Combating Terrorism: Federal Agencies Face Continuing Challenges in Addressing Terrorist Financing and Money Laundering
Published: 2004-03-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The September 11, 2001, terrorist attacks highlighted the importance of data collection, information sharing, and coordination within the U.S. government. Such efforts are important whether focused on terrorism or as an integral part of a broader strategy for combating money laundering. In this testimony, GAO addresses (1) the challenges the U.S. government faces in deterring terrorists' use of alternative financing mechanisms, (2) the steps that the Federal Bureau of Investigation (FBI) and Immigration and Customs Enforcement (ICE) have taken to implement a May 2003 Memorandum of Agreement concerning terrorist financing investigations, and (3) whether the annual National Money Laundering Strategy (NMLS) has served as a useful mechanism for guiding the coordination of federal efforts to combat money laundering and terrorist financing. GAO's testimony is based on two reports written in September 2003 (GAO-03-813) and November 2003 (GAO-04-163) for the Caucus and congressional requesters within the Senate Governmental Affairs Committee, as well as a February 2004 report (GAO-04-464R) on related issues for the Senate Appropriations Subcommittee on Homeland Security.
section_title: What GAO Found
paragraphs: The U.S. government faces various challenges in determining and monitoring the nature and extent of terrorists' use of alternative financing mechanisms, according to GAO's November 2003 report. Alternative financing mechanisms are outside the mainstream financial system and include the use of commodities (cigarettes, counterfeit goods, illicit drugs, etc.), bulk cash, charities, and informal banking systems to earn, move, and store assets. GAO recommended more systematic collection, analysis, and sharing of information to make alternative financing mechanisms less attractive to terrorist groups. In response to our recommendation that the FBI, in consultation with other agencies, systematically collect and analyze information on terrorists' use of these mechanisms, Justice did not specifically agree or disagree with our recommendation, but other agencies agreed with the need for improved analysis. The Treasury agreed with our recommendation to issue an overdue report on precious stones and commodities, but it remains unclear how the resulting product may be used as the basis for an informed strategy as expected under the 2002 NMLS. The Internal Revenue Service (IRS) agreed with our recommendation to develop and implement procedures for sharing information on charities with states and issued IRS procedures and state guidance on December 31, 2003. To resolve jurisdictional issues and enhance interagency coordination of terrorist financing investigations, the FBI and ICE have taken steps to implement most of the key provisions of the May 2003 Memorandum of Agreement. According to GAO's February 2004 report, the agencies have developed collaborative procedures to determine whether applicable ICE investigations or financial crimes leads may be related to terrorism or terrorist financing--and, if so, determine whether the FBI should thereafter take the lead in pursuing them. GAO's report noted that continued progress will depend largely on the ability of the agencies to establish and maintain effective interagency relationships. From a broader or strategic perspective, the annual NMLS generally has not served as a useful mechanism for guiding coordination of federal efforts to combat money laundering and terrorist financing, according to GAO's September 2003 report. While Treasury and Justice had made progress on some strategy initiatives designed to enhance interagency coordination of investigations, most initiatives had not achieved the expectations called for in the annual strategies. The report recommended (1) strengthening the leadership structure for strategy development and implementation, (2) identifying key priorities, and (3) establishing accountability mechanisms. In commenting on a draft of the September 2003 report, Treasury said that our recommendations are important, should the Congress reauthorize the legislation requiring future strategies; Justice said that our observations and conclusions will be helpful in assessing the role that the strategy process has played in the federal government's efforts to combat money laundering; and Homeland Security said that it agreed with our recommendations.

section_title: Letter
paragraphs: We are pleased to be here today to discuss some of the challenges the U.S.  government faces in addressing the problems of terrorist financing and  money laundering. The terrorist attacks of September 11, 2001, highlighted  the importance of data collection, information sharing, and coordination  within the U.S. government. Such efforts are important whether focused  on terrorism or as an integral component of a broader strategy for  combating money laundering. This is particularly true given that terrorist  financiers and money launderers may sometimes use similar methods to  hide and move their proceeds.
As requested, today, we will address three issues. First, what challenges  does the U.S. government face in deterring terrorists’ use of key  alternative financing mechanisms—methods outside the mainstream  financial system—such as the use of commodities, bulk cash, charities,  and informal banking systems to earn, move, and store assets? Second, to  what extent have the two applicable law enforcement agencies—the  Federal Bureau of Investigation (FBI) and Homeland Security’s U.S.  Immigration and Customs Enforcement (ICE)—taken steps to implement  a 2003 Memorandum of Agreement (Agreement) to resolve jurisdictional  issues and enhance interagency coordination of terrorist financing  investigations; and, how has the Agreement affected the mission or role of  ICE in investigating money laundering and other traditional financial  crimes? Finally, how has the annual National Money Laundering Strategy  (NMLS) served as a useful mechanism for guiding the coordination of  federal efforts to combat money laundering and terrorist financing?
Our testimony is based on two reports we have provided to this Caucus  and a recently issued report we have provided to the Congress on related  issues. We should also mention that we are in the process of conducting  additional work specifically on the issue of coordination of U.S. agencies  abroad in combating terrorist financing. We look forward to presenting  those findings to the Caucus.
subsections: section_title: Background
paragraphs: Cutting off terrorists’ funding is an important means of disrupting their  operations. As initial U.S. and foreign government deterrence efforts  focused on terrorists’ use of the formal banking or mainstream financial  systems, terrorists may have been forced to increase their use of various  alternative financing mechanisms. Alternative financing mechanisms  enable terrorists to earn, move, and store their assets and may include the  use of commodities, bulk cash, charities, and informal banking systems,  sometimes referred to as hawala. In its fight against terrorism, the United  States has focused on individuals and entities supporting or belonging to  terrorist organizations including al Qaeda, Hizballah, HAMAS (Harakat al- Muqawama al-Islamiya—Islamic resistance Movement), and others. These  terrorist organizations are known to have used alternative financing  mechanisms to further their terrorist activities. Government officials and  researchers believe that terrorists do not always need large amounts of  assets to support an operation, pointing out that the estimated cost of the  September 11 attack was between $300,000 and $500,000. However,  government officials also caution that funding for such an operation uses a  small portion of the assets that terrorist organizations require for their  support infrastructure such as indoctrination, recruitment, training,  logistical support, the dissemination of propaganda, and other material  support.
In response to the terrorist attacks of September 11, the Departments of  the Treasury and Justice both established multiagency task forces  dedicated to combating terrorist financing. Treasury established Operation  Green Quest, led by the Customs Service—now ICE in the Department of  Homeland Security—to augment existing counterterrorist efforts by  targeting current terrorist funding sources and identifying possible future  sources. On September 13, 2001, the FBI formed a multiagency task  force—which is now known as the Terrorist Financing Operations Section  (TFOS)—to combat terrorist financing. The mission of TFOS has evolved  into a broad role to identify, investigate, prosecute, disrupt, and dismantle  all terrorist-related financial and fundraising activities. The FBI also took  action to expand the antiterrorist financing focus of its Joint Terrorism  Task Forces (JTTFs)—teams of local and state law enforcement officials,  FBI agents, and other federal agents and personnel whose mission is to  investigate and prevent acts of terrorism. In 2002, the FBI created a  national JTTF in Washington, D.C., to collect terrorism information and  intelligence and funnel it to the field JTTFs, various terrorism units within  the FBI, and partner agencies.
Following September 11, representatives of the FBI and Operation Green  Quest met on several occasions to attempt to delineate antiterrorist  financing roles and responsibilities. However, such efforts were largely  unsuccessful. The resulting lack of clearly defined roles and coordination  procedures contributed to duplication of efforts and disagreements over  which agency should lead investigations. In May 2003, to resolve  jurisdictional issues and enhance interagency coordination, the Attorney  General and the Secretary of Homeland Security signed a Memorandum of  Agreement concerning terrorist financing investigations. The Agreement  and its related procedures specified that the FBI was to have the lead role  in investigating terrorist financing and that ICE was to pursue terrorist  financing solely through participation in FBI-led task forces, except as  expressly approved by the FBI.
Regarding strategic efforts, the Money Laundering and Financial Crimes  Strategy Act of 1998 (Strategy Act) required the President—acting through  the Secretary of the Treasury and in consultation with the Attorney  General and other relevant federal, state, and local law enforcement and  regulatory officials—to develop and submit an annual NMLS to the  Congress by February 1 of each year from 1999 through 2003. Unless  reauthorized by the Congress, this requirement ended with the 2003  strategy, which was issued on November 18, 2003. The goal of the Strategy  Act was to increase coordination and cooperation among the various  regulatory and enforcement agencies and to effectively distribute  resources to combat money laundering and related financial crimes. The  Strategy Act required the NMLS to define comprehensive, research-based  goals, objectives, and priorities for reducing these crimes in the United  States. The NMLS has generally included multiple priorities to guide  federal agencies’ activities in combating money laundering and related  financial crimes. In 2002, the NMLS was adjusted to reflect new federal  priorities in the aftermath of September 11 including a goal to combat  terrorist financing.
section_title: U.S. Government Faces Significant Challenges in Deterring Terrorists’ Use of Key Alternative Financing Mechanisms
paragraphs: The U.S. government faces myriad challenges in determining and  monitoring the nature and extent of terrorists’ use of alternative financing  mechanisms. Terrorists use a variety of alternative financing mechanisms  to earn, move, and store their assets based on common factors that make  these mechanisms attractive to terrorist and criminal groups alike. For all  three purposes—earning, moving, and storing—terrorists aim to operate in  relative obscurity, using mechanisms involving close knit networks and  industries lacking transparency. More specifically, first, terrorists earn  funds through highly profitable crimes involving commodities such as  contraband cigarettes, counterfeit goods, and illicit drugs. For example,  according to U.S. law enforcement officials, Hizballah earned an estimated  profit of $1.5 million in the United States between 1996 and 2000 by  purchasing cigarettes in a low tax state for a lower price and selling them  in a high tax state at a higher price. Terrorists also earned funds using  systems such as charitable organizations that collect large sums in  donations from both witting and unwitting donors. Second, to move  assets, terrorists seek out mechanisms that enable them to conceal or  launder their assets through nontransparent trade or financial transactions  such as the use of charities, informal banking systems, bulk cash, and  commodities that may serve as forms of currency, such as precious stones  and metals. Third, to store assets, terrorists may use similar commodities  because they are likely to maintain value over a longer period of time and  are easy to buy and sell outside the formal banking system.
The true extent of terrorists’ use of alternative financing mechanisms is  unknown, owing to the criminal nature of the activity and the lack of  systematic data collection and analysis. The limited and sometimes  conflicting information available on alternative financing mechanisms  adversely affects the ability of U.S. government agencies to assess risk and  prioritize efforts. U.S. law enforcement agencies, and specifically the FBI,  which leads terrorist financing investigations and maintains case data, do  not systematically collect and analyze data on terrorists’ use of alternative  financing mechanisms. The lack of such a method of data collection  hinders the FBI from conducting systematic analysis of trends and  patterns focusing on alternative financing mechanisms. Without such an  assessment, the FBI would not have analyses that could aid in assessing  risk and prioritizing efforts.
Moreover, despite an acknowledged need from some U.S. government  officials and researchers for further analysis of the extent of terrorists’ use  of alternative financing mechanisms, U.S. government reporting on these  issues has not always been timely or comprehensive, which could affect  planning and coordination efforts. For example, the Departments of the  Treasury and Justice did not produce a report on the links between  terrorist financing and precious stone and commodity trading, as was  required by March 2003 under the 2002 NMLS. Moreover, we found widely  conflicting views in numerous interviews and available reports and  documentation concerning terrorists’ use of precious stones and metals.
In monitoring terrorists’ use of alternative financing mechanisms, the U.S.  government faces a number of significant challenges including  accessibility to terrorist networks, adaptability of terrorists, and  competing demands or priorities within the U.S. government. First,  according to law enforcement agencies and researchers, it is difficult to  access or infiltrate ethnically or criminally based networks that operate in  a nontransparent manner, such as informal banking systems or the  precious stones and other commodities industries. Second, the ability of  terrorists to adapt their methods hinders efforts to target high-risk  industries and implement effective mechanisms for monitoring high-risk  industry trade and financial flows. According to the FBI, once terrorists  know that an industry they use to earn or move assets is being watched,  they may switch to an alternative commodity or industry. Finally,  competing priorities create challenges to federal and state officials’ efforts  to use and enforce applicable U.S. laws and regulations in monitoring  terrorists’ use of alternative financing mechanisms. For example, we  reported to you in November 2003 the following:    Although the Internal Revenue Service (IRS) agreed with us in 2002 to  begin developing a system, as allowed by law, to share with states data  that would improve oversight and could be used to deter terrorist  financing in charities, the IRS had not made this initiative a priority.  The IRS had not developed and implemented the system, citing  competing priorities.
The Department of the Treasury’s Financial Crimes Enforcement  Network (FinCEN) officials stated the extent of the workload created  under the 2001 Uniting and Strengthening America by Providing  Appropriate Tools Required to Intercept and Obstruct Terrorism Act  (USA PATRIOT Act) initially increased the amount of work required  and may have slowed efforts to take full advantage of the act  concerning the establishment of anti-money laundering programs.  FinCEN anti-money laundering program rules for dealers in precious  metals, stones, or jewels were proposed on February 21, 2003, and had  not been finalized when we recently contacted FinCEN on February 24,  2004.
FBI officials told us that the 2002 NMLS contained more priorities than  could be realistically accomplished, and Treasury officials said that  resource constraints and competing priorities were the primary  reasons why strategy initiatives, including those related to alternative  financing mechanisms, were not met or were completed later than  expected.
As a result of our earlier findings:    We recommended that the Director of the FBI, in consultation with  relevant U.S. government agencies, systematically collect and analyze  information involving terrorists’ use of alternative financing  mechanisms. Justice agreed with our finding that the FBI does not  systematically collect and analyze such information, but Justice did not  specifically agree or disagree with our recommendation. However, both  ICE and IRS senior officials have informed us that they agree that law  enforcement agencies should have a better approach to assessing the  use of alternative financing mechanisms.
We recommended that the Secretary of the Treasury and the Attorney  General produce the report on the links between terrorism and the use  of precious stones and commodities that was required by March 2003  under the 2002 NMLS based on up-to-date law enforcement  investigations. The Treasury responded that the report would be  included as an appendix in the 2003 NMLS. Precious stones and  commodities were given a small amount of attention in an appendix on  trade-based money laundering within the 2003 NMLS that was released  in November 2003. It remains unclear as to how this will serve as a  basis for an informed strategy.
We recommended that the Commissioner of the IRS, in consultation  with state charity officials, establish interim IRS procedures and state  charity official guidelines, as well as set milestones and assign  resources for developing and implementing both, to regularly share  data on charities as allowed by federal law. The IRS agreed with our  recommendation, and we are pleased to report that the IRS expedited  efforts and issued IRS procedures and state guidance on December 31,  2003, as stated in its agency comments in response to our report.
section_title: Federal Agencies Have Taken Steps to Coordinate Investigations of Terrorist Financing, but Operational and Organizational Challenges Still Exist
paragraphs: In May 2003, to resolve jurisdictional issues and enhance interagency  coordination, the Attorney General and the Secretary of Homeland  Security signed a Memorandum of Agreement concerning terrorist  financing investigations. The Agreement and its related procedures  specified that the FBI was to have the lead role in investigating terrorist  financing and that ICE was to pursue terrorist financing solely through  participation in FBI-led task forces, except as expressly approved by the  FBI. Also, the Agreement contained several provisions designed to  increase information sharing and coordination of terrorist financing  investigations. For example, the Agreement required the FBI and ICE to  (1) detail appropriate personnel to each other’s agency and (2) develop  specific collaborative procedures to determine whether applicable ICE  investigations or financial crimes leads may be related to terrorism or  terrorist financing. Another provision required that the FBI and ICE jointly  report to the Attorney General, the Secretary of Homeland Security, and  the Assistant to the President for Homeland Security on the status of the  implementation of the Agreement 4 months from its effective date.
In February 2004, we reported to the Senate Appropriations’  Subcommittee on Homeland Security that the FBI and ICE had  implemented or taken concrete steps to implement most of the key  Memorandum of Agreement provisions. For example, the agencies had  developed collaborative procedures to determine whether applicable ICE  investigations or financial crimes leads may be related to terrorism or  terrorist financing—and, if so, determine whether these investigations or  leads should thereafter be pursued under the auspices of the FBI.  However, we noted that the FBI and ICE had not yet issued a joint report  on the status of the implementation, which was required 4 months from  the effective date of the Agreement.
By granting the FBI the lead role in investigating terrorist financing, the  Memorandum of Agreement has altered ICE’s role in investigating  terrorism-related financial crimes. However, while the Agreement  specifies that the FBI has primary investigative jurisdiction over confirmed  terrorism-related financial crimes, the Agreement does not preclude ICE  from investigating suspicious financial activities that have a potential  (unconfirmed) nexus to terrorism—which was the primary role of the  former Operation Green Quest. Moreover, the Agreement generally has not  affected ICE’s mission or role in investigating other financial crimes.  Specifically, the Agreement did not affect ICE’s statutory authorities to  conduct investigations of money laundering and other traditional financial  crimes. ICE investigations can still cover the wide range of financial  systems—including banking systems, money services businesses, bulk  cash smuggling, trade-based money laundering systems, illicit insurance  schemes, and illicit charity schemes—that could be exploited by money  launderers and other criminals. According to ICE headquarters officials,  ICE is investigating the same types of financial systems as before the  Memorandum of Agreement.
Further, our February 2004 report noted that—while the Memorandum of  Agreement represents a partnering commitment by the FBI and ICE— continued progress in implementing the Agreement will depend largely on  the ability of these law enforcement agencies to meet various operational  and organizational challenges. For instance, the FBI and ICE face  challenges in ensuring that the implementation of the Agreement does not  create a disincentive for ICE agents to initiate or support terrorist  financing investigations. That is, ICE agents may perceive the Agreement  as minimizing their role in terrorist financing investigations. Additional  challenges involve ensuring that the financial crimes expertise and other  investigative competencies of the FBI and ICE are effectively utilized and  that the full range of the agencies’ collective authorities—intelligence  gathering and analysis as well as law enforcement actions, such as  executing search warrants and seizing cash and other assets—are  effectively coordinated. Inherently, efforts to meet these challenges will be  an ongoing process. Our interviews with FBI and ICE officials at  headquarters and three field locations indicated that long-standing  jurisdictional and operational disputes regarding terrorist financing  investigations may have strained interagency relationships to some degree  and could pose an obstacle in fully integrating investigative efforts.
On a broader scale, as discussed below, we also have reported that  opportunities exist to improve the national strategy for combating money  laundering and other financial crimes, including terrorist financing.
section_title: Opportunities Exist to Improve the National Strategy for Combating Money Laundering and Other Financial Crimes, Including Terrorist Financing
paragraphs: The 1998 Strategy Act required the President—acting through the  Secretary of the Treasury and in consultation with the Attorney General  and other relevant federal, state, and local law enforcement and regulatory  officials—to develop and submit an annual NMLS to the Congress by  February 1 of each year from 1999 through 2003. Also, in 2002, the NMLS  was adjusted to reflect new federal priorities in the aftermath of  September 11 including a goal to combat terrorist financing. Unless  reauthorized by the Congress, the requirement for an annual NMLS ended  with the issuance of the 2003 strategy.
To assist in congressional deliberations on whether there is a continuing  need for an annual NMLS, we reviewed the development and  implementation of the 1999 through 2002 strategies. In September 2003, we  reported to this Caucus that, as a mechanism for guiding the coordination  of federal law enforcement agencies’ efforts to combat money laundering  and related financial crimes, the annual NMLS has had mixed results but  generally has not been as useful as envisioned by the Strategy Act. For  example, we noted that although Treasury and Justice had made progress  on some NMLS initiatives designed to enhance interagency coordination of  investigations, most had not achieved the expectations called for in the  annual strategies, including plans to (1) use a centralized system to  coordinate investigations and (2) develop uniform guidelines for  undercover investigations. Headquarters officials cited differences in the  various agencies’ anti-money laundering priorities as a primary reason why  initiatives had not achieved their expectations.
Most financial regulators we interviewed said that the NMLS had some  influence on their anti-money laundering efforts because it provided a  forum for enhanced coordination, particularly with law enforcement  agencies. Law enforcement agency officials said the level of coordination  between their agencies and the financial regulators was good. However,  the financial regulators also said that other factors had more influence on  them than the strategy. For example, the financial regulators cited their  ongoing oversight responsibilities in ensuring compliance with the Bank  Secrecy Act as a primary influence on them. Another influence has been  anti-money laundering working groups, some of which were initiated by  the financial regulators or law enforcement agencies prior to enactment of  the 1998 Strategy Act. The officials said that the U.S. government’s  reaction to September 11, which included a change in government  perspective and new regulatory requirements placed on financial  institutions by the USA PATRIOT Act, has driven their recent anti-money  laundering and antiterrorist financing efforts. Although the financial  regulators said that the NMLS had less influence on their anti-money  laundering activities than other factors, they have completed the tasks for  which the NMLS designated them as lead agencies over the years, as well  as most of the tasks for which they were to provide support to the  Treasury.
In our September 2003 report, we noted that our work in reviewing  national strategies for various crosscutting issues has identified several  critical components needed for their development and implementation,  including effective leadership, clear priorities, and accountability  mechanisms. For a variety of reasons, these critical components generally  have not been fully reflected in the development and implementation of  the annual NMLS. For example, the joint Treasury-Justice leadership  structure that was established to oversee NMLS-related activities generally  has not resulted in (1) reaching agreement on the appropriate scope of the  strategy; (2) ensuring that target dates for completing strategy initiatives  were met; and (3) issuing the annual NMLS by February 1 of each year, as  required by the Strategy Act.
Also, although the Treasury generally took the lead role in strategy-related  activities, the department had no incentives or authority to get other  departments and agencies to provide necessary resources and compel  their participation. And, the annual strategies have not identified and  prioritized issues that required the most immediate attention. Each  strategy contained more priorities than could be realistically achieved, the  priorities have not been ranked in order of importance, and no priority has  been explicitly linked to a threat and risk assessment. Further, although  the 2001 and 2002 strategies contained initiatives to measure program  performance, none had been used to ensure accountability for results.  Officials attributed this to the difficulty in establishing such measures for  combating money laundering. In addition, we noted that the Treasury had  not provided annual reports to the Congress on the effectiveness of  policies to combat money laundering and related financial crimes, as  required by the Strategy Act.
In summary, our September 2003 report recommended that—if the  Congress reauthorizes the requirement for an annual NMLS—the Secretary  of the Treasury, working with the Attorney General and the Secretary of  Homeland Security, should take appropriate steps to    strengthen the leadership structure responsible for strategy  development and implementation by establishing a mechanism that  would have the ability to marshal resources to ensure that the  strategy’s vision is achieved, resolve disputes between agencies, and  ensure accountability for strategy implementation;  link the strategy to periodic assessments of threats and risks, which  would provide a basis for ensuring that clear priorities are established  and focused on the areas of greatest need; and   establish accountability mechanisms, such as (1) requiring the  principal agencies to develop outcome-oriented performance measures  that must be linked to the NMLS’s goals and objectives and that also  must be reflected in the agencies’ annual performance plans and (2)  providing the Congress with periodic reports on the strategy’s results.
In commenting on a draft of the September 2003 report, Treasury said that  our recommendations are important, should Congress reauthorize the  legislation requiring future strategies; Justice said that our observations  and conclusions will be helpful in assessing the role that the strategy  process has played in the federal government’s efforts to combat money  laundering; and Homeland Security said that it agreed with our  recommendations.
Our review of the development and implementation of the annual  strategies did not cover the 2003 NMLS, which was issued in November  2003, about 2 months after our September 2003 report. While we have not  reviewed the 2003 NMLS, we note that it emphasized that “the broad fight  against money laundering is integral to the war against terrorism” and that  money laundering and terrorist financing “share many of the same  methods to hide and move proceeds.” In this regard, one of the major  goals of the 2003 strategy is to “cut off access to the international financial  system by money launderers and terrorist financiers more effectively.”  Under this goal, the strategy stated that the United States will continue to  focus on specific financing mechanisms—including charities, bulk cash  smuggling, trade-based schemes, and alternative remittance systems—that  are particularly vulnerable or attractive to money launderers and terrorist  financiers.
section_title: Concluding Observations
paragraphs: To be successful, efforts to disrupt terrorists’ ability to fund their  operations must focus not only on the formal banking and mainstream  financial sectors but also on alternative financing mechanisms. The 2003  NMLS, which was issued last November includes a focus on alternative  financing mechanisms; however, it is too soon to determine how well  these efforts are working. We were pleased that IRS implemented our  recommendation by expediting the establishment of procedures and  guidelines for sharing data on charities with states. We continue to believe  that implementation of our other two recommendations would further  assist efforts to effectively address vulnerabilities posed by terrorists’ use  of alternative financing mechanisms.
Also, regarding investigative efforts against sources of terrorist financing,  the May 2003 Memorandum of Agreement signed by the Attorney General  and the Secretary of Homeland Security represents a partnering  commitment by two of the nation’s premier law enforcement agencies, the  FBI and ICE. In the 9 months since the Agreement was signed, progress  has been made in waging a coordinated campaign against sources of  terrorist financing. Continued progress will depend largely on the ability of  the agencies to establish and maintain effective interagency relationships  and meet various other operational and organizational challenges.
Finally, from a broader or strategic perspective, the annual NMLS has had  mixed results in guiding the efforts of law enforcement and financial  regulators in the fight against money laundering and, more recently,  terrorist financing. Through our work in reviewing national strategies, we  identified critical components needed for successful strategy development  and implementation; but, to date, these components have not been well  reflected in the annual NMLS. The annual NMLS requirement ended with  the issuance of the 2003 strategy. If the Congress reauthorizes the  requirement for an annual NMLS, we continue to believe that  incorporating these critical components—a strengthened leadership  structure, the identification of key priorities, and the establishment of  accountability mechanisms—into the strategy could help resolve or  mitigate the deficiencies we identified.
Mr. Chairman, this concludes our prepared statement. We would be happy  to respond to any questions that you or Members of the Caucus may have.
section_title: GAO Contacts and Staff Acknowledgments
paragraphs: For further information about this testimony, please contact Loren Yager  at (202) 512-4128 or Richard M. Stana at (202) 512-8777. Other key  contributors to this statement were Christine M. Broderick, Danny R.  Burton, Barbara I. Keller, R. Eric Erdman, Kathleen M. Monahan, Tracy M.  Guerrero, and Janet I. Lewis.
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