of documentation they find acceptable, although our review of  data from the banking regulators showed relatively few violations  concerning exemptions compared with the number of BSA examinations  conducted. Other factors discouraging use of exemptions were the cost  and effort involved in meeting FinCEN’s regulatory requirements to (1) file  an exemption form, and annually review and update the information,  particularly for certain customers that are specifically exempted by statute,  as appropriate; and (2) biennially file a form to document the continued  eligibility of customers that have been exempted under the Phase II  regulations—which as a practical matter duplicates the required annual  review process for those customers. Factors the institutions indicated  might encourage use of exemptions included (1) shortening the waiting  period—currently a full year under FinCEN’s regulations—before  exempting certain customers with a relatively large volume of cash  transactions, and (2) making Web-based material available to help train and  guide depository institutions’ staff in making exemption determinations.  Because the transactions of exempt customers are likely to be of little or no  value to law enforcement, actions to encourage depository institutions to  make greater use of exemptions could avoid the burden of filing some  CTRs without harming law enforcement efforts.
subsections: section_title: While Recognizing the Benefits of Exemptions, Depository Institutions Do Not Exempt All Eligible Customers
paragraphs: Exemptions allow institutions to avoid filing CTRs for the exempt  customers, but the institutions are not required to exempt eligible  customers. According to the results of our survey, institutions that made  use of exemptions primarily did so because it allowed them to file fewer  CTRs, was cost-effective, and the determinations involved were fairly easy.  As shown in figure 7 below, the reasons generally were consistent for both  Phase I and Phase II exemptions.
The primary reason cited for using the exemption process was that it  allowed institutions to file fewer CTRs. While it would be difficult for an  institution to track the number of CTRs it “saved” or avoided by exempting  a customer, some had; for example, a smaller institution reported that it  recently began using exemptions more extensively, and by exempting five  more Phase II eligible customers, the institution anticipated filing almost  200 fewer CTRs. (However, the effect of exempting a single customer on  the number of CTRs filed cannot be generalized; for example, an exemption  might avoid 8 CTRs or 100, depending on the volume of cash transactions  in which the customer typically engaged.) Institutions also frequently cited  the cost-effectiveness of using exemptions; while they had difficulty  estimating the cost of establishing exemptions, just as they did for the costs  of filing CTRs, some institutions regarded exempting customers as less  costly than filing CTRs. Officials at other institutions we interviewed cited  recent advances in commercial software systems that made exemptions  easier. For example, software can identify the customers potentially  eligible for the Phase II exemption due to the volume of high cash  transactions they engaged in during the year. In addition, at least one  software vendor makes available for purchase a database of companies  listed on stock exchanges that are eligible for the Phase I exemption.
Despite the cost-effectiveness of using exemptions, institutions responding  to our survey did not exempt all of their eligible customers. For example,  while 77 percent of the institutions reported having customers eligible for  the Phase I exemption, only 45 percent reported that they always or usually  filed Phase I exemptions. Similarly, 83 percent of the institutions reported  having customers eligible for the Phase II exemption, but only 49 percent  reported that they always or usually filed Phase II exemptions (see fig. 8).
Some institutions that file large numbers of CTRs—and, therefore, might  realize the greatest savings by avoiding CTRs—do not file many  exemptions. Some of the reasons for this are discussed in the following  sections. (Further details on the results of our survey, including the  percentages of institutions that cited specific factors affecting their  decisions to exempt or not exempt customers, are presented in app. IV and  in GAO-08-385SP.)
section_title: Uncertainty about Documentation Needed to Demonstrate Eligibility, Accompanied by Concerns of BSA Noncompliance, Deterred Some Exemptions
paragraphs: The leading reason identified by survey respondents that choose not to file  Phase II exemptions was difficulty in determining the percentage of a  customer’s gross revenue derived from lines of business not eligible for  exemption. This difficulty—along with other concerns, including that  federal banking regulators would deem documentation insufficient— contributed to a reluctance to exempt customers that the institutions  considered potentially eligible.
The responses of officials of institutions we interviewed were consistent  with our survey results. Officials explained that a fair amount of research  was required on their part to determine eligibility under the Phase II  regulations—for example, examining a business’s tax returns or financial  statements—and that it was not always clear if the customer qualified for  the exemption because it was difficult to determine which part of a  business customer’s revenue was derived from which activity. The  depository institutions that chose to use the Phase II exemption used  various methods to document the portion of revenues derived from  ineligible activities. Officials of several institutions we interviewed said  they arrived at this determination after conducting what they said was  exhaustive research, which included analyzing financial statements,  searching the Internet, and reviewing available documents if the institution  had a lending relationship with the customer, or asking the customer for  documents. Officials of other institutions used less labor-intensive  methods; for example, an official of one midsize institution indicated that  the account officer simply asked customers about the source of their gross  revenue and made a notation in the customer’s file. Several institutions  reported using a letter from the customer to self-certify that no more than  50 percent of their gross revenue came from activities or lines of business  ineligible for exemption.
Officials from the federal banking regulators generally indicated that they  did not have a standardized expectation for what documentation (such as  financial statements or tax documents) an institution might use to  demonstrate the portion of revenues derived from ineligible activities. They  further noted that examiners have some flexibility in determining what  level of documentation is required, based on guidance in the BSA/AML Examination Manual. The same manual is used by each of the  five federal banking regulators and is available to depository institutions to  help guide their BSA compliance activities. However, our interviews with  officials and examiners indicated differences among them regarding the  type of documentation acceptable. For example, federal regulators and  examiners we interviewed had different views about the use of a self- certifying letter and whether depository institutions ought to provide other  documentation. While Federal Reserve and FDIC officials said the  acceptance of a self-certifying letter would depend on the circumstances,  they generally noted that examiners had flexibility in deciding what level of  documentation would be acceptable. Officials from OTS and OCC, on the  other hand, indicated that a self-certification letter alone would be  inadequate to show eligibility. Because, in this instance, the federal banking  regulators examine institutions for compliance with FinCEN’s regulations,  additional guidance from FinCEN could help reduce the difficulties that  depository institutions face in making this determination and clarifying, for  both the institutions and the regulators, the types of documentation  acceptable for demonstrating eligibility.
Officials and examiners we interviewed from all of the federal banking  regulators indicated that they have found few problems with exemptions,  and our review of available violation data for 2005 and 2006 indicated that  examiners cited relatively few violations for exemptions. We asked the  regulators to disaggregate their data on violations to distinguish those  related specifically to exemptions; only the Federal Reserve, FDIC, and  OCC were able to provide this level of detail. These three agencies are  responsible for examining about 7,800 depository institutions, including the  largest banks that likely account for the greatest numbers of CTRs. As  shown in table 3, the three agencies collectively found violations  associated with exemptions in less than 5 percent of the BSA exams they  conducted—a combined total of 227 violations for exemptions in 2005 and  113 violations for exemptions in 2006.
Similarly, we asked FinCEN for data on BSA enforcement actions it has  taken against depository institutions related to exemptions. (While FinCEN  generally coordinates with the federal banking regulators, it may  independently take enforcement actions, including imposing penalties and  fines, for BSA violations.) FinCEN data show that, over the 10-year period  1997 to 2006, it took 110 BSA enforcement actions related to exemptions, 4  of which included fines. (More detailed information on FinCEN’s  enforcement actions is presented in app. IV.)
The fairly low incidence of violations associated with exemptions may  reflect depository institutions’ decisions to simply not grant exemptions,  thus avoiding potential violations. (Some examiners noted that they  sometimes encouraged depository institutions to use the exemption  process, for example, if the institution was filing many CTRs on customers  that were potentially eligible for the exemption.) However, our survey and  interviews demonstrate that a lack of clear guidance from FinCEN for  documenting eligibility, and the differing interpretations among the federal  banking regulators, have the effect of dissuading depository institutions  from more frequently using the Phase II exemption. A minority of our  survey respondents indicated that they “always” exempt eligible  customers—33 percent reported doing so for Phase I-eligible customers  and 26 percent for Phase II-eligible customers. Some depository institution  officials noted that any compliance deficiency found by BSA examiners  was a cause for concern. (About 10 percent of survey respondents reported  that they had received a CTR violation or had been fined since 2000.) An  official from the very large bank that filed more than 150,000 CTRs in 2006  said it was the bank’s official policy not to exempt any new customers that  were eligible for the Phase II exemption because, among other things, the  bank faced reputation risk if it was cited for a BSA violation, and use of the  exemption process opened the bank to examiner criticism and fines. An  official from a large community bank said that the bank did not file Phase II  exemptions because of concerns about regulatory risk. Officials from  several depository institutions we interviewed specifically said it was not  clear to them what level of support was needed, and some indicated that  they would rather file CTRs than take the risk of not satisfying an examiner.
In a 2002 report on the exemption process mandated by section 366 of the  USA PATRIOT Act, FinCEN concluded that it should work with the federal  banking regulators, as well as banks, to reduce “fear of adverse regulatory  consequences from making incorrect exemption determinations.”   Exemptions are addressed in the BSA/AML Examination Manual, which  was first published in 2005 and, as noted, is used by the banking regulators  and is available to depository institutions. However, 68 percent of our  survey respondents said that difficulty in determining whether companies  derive more than 50 percent of their revenues from ineligible business  activities was a “very great” or “great” factor in their decision not to exempt  Phase II-eligible customers. Guidance that could help institutions make  greater use of this exemption would help avoid unnecessary CTRs that are  of little or no use to law enforcement.
section_title: Biennial Renewals, Which Duplicate Annual Reviews, Discourage Use of Some Phase II Exemptions
paragraphs: FinCEN’s regulations require that depository institutions (1) annually—at  least once a year—review and verify the information supporting any  exemptions that they have filed for either Phase I or Phase II customers,  and (2) biennially file—on March 15 of the second calendar year following  the initial exemption—a renewal form to continue the exemption of Phase  II customers. The purpose of the annual review is to ensure that the  customers continue to qualify for exemption; according to FinCEN, the  biennial renewal provides formal notification to FinCEN that the institution  has monitored the customers’ transactions as required. About 49 percent of  our survey respondents indicated that the time-consuming nature of the  biennial renewal was of great or very great importance in contributing to  their decision not to exempt customers eligible for Phase II exemptions.  An official from the very large bank that filed more than 150,000 CTRs in  2006 said it was the bank’s official policy not to exempt any new customers  that were eligible for the Phase II exemption because of the costs  associated with the biennial renewals and the need to keep track of which  exemptions had to be renewed in each year. Officials from depository  institutions we interviewed, particularly those that did not exempt  customers, also said that the need to conduct this review discouraged their  use of the exemption.
Officials of some depository institutions questioned the value added by  biennial renewals, observing that they were already conducting the annual  review as well as monitoring all of their customers for suspicious activities,  which is part of a strong anti-money-laundering program pursuant to  section 352 of the USA PATRIOT Act. Even officials of institutions that  nevertheless filed and maintained exemptions considered the requirement  to be redundant. For example, officials at one of the very large banks— which had more than 1,900 Phase II exemptions on file—said they filed the  “biennial” renewal form every year for every customer, because the bank  went through the same steps for the biennial renewals as it did for each  required annual review and did not want to risk failing to file a biennial  renewal form in the correct year. Further, our analysis of FinCEN data  revealed that some institutions file biennial renewal forms on Phase I  customers, although they are required only for Phase II customers (in 2006,  depository institutions filed 1,382 biennial renewals on Phase I customers).
FinCEN established the biennial renewal requirement based on its  interpretation of the Money Laundering Suppression Act. Specifically, the  act requires the Secretary of the Treasury to prescribe regulations requiring  that depository institutions review, at least annually, the qualified business  customers that they have exempted and to “resubmit information about  such customers” to the Secretary. According to FinCEN, the  implementing regulations provided for the information to be resubmitted  biennially, rather than annually, because the statute does not explicitly set a  time frame for the resubmission. Further, FinCEN officials believe that  the Secretary has general authority to prescribe appropriate exemptions to  requirements under the BSA, including revising the regulations to eliminate  the biennial renewals.
FinCEN officials said that the biennial renewal form provides them with  evidence that the exempt business remains eligible for the exemption and  that the institution has been monitoring the business for suspicious activity.  In addition, they reported that FinCEN routinely analyzes biennial renewal  forms (along with other information) filed on and by specific depository  institutions that are the subjects of compliance or enforcement actions by  the federal banking regulators to determine if the institutions properly  granted exemptions to eligible customers. However, these activities  essentially duplicate those of the bank examiners who, as part of the  examination process, ascertain whether institutions properly grant  exemptions and monitor their customers for suspicious activity.  Examiners from a few of the banking regulators indicated that the biennial  renewal requirement results in depository institutions collecting the same  kinds of information that they collect as part of the annual review of  exemptions. Further, all biennial renewals must be filed on March 15,  regardless of when the exemption was filed. Officials from the Federal  Reserve noted that meeting both requirements can impose significant  compliance costs on the institutions, yet the duplication provides no  offsetting benefit for supervisory efforts. Eliminating the requirement for  biennial renewals could encourage more institutions to make use of Phase  II exemptions and reduce the burden associated with filing unnecessary  CTRs.
section_title: Current Regulations Require Institutions to File Exemptions for Customers That Are Statutorily Exempt
paragraphs: Recognizing that the cash transactions of customers that are depository  institutions or governmental entities would likely be of little or no use to  law enforcement efforts, the Money Laundering Suppression Act  specifically directed that the Secretary of the Treasury exempt depository  institutions, as appropriate, from filing CTRs on the transactions of these  customers. FinCEN did so, but its regulations require depository  institutions to file exemption forms if they choose to exempt these types of  customers—and to annually review and verify the information supporting  the exemption. The statute does not mandate annual reviews for these  customers.
In essence, the regulations treat these entities like all other customers  eligible for Phase I exemptions, including listed companies and majority- owned subsidiaries. Accordingly, if depository institutions choose to  exempt these customers, they must perform the same steps and incur costs  for annual reviews as they do for other customers they exempt. But  depository institutions and governmental entities, in contrast to other  Phase I entities such as publicly traded companies, are unlikely to change  those characteristics that initially qualified them for exemption. For  example, a governmental entity is unlikely to become a private company. In  any case, a change in the status of a governmental entity or bank would  most likely require that the exempted bank account be closed and a new  one be opened—triggering a new consideration for exemption.
Few institutions we interviewed cited difficulty in determining eligibility  for their customers that are other depository institutions or government  entities, and many said that, in these cases, they exempt all eligible  customers. However, they would have incurred some cost to file the form  and to annually review the supporting information. In response to our  survey, officials of depository institutions reported that their staff took a  median time of about 34 minutes to exempt a Phase I customer, and about  14 minutes for the annual review process. Further, some depository  institutions do not exempt these customers and continue to incur the cost  of filing CTRs. For example, our analysis of FinCEN data shows that, in  2006, almost 87,000 CTRs were filed on over 2,900 depository institutions,  and about 45,000 CTRs were filed on some 5,500 government entities.   These CTRs are unnecessary in that the cash transactions of these entities  are not likely to have a high degree of usefulness for law enforcement.
According to FinCEN officials, the information provided on the exemption  forms for these entities is not required for analytical purposes per se but  rather serves as the basis for recording which financial institutions had  chosen to exempt specific depository institutions and governmental  agencies. However, depository institutions are separately required to keep  records of customers’ transactions for BSA purposes. Federal Reserve  officials specifically noted that they believed that the automatic exemption  of domestic depository institutions from the CTR filing requirement should  be considered and that eliminating the need to file an exemption and keep  it current for these entities would make the CTR process more efficient.  Continuing to require depository institutions to file forms on these  entities—and to incur the cost and effort of annually reviewing the  information supporting the exemption—discourages use of the exemption,  resulting in CTRs that are likely to be of little or no value to law  enforcement.
section_title: Length of Time Allowed Before Frequent Customers Can Be Exempted May Result in Unnecessary CTRs
paragraphs: FinCEN’s Phase II exemption regulations specify that, in order to be  eligible for exemption, among other things customers must have held an  account for at least 1 year and must have “frequently” engaged in currency  transactions in excess of $10,000. In a November 2002 guidance  memorandum, FinCEN defined “frequently” as at least eight large currency  transactions in a 1-year period (with an exception for seasonal  customers). Officials of several banks we surveyed said that their use of  exemptions for Phase II customers would increase if they were permitted  to exempt businesses with frequent cash transactions in less than 12  months.
As explained by an official of one institution, a year seems to be an  unnecessarily long time if the business is by nature cash-intensive and not  suspicious, and the institution regularly files CTRs on the business. Or, as  other officials noted, a waiting period of less than 1 year would be  appropriate if the ownership of a business changed but the transaction  activity remained relatively similar to that under the previous owner, or if  known customers chose to form new businesses. We analyzed FinCEN’s  data to identify the numbers and frequency of CTRs filed on customers that  were subsequently exempted. We found that, among customers that were  initially exempted in 2006, the median number of CTRs filed in the 12  months preceding the exemption was 14; the median number filed in the 8  months preceding exemption was 11; and in the preceding 6 months, it was  9. This analysis demonstrates that many customers that were later  exempted engaged in more than the 8 transactions in a 12-month period  required by FinCEN—generating thousands of unnecessary CTRs.
FinCEN promulgated its regulations establishing the 12-month requirement  before enactment of the USA PATRIOT Act. That law provided for  customer identification programs, for which FinCEN regulations require  depository institutions to collect sufficient information to verify the  identity of customers when they first open an account. Thus, depository  institutions must require new business customers to provide their name,  physical location, and taxpayer identification number, at a minimum, at  account opening. Furthermore, as noted above, BSA compliance programs  require depository institutions to monitor their customers for suspicious  activity. Thus, continuing to require a 12-month period before allowing  otherwise nonsuspicious customers with large numbers of cash  transactions to be exempted may needlessly cause depository institutions  to file CTRs that are not highly useful to law enforcement efforts.
section_title: Material to Help Train Institutions on Requirements Could Increase Use of Exemptions
paragraphs: FinCEN currently provides material on its Web site, such as answers to  frequently asked questions, rulings and guidance, and information on BSA  requirements. However, the responses to frequently asked questions and  rulings and guidance concerning exemptions are limited and dated.   Forty-eight percent of respondents to our survey indicated that the  availability of Web-based material from FinCEN would greatly or  moderately increase their use of the Phase I exemption, and 51 percent of  respondents said it would greatly or moderately increase their use of the  Phase II exemption. Such material would help train respondents’ staff and  guide them in interpreting and applying the exemption requirements.  Officials of depository institutions we interviewed generally indicated that  they currently purchase training modules from vendors, hire trainers, or  have their compliance officers develop in-house training.
Our work suggests that material to help train staff could assist depository  institutions in making some eligibility determinations under both the Phase  I and Phase II regulations and help overcome difficulties that often  dissuade institutions from greater use of the exemptions. As previously  discussed, our survey results and interviews with depository institution  officials highlighted difficulties in determining the portion of a customer’s  gross revenue derived from lines of business not eligible for the exemption,  which dissuaded some institutions from using the Phase II exemption.  Similarly, about 39 percent of survey respondents indicated that difficulties  in determining eligibility was a factor of great or very great importance in  their decision not to exempt a customer eligible for the Phase I  exemption. The difficulties included determining whether customers are  “listed” (publicly traded) companies or are majority-owned subsidiaries of  such companies. FinCEN’s regulations provide that institutions may,  among other things, rely on documents filed with the Securities and  Exchange Commission or listings of the three stock exchanges published in  newspapers or available on Web sites. However, officials we interviewed  stated that verifying the publicly traded status of customers was not always  straightforward, and it is sometimes difficult to determine ownership  structures. For example, officials from one bank explained that the bank  held a number of accounts for a large publicly traded video rental chain;  some of the stores were corporately owned while others were independent  franchises. While the company-owned stores would be part of the publicly  traded company, the franchise operations were not likely to be publicly  traded. The bank did not exempt any of these accounts, however, to avoid  the risk of exempting a customer that was not eligible for the Phase I  exemption. Further, some survey respondents stated they had difficulty  determining eligibility when a customer is a subsidiary of a listed company.  One respondent noted that his institution would not attempt to exempt  such a customer because it was too difficult to document eligibility in this  case.
In addition, our analysis of FinCEN’s data on exemptions filed from 2004  through 2006 suggests that institutions might benefit from the availability  of Web-based material from FinCEN. For example, we found that some  institutions were filing biennial renewals for Phase I exemptions, even  though FinCEN regulations require renewals only for Phase II exemptions.  Also, our interviews with examiners from the federal banking regulators  indicated that further training might encourage appropriate use of  exemptions. For example, examiners from FDIC and OCC reported that  some institutions had difficulty distinguishing between businesses eligible  for the Phase I and Phase II exemptions. Some examiners reported that  they were educating depository institution staff about the exemption  requirements, as well as credit union examiners in particular, on the use of  Phase I exemptions for correspondent banks.
Treasury’s 2002 report on the uses of CTRs noted the importance of making  the exemption system easier for bank personnel to understand. In  preparing that report, FinCEN relied in part on a contractor’s survey of  depository institutions, including their exemption practices and the  reasons underlying them. The contractor concluded that FinCEN should  offer a Web-based training module on its Web site to clarify the exemption  process. Our work for this report indicates Web-based material that would  help train staff could encourage institutions to make greater use of  exemptions, thereby avoiding the filing of CTRs that are of little or no use  to law enforcement efforts. Providing such material on FinCEN’s Web site  would be a cost-effective way to help ensure that all institutions have  available up-to-date information on how to meet the requirements.
section_title: Conclusions
paragraphs: Since GAO reported over a decade ago that the large volume of CTR  reports had made analysis difficult, expensive, and time consuming,  developments in information technology have provided law enforcement  with the capacity to simultaneously analyze large quantities of CTR data  and link these with other data sets. These technological advancements, as  well as the advent of bulk data downloads and expanded access to CTR  data by state and local users, have provided law enforcement agencies with  greater potential to make use of CTR data in their investigations of a wide  variety of financial and related crimes. Further, in addition to supporting  specific investigations, CTR requirements aid law enforcement by forcing  criminals—who attempt to avoid reportable transactions—to act in ways  that increase chances of detection through other methods. Given the  multiplicity of sources that federal law enforcement officials may tap in  their investigations, and the variety of possible case outcomes, it is  understandably difficult to link the use of CTRs with specific outcomes.  However, information that law enforcement agencies could provide on how  CTRs contribute to their efforts, similar to information they provide on  their use of Suspicious Activity Reports, is not systematically provided to  depository institutions or shared with state and local law enforcement  agencies that have more recently gained access to BSA data. Many  depository institutions indicated a desire for some assurance that the  information they provide is actually useful to law enforcement efforts.  FinCEN routinely collects and makes available information on how  Suspicious Activity Reports have contributed to investigations through  publication of its SAR Activity Review. A similar approach for collecting  and publishing CTR information could provide financial institutions with  evidence that their efforts are contributing to detecting and deterring  money laundering and other crimes. While recognizing that this effort  would entail an investment of resources, we believe it would prove  beneficial by providing depository institutions with greater awareness that  CTRs are a valuable source of data for law enforcement investigations.
With the partial exception of institutions that file the largest numbers of  CTRs and have personnel dedicated to that function, most institutions are  not able to quantify their costs of complying with CTR requirements,  largely because they use the same personnel and automated systems for a  variety of purposes. Nevertheless, depository institutions expend what  could be considered to be significant amounts of time and resources to  meet the requirements. Most depository institutions, based on over 35  years of collective experience in filing CTRs, have established processes  that have allowed the filing of most CTRs to become fairly routine. Yet,  while technology has helped them meet filing requirements more  efficiently, it is clear that most institutions’ processes involve steps that  cannot be completely automated. These include reviews by compliance  officers or other officials to provide assurance that CTRs are correct and  will not unduly expose their institutions to risk of being cited for BSA  noncompliance by their examiners. Further, because all institutions are  subject to compliance with CTR requirements, all incur some costs—for  example, in training their staff—regardless of the numbers of CTRs they  file. While impacts could therefore vary among institutions depending on  the numbers of CTRs they currently file as well as the processes they use,  steps to reduce the number of unnecessary CTRs filed could avoid some  costs.
Increasing use of exemptions would help depository institutions avoid  filing unnecessary CTRs, as well as reduce the government’s costs to  process them. Institutions we surveyed told us they do not exempt all  customers they consider eligible. Because the transactions of exempt  customers are likely to be of little use to law enforcement efforts, steps to  encourage the use of exemptions among depository institutions would not  be harmful to law enforcement and could avoid some CTR filing costs. Our  work indicates that FinCEN can take several steps that could increase the  use of the exemption process. While some involve changes to regulations,  they are largely consistent with goals outlined in FinCEN’s 2006-2008  strategic plan:  The uncertainty surrounding the level of documentation required to  demonstrate the portion of a business’s gross revenue that is derived  from ineligible sources appears to unduly restrict the use of the Phase II  exemption. Institutions reported using a variety of types of  documentation, and the federal banking regulators did not have  consistent views on what is required to demonstrate eligibility. In this  regard, clearer guidance from FinCEN on acceptable documentation,  made available to depository institutions and their examiners, could  increase the use of exemptions without increasing the risk of being cited  for a violation.
The regulatory requirement to biennially renew Phase II exemptions  causes institutions who elect to exempt their customers to undertake  steps that duplicate those required for annual reviews (also required by  regulation) in order to file a form on March 15, regardless of the date of  the original exemption. While FinCEN requires the biennial renewals to  ensure that banks are properly monitoring their customers for  suspicious activity and properly granting exemptions as required, the  federal banking regulators address both of these requirements as part of  their BSA examination process. Further, as a practical matter,  institutions must “know their customers” under provisions of the USA  PATRIOT Act—enacted after FinCEN promulgated the CTR exemption  regulations—that require the institutions to verify the customers’ identities and monitor their transactions. The biennial renewal thus  appears to provide no additional benefit, and eliminating the  requirement could encourage institutions who have not exempted  customers for this reason to do so. According to FinCEN, it has  authority under existing statutes to revise the regulations to eliminate  the biennial renewals. To the extent that its authority is not sufficient, it  could seek such authority from the Congress through legislation.
To exempt certain customers that the Money Laundering Suppression  Act mandated be exempted, as appropriate—governmental agencies  and other depository institutions—FinCEN’s regulations require  depository institutions to file the same form, and annually review the  supporting documentation, as it does for public companies and their  majority-owned subsidiaries. Yet, governmental agencies and other  depository institutions are not likely to undergo changes that would  affect their eligibility for exemption, and all CTRs filed on such entities  are likely to be of little or no use to law enforcement efforts. Removing  the requirement to file the form and annually review the supporting  information could encourage greater use of this exemption and avoid  unnecessary CTRs.
While institutions can currently exempt otherwise eligible customers  with frequent cash transactions, FinCEN’s regulations require that they  can do so only after the customer has had an account for 1 year. During  this time, the institution must continue filing CTRs on the customer’s  transactions, even when from the institution’s perspective the customer  is eligible but for the fact that the 12-month period had not elapsed.  Permitting institutions to exempt businesses with frequent cash  transactions within a time period of less than 1 year could help avoid the  need to file unnecessary CTRs.
Finally, a significant percentage of our survey respondents indicated  that the availability of Web-based material to train and guide their staff  would increase their use of both Phase I and Phase II exemptions. Our  work shows that difficulties institutions experience in interpreting  requirements often dissuaded them from greater use of the exemptions.  In addition, institutions reported that they incur costs to train significant  numbers of staff annually, and the availability of Web-based material on  exemption requirements could help to alleviate some of these costs.  Web-based material would be an effective way for FinCEN to assist  institutions in making exemption determinations and could ensure that  all institutions had the most up-to-date information on exemption  requirements.
section_title: Recommendations for Executive Action
paragraphs: To help depository institutions better understand the value of CTRs to law  enforcement efforts, we recommend that the Secretary of the Treasury  direct FinCEN to consider routinely providing summary information on the  use of CTRs in law enforcement efforts, similar to that provided on the use  of Suspicious Activity Reports.
To encourage greater use of CTR exemption provisions and avoid the  burden of filing CTRs that are likely to be of little or no value to law  enforcement efforts, we recommend that the Secretary of the Treasury  direct FinCEN to take the following five actions:  Provide guidance for depository institutions and federal banking  regulators on the documentation needed to demonstrate the portion of a  business’s gross revenue that is derived from activities ineligible for the  exemption.
Remove the regulatory requirement that depository institutions  biennially renew Phase II exemptions—seeking legislation to provide  additional authority, if needed.
Remove the regulatory requirement that depository institutions file  exemption forms, and annually review the supporting information, for  banks; federal, state, and local governmental agencies; and entities  exercising federal, state, and local governmental authority.
Consider changing the regulatory provisions in order to permit  depository institutions to exempt otherwise-eligible nonlisted  customers who frequently engage in large cash transactions within a  period of time shorter than 12 months.
Provide Web-based material to help train and guide staff of depository  institutions in determining eligibility for exemptions.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report for review and comment to the heads of  Departments of Homeland Security, Justice, and the Treasury; the Federal  Reserve; FDIC; NCUA; OCC; and OTS. We received written comments from  FinCen and, in a joint letter, from the Federal Reserve, FDIC, NCUA, and  OTS. These comments are summarized below and reprinted in appendixes  V and VI. The Departments of Homeland Security, Justice, and the Treasury,  the Federal Reserve, and FDIC also provided technical comments, which  we incorporated into this report, where appropriate.
In its written comments, FinCEN said that the report’s findings based upon  information gathered from law enforcement reinforce the value law  enforcement gains through active use of CTRs. FinCEN concurred with the  recommendations seeking regulatory amendments and the  recommendations related to providing guidance and materials to aid  industry in making eligibility determinations for CTR exemptions. Finally,  with regard to our recommendation that FinCEN consider routinely  providing summary information on the use of CTRs in law enforcement  efforts, FinCEN said it will consider options to provide industry with  additional feedback on the use of CTRs by law enforcement.
In their joint letter, the Federal Reserve, NCUA, OTS, and FDIC reaffirmed  their support for effective administration of the BSA and said they believe  that streamlining and clarifying the exemption regulations, as we  recommend, would be a positive step.
We are sending copies of this report to interested congressional  committees, the Secretaries of the Treasury and Homeland Security, the  Attorney General, and the heads of the Federal Reserve, FDIC, IRS, NCUA,  OCC, and OTS. We will also make copies available to others on request. In  addition, the report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-6878 or woodd@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made key contributions to this report are  listed in appendix VII.
section_title: Objectives, Scope, and Methodology
paragraphs: As mandated by the Financial Services Regulatory Relief Act of 2006, we  examined several aspects of currency transaction reports (CTR), including  their usefulness to law enforcement, the burden on depository institutions  for filing them, and potential changes to the exemption process.  Specifically, our objectives were to determine: (1) the usefulness of CTR  requirements to federal, state, and local law enforcement agencies; (2) the  costs to depository institutions of meeting CTR requirements; and (3)  factors that affect depository institutions’ decisions to exempt or not  exempt eligible customers, including opportunities for encouraging use of  exemptions while maintaining the usefulness of CTR data to law  enforcement agencies. We conducted this performance audit in  Washington, D.C., and Miami from November 2007 through February 2008  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Assessing the Usefulness of CTR Requirements to Law Enforcement
paragraphs: We relied on two primary methods to obtain information: (1) structured  interviews with federal law enforcement agencies and (2) a survey of all  state and local agencies that access CTR data through FinCEN’s Gateway  portal, supplemented by structured interviews.  We used structured  interviews to obtain specific information on the usefulness of CTRs, how  changes in technology have affected their usefulness, and what changes  could be made to CTR filing requirements that likely would not harm their  usefulness to law enforcement. In addition, the Financial Crimes  Enforcement Network (FinCEN), Immigration and Customs Enforcement  (ICE), the Federal Bureau of Investigation (FBI), and the Organized Crime  Drug Enforcement Task Force (OCDETF) provided demonstrations of how  they apply their software to analyze bulk CTR data, and FinCEN provided  demonstrations of how the Gateway program can be used to access Bank  Secrecy Act (BSA) data through WebCBRS.
We selected federal law enforcement agencies to interview largely based on  their level of CTR usage, as measured by the number of “views” of CTR  records in 2006 and whether they had received access to bulk data sets (see  table 4 for a list of these agencies.)  While FinCEN and the Internal  Revenue Service (IRS) could provide the number of CTRs viewed through  the Gateway program, we also obtained data from Department of  Homeland Security for the number of CTRs viewed through the Treasury  Enforcement Communications System (TECS) and the IRS for the number  of CTRs viewed directly from WebCBRS.  While the number of times an  agency has “viewed” a CTR is not a measure of “usefulness” or “utility” of a  CTR, it does provide an indication of how frequently CTRs were consulted  as part of an ongoing investigation.   In addition, we interviewed officials  from Criminal Division/Asset Forfeiture and Money Laundering Section  because this group is the focal point for money laundering and asset  forfeiture matters within the Department of Justice, as well as officials  from the OCDETF Fusion Center, which analyzes CTR data in bulk to  improve OCDETF’s ability to disrupt and dismantle drug trafficking  organizations and their financial components.
To obtain the viewpoints of state and local law enforcement agencies on  the usefulness of CTRs, we conducted a Web-based survey of all state and  local law enforcement agencies that had access to CTR data through  FinCEN’s Gateway program as of May 2007. Eighty-nine of the 115  agencies we surveyed completed the questionnaire for an overall response  rate of 77 percent.  During the development of our questionnaire, we  pretested it with 7 law enforcement agencies from Florida, Maryland, New  Jersey, Virginia, and Washington, D.C, and one regulatory agency from  Kansas. We obtained the e-mail addresses and the names of contacts from  FinCEN and opened the survey on July 5, 2007. During the course of the  survey, we sent three follow-up e-mails to nonrespondents and then made  telephone follow-up calls to remaining nonrespondents to address any  problems they had and to encourage response. To learn more about  agencies’ responses, and to obtain more information on other agencies to  which our surveyed agencies had provided BSA data access, we conducted  short follow-up interviews by telephone or exchanged e-mail with six  respondents. We closed the survey on August 17, 2007.
Although this survey was conducted with all of the state and local law  enforcement agencies in our population, and therefore is not subject to  sampling error, the practical difficulties of conducting any survey may  introduce other errors. For example, difficulties in interpreting a particular  question or sources of information available to respondents can introduce  unwanted variability or bias into the survey results. Nonresponse to the  interview or certain questions can also result in increased variability or  bias.  We took steps in developing the questionnaire, and collecting and  analyzing the data, to minimize such nonsampling errors.  While the  response rate of 77 percent is high, if those not responding differed  materially from those responding on any particular question we analyzed,  our analysis may not accurately represent the group surveyed. Our results  therefore best represent only those responding to our survey.
To provide more specific information about the usefulness of CTRs than we  could obtain by survey, we also interviewed state and local law  enforcement officials.  We interviewed 14 law enforcement agencies from  California, Florida, Illinois, New Jersey, New York, and Texas because  many of these agencies numbered among the highest users of CTRs and  were located in states where a higher proportion of CTRs were filed in  2006.  In addition, we interviewed 3 law enforcement agencies from  Kentucky, Minnesota, and New Mexico, states where the viewing of CTRs  was less frequent.  Finally, we interviewed officials from four High Intensity  Money Laundering and Related Financial Crimes Areas (HIFCA)—Chicago,  New York, the Southwest Border, and the California Southern District—to  identify whether and how CTRs were useful to law enforcement task forces  with specific money-laundering responsibilities.
section_title: Costs to Depository Institutions of Meeting CTR Requirements
paragraphs: Overall, we used questionnaires, structured interviews, and other methods  to obtain information on the time and resources depository institutions  expend to meet CTR requirements.  (Depository institutions include  institutions regulated by the Federal Deposit Insurance Corporation  (FDIC), Federal Reserve Board (Federal Reserve), Office of the  Comptroller of the Currency (OCC), Office of Thrift Supervision (OTS), and  state regulatory officials, and credit unions regulated by National Credit  Union Administration (NCUA) and state regulatory authorities.)
subsections: section_title: CTR and Depository Institution Analysis
paragraphs: To meet the mandate’s data analysis requirements, we obtained from  FinCEN data on the CTRs and exemptions filed for 3 calendar years.  This  data consisted of all of the CTRs and designation of exempt person reports  submitted by depository institutions during calendar years 2004, 2005, and  2006.  We chose this period because these were the 3 most recent years for  which FinCEN had complete data.  To ensure that we only tracked CTRs  that were filed by the depository institutions within a given year, we only  analyzed CTRs that could be clearly identified as being from that year. We  excluded a total of 1,977,092 CTRs, or about 4.8 percent of the total number  of CTRs that FinCEN’s data showed as being filed in 2004, 2005, and 2006.   We also separated the remaining 38,829,864 CTRs into new (37,784,310) and  amended (1,045,554) CTRs. We analyzed these data to identify the  characteristics of CTRs and exemptions filed.  For example, we identified  the number of CTRs filed for withdrawals and deposits, the number based  on aggregated rather than single transactions, and the median number of  CTRs filed by institutions of different sizes. For exemptions, among other  analyses, we identified the numbers filed for Phase I and Phase II  exemptions.
In order to construct a population of depository institutions that file CTRs,  we needed to combine data files from several sources. We obtained year- end data for the names and asset sizes as measured in dollars of all banking  depository institutions (banks) from the Federal Reserve Board.  In  addition, we obtained from NCUA the names and asset size of all credit  unions insured by the National Credit Union Insurance Fund.  We matched  the CTR data from FinCEN and with information on depository institutions  provided by the Federal Reserve and NCUA to create a single data set.   Approximately 1 percent of CTRs that we received from FinCEN (number  of CTRs) could not be matched and were excluded from our analysis.
Table 5 summarizes the distribution of institutions and percentage of CTRs  across several size categories for banks and credit unions.
The primary purpose of the structured interviews, which were conducted  by phone and in person by GAO analysts, was to obtain detailed  information about the CTR process, as well as the personnel, technology,  and training costs associated with filing CTRs and exemptions.  As part of  our pretesting, we determined that information on costs could not be  reliably collected by means of a self-administered Web survey because  banks had difficulties in estimating their costs in the same way unless we  prompted them with specific questions and adjusted our questions to  match their accounting practices.
In determining which depository institutions to interview, we primarily  considered their asset size.  Because the number of banks we categorized  as very large was small (27), we interviewed the top 5 filers of CTRs, who  alone accounted for 36 percent of CTRs filed.  In addition, we conducted 18  structured interviews with banks and credit unions that were categorized  as small, midsize, and large in terms of assets. To select which institutions  to interview, we conducted a random sample of small, midsize, and large  institutions included in our CTR database. While the results of our  interviews are not statistically representative of all institutions in their size  category, this method enabled us to capture the viewpoints of some of the  small institutions that may have been excluded from our survey.
section_title: Factors Affecting Use of Exemptions and Opportunities to Increase Use
paragraphs: To identify the factors affecting depository institutions’ decisions regarding  use of CTR exemption provisions, we surveyed a sample of institutions.   (Complete survey results can be viewed at http://www.gao.gov/cgi- bin.getrpt?GAO-08-385SP.)  We also obtained and analyzed data on the  results of BSA examinations from, and interviewed officials of, the five  federal banking regulatory agencies.  We used information from these  sources, along with a review of CTR filing and exemption regulations, to  identify opportunities for potentially increasing use of exemptions.
subsections: section_title: Selection of Depository Institutions to Be Surveyed and Survey Response Rate
paragraphs: The survey was primarily designed to elicit the viewpoints of bank and  credit union officials on the amount of time it takes their institution to meet  CTR filing requirements and their use of the Phase I and Phase II  exemption process.  In addition, the survey asked about possible changes  that could be made to the exemption process to reduce some of the  potential burden financial institutions may face in meeting the exemption  requirements and increase the likelihood institutions would use the  exemption process.
We conducted a Web-based survey of a sample of depository institutions  located in the 50 states and the District of Columbia.  Our study population  consisted of 3,880 banks and credit unions we were able to identify as  having filed at least 120 CTRs in 2006 and whose size (as measured by the  dollar value of their assets) in 2006 we were able to determine.  Since  institutions must file a minimum of 8 CTRs on a business over the course of  a year before the business becomes eligible for the exemption, we  excluded those institutions that filed fewer than 120 CTRs in 2006 from our  survey to minimize the number of institutions that would have relatively  fewer opportunities to file exemptions. As a result of applying this  selection criterion, about 85 percent of the smallest banks and 90 percent  of credit unions filing CTRs were excluded from our survey.  To obtain the  viewpoints of these institutions to at least some extent, we included them  in our universe used to sample institutions for structured interviews.
We selected a stratified random sample of 680 from this study population,  where the strata were defined by a combination of asset size and type of  institution (bank or credit union). Table 6 summarizes the population size,  sample size, and disposition of sample separately by stratum. Whenever  possible, we sent the survey to each institution’s compliance officer  because we believed this officer would be best positioned facilitate a  response from the institution.  We obtained a listing of these officers and  their e-mail addresses from their respective regulator.  The overall  response rate to our survey was 68 percent.  The survey estimates included  in this report were formed by weighting the survey data to account for both  sample design and the response rates for each stratum.  In addition, the  response rate varied by question, however, since not all questions were  asked of all institutions, and institutions could skip questions.
Since the primary focus of the survey was to obtain viewpoints on the  exemption process, most of our questions focused on institutions’ use of  exemptions. To develop the questions in the questionnaire, we interviewed  representatives of depository institutions, their trade organizations, and  their regulators; and FinCEN.  The questionnaire also included proposals  on how to modify the exemption system.  To develop these proposals, we  reviewed (1) the legislative history relating to the Money Laundering  Suppression Act of 1994 and the subsequent rule-making process, (2)  reports that previously assessed opportunities to modify the exemption  process, and (3) current proposals to modify the exemption process,  including those proposed by trade groups and depository institutions that  we interviewed.  Finally, we pretested the questionnaire with the  representatives of eight banks and two credit unions to check that (1) the  questions were clear and unambiguous, (2) terminology was used correctly,  (3) the questionnaire did not place an undue burden on institutions, (4) the  information could feasibly be obtained, and (5) the survey was  comprehensive and unbiased. We made changes to the content and format  of the questionnaire after each of the first pretests, based on the feedback  we received.
Our probability sample is used to produce estimates of the population of  3,880 institutions that filed more than 120 CTRs in 2006. As with all sample  surveys, our results contain sampling error—potential error that arises  from not collecting responses from all of the institutions that we surveyed.   Because we followed a probability procedure based on random selections,  our sample is only one of a large number of samples that we might have  drawn. Since each sample could have provided different estimates, we  express our confidence in the precision of our particular sample’s results as  a 95 percent confidence interval (e.g., plus or minus 8 percentage points).  This is the interval that would contain the actual population value for 95  percent of the samples we could have drawn. As a result, we are 95 percent  confident that each of the confidence intervals in this report will include  the true values in the study population. All percentage estimates in this  report have 95 percent confidence intervals of within plus or minus 8  percentage points of the estimate, unless otherwise noted. Other numerical  estimates (for example, medians or means) have 95 percent confidence  intervals of within plus or minus 8 percent of the value of the estimate,  unless otherwise noted. In addition to sampling error, the practical  difficulties of conducting any survey may introduce errors. For example,  difficulties in interpreting a particular question or sources of information  available to respondents can introduce unwanted variability into the survey  results. We took steps in developing the questionnaire, collecting the data,  and analyzing them to minimize such nonsampling error.  To minimize  nonresponse error we sent 3 follow-up e-mail messages to those who had  not yet responded.  Then we attempted to contact all remaining  nonrespondents by telephone.  It is possible that characteristics of  responding institutions could differ from characteristics of institutions that  did not respond to our survey.  To the extent that this is the case, our  sample estimates may differ from the actual values of the population as a  whole.
section_title: Selection of Examiners and Violation Data
section_title: Opportunities for Improving the Exemption System
paragraphs: Survey responses from depository institutions indicated potential ways to  encourage use of exemptions.  To obtain additional viewpoints and to  understand the implications of making specific changes to the current  exemption-filing requirements, we obtained the viewpoints of officials  from FinCEN and the federal banking regulators. To understand how  changes would need to be implemented, we analyzed the statutory  requirements in the Money Laundering Suppression Act, the regulatory  requirements, and guidance issued by FinCEN to identify which regulatory  requirements were specifically rooted in statute.
section_title: Law Enforcement Agencies’ Use of CTR Data
subsections: section_title: Technological Advances Have Increased Potential Uses
paragraphs: Access to bulk BSA data, including CTRs, allows law enforcement agencies  to conduct more sophisticated analyses by combining the BSA data with  other data sets. Both FinCEN and IRS’s Criminal Investigation unit (IRS-CI)  have this capability—FinCEN since 2002 and IRS-CI since 2005—enabling  them to analyze BSA data in conjunction with their own data sets. FinCEN  reports that its analysts have access to four primary data sources: BSA  data, databases of criminal reports from other federal law enforcement  agencies, FinCEN’s own database of investigations, and commercial  databases that contain identifying information on individuals and  businesses. IRS-CI investigators have access to BSA data, tax data, and  counterterrorism data.  For instance, IRS uses its Reveal system to identify  financial crimes, including individual and corporate tax frauds, and  terrorist activity. The system allows users to establish a profile of the  actions and persons associated with the search and develop reports that  include graphical depictions of the data (see fig. 9). For example, IRS can  search Reveal to identify when a car dealer deposited large amounts of  cash, as recorded by CTRs, but also to determine whether the car dealer  filed any Form 8300s, which document the source of that cash.
FinCEN has also provided bulk data access to the Secret Service.  The  Secret Service received its first test data in January 2006 and is in the  process of combining BSA data with information relating to financial  investigations, including data on identity theft, credit card fraud, and  counterfeit U.S. currency. Secret Service officials told us that all 3,200 staff  across the agency will be granted access to the Secret Service database that  will house the bulk BSA data.
Among agencies that continue to access BSA data through the Internet,  many officials commented that WebCBRS had given them greater  capabilities to analyze CTR data, because they could download large  volumes of data and analyze them at their desktops. IRS and Securities and  Exchange Commission officials commented that the new system was  easier to use because it displayed CTR data in a format that closely  resembled the actual CTR document.  State law enforcement officials from  agencies in New York and Illinois that coordinate requests for BSA data  reported that the new system made it easier for them to distribute CTR data  to law enforcement agencies, because they could easily download and  export the data directly into a PDF file or spreadsheet application.  (In  contrast, officials said that under the old CBRS system, a user had to copy,  paste, and manually format each CTR record prior to distribution.)  In 2007,  FinCEN added a new feature to WebCBRS that allows users to download  and export BSA data to a commercial database application, where users  can use link analysis techniques to explore associations between various  data sets. According to FinCEN officials, technology such as this will likely  be useful for the proactive analysis of CTR data, particularly at the state  and local law enforcement level.
In general, many law enforcement officials indicated that the technological  advances had already increased their use of CTRs or would continue to do  so.
Investigators with the New York County District Attorney’s Office told  us that they added 10 new Gateway user accounts last year because they  were getting more requests for BSA data. They noted that prosecutors  had been requesting CTR data more often as word of mouth spread  about the value of CTRs as corroborating sources of evidence.
A Gateway coordinator for New York told us he had conducted training  sessions across the state with local police departments on the value of  CTR data and the importance of searching for CTR data at the beginning  of an investigation.
An official associated with a HIFCA said she had been promoting  awareness of the WebCBRS download feature and creative ways to  proactively analyze CTR data, such as an analysis of CTRs filed for  certain occupations.
DEA officials noted that as a result of a DEA directive mandating that all of  the agency’s investigations include a financial component, the number of  its Gateway users increased by 34 percent from the end of calendar year  2004 to the end of calendar year 2006.
Data from FinCEN indicate that state and local use of CTR data has been  somewhat concentrated.  Figure 10 shows the numbers of CTR “views”  through FinCEN’s Gateway program in 2006.  (Gateway is the primary  means of access to BSA data for state and local law enforcement users.)
section_title: Case Examples Illustrate CTRs’ Usefulness to Federal, State, and Local Law Enforcement Investigations
paragraphs: The examples below illustrate the varied roles that CTRs can play in  federal, state, and local law enforcement investigations. CTRs filed by  depository institutions helped initiate or support the investigations, which  include tax, money laundering, fraud, and narcotics cases.  (Because of the  sensitive nature of this information, references to subjects’ names and  other identifiers have been removed.)
IRS investigators initiated a case based on a call from a bank security  officer who reported that a bank customer was receiving large tax  refunds into his accounts and withdrawing the funds in cash. Using  known bank account numbers, the investigators searched the agency’s  Currency Banking and Retrieval System (CBRS), which contains CTR  data, and identified CTRs showing large “cash outs.” The investigators  found data that they believed indicated that 30 different bank accounts  were used to perpetuate the tax refund scheme, and 23 refunds went  into accounts identified through CTRs. Moreover, the CTRs identified  accounts controlled by relatives of the bank customer. Consequently,  the CTRs provided probable cause to obtain and execute a search  warrant at the residence of a relative. Ultimately, investigators learned  that the scheme involved about 125 tax returns and more than $500,000  in false claims. According to IRS, the CTRs helped narrow the focus of  the investigation and saved valuable time in identifying the responsible  parties in the scheme. IRS further noted that without the CTRs, the  investigation would have been delayed for weeks or months, allowing  the scheme to continue and potentially resulting in substantial  additional loss to the government.
IRS initiated a tax investigation from a Suspicious Activity Report (SAR)  disclosing that business receipts had been deposited into a personal  account. According to IRS, the dollar amount reported in the SAR was  not substantial, and based on the SAR information alone, the  investigation would not have proceeded. However, queries of CBRS  identified more than 125 CTRs related to the person under investigation,  which were filed over a 3-year period for amounts in excess of $3.5  million. Further investigation determined that the person failed to report  almost all of the $3.5 million gross receipts on his business tax returns.  The person further concealed these transactions by failing to file  personal income tax returns or, in some years, misreported the income  to IRS. When confronted with the evidence developed from the CTRs,  the person cooperated with IRS and assisted with an undercover  operation. According to IRS, without the CTR information, IRS may not  have opened the investigation.
Investigators searched CBRS for information relating to a person  suspected of trafficking narcotics, including all of the person’s known  relatives and associates. A depository institution had filed a CTR on the  person’s sister, reporting a deposit of $100,000 in cash into her account.  The financial investigation on the sister revealed that she did not have  enough legitimate income to justify a deposit of $100,000 in cash. Based  on the CTR, investigators subpoenaed bank records, which showed  evidence of a real estate purchase in Florida using the $100,000 as a  down payment. Further investigation showed that the person had  conducted the entire real estate transaction, and the sister had been  used as a nominee (that is, a person in whose name assets are  transferred). These transactions were the basis for money-laundering  charges against the person. The evidence in the CTR implicated the  sister, and was instrumental in obtaining a guilty plea by the person. The  person received a 20-year prison sentence and forfeited more than  $500,000 in assets.
Examples from Immigration and Customs Enforcement  Following the September 11 attacks, ICE investigators in Texas  proactively analyzed CTR data and identified an unlicensed hawala  sending money to several Middle Eastern countries. (A hawala is an  informal banking system that provides a mechanism for the remittance  of currency or other forms of monetary value without physical  transportation or the use of contemporary monetary instruments.)  Multiple same-day cash deposits, with each deposit less than $10,000,  were being made into the hawala’s bank account at various branches of  the same bank across Texas. According to ICE, this illegal activity would  not have been detected without CTRs because the bank activity was  spread across 11 counties. As a result of the investigation, the hawala  was shut down, and a total of $346,701 was seized and forfeited.
ICE investigators in New York received information that an illegal  money-laundering operation was being operated out of a phone card  booth in Manhattan.  Standard preliminary steps to identify the persons  involved had failed because of the nicknames used by them, variations  in translations of the names (which were foreign), and the persons’  immigration status.  However, investigators searched for CTR data and  found approximately 1,300 CTRs had been filed on the suspected  business. The volume of CTRs revealed accounts held at multiple banks.  Although most of the accounts had been closed, the CTRs provided  crucial details of the alleged illegal activity and assisted in identifying  members of the involved organization; for example, information on the  CTRs was used in an affidavit for a search warrant for the target  business and to obtain grand jury subpoenas for bank accounts. Two  principal persons allegedly involved were arrested and charged with  money laundering, alien smuggling, and conspiracy. These arrests were  conducted simultaneously with the arrests of 35 members of an Asian  criminal gang in Manhattan who were identified as having been involved  in the money-laundering operation.
ICE investigators in Chicago initiated an investigation of a local  business based on information in CTRs and SARs that showed different  individuals making deposits into several bank accounts controlled by  the business and possible structuring violations. The investigation  revealed that the business may have been operating as an illegal money  transmitter. The business owner instructed his customers to deposit  money into his bank account, charged a nominal fee to remit money on  their behalf, and arranged for the transfer of money on computers  located in his apartment. The business owner was arrested and charged  with operating an unlicensed money services business.
SARs filed on a business located in New York suspected of trafficking  counterfeit goods showed that certain persons may have been  structuring cash deposits into the business’s account to avoid CTRs  being filed. However, on many occasions the persons deposited more  than $10,000, and the depository institution filed CTRs. The CTRs were  instrumental in identifying the co-conspirators apparently involved in  the illegal operation, and investigators used the CTR information to  apply for grand jury subpoenas, which produced bank account records  of the alleged conspirators and provided further evidence of money  laundering. The CTRs also were used in the affidavit for a seizure  warrant for bank accounts. The investigation revealed that during a 1- year period, the alleged conspirators had laundered approximately $5  million to China through wire transfers. In total, seven individuals were  charged with money laundering and trafficking in counterfeit goods and  the funds in the six accounts belonging to the members of the  conspiracy were seized.
Examples from the Drug Enforcement Administration  Surveillance of a suspected drug “stash house” led to the discovery of a  vehicle registered to a business located in central California. A search of  BSA data revealed the existence of approximately 1,600 CTRs filed on  the business over a 3-year period. Later, DEA intelligence revealed that  similarly registered vehicles had been observed during other  surveillance operations in central and Southern California. The earlier  CTRs identified all of the conductors of the transactions as individuals,  but later cash deposits were being made by armored carrier. DEA  ultimately determined that the evidence indicated that the business  represented the cash side of the drug trade and the business was being  used to deposit the illicit proceeds. Investigators discovered that more  than 2,000 CTRs documenting in excess of $100 million in cash deposits  had been filed on the business over a 5-year period. However, no SARs  were ever filed.
A DEA office provided another DEA office with information suggesting  that a certain person was involved in drug trafficking, money  laundering, and terrorist financing in the receiving office’s area of  responsibility. The only leads the receiving office had were the person’s  name, date of birth, and Social Security number. Investigators searched  CBRS and found CTRs. These CTRs helped indicate to them that the  person was engaging in criminal activity. The CTRs identified the  person’s place of employment, bank account numbers, and other  individuals that had conducted cash transactions on behalf of the  person under investigation.
Examples from the Federal Bureau of Investigation  CTRs assisted FBI investigators in unraveling a complex case involving  Medicare fraud. Over a 2-year period, the Medicare system paid several  million dollars to dozens of “front” durable medical equipment  companies that in turn wrote checks to nonexistent medical equipment  supply companies. These checks were allegedly cashed at several  check-cashing businesses, which all maintained bank accounts at the  same local bank. The review of CTRs filed by the bank revealed several  hundred million dollars paid out in the form of cash to the check cashers  over a relatively short period. Approximately 90 percent of this bank’s  revenues were derived from its check-cashing business client base. At  the suggestion of the FBI, the bank’s regulator started an examination of  the bank, which uncovered evidence that a bank insider was  participating in an illegal money services business. The bank was fined  and ultimately ceased operations.
A search of BSA data in support of a narcotics money-laundering  investigation produced more than 3,000 reports, the vast majority of  which were CTRs. Through further analysis of the CTRs, the FBI was  able to confirm and document a critical suspected link between certain  persons under investigation in different states.
Example from the Secret Service  CTRs assisted Secret Service investigators in identifying a person that  had allegedly committed investment fraud. The victims of the fraud had  given checks to the person for investments; however, the person would  either cash or deposit the checks. Depository institutions filed CTRs on  these transactions, which provided a direct link to the person. Further  investigation disclosed that the person had been involved in a similar  scheme in another part of the same state and had pending arrest  warrants. The total estimated loss in the case was more than $400,000.  Authorities also conducted asset seizures and forfeitures in this case.
Examples from State or Local Governments  Investigators with the Chicago Police Department searched for CTRs on  a business suspected of laundering drug money in the mid-1990s and  identified a CTR that reported a cash withdrawal of $17,000 by a fork-lift  driver. Investigators subsequently issued a subpoena for related bank  records and discovered that the bank account, a personal checking  account, had received more than $52 million in deposits through wire  transfers over an 18-month period. Funds deposited into this account  then were redistributed through checks drawn on the account and  negotiated across southern Texas. Investigators contacted IRS-CI and  identified this lead to a nationwide major drug money-laundering case.
Investigators with the California Department of Justice used CTRs to  identify bank accounts for a subpoena of bank records in support of an  investigation on health care fraud. The CTRs linked several physicians  to Russian organized crime figures that had set up a series of storefront  clinics and medical diagnostic test companies. Some of the CTRs  showed evidence of structuring, while others showed the involvement  of family members, such as a 19-year-old son on record as the  “corporation president,” when in reality he was fronting for his parents.
The information on the CTRs also led the investigators to consult  corporate fraud investigators, who were helpful in providing SARs about  these same activities.
section_title: Information on CTRs Filed from 2004 to 2006
paragraphs: The Financial Services Regulatory Relief Act of 2006 asked us to analyze  CTR filing data and to categorize these data according to the size of  financial institutions, in groups of 100.  Figure 11 shows that the 100 largest  institutions accounted for 65 percent of all CTRs filed in 2006, while the  portion of CTRs filed by smaller institutions (in categories of 100)  diminished along with institution size.
Table 7 shows CTR filing data, aggregated for 2004 through 2006, by  institution size category.
Table 8 shows the mean averages and the median numbers of CTRs filed by  institution size category.
Table 9 shows the total number of CTRs that were based on multiple  transactions—that is, transactions that in the aggregate amounted to more  than $10,000 on the same day for a single account.
Tables 10 and 11 show the number of CTRs filed for transactions in which  the depository institution received cash (cash-in transactions) and  dispensed cash (cash-out transactions), respectively, categorized by the  dollar values of the transactions.
Figure 12 shows the geographic dispersion of CTRs filed in 2006, by county.
section_title: Additional Information on Depository Institutions’ Use of Exemptions
paragraphs: Table 12 shows the total number of Phase I exemptions filed during 2006 by  type of customer (bank, government, listed company, or listed government  subsidiary), by institutions of different sizes.  While depository institutions  are not required to file biennial renewals for Phase I customers, the data  show that some institutions did so.
Table 13 shows the total number of Phase II initial exemptions and biennial  renewals filed during 2006, by type of customer (nonlisted businesses and  payroll customers), by institutions of different sizes.
subsections: section_title: Depository Institutions Not Using Phase I or Phase II Exemptions Cited a Number of Similar Factors for Not Using the Exemptions
paragraphs: As shown in figures 13 and 14 below, respondents to our survey cited a  number of similar factors that were important in their decision not to  exempt customers eligible for Phase I and Phase II exemptions. Concern  that examiners would find that the exemption was not done correctly was  the top concern among banks that did not exempt Phase I customers and  the second-ranked concern among banks that did not exempt Phase II  customers. Difficulty in determining eligibility was ranked second for those  not exempting Phase I customers and fifth for those not exempting Phase  II. Banks also responded that another major reason for not using the  exemption was that it was easier to file CTRs than to go through the  exemption process. Finally, those not exempting Phase I or Phase II  customers responded that the time-consuming nature of the annual reviews  was a major reason they did not use the exemption.
Institutions that did not exempt customers that were eligible for the Phase I  exemption cited difficulty determining eligibility as a reason for not using  the Phase I exemption. More specifically, survey respondents and officials  we interviewed noted that verifying the publicly traded status of customers  could be difficult (see fig. 13). Typically, to verify this information, staff of  depository institutions would need to check the listing information from  three exchanges as well as use a search engine called EDGAR on the  Securities and Exchange Commission Web site to search for public filings  that the company made. On average, officials of institutions we surveyed  said conducting this research took about 1 hour per exemption. However,  verification of listing status and ownership represents only a portion of the  effort involved in ascertaining eligibility for an exemption. Many officials  we interviewed said that staff in the compliance office made the exemption  determinations after reviewing a customer’s account history. For instance,  a respondent from a very large bank explained that it was the institution’s  policy to conduct background checks on the principals of the business  being considered for exemption. Another respondent noted that the  compliance officer would send a questionnaire to the manager of the  branch where the customer held the account; the manager then had to  complete the questionnaire and provide supporting documents, including  the financial statement for the business of the customer being considered  for exemption.  In addition, respondents from one very large bank noted  that its board had to approve exemption decisions, increasing the time and  effort involved.
As shown in Figure 14, difficulty in determining whether companies  derived more than 50 percent of their gross revenue from ineligible  business activities was the primary factor affecting Phase II exemption  decisions.
Table 14 provides data on FinCEN’s CTR-related (excluding exemptions)  and exemption-related enforcement actions over the period 1997 to 2006.   The data show that relatively few enforcement actions involved fines  against the institutions.
section_title: Comments from the Financial Crimes Enforcement Network
section_title: Comments from Federal Banking Regulators
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Barbara I. Keller (Assistant  Director), Sonja Bensen, John W. Mingus Jr., Eric E. Petersen, Carl  Ramirez, Linda S. Rego, Barbara M. Roesmann, Rachel E. Siegel, and  Monica L. Wolford made key contributions to this report.
section_title: Related GAO Products
paragraphs: Bank Secrecy Act: FinCEN and IRS Need to Improve and Better  Coordinate Compliance and Data Management Efforts. GAO-07-212.  December 15, 2006.
Bank Secrecy Act: Opportunities Exist for FinCEN and the Banking  Regulators to Further Strengthen the Framework for Consistent BSA  Oversight. GAO-06-386. Washington, D.C.: April 28, 2006.
Terrorist Financing: Better Strategic Planning Needed to Coordinate U.S.  Efforts to Deliver Counter-Terrorism Financing Training and Technical  Assistance Abroad. GAO-06-19. Washington, D.C.: October 24, 2005.
USA PATRIOT Act: Additional Guidance Could Improve Implementation  of Regulations Related to Customer Identification and Information  Sharing Procedures. GAO-05-412. Washington, D.C.: May 6, 2005.
Information Security: IRS Needs to Remedy Serious Weaknesses over  Taxpayer and Bank Secrecy Act Data. GAO-05-482. Washington, D.C.: April  15, 2005.
Anti-Money Laundering: Issues Concerning Depository Institution  Regulatory Oversight. GAO-04-833T. Washington, D.C.: June 3, 2004.
Combating Terrorism: Federal Agencies Face Continuing Challenges in  Addressing Terrorist Financing and Money Laundering. GAO-04-501T.  Washington, D.C.: March 4, 2004.
Terrorist Financing: U.S. Agencies Should Systematically Assess  Terrorists’ Use of Alternative Financing Mechanisms. GAO-04-163.  Washington, D.C.: November 14, 2003.
Combating Money Laundering: Opportunities Exist to Improve the  National Strategy. GAO-03-813. Washington, D.C.: September 26, 2003.
Internet Gambling: An Overview of the Issues. GAO-03-89. Washington,  D.C.: December 2, 2002.
Money Laundering: Extent of Money Laundering through Credit Cards Is  Unknown. GAO-02-670. Washington, D.C.: July 22, 2002.
Anti-Money Laundering: Efforts in the Securities Industry. GAO-02-111.  Washington, D.C.: October 10, 2001.