Anti-Money Laundering: U.S. Efforts to Combat Narcotics-Related Money Laundering in the Western Hemisphere
Published: 2017-08-22T00:00:00

Fast Facts:
Transnational drug traffickers try to launder their money to make illicit proceeds appear legitimate.
To help fight this, U.S. agencies and regulators monitor financial institutions' compliance with anti-money laundering requirements—including that they verify customers' identities and report suspicious transactions.
Federal agencies also provide such things as training and equipment to support capacity-building in other Western Hemisphere countries. State and Treasury allocated about $63 million to support such efforts from 2011-15, with funding concentrated in several countries, including Mexico.

Highlights:
section_title: Why GAO Did This Study
paragraphs: Proceeds from narcotics-related illicit activities are one of the most common sources of money laundering in the United States. Though difficult to accurately determine, in 2015, Treasury estimated that drug trafficking generated about $64 billion annually from U.S. sales. Moreover, the Western Hemisphere accounts for about a third of the jurisdictions designated by State as of primary concern for money laundering.
GAO was asked to provide information on U.S. efforts to impede illicit proceeds from drug trafficking from entering the financial systems of the United States and other Western Hemisphere countries. This report describes (1) U.S. agency oversight and monitoring of compliance with the BSA, including collaboration with counterparts in other Western Hemisphere countries, and (2) State's and Treasury's efforts to build capacity in other Western Hemisphere countries to combat narcotics-related money laundering.
GAO reviewed laws and regulations; interviewed experts and U.S. officials; reviewed documents and examined State's and Treasury's budget data for fiscal years 2011 through 2015, the most recent at the time of the review, for anti-money laundering activities. GAO selected Colombia, Mexico, and Panama—three principal recipients of AML support—for site visits, in part, because each country was designated a major drug transit or illicit drug-producing country from fiscal years 2014 through 2016.
section_title: What GAO Found
paragraphs: U.S. financial regulators oversee and monitor compliance with anti-money laundering (AML) requirements of the Bank Secrecy Act (BSA) to prevent, detect, and deter the laundering of proceeds from narcotics trafficking and other illicit activities using a risk-based examination approach. The Department of the Treasury's (Treasury) Financial Crimes Enforcement Network (FinCEN) administers the BSA and related AML regulations, which provides the legal framework for combating money laundering. The BSA includes requirements for financial institutions to retain various records of customer transactions, verify customers' identity, maintain effective AML programs, and report suspicious transactions. FinCEN relies on a variety of U.S. financial regulators and agencies to help FinCEN oversee and monitor financial institutions' compliance with the BSA. U.S. financial regulators and FinCEN also collaborate directly with counterparts in other Western Hemisphere countries and through international working groups to identify and reduce risks to the financial sector by sharing information and analysis on financial crimes.
The Departments of State (State) and Treasury support AML capacity-building and technical assistance efforts in other Western Hemisphere countries in collaboration with the Departments of Justice and Homeland Security and other federal agencies. For example, Treasury provides training to support the development of legal and regulatory frameworks in partner countries consistent with international standards to prevent money laundering. Similarly, State funds such training and provides equipment to financial intelligence units in these countries to help them detect illicit financial transactions. In fiscal years 2011 through 2015, State and Treasury allocated about $63 million to support AML-related capacity-building and technical assistance in the region, of which $52 million was from State (see figure).
Department of State's Bureau of International Narcotics and Law Enforcement Affairs Allocations by Country for Western Hemisphere Anti-Money Laundering Programs, Fiscal Years 2011 through 2015
a Central American Regional Security Initiative (CARSI) funding included regional programming for Costa Rica, Guatemala, Honduras, and El Salvador.
b Other includes funding for Barbados and the Eastern Caribbean, the Caribbean Basin Security Initiative, Jamaica,
Honduras, Dominican Republic, Paraguay, El Salvador, Guatemala, Ecuador, Haiti, Suriname, Trinidad and Tobago, Guyana, and Brazil.

section_title: Letter
paragraphs: Illicit capital flows from narcotics trafficking are one of the most common  sources of money laundering in the United States, according to the  Department of the Treasury (Treasury). Transnational criminal  organizations involved in drug trafficking seek to take advantage of any  gaps in U.S. regulatory and law enforcement processes to place their  illicit proceeds into the financial system and mask them as lawful.  Narcotics trafficking is primarily a cash business, and the widespread use  of the U.S. dollar for international commerce and the vast volume of  transactions through U.S. banks and other financial institutions make the  U.S. financial system vulnerable to narcotics-related money laundering.  Though difficult to accurately determine, in 2015, Treasury estimated that  drug trafficking generates about $64 billion annually from U.S. sales.  Moreover, the financial systems of other Western Hemisphere countries,  where much of the illicit drugs consumed in the United States are  produced and trafficked, are also vulnerable to money laundering. These  countries account for more than one-third of jurisdictions designated by  the Department of State (State) as of primary concern for money  laundering worldwide. Additionally, it is common for narcotics trafficking  organizations to be engaged in laundering proceeds from other illicit  activities, such as illegal mining or human trafficking, according to U.S.  and foreign officials.
You asked us to provide information on U.S. efforts to prevent, detect,  and deter illicit proceeds from entering the United States and other  Western Hemisphere countries’ financial systems. This report describes  (1) U.S. financial regulators’ oversight and monitoring of compliance with  the Bank Secrecy Act (BSA) and related anti-money laundering (AML) requirements and efforts to collaborate with counterparts in other Western  Hemisphere countries, and (2) the activities that State and Treasury  support to build capacity in other Western Hemisphere countries to  combat money laundering and how State and Treasury collaborate on  those efforts.
To address these objectives, we reviewed laws and regulations and  interviewed experts and officials from State, Treasury, financial regulators  and other U.S. agencies, as well as counterparts in Western Hemisphere  countries. We analyzed State’s and Treasury’s budget data for fiscal  years 2011 through 2015 to identify how much funding the agencies  allocated for AML capacity-building efforts in Western Hemisphere  countries. To assess the reliability of the allocations data, we conducted  interviews with knowledgeable State and Treasury officials about the  accuracy and completeness of the data and reviewed financial reports.  We determined that the data were sufficiently reliable for the purposes of  reporting State’s and Treasury’s allocations for AML activities by year and  by country from fiscal years 2011 through 2015. To identify examples of  the ways in which U.S. agencies collaborated on AML activities, we  developed a short questionnaire on collaboration practices and obtained  responses from six U.S. federal agencies or departments. In addition, we  conducted fieldwork in Colombia, Mexico, and Panama, where we  interviewed U.S. embassy officials responsible for managing and  implementing AML capacity-building activities and with host-government  officials such as financial regulators; recipients of State and Treasury  AML capacity-building and technical assistance; and representatives from  the private sector, including U.S. and international financial institutions.  We selected Colombia, Mexico, and Panama for site visits because State  identified them as jurisdictions of primary concern for money laundering in  their 2011 to 2016 International Narcotics Control Strategy Reports (vol.  II). Additionally, each country was designated a Major Drug Transit and/or  Major Illicit Drug Producing Country from fiscal years 2014 through 2016  by presidential determination. The site visits were selected to serve as  informative examples, and the findings are not generalizable across the  Western Hemisphere. Because the Caribbean and offshore islands near  the U.S. coastline are transit points for the drug trade and are used by  criminal organizations to launder illicit proceeds, we also contacted and  interviewed U.S. and government officials responsible for AML efforts in  the Bahamas. For additional information concerning our scope and  methodology, see appendix I.
We conducted this performance audit from May 2016 to August 2017 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: Money laundering generally takes place in three stages: placement,  layering, and integration (see fig. 1). In the placement stage, cash is  converted into monetary instruments, such as cashiers’ checks, money  orders, or prepaid debit cards, or deposited into accounts with financial  institutions. In the layering stage, these funds are transferred or moved  into other accounts or other financial institutions to disguise their illicit  origin. In the integration stage, the funds are used to purchase assets in  the legitimate economy. Some of the funds may also be used to support  additional illicit activities. Any financial sector and certain commercial  businesses can be targets for money laundering operations during one or  more of these stages. Many of these entities are required to report  transactions with certain suspicious characteristics to Treasury’s Financial  Crimes Enforcement Network (FinCEN).
Within the United States, the BSA and related AML regulations provide  the legal and regulatory framework for preventing, detecting, and  deterring money laundering. The BSA and its implementing regulations  generally require banks and other financial institutions, such as securities  broker-dealers and certain types of insurance companies, among others,  to collect and retain various records of customer transactions, verify  customers’ identities in certain situations, maintain AML programs, and  report suspicious and large cash transactions. In addition, the United  States has put in place a variety of AML measures intended to mitigate  risks, including the following: promulgation of regulations requiring reporting by financial institutions  to promote transparency with regard to the origin of funds; providing oversight to financial institutions in the United States by  federal financial regulators to assess the effectiveness of BSA/AML  compliance programs and take consequent appropriate legal action, if  necessary; and  forming partnerships with other countries through multilateral and  bilateral treaties and arrangements to promote global AML policies  and standards and facilitate the exchange of information on suspected  money laundering activities.
FinCEN was established in 1990 to support government agencies by  collecting, analyzing, and disseminating financial intelligence information  to combat money laundering. FinCEN is responsible for administering the  BSA, coordinating with federal and state regulatory agencies on AML,  and countering the financing of terrorism (CFT). FinCEN also serves as  the Financial Intelligence Unit (FIU) of the United States. FinCEN is a  component of Treasury’s Office of Terrorism and Financial Intelligence  (TFI), which includes other components actively involved in AML efforts.  Also within Treasury, the Office of International Affairs, the Office of  Technical Assistance (OTA), and the Internal Revenue Service (IRS)  have significant roles in AML efforts.
FinCEN relies on financial regulators and other entities to conduct  examinations of U.S. financial institutions across a variety of financial  sectors to determine compliance with the BSA and its implementing  regulations. As part of their examination programs, the federal financial  regulators assess the effectiveness of BSA/AML compliance programs  through a review of institutions’ records, policies, and procedures for  compliance with the BSA, including the requirement to identify and report  suspicious activity. The federal financial regulators that are responsible  for overseeing financial institutions’ AML efforts include the federal  banking agencies—the Board of Governors of the Federal Reserve  System (Federal Reserve), the Office of the Comptroller of the Currency  (OCC),the Federal Deposit Insurance Corporation (FDIC), and the  National Credit Union Administration (NCUA)—as well as the Securities  and Exchange Commission (SEC), which regulates the securities  markets, and the Commodity Futures Trading Commission (CFTC), which  regulates commodity futures and options markets. The self-regulatory  organizations (SRO) that SEC and CFTC oversee—such as the Financial  Industry Regulatory Authority (FINRA) and the National Futures  Association (NFA), among others—also have BSA/AML compliance  responsibilities for the activities of their members. The Federal Reserve,  FDIC, NCUA, SEC, and CFTC are independent agencies that are not part  of the executive branch, while OCC is a bureau within Treasury. The IRS  has the authority to examine financial institutions that are not currently  examined by financial regulators, such as money services businesses, for  BSA compliance. For the insurance industry, in addition to any applicable  federal oversight, state insurance commissioners are responsible for  supervision as part of their broader prudential examinations of the  insurance sector.
Internationally, U.S. agencies work with multiple multilateral organizations  to combat money laundering and promote financial stability. These  organizations include the Financial Action Task Force (FATF), the  Egmont Group of Financial Intelligence Units (Egmont Group), the Basel  Committee on Banking Supervision, the United Nations (UN), the  International Monetary Fund (IMF), and the World Bank. FATF is an  intergovernmental body that sets internationally recognized standards for  developing AML and CFT regimes and assessing countries’ abilities to  meet these standards. There are also nine FATF-style regional bodies  (FSRB) that work to promote FATF standards in specific geographic  locations and to assess countries’ level of implementation of those  standards. Two FSRBs in the Western Hemisphere—the Caribbean  Financial Action Task Force (CFATF) and the Financial Action Task  Force of Latin America (GAFILAT)—include representation from most  Western Hemisphere countries, providing a mechanism to coordinate  technical assistance and training. FATF and its FSRBs also work to  identify specific typologies of money laundering, such as trade-based  money laundering, and to promote international cooperation in disrupting  and dismantling those money laundering schemes. The UN has adopted  treaties and conventions that once signed, ratified, and implemented by  member governments have the effect of law and enhance the ability of  these governments to combat money laundering and terrorist financing.
U.S. agencies, with support from State, provide training and technical  assistance directly to countries vulnerable to money laundering (see fig.  2). State is responsible for coordinating all assistance provided by the  U.S. government to support international efforts to combat illicit narcotics  production or trafficking. Within State, the Bureau of International  Narcotics and Law Enforcement Affairs (INL) provides the majority of this  funding.
Annually, INL also publishes a two-volume report on efforts to combat all  aspects of the international drug trade that includes an analysis of  countries identified as “major money laundering countries.” See figure 3  for a map of countries and jurisdictions in the Western Hemisphere  identified by INL as being vulnerable to money laundering.
Treasury’s OTA is the other key provider of assistance to strengthen AML  measures in other countries in line with international standards. INL and  OTA work with other U.S. agencies, primarily components within the  Departments of the Treasury, Justice (Justice), and Homeland Security  (DHS), as well as with financial regulators, to provide capacity-building  and technical assistance to foreign partners. In addition, FinCEN engages  in the development of operational policy, guidance, and discussions of  best practices with other FIUs, designs and delivers courses for Egmont  Group members, and participates in operational engagements with select  FIUs on priority topics.
The magnitude and globally integrated nature of the U.S. financial system  creates opportunities for criminal organizations to take advantage of  money laundering vulnerabilities. For example, while FATF’s most recent  evaluation of the U.S. AML regime found it to be effective overall, the  evaluation also highlighted specific weaknesses in the framework,  particularly related to identifying the beneficial owners of legal entities  created in the United States or legal entities that open accounts with U.S.  financial institutions, which is a vulnerability that illicit organizations could  exploit. Narcotics trafficking organizations can use a variety of means to  exploit these weaknesses, as well as weaknesses in the financial systems of countries in the Western Hemisphere, to conceal the illicit  nature of their proceeds. For example, narcotics trafficking organizations  can structure transactions below applicable reporting thresholds of U.S.  financial institutions—transactions involving more than $10,000 in  currency; use shell corporations to disguise or conceal the ownership of  accounts at financial institutions; and take advantage of deficiencies in  compliance requirements for financial institutions within the financial  system, such as individual weaknesses in the U.S. regulatory framework  identified by FATF. Drug traffickers can also use more complex  techniques to conceal the origins of illicit proceeds, such as trade-based  money laundering, which exploits international trade and financial  institutions in multiple countries and frequently involves complicit or  unwitting parties in commercial transactions.
subsections: section_title: U.S. Financial Regulators Provide Oversight and Work with Counterparts to Identify and Reduce Financial Sector Risks U.S. Financial Regulators Oversee Financial Institutions’ Compliance with BSA Requirements Primarily through Examinations
paragraphs: Financial regulators play a critical role in safeguarding financial markets  from illicit activity, including money laundering. They provide oversight of  financial institutions by examining for compliance with the BSA and  requiring corrective action, including enforcement actions for  noncompliance with BSA requirements, and by sharing information with  FinCEN. Their role extends to supporting counterparts throughout the  Western Hemisphere.
To combat the threat of money laundering, financial institutions— including certain banks, securities broker-dealers, futures and  commodities brokers, money services businesses, and insurance  companies—are required to have written policies and procedures that  include key AML requirements based on the BSA. Most financial  institutions are required to develop, administer, and maintain an effective  program for compliance with the BSA and all of its implementing  regulations. At a minimum, this compliance program must provide for the  following:
Establish a system of internal controls to ensure ongoing compliance,  including staff adherence to the financial institution’s BSA/AML  policies.
Conduct AML compliance training for appropriate personnel, such as  those involved in opening accounts at financial institutions.
Provide for independent testing of BSA compliance—i.e. test  transactions for adherence to recordkeeping and reporting  requirements, review filing of SARs and currency transaction reports  (CTR) and assess the process for identifying suspicious activity.
Designate a person or persons responsible for managing BSA  compliance with sufficient authority and resources to administer an  effective BSA/AML program.
Establish, for certain financial institutions, a risk-based customer due  diligence procedure.
Financial regulators conduct examinations of financial institutions they  oversee to help ensure compliance with BSA requirements. With  respect to the federal financial regulators, BSA examinations can be  conducted as part of regularly scheduled safety and soundness  examinations or to ensure compliance with applicable laws and rules,  generally occurring at least once every 12 to18 months for most financial  institutions, or targeted based on risk. The Federal Financial Institutions  Examination Council, a formal interagency body composed of federal  financial regulators and state regulator representative bodies that  prescribes standards for banks and other financial institutions, has  developed a manual for BSA/AML examinations of banks. For nonbank  financial institutions, SEC and CFTC have separate, nonpublic  procedures for examinations of the institutions they oversee. In 2008,  FinCEN issued a manual for use by IRS and state regulators that  provides guidance for examiners to perform risk-based examinations of  money services businesses. The National Association of Insurance  Commissioners (NAIC) has developed guidance for use by state  insurance commissioners to examine insurance companies required to  have BSA policies.
Examinations are risk-based, meaning that examiners have the flexibility  to apply the appropriate level of scrutiny to business lines that pose a  higher level of risk to the institution. Examiners may consider a broad  range of risk factors including the type of business, the geographic  location, or the products offered by the institution. Financial institutions  are expected to complete a BSA/AML risk assessment to identify specific  products, services, and customers, which financial regulators can use to  evaluate the compliance programs of financial institutions and scope their  examinations. Financial regulators we spoke with told us they also rely on  information from FATF mutual evaluations and the Basel AML Index,  among other sources, to identify specific areas of risk in internationally  active U.S. financial institutions to focus their examinations, and that risks  can vary by industry and financial sector. For example, FATF publishes  lists of jurisdictions that it determines, based on its assessments of their  AML regimes, to be high-risk and noncooperative (see appendix II for a  list of Western Hemisphere countries identified by FATF as high-risk and  noncooperative). Table 1 shows the various financial regulators that are  responsible for ensuring compliance with BSA requirements across a  variety of financial sectors and the different money laundering risks each  sector faces.
Financial regulators told us that their examiners focus on whether  financial institutions are complying with BSA requirements and have the  proper framework in place to detect and report suspicious activity.  However, during the course of their examinations, if they identify potential  money laundering or other criminal violations, such as drug trafficking,  fraud, or tax evasion, they said that they would raise these concerns with  management and refer such criminal allegations to law enforcement  counterparts as appropriate. According to officials we spoke with, most  problems identified by examiners are resolved soon after they are brought  to the attention of an institution’s management. In serious cases,  noncompliance with BSA requirements may result in informal actions,  such as the issuance of a letter outlining compliance issues identified  through examinations, or increased examination frequency, and formal  actions that require corrective steps to address problems identified during  the examination process, such as a consent order or civil money penalty.
FinCEN is authorized to enforce the BSA and impose civil money  penalties on any financial institution covered by BSA requirements, and  the financial regulators also can take independent enforcement actions  against financial institutions. For example, we reported that from  January 2009 to December 2015, financial regulators assessed a total of  about $1.4 billion in penalties for BSA and sanctions violations. More  recently, in February 2017, FinCEN and OCC jointly assessed civil money  penalties against a bank that had business dealings in Mexico and  Colombia for failure to comply with BSA requirements, including failure to  conduct due diligence on its high-risk customers along the U.S.-Mexico  border and failure to adequately monitor billions of dollars of transactions  for suspicious activity.
section_title: U.S. Financial Regulators and FinCEN Share Information with Financial Institutions to Promote Compliance with BSA
paragraphs: In addition to conducting examinations, financial regulators we spoke with  also reported that they participate in other activities intended to share with  financial institutions information regarding compliance with BSA  requirements. Financial regulators we spoke with participate in industry  conferences and AML-focused working groups and provide training to  industry compliance personnel to share more information about BSA  requirements and risks to financial institutions from money laundering.  For example, NCUA officials told us they provide written supervisory  guidance to the industry on BSA/AML risks when specific risk exposures  are identified. Officials from the financial regulators told us they  participate in multiple conferences related to BSA/AML issues, including  the Association of Certified Anti-Money Laundering Specialists’ annual  conference and the American Bankers Association/American Bar  Association Financial Crimes Enforcement Conference. Additionally,  FinCEN chairs the Bank Secrecy Act Advisory Group, in which the  financial regulators participate with private sector representatives to share  information on money laundering risks and regulatory obligations. SEC has published risk alerts on BSA/AML issues, maintains a library of  publicly available documents on the its website, and engages in outreach  through conferences and other forums.
FinCEN also provides information that financial regulators can use to  enhance their examination process and that financial institutions can use  to improve their BSA compliance and stay informed of risks. FinCEN, as  the financial intelligence unit, serves as the repository of SARs and CTRs,  among other required reports, from financial institutions. FinCEN  conducts analyses of the data and provides access to its database of  SARs, CTRs, and other BSA reports to financial regulators to enable  them to use the information to better inform their examination process.  Financial regulators told us they use the information on the FinCEN  database to examine financial institutions to see if, among other things,  the appropriate information has been reported to FinCEN. In addition,  FinCEN regularly issues bulletins and advisories to financial institutions,  which can include clarification of or additional reporting requirements for  financial institutions. For example, in January 2016, FinCEN issued real  estate Geographic Targeting Orders (GTO) for the borough of Manhattan  in New York City and Miami-Dade County, Florida, that temporarily  required certain U.S. title insurance companies in Manhattan and Miami- Dade County to identify the persons behind shell companies used to pay  “all cash” (purchases without bank financing) for high-end residential real  estate. In a separate action, in April 2015 FinCEN, in coordination with  the Department of Homeland Security Immigration and Customs  Enforcement (ICE)/Homeland Security Investigations (HSI), issued a  GTO to several hundred businesses in Miami to shed light on cash  transactions that may be related to trade-based money laundering  schemes used by drug cartels. FinCEN also advises U.S. financial  institutions about FATF jurisdictions of concern and how to deal with  accounts from certain countries following each FATF meeting, as well as  other criminal financial activities. For example, FinCEN issued an  advisory in April 2017 that provided financial institutions with guidance for  managing accounts in countries identified in recent FATF public  documents as having AML/CFT deficiencies and issued two advisories on  cyber-related risks and crimes in September and October 2016.
section_title: U.S. Financial Regulators and FinCEN Use a Variety of Mechanisms to Work with Western Hemisphere Counterparts to Reduce Risks to the Financial System
paragraphs: U.S. and foreign regulators work together through various means to  promote international standards and deter money laundering in the  Western Hemisphere. Specifically, U.S. financial regulators and FinCEN  share AML information or financial intelligence with and provide training to  their Western Hemisphere counterparts through international  organizations such as the GAFILAT and the Egmont Group; through  informal bilateral arrangements, such as memoranda of understanding  (MOU); and on an ad hoc basis. These activities include sharing  information as well as providing training on money laundering typologies,  practices related to money laundering detection and deterrence, and  identifying suspicious activity.
Through FATF, the AML/CFT standards-setting body, and its regional  bodies, the U.S. government and other FATF member countries engage  in several working groups as a means to share information. These groups  cover topics such as policy development, which includes revisions to the  FATF standards; guidance and best practice reporting; international  cooperation, which identifies high-risk and noncooperative jurisdictions;  and money laundering and terrorist financing risks. U.S. representatives  to FATF, which include TFFC, FinCEN, law enforcement, and the  financial regulators, said these working groups have been valuable in  allowing them to share information with other countries. Regulators we  spoke with in other Western Hemisphere countries also recognized the  importance of FATF and the regional bodies as a valuable means of  sharing information. For example, in the Bahamas, one regulator we  spoke with said that the Caribbean Financial Action Task Force (CFATF)  allows the Bahamas direct access to international discussions on issues  on bank supervision and AML.
FinCEN and other FIUs also share information bilaterally and through the  Egmont Group, an international organization that emphasizes sharing  information among FIUs. As of June 2017, 38 FIUs from countries and  jurisdictions in the Western Hemisphere were members. The goal of the  Egmont Group is to provide a forum for FIUs to improve support to their  respective governments in the fight against money laundering, terrorist  financing, and other financial crimes. Egmont Group members share  tactical, operational, and strategic information as it relates to money  laundering and predicate crimes, such as narcotics trafficking, to assist  respective law enforcement agencies. According to Treasury  representatives to the Egmont Group, the Egmont Group has also  delivered courses to FIUs in Latin America and the Caribbean in  coordination with FSRBs and other international organizations, including  the Organization of American States. Through the Egmont Group,  FinCEN staff said that they work with FIUs in the Western Hemisphere to  exchange information on financial crimes, develop operational guidance  and best practices for FIUs, and coordinate on capacity development for  FIUs. FinCEN told us that Egmont Group membership is critical to  information sharing, as it provides assurances that the member has the  appropriate policies and procedures in place to respond to and protect  sensitive information. The FIU in Mexico told us that FinCEN is the main  U.S. agency that it collaborates with on anti-money laundering activities.  Where appropriate, Mexico’s FIU conducts joint analysis of account  information (e.g., deposits and other transactions) with FinCEN and  shares information and research when there is a U.S. connection to the  cases that it is investigating.
FinCEN shares information with foreign FIUs pursuant to MOUs.  According to FinCEN, in some cases, it shares information with foreign  FIUs without MOUs, provided that those FIUs are members of the  Egmont Group. FinCEN also shares information pursuant to MOUs with  foreign regulators for AML/CFT purposes. FinCEN has signed MOUs with  foreign financial regulators and FIUs, including Egmont Group members,  as well as FIUs that are not part of the Egmont Group. FinCEN’s MOUs  with foreign financial regulators enable information sharing of AML/CFT  supervisory information. For example, in 2013, FinCEN entered into an  MOU with Mexico’s National Banking and Securities Commission in  support of both countries’ AML mission. Officials from FinCEN said that  such information sharing with foreign regulators has been beneficial  because it has allowed for additional collaboration on AML issues of  concern from a supervisory perspective. Similarly, officials from FIUs in  Colombia and Panama said that they work closely with FinCEN to share  information that helps identify suspicious patterns of activities and to  conduct analyses to detect financial crimes, some of which are related to  narcotics trafficking. Officials from FinCEN said that they have worked  closely with the FIUs in Mexico and several Latin American countries to  identify high-risk banking clients and to share this information with  Treasury. In addition to sharing information through FIUs, FinCEN also  prepares research reports at the request of foreign regulators. For  example, FinCEN has prepared summaries of activities of concern for  foreign regulators, including information on bank transactions conducted  in foreign jurisdictions by persons identified as suspicious. This  information is provided to the foreign regulator for them to pursue.
U.S. financial regulators also have good working relationships with their  counterparts in many Latin American and Caribbean countries. For  example, U.S. and Mexican government agencies share information  through a bilateral committee devoted to AML efforts because money  flows and criminal activity across the shared border often involve  narcotics trafficking and are a significant concern for both countries. The  committee, which is co-chaired by TFFC, has been working together for  the past several years and includes representatives from the Federal  Reserve, OCC, Justice, and Mexican officials and ministers, as well as  private-sector groups.
Some U.S. financial regulators we spoke with also explained that in the  normal course of business they receive formal requests from foreign bank  supervisors for supervisory information on U.S. banking institutions,  including AML-related information and may host visits with foreign  regulators and securities exchange authorities that may lead to sharing of  information on AML issues. For example, the Federal Reserve  cooperates with foreign banking supervisors through its participation in  joint meetings of regulators, both as the home-country supervisor of U.S.  banking organizations with overseas operations and as the host-country  supervisor of the U.S. operations of foreign banking organizations. This  cooperation involves bilateral and multilateral contacts and formal and  informal information-sharing arrangements. In periodic meetings with  foreign bank supervisors, they may ask about specific U.S. banking  institutions and whether there are particular concerns about these  institutions’ soundness, including with respect to AML issues. Requests  are typically made in connection with the foreign supervisor’s supervision  of the U.S. institution’s operations in their jurisdiction or the U.S.  institution’s proposal to establish a cross-border office in the foreign  jurisdiction.
Information sharing also takes place through in-person visits and  exchange of staff. For example, a representative from a financial  regulator in the Bahamas we spoke with said that a high-level official from  his agency visited the United States and met with U.S. regulators to  discuss AML issues related to concerns over correspondent accounts  with foreign banks, a challenge in the Bahamas. Specifically, there is  concern that U.S. banks are terminating or not entering into  correspondent account relationships with banks in certain regions of the  world over concerns about money laundering and other risks. This  regulator from the Bahamas told us that U.S. counterparts were able to  help him understand AML standards in the United States and how foreign  institutions can meet those standards to help allay the concerns of U.S.  financial institutions. In addition, some U.S. regulators said that they  occasionally host staff from foreign regulatory agencies to serve in detail  positions. These staff may come for a few weeks or a couple of months  and gain on-the-job skills, including those related to AML detection  practices that they can take back to their country. Similarly, staff from  some U.S. financial regulatory agencies may be seconded to foreign  financial regulatory agencies. For example, FDIC has seconded staff to  the Financial Services Volunteer Corps to support AML projects  overseas.
Almost all of the U.S. financial regulators we spoke with reported that they  had provided some AML training to Western Hemisphere countries in the  last 5 years. Some of the training has been provided in conjunction with  other U.S. government agencies or multilateral agencies, and some has  been provided independently. Training has focused on various aspects of  building and maintaining an AML regime, including conducting  examinations and reporting suspicious activity in accordance with FATF  standards. For example, the Federal Reserve provided training to the  National Banking and Securities Commission of Mexico on bank  supervision, which included AML issues. The course provided examiners  with guidance on proper customer identification and due diligence  procedures, counterterrorist financing, and suspicious activity reporting,  as well as high-risk areas, such as wire transfers, private banking, and  prepaid cards. Similarly, SEC and FINRA have provided several AML- technical assistance programs to the Panamanian authorities. The SEC  assistance included help with legislative reforms necessary to enable the  Panamanian authorities to better engage in international cooperation in  financial fraud investigations. SEC and FINRA’s programs supported the  Panamanian Superintendent of Securities’ effort to satisfy the  requirement for joining an international information-sharing organization  for securities commissions. Several of the banking regulators reported  that they have worked closely with the Association of Supervisors of  Banks of the Americas (ASBA) to provide AML training in Latin American  and Caribbean countries. This training, sometimes conducted in Spanish,  has focused on conducting AML examinations, identifying and reporting  suspicious activity, and working with the FIU in their respective country.  FDIC officials told us they and other financial regulators have received a  request from OTA to help with technical assistance in several Latin  American countries as part of OTA’s capacity-building initiative.
Financial regulators indicated that training has been provided, when  funding is available, upon request of other U.S. agencies, such as OTA or  foreign counterparts. Foreign financial regulators we spoke with, who  received training from U.S. regulators, said that the training was useful  and helped them to better identify important AML issues. Table 2 provides  examples of recent AML training that U.S. financial regulators have  provided to foreign counterparts, including those conducted  collaboratively with other foreign regulators.
section_title: State and Treasury Support Capacity- Building Efforts and Collaborate to Combat Money Laundering in Western Hemisphere Countries
paragraphs: INL and OTA work with other U.S. agencies, primarily components within  DHS, Justice, and Treasury, as well as with financial regulators, to  provide capacity-building, training, and technical assistance on money  laundering countermeasures and financial investigations to their  counterparts in the Western Hemisphere and around the globe. These  activities are designed to give financial investigators, regulators,  supervisors, prosecutors, and the judiciary the necessary tools to prevent,  detect, and deter money laundering, financial crimes, and related criminal  activity. INL and OTA reported that they collaborate on these activities  with other U.S. agencies involved in AML capacity-building and technical  assistance.
subsections: section_title: State and Treasury Allocated about $63 Million in Funding from Fiscal Years 2011 through 2015 for Anti-Money Laundering Activities in Western Hemisphere Countries
paragraphs: U.S. government-supported AML capacity-building and technical  assistance projects, including bilateral and multilateral efforts, have  primarily been funded by State and Treasury. From fiscal years 2011  through 2015, INL allocated about $52 million for AML capacity-building  and technical assistance in Western Hemisphere countries, while OTA  allocated approximately $11.3 million. After more than doubling from  fiscal year 2011 to fiscal year 2012, driven by an increase in INL funding  that year, the combined INL and OTA allocations for AML activities in the  Western Hemisphere declined somewhat in fiscal year 2013, averaging  about $13 million through fiscal year 2015 (see fig. 4).
From fiscal years 2011 through 2015, INL funding was provided for AML  capacity-building and technical assistance in 24 Latin American and  Caribbean countries, as well as for certain Western Hemisphere regional  programs, such as the Caribbean Basin Security Initiative. INL’s AML  funding supported the activities of several other U.S. agencies, including  DHS, Justice, and Treasury. State officials described a variety of AML  programming supported by INL funding, including job-related training,  specialized workshops, and procurement of technical equipment. Various  types of AML activities are discussed in detail in the section below.  According to State, INL funded the majority of U.S. government- supported AML activities in the Western Hemisphere, though AML-related  spending represented about 2 percent of the total INL Western  Hemisphere budget over this 5-year period.
INL supported AML activities throughout Latin America and the Caribbean  but funds were often concentrated among a handful of countries. From  fiscal years 2011 through 2015, over three-quarters of INL funding for  AML activities in the Western Hemisphere was allocated to Mexico, Peru,  Colombia, and Panama as well as for the Central American Regional  Security Initiative (see fig. 5). Mexico received nearly half of INL funds  for AML activities in the Western Hemisphere in this period, consistent  with the high priority the United States has assigned the Mérida Initiative’s  goal of disrupting transnational criminal cartels active in that country.  For a breakdown of INL funding by country for fiscal years 2011 through  2015, see appendix IV.
From fiscal years 2011 through 2015, OTA allocated funding for AML  projects in six Western Hemisphere countries. According to Treasury  officials, OTA’s AML programming is intended to be comprehensive, thus,  OTA has focused on providing more in-depth assistance to fewer  countries for longer periods, with most projects lasting 3 to 5 years. OTA  provides technical assistance through two basic delivery models: a  resident advisor-based project and an intermittent advisor-based project.  According to OTA, a resident advisor-based project is anchored by an  expert advisor living in the counterpart country, typically for a period of several years, and working side-by-side with officials in the FIU and other  relevant government institutions. For an intermittent advisor-based  project, a group of several advisors typically spends 1 to 2 weeks in a  country four to six times a year over the life of the project working with  host-country counterparts. Between the on-site visits, the counterparts  are expected to carry out planned activities that are directed toward the  objectives stated in a mutually agreed upon work plan. In fiscal year  2015, OTA allocated about $340,000 for the intermittent advisor program  in Honduras and about $983,000 for the resident advisor program in Peru  (see appendix V for a breakdown of OTA funding for fiscal years 2011  through 2015).
In addition to the funding discussed above, other State and Treasury  resources indirectly or incidentally support AML-related capacity-building  or technical assistance in Latin America and the Caribbean, according to  INL and OTA officials. For example, State’s Office of Threat Finance  Countermeasures, in conjunction with other bureaus and agencies,  supports efforts to provide technical assistance to foreign governments  working against terrorist financing. State’s funding directed to combat  terrorist financing is not included in the analysis presented above, but,  according to State officials, some of those funds may support activities in  the Western Hemisphere that overlap with AML objectives. According to  Treasury officials, OTA also provides more funding, not included in this  analysis, to broader financial stability and development efforts to ensure  that financial systems in developing countries, including some in Latin  America and the Caribbean, are resistant to criminal activity.  Furthermore, both State and Treasury, along with Justice, contribute  membership dues to FATF and were similarly not included in the analysis  above because they support broader AML objectives beyond the Western  Hemisphere.
State and Treasury officials told us that they consider several key factors  when allocating resources for AML capacity-building and technical  assistance in Western Hemisphere countries. State officials said INL  identifies programs where it can support AML programming based on  many factors, including input from country posts, budgetary  considerations, partner country political will, and strategic priorities. State  officials said strategic priorities are outlined by the National Security  Strategy, the U.S. Strategy to Combat Transnational Organized Crime,  and the U.S. National Drug Control Strategy, among others. For example,  the 2015 U.S. National Security Strategy notes that the government will  continue to work within FATF to enlist all nations in the fight to protect the  integrity of the global financial system. OTA officials said they similarly  target programs toward governments that demonstrate political will and  are committed to reform. OTA capacity-building and technical assistance  is also based on requests for support from counterpart governments.  Information on potential projects comes from many sources, including  U.S. embassies, other Treasury offices, foreign governments, and  international organizations such as IMF, as well as from OTA advisors  already in-country implementing other projects.
section_title: State and Treasury Support Various Types of Capacity-Building Activities to Prevent, Detect, and Deter Money Laundering in Accordance with International Standards
paragraphs: As noted previously, INL and OTA are the key providers of AML-related  assistance. These two agencies collaborate with other U.S. agency  partners to address the transnational challenges posed by money  laundering and implement a variety of capacity-building activities for  foreign partners. These efforts can include training, technical assistance,  and, in the case of INL, equipment provision, and are intended to help  foreign countries develop effective AML frameworks, including financial  regulation, financial intelligence, law enforcement, and prosecutorial and  judicial processes. According to international standards set by FATF,  within an AML framework, countries should ensure that government  entities have effective mechanisms in place that enable them to  cooperate and, where appropriate, coordinate domestically with each  other (see fig. 6).
INL and OTA, in collaboration with other U.S. agencies, notably Justice,  support the development of international legal and regulatory frameworks  aimed at preventing money laundering activity by encouraging Western  Hemisphere countries to adopt legislation and regulations consistent with  FATF standards. (See appendix VI for a reference table of key AML  actions that Western Hemisphere countries have taken, including  legislative activity and other identifying characteristics that can have a  relationship to a jurisdiction’s money laundering vulnerability, according to  State.) FATF standards include recommendations on policy and  coordination, specifically that countries should have national AML  policies, informed by the risks identified, which should be regularly  reviewed. From fiscal years 2012 through 2015, Justice’s Office of  Overseas Prosecutorial Development, Assistance, and Training (OPDAT)  received funding from INL to provide training in support of the  development of AML legislation in Mexico. We met with Justice officials in  Mexico who explained that their agency’s programs are tailored to fit  within the partner country’s legal and regulatory framework, including the  risks that the country faces with regard to money laundering, as well as  FATF standards. Justice officials noted that training Mexican prosecutors  and supporting Mexican efforts to promote AML legislative reform are  critical for long-term change in the country, given some of the challenges  that Mexican officials identified in the country’s legal and regulatory  framework. For example, Mexican officials told us that Mexico is currently  undergoing a FATF evaluation for the first time in a number of years. As  part of preparing for that process, Mexican officials told us they are  working to further amend AML standards and guidance to continue  incorporating a risk-based approach.
INL and OTA also supported capacity-building programs to help ensure  that Western Hemisphere countries adopted regulations consistent with  FATF standards regarding requirements for financial and nonfinancial  supervisors. FATF standards specify that supervisors should have  adequate authority to supervise, monitor, and ensure financial institutions’  compliance with requirements to combat money laundering, including the  authority to conduct examinations. In Panama, officials from the  Superintendent of Banks—a regulatory agency responsible for oversight  of financial institutions—told us that in the past 2 years (2015 and 2016),  the agency received training and technical support from OTA, Justice,  and several U.S. regulators. Officials said that the training—on topics  including compliance and examination procedures, sanctions, and  suspicious activity reporting—helped to increase their overall capacity  and compliance with FATF standards. These standards also state that  designated nonfinancial businesses and professions, including casinos  and real estate agents, should be subject to regulatory and supervisory  measures. Officials from Intendencia, Panama’s regulatory agency  responsible for the oversight of designated nonfinancial businesses and   professions as well as free trade zones, described the training they had  received from U.S. agencies, including a regional training from OTA that  included officials from Guatemala, El Salvador, and Costa Rica and  focused on information-sharing. Intendencia officials said OTA also  provided the agency with training on money service businesses and  oversight of free trade zones.
INL and OTA also supported this type of capacity-building for other  Western Hemisphere countries during our period of review (fiscal years  2011 through 2015). For example, beginning in fiscal year 2013, OTA  worked with the Government of Grenada to enhance the country’s  supervisory capacity of financial institutions and designated nonfinancial  businesses and professions consistent with risk-based principles.
subsections: section_title: Building Financial Intelligence Unit Capacity
paragraphs: In addition to FinCEN’s collaboration with Western Hemisphere partner  countries discussed previously, both INL and OTA provide assistance to  FIUs throughout Latin America and the Caribbean. FIUs are the lynchpin  in a characteristic AML framework, according to FATF. FATF standards  call for FIUs to serve as a country’s national center for the receipt and  analysis of (1) suspicious transaction reports, or SARs, and (2) other  information relevant to money laundering, associated predicate offenses,  and terrorist financing; and for the dissemination of the results of that  analysis. According to OTA officials, the FIU plays a key role in the AML  regime as the recipient and disseminator of financial intelligence and, as  such, it is critical that these entities are able to function effectively. INL’s  and OTA’s support has focused on developing and strengthening partner  countries’ FIU capacity to collect, analyze, and disseminate vast  quantities of financial data that are often necessary to help detect and  deter money laundering activity.
According to our analysis of State’s 2016 International Narcotics Control  Strategy Report, Volume II, every Western Hemisphere country or  jurisdiction reviewed in the report has an FIU. INL’s support for several of  these FIUs included equipment provision and training. For example, INL  provided funding in fiscal year 2013 for Colombia’s FIU to purchase  computer servers that supported the acquisition of a new programming  framework that allows for the processing and storage of very large data  sets. Colombian officials told us that equipment and training from INL,  along with other U.S. agencies, has helped the FIU increase its software  capacity and migrate to newer and more advanced data systems, which  increases the amount of data they can analyze and the speed of data  processing. The FIU has over two dozen different databases and several  billion data entries from which they can connect information provided by  regulators and other sources and build intelligence profiles, according to  Colombian officials. With this information, Colombian officials told us the  country’s FIU is able to perform network analyses to evaluate how various  individuals and companies engaged in suspicious activities are connected  to one another. This type of analysis can aid in money laundering cases,  including those associated with corruption, which is an ongoing challenge,  according to Colombian officials. For example, Colombian officials  described how the upgraded programming acquired with INL funds has  allowed them to investigate the financial linkages involved in the  Odebrecht corruption scandal, including analyzing the levels of potential  collusion among individuals suspected of engaging in bribery.
In Mexico, INL provided AML capacity-building for the country’s FIU every  year from fiscal years 2012 through 2015. In fact, State officials noted that  much of the funding for AML capacity-building in Mexico was directed to  Mexico’s FIU, including a large increase in fiscal year 2012 for a  significant overhaul of the FIU’s computing systems. Specifically, the  funding was used to upgrade technical infrastructure, including computer  servers, and provide training for Mexican officials on the systems.  Mexican officials from the FIU also described training they had received  from U.S. agencies on evaluating money laundering models and  typologies, conducting forensic financial analysis, and identifying threats  associated with virtual currency.
Both INL and OTA supported capacity-building activities for FIUs in  several other Western Hemisphere countries during our period of review  (fiscal years 2011 through 2015). For example, OTA worked with  Guatemala’s FIU to strengthen the financial intelligence and analytic  capabilities of the FIU which, according to OTA, helped the FIU  participate in the successful investigation, prosecution, and conviction of  money laundering cases. INL provided OTA funding to support the  Jamaican FIU through technical assistance aimed at strengthening  analytical skills as well as improving feedback and outreach to regulators  to increase the quality of suspicious transaction reporting. Additionally,  INL provided OTA funding to work with Dominica’s FIU to issue guidance  to improve the timeliness and quality of suspicious transaction reporting  and to develop standard operating procedures for data receipt,  processing, and dissemination, among other activities.
section_title: Building Law Enforcement, Prosecutorial, and Judicial Process Capacity
paragraphs: In an effort to strengthen the capacity of partner countries in Latin  America and the Caribbean to undertake financial investigations and  prosecutions, INL has supported capacity-building activities in  collaboration with U.S. law enforcement agencies, including the Drug  Enforcement Administration (DEA) and others. U.S. law enforcement  agencies working in other Western Hemisphere countries told us they are  primarily focused on active and ongoing criminal investigations with a  U.S. nexus, but these agencies also support AML capacity-building and  technical assistance through a variety of activities. For example, DEA’s  Office of Global Enforcement, Financial Investigations Section, provides  guidance to DEA’s domestic and foreign offices, as well as foreign  partners’ law enforcement agencies in Latin America and the Caribbean  to promote effective techniques in financial investigations. Thus, INL  supported DEA in building the capacity of the Panama National Police’s  Financial Investigations Unit, which is tasked with identifying, disrupting,  and dismantling criminal drug trafficking and money laundering  organizations operating in Panama. Similarly, during fiscal year 2015,  DEA provided training on trade-based money laundering, undercover  financial operations, the development of money laundering profiles, and  risk assessment strategies to Peruvian law enforcement.
INL has also provided support to DEA-vetted units to help combat money  laundering. According to DEA officials in Colombia, DEA primarily  focuses on capacity-building, including on-the-job training, for vetted  financial crimes units it has established within Colombia’s National Police  and the Office of the Attorney General. Officials from Colombia’s National  Police told us that the training they had received from U.S. agencies,  including training that took place in the United States, had allowed them  to improve investigative capacity. State officials said that both DEA and  INL have also funded regional information-sharing activities in which the  Colombia National Police conducted training on investigative techniques  for counterparts in Guatemala and Honduras.
DETERRENCE: Mexico’s Capacity to  Investigate and Prosecute Financial Crimes  in the Accusatorial System  According to both U.S. and Mexican officials,  Mexico has a low conviction rate for money  laundering crimes, which may undermine the  country’s money laundering deterrence efforts.  These officials underscored the limited capacity  on the part of Mexican prosecutors to  investigate and prosecute money laundering  cases under the accusatorial justice system to  which Mexico recently transitioned. According  to judicial reform experts, in 2008, the Mexican  Congress passed a constitutional mandate that  required all levels of government to transition  from an inquisitorial to an accusatorial justice  system by 2016. The reforms affect nearly all  aspects of the judicial sector, including police,  prosecutors, public defenders, the courts, and  the penitentiary system. The mandate also  included tougher measures for combating  organized crime. Mexican officials told us that  prosecutors are learning how to present  evidence and question witnesses as part of  their cases in the new system, including money  laundering cases that may often entail complex  financial information. Mexican officials said the  training that had been provided by U.S.  agencies has helped prosecutors conduct  these more complex investigations.
INL has also supported capacity-building activities in collaboration with  Justice’s OPDAT focused on developing prosecutorial and judicial  processes for partner countries. For example, in Mexico, OPDAT  received funding from INL which, according to Justice officials, was used  to train prosecutors, police, and others in the justice system to  investigate, analyze, and build financial crimes cases and to prosecute  them. Mexican officials told us that prosecutors are still learning how to  most effectively prosecute money laundering cases in the country’s new  accusatorial justice system, in which they play a more active role in court  proceedings than they did under the inquisitorial system. Thus,  prosecutors still need training and support during the transition, according  to Mexican officials. In support of Mexico’s 2016 transition to an  accusatorial justice system, OPDAT delivered case mentoring and  capacity-building programs for judges, prosecutors, and investigators  focusing on courtroom management, case law, trial advocacy, and  litigation skills, among other topics. Justice officials said that they meet  regularly with counterparts from Mexico’s Attorney General’s office.  Quarterly operational case meetings include representatives from the  Mexican Attorney General’s office and U.S. agencies such as DEA, ICE,  the Federal Bureau of Investigations, and IRS. In those meetings, U.S.  and Mexican officials review ongoing financial crimes cases that have a  U.S. and Mexico connection. While these discussions focus on active  investigations, Justice officials told us that training is a standing agenda  item; OPDAT reviews ongoing training programs and the Mexican  Attorney General’s office requests additional training as needed.
INL and Justice have participated in prosecutorial and judicial AML  capacity-building efforts to help partner countries develop and enhance  asset forfeiture programs which, according to the agencies, are  implemented according to FATF standards. In the United States, both  Justice and Treasury operate separate asset forfeiture programs that are  designed to prevent and reduce crime through the seizure and forfeiture  of assets, including cash, vehicles, airplanes, jewelry, and collectibles,  which represent the proceeds of, or were used to facilitate, federal  crimes. Similarly, FATF standards recommend that countries develop  asset seizure programs that can prevent criminal property from being  laundered or reinvested either to facilitate other forms of crime or to  conceal illicit proceeds. In 2014, INL chaired a working group on asset  forfeiture that brought together U.S. agency partners, Panamanian  officials, and the British Crown Prosecutor to build consensus on reform  efforts. The project, funded by INL and the British government, supported  the continuing work of the British Crown Prosecutor to assist the  government of Panama in developing an efficient and effective asset  management and recovery plan and adopting and implementing a  modernized regulatory scheme that has provisions for the return of assets  to jurisdictions outside of Panama.
Similarly, Justice’s International Criminal Investigative Training  Assistance Program (ICITAP) worked with Colombian officials to support  the adoption of Colombia’s reformed asset forfeiture law. Justice  officials explained that asset forfeiture is a critical aspect of deterring  money laundering because seizing these assets from narcotics traffickers  often renders them unable to continue their operations or at least  diminishes their capacity to operate. In Colombia, drug traffickers typically  launder their proceeds by investing in real estate or legitimate  businesses, which generate lawful income, according to Justice officials.  ICITAP collaborated with prosecutors and Colombia’s court system to  draft the reformed asset forfeiture legislation and subsequently supported  efforts to promote its passage through the Colombian Congress in 2014.  According to Justice officials, a key aspect of the law was to streamline  the process and time that it takes to effectively seize the assets of  individuals and organizations involved in narcotics trafficking. Justice  officials further explained that after the system was reformed in 2014 to  accelerate the release of proceeds from the sale of seized assets to  appropriate government entities, significant assets were seized from  narcotics traffickers. However, Justice officials said the assets are not  being properly maintained. According to Justice officials, appropriate  management of seized assets, a tenet of an effective asset seizure  program, requires that the assets be sold and the proceeds used to  benefit law enforcement, prosecutors, and courts. Justice officials said  this could be an area where future capacity-building support could be  directed.
From fiscal years 2011 through 2015, INL, in collaboration with U.S. law  enforcement agencies, supported AML capacity-building and technical  assistance for foreign partners in the law enforcement, prosecutorial, and  judicial sectors in several other Western Hemisphere countries, as the  following examples illustrate:  INL funded training, provided by ICE, and the acquisition of equipment  for the Jamaican Constabulary Force’s Major Organized Crime and  Anti-Corruption Unit to enhance intelligence gathering and analysis  capacity for financial crime investigations.
INL funded training provided at the Judicial Studies Institute in Puerto  Rico where OPDAT trained judges from the Dominican Republic,  Haiti, Mexico, Guatemala, Honduras, El Salvador, Costa Rica,  Panama, Peru, Colombia, and Uruguay. Through Spanish instruction,  practical exercises, and opportunities to observe courtroom  proceedings, judges were able to learn about evidentiary foundations,  their role, and courtroom management in an accusatorial justice  system. According to Justice, this capacity-building, which includes  training on plea bargaining, criminal procedure, judicial security, and  opinion writing, is critical to the region, as judges’ roles in an  accusatorial system are drastically different from those in an  inquisitorial system, where judges decide cases based on paper files  behind closed doors. According to Justice, in an accusatorial system,  judges are responsible for writing opinions, weighing evidence, and  guaranteeing the rights of both the victims and the accused, all in an  open courtroom setting.
INL funded assistance in El Salvador, provided by OPDAT, for  drafting legislation, implementing regulations, and providing  equipment for the asset forfeiture units of the El Salvador National  Civilian Police, the Attorney General’s office, the Supreme Court, and  the National Asset Management Commission.
section_title: State and Treasury Reported Collaboration on Anti-Money Laundering Capacity-Building Activities
paragraphs: During our review, agencies described some of the collaborative practices  and coordination mechanisms that INL and OTA use, including  collaboration with other U.S. agencies involved in AML capacity-building  and technical assistance. Agencies told us they use a variety of  collaborative practices, such as sharing common goals and objectives for  AML capacity-building efforts, coordinating planning through agreements  and reports, and assigning specific coordination-related job  responsibilities to certain staff, as the following examples illustrate:  In questionnaires we sent to all of the primary agencies involved in  AML capacity-building (State, Treasury, Justice, and DHS), agencies  indicated that they generally share common goals and objectives for  their AML capacity-building efforts—to enhance partner nation  capacity to identify and prosecute money laundering and financial  crimes. Some agencies, specifically INL, OTA, OPDAT, and DEA,  also identified coordinating mechanisms that helped to define their  AML strategy, including the Caribbean Basin Security Initiative,  CARSI, and State’s Integrated Country Strategies.
State officials told us that when working with other U.S. agencies as  implementing partners, INL coordinates AML capacity-building and  technical assistance primarily through interagency agreements. These  agreements generally lay out program goals, indicators, deliverables,  and a timeframe for program implementation, according to State  officials. For example, INL’s 2014 interagency agreement with OTA  for AML programs to support CARSI includes a summary of the  project, program activities and a work plan, requirements for financial  and progress reports, measures of success, and a project timeline.  State officials told us they rely on OTA or other implementing partners  to conduct the AML capacity-building or technical assistance activity  under the interagency agreement but that State officials conduct  monitoring and evaluation to ensure that the agreed-upon activities  are conducted and objectives are achieved.
INL employs AML program managers in several Western Hemisphere  countries whose job responsibilities include interagency coordination,  which is a key part in the execution of any program management  function, according to INL. Guidance from supervisors encourages  project managers to reach out to key AML stakeholders, including  U.S. agency partners, international organizations, and government  institutions. This helps to ensure that programs are implemented  effectively and avoids duplication of efforts, according to INL. State  officials told us that, depending on the size of the AML program and  the INL section in the country, program managers may focus full time  on AML, as is the case in Mexico, or AML may be one component of  the job, as is the case in Colombia and Panama.
OTA officials told us that they solicit input from other U.S. agency  partners during needs-assessment trips to evaluate potential new  projects and when monitoring existing projects. For example, during  needs-assessment trips, OTA officials said that they meet with foreign  partner officials to identify the country’s priority issue areas and that  they also solicit the perspectives of other U.S. agencies represented  at the U.S. embassy. When conducting a program review to monitor  an ongoing project, OTA officials told us that they incorporate the  expertise and input of all relevant U.S. agencies. These officials often  include the Legal Attaché from Justice or a Resident Legal Advisor, if  applicable; other law enforcement representatives; and the INL  Director, among others. Additionally, OTA officials said that they  regularly share information about ongoing projects and work plans  with relevant U.S. agencies, including an engagement calendar that  outlines their planned capacity-building activities.
U.S. agency officials also told us that they collaborate on the  implementation of AML capacity-building activities through country teams  at U.S. embassy posts. In site visits we conducted to Colombia, Mexico,  and Panama, agencies generally agreed that there was effective  collaboration at the embassy posts. Collaboration practices include  working groups at U.S. embassy posts and informal information sharing,  as shown in the following examples:  In Mexico, U.S. agency officials told us about an AML-related working  group that meets to discuss AML issues, including training and  capacity-building needs. State officials in Mexico also described how  they seek input from all U.S. agency partners when reviewing funding  proposals and project status reports, including those for AML  capacity-building, during bilateral meetings with Mexican officials  related to the Mérida Initiative.
In Colombia, U.S. agency officials described how they coordinate  through several working groups, including an AML working group.  State officials told us that through this working group and regular  information sharing, U.S. law enforcement agencies that are  conducting active operations in Colombia, or Justice officials who are  working with Colombian counterparts on regulatory development, can  provide input on the types of capacity constraints they are observing  and discussing with Colombian officials.
In Panama, Justice officials told us that the Deputy Chief of Mission  has focused on interagency coordination with regard to money  laundering. Prior to that leadership, U.S. agencies were working  somewhat independently of one another. The embassy now has  several working groups that directly and indirectly deal with AML  coordination: a monthly AML working group, a monthly  counterterrorist financing working group, and a monthly law  enforcement working group that shares insights on money laundering  issues drawn from active or ongoing investigations.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Federal Reserve, FDIC, NCUA,  OCC, SEC, FINRA, NAIC, Treasury, State, DHS, and Justice for review  and comment. We received technical comments from State, Treasury,  DHS, the Federal Reserve, FDIC, FINRA, OCC, and SEC and  incorporated these comments as appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Federal Reserve,  FDIC, NCUA, OCC, SEC, FINRA, NAIC, Treasury, State, DHS, and  Justice, and appropriate congressional committees. In addition, the report  will be available at no charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  Jessica Farb at (202) 512-6991, or farbj@gao.gov, or Lawrance Evans at  (202) 512-8678, or evansl@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 major contributions to this report are  listed in appendix VII.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report describes narcotics-related anti-money laundering (AML)  efforts in the Western Hemisphere. Specifically, this report describes (1)  U.S. financial regulators oversight and monitoring of compliance with the  Bank Secrecy Act (BSA) and related AML requirements and efforts to  collaborate with counterparts in other Western Hemisphere countries, and  (2) the activities that the Departments of State (State) and Treasury  (Treasury) support to build capacity in other Western Hemisphere  countries to combat money laundering and how State and Treasury  collaborate on those efforts.
To address these objectives, we reviewed prior GAO reports and State’s  and Treasury’s Office of Inspector General reports and relevant laws and  regulations. We also reviewed data and documentation and interviewed  officials from key agencies responsible for enforcing the BSA and  providing technical assistance for anti-money laundering activities. The  agencies and offices included in this review were (1) the Department of  State, Bureau of International Narcotics and Law Enforcement Affairs  (INL); (2) offices within Treasury’s Office of Terrorism and Financial  Intelligence, including officials from the Financial Crimes Enforcement  Network (FinCEN); (3) Treasury’s Office of Technical Assistance (OTA);  (4) the federal banking regulators—Board of Governors of the Federal  Reserve System (Federal Reserve), Federal Deposit Insurance  Corporation (FDIC), National Credit Union Administration (NCUA), and  the Office of the Comptroller of the Currency (OCC); (5) the Securities  and Exchange Commission (SEC); (6) the National Association of  Insurance Commissioners (NAIC); (7) the Financial Industry Regulatory  Authority (FINRA); (8) the Department of Homeland Security (DHS); (9)  the Financial Action Task Force (FATF); and (10) the Department of  Justice (Justice).
We also conducted fieldwork in Colombia, Mexico, and Panama, where  we met with U.S. embassy officials responsible for managing and  implementing capacity-building activities and with host-government  officials, including financial regulators, financial intelligence unit (FIU)  representatives, and federal prosecutors. Additionally, we met with  representatives from the private sector in these countries, including anti- money laundering compliance staff from U.S. financial institutions. We  selected Colombia, Mexico, and Panama for site visits because State  identified each as a major money laundering country in the Western  Hemisphere in their 2011 to 2016 International Narcotics Control Strategy  Reports (vol. II). Each of these 3 countries was designated a Major Drug  Transit or Major Illicit Drug Producing Country from fiscal years 2014  through 2016. This designation derives from presidential determination  consistent with the statutory definition of a major drug transit or major  illicit drug-producing country set forth in section 481(e)(2) and (5) of the  Foreign Assistance Act of 1961, as amended. Because our second  objective described INL and OTA coordination efforts for AML capacity- building activities, we decided to conduct site visits to countries where INL  (the primary funder of AML capacity-building) targeted AML funding from  fiscal years 2011 through 2015. Colombia, Mexico, and Panama  accounted for about 60 percent of funds allocated for AML capacity- building efforts in fiscal year 2015, the last year for which funding data  were available. We also conducted a series of teleconferences with U.S.  and host-government officials in the Bahamas. State also identified the  Bahamas as a major money laundering country in the Western  Hemisphere in their 2011 to 2016 International Narcotics Control Strategy  Reports (vol. II). The Bahamas was also designated a Major Drug Transit  or Major Illicit Drug Producing Country from fiscal years 2014 to 2016.  The information derived from the site visits and teleconferences were  selected to serve as informative examples, and the findings are not  generalizable across the Western Hemisphere.
To describe how U.S. financial regulators examine and monitor financial  institutions for compliance with BSA and AML policies and how they work  with other financial regulators in Western Hemisphere countries to detect  and deter the inflows of illicit funds, we reviewed BSA/AML examination  procedures for banks as outlined in the Federal Financial Institutions  Examination Council manual. We also reviewed other industry guidance  on BSA/AML from SEC, FINRA, and NAIC. To understand how narcotics- related money laundering is treated as part of the BSA/AML examination  process, we interviewed officials from the financial regulatory agencies.  We also reviewed advisories and bulletins issued by FinCEN that detail  how financial institutions and regulators should respond to various  BSA/AML concerns. To understand how financial institutions detect and  report suspicious activities, we interviewed officials at three large financial  institutions that conduct business in the United States and other Western  Hemisphere countries.
To describe how U.S. regulators work with their foreign counterparts in  the Western Hemisphere to combat narcotics-related money laundering,  we interviewed officials from the Federal Reserve, FDIC, FinCEN, FINRA,  NAIC, NCUA, OCC, and SEC. In addition, we interviewed financial  regulators and officials from the financial intelligence units (FIU) in  Colombia, Mexico, and Panama about their relationship working with  FinCEN.
To describe how U.S. agencies are helping to build capacity in other  Western Hemisphere countries to combat narcotics-related money  laundering and how State and Treasury coordinate these activities, we  reviewed budget data provided by INL and OTA for fiscal years 2011  through 2015. Specifically, we reviewed the funds allocated for AML  capacity building and technical assistance. To assess the reliability of the  allocations data, we conducted interviews with knowledgeable State and  Treasury officials about the accuracy and completeness of the data and  reviewed financial reports. We determined the data were sufficiently  reliable for the purposes of reporting State’s and Treasury’s allocations  for AML activities by year and by country from fiscal years 2011 through  2015.
We reviewed planning documents, reports, and interagency agreements  to understand the types of AML capacity-building activities that State’s  INL and Treasury’s OTA fund and implement and as well as what factors  and priorities the agencies consider when allocating resources. We also  interviewed officials from State’s INL and offices within Treasury and  officials from the Departments of Justice and Homeland Security.
To identify examples of the ways in which U.S. agencies collaborated on  AML activities, we developed a short questionnaire on collaboration  practices and obtained responses from six U.S. federal agencies or  departments primarily involved in AML capacity-building and technical  assistance in the Western Hemisphere. State’s INL, Treasury’s OTA,  FinCEN, and offices within the Departments of Justice and Homeland  Security provided examples of collaboration practices regarding AML- related technical assistance and capacity-building. The purpose of  developing the coordination questionnaire was to identify examples of  ways in which these agencies coordinated, not to evaluate generalizable  outcomes. We also conducted interviews with U.S. officials in U.S.  embassies located in the Bahamas, Colombia, Mexico, and Panama to  describe how coordination efforts are implemented in-country for AML  technical assistance and capacity-building. Additionally, we interviewed a  variety of foreign officials in these four countries who received AML  capacity-building and technical assistance from U.S. agencies to solicit  their perspective on the assistance.
We are presenting the information in appendixes II, III, and VI to provide  background and context only and, for that reason, we did not assess its  reliability.
We conducted this performance audit from May 2016 to August 2017 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.
section_title: Appendix II: High-Risk and Noncooperative Jurisdictions in the Western Hemisphere as Identified by the Financial Action Task Force
paragraphs: The Financial Action Task Force (FATF), an intergovernmental body that  develops and promotes international standards for combating money  laundering and the financing of terrorism, issues two public documents  three times a year that identify high-risk and noncooperative jurisdictions  based on its review of those jurisdictions’ anti-money laundering and  countering financing of terrorism (AML/CFT) regime. One is the “FATF  Public Statement” that identifies jurisdictions that have such serious  strategic deficiencies that FATF calls on its members and nonmembers to  apply countermeasures to combat the threat of money laundering and  terrorist financing, as well as jurisdictions to which FATF members and  nonmembers should apply enhanced due diligence measures based on  the risks posed by those jurisdictions. The second document, called  “Improving Global AML/CFT Compliance: Ongoing Process,” identifies  jurisdictions with AML/CFT weaknesses that have also committed to an  action plan to address those weaknesses. From February 2011 through  February 2017, FATF identified 53 jurisdictions that have been included in  at least one of its public documents, 12 of which are in the Western  Hemisphere. Table 3 below shows the jurisdictions in the Western  Hemisphere that have been identified in FATF’s public documents during  that period.
section_title: Appendix III: Basel Anti-Money Laundering Ratings for Select Countries in the Western Hemisphere, 2016
paragraphs: The 2016 Basel Anti-Money Laundering (AML) Index, compiled by the  Basel Institute on Governance, assigns each country a score based on a  scale from 0 (low risk) to 10 (high risk). The Basel AML Index does not  assess the amount of illicit financial money or transactions but is  designed to assess the risk of money laundering—that is, to indicate the  vulnerability of a country to money laundering and terrorism financing  based on publicly available indicators.
The Basel AML Index is a composite index, meaning that the overall  score is a weighted average of 14 indicators dealing with AML  regulations, corruption, financial standards, political disclosure, and the  rule of law that are aggregated into one overall risk score. The data for  the indicators are derived from various publicly available sources such as  the Financial Action Task Force, Transparency International, the World  Bank, and the World Economic Forum. Table 4 below shows the Basel  AML index ratings for select countries in the Western Hemisphere in  2016.
section_title: Appendix IV: Department of State’s International Narcotics and Law Enforcement Affairs Allocations for Anti-Money Laundering
paragraphs: The Department of State’s International Narcotics and Law Enforcement  Affairs Bureau allocated funding for anti-money laundering (AML)  capacity-building and technical assistance to a variety of countries in  Latin America and the Caribbean from fiscal years 2011 through 2015.  Table 5 below shows the Department of State’s International Narcotics  and Law Enforcement Affairs allocations by country or region for Western  Hemisphere AML programs in this time period.
section_title: Appendix V: Department of the Treasury’s Office of Technical Assistance Allocations for Anti-Money Laundering Programs in the
paragraphs: The Department of the Treasury’s Office of Technical Assistance  allocated funding for anti-money laundering (AML) technical assistance to  several countries in Latin America from fiscal years 2011 through 2015.  Table 6 below shows the Department of the Treasury’s Office of  Technical Assistance allocations by country or region for Western  Hemisphere AML programs in this time period.
section_title: Appendix VI: Comparative Table of Actions Western Hemisphere Countries Have Taken to Address Money Laundering as Identified by the Department of State
paragraphs: The Department of State (State) identifies a broad range of actions that jurisdictions have, or  have not, taken to combat money laundering. As reported by State, the actions are indicated  by a “Y” for yes, which indicates that legislation has been enacted to address the captioned  items or an “N” for no. According to State, this reference table provides a comparison of  elements that include legislative activity and other identifying characteristics that can have a  relationship to a jurisdiction’s money laundering vulnerability, but the data do not imply full  compliance with international standards. See a description of each criterion following table  7.
subsections: section_title: The Department of State’s Glossary of Terms for Actions Countries and Jurisdictions Have Taken to Address Money Laundering
paragraphs: 1.  Criminalized drug money laundering: The jurisdiction has enacted  laws criminalizing the offense of money laundering related to the drug  trade.  2.  Criminalized beyond drugs: The jurisdiction has enacted laws  criminalizing the offense of money laundering related to crimes other  than those related to the drug trade.  3.  Know-Your-Customer provisions: By law or regulation, the  government requires banks and/or other covered entities to adopt and  implement Know-Your-Customer/Customer Due Diligence programs  for their customers or clientele.  4.  Report large transactions: By law or regulation, banks and/or other  covered entities are required to report large transactions in currency  or other monetary instruments to designated authorities.  5.  Report suspicious transactions: By law or regulation, banks and/or  other covered entities are required to report suspicious or unusual  transactions to designated authorities. On table 7, the letter “Y”  signifies mandatory reporting; Y+ signifies jurisdictions whose  financial intelligence units (FIU) are not members of the Egmont  Group of FIUs; “N” signifies no reporting regime.  6.  Financial intelligence unit: The jurisdiction has established an  operative central, national agency responsible for receiving (and, as  permitted, requesting), analyzing, and disseminating to the competent  authorities disclosures of financial information in order to counter  money laundering.  7.  Cross-border transportation of currency: By law or regulation, the  jurisdiction has established a declaration or disclosure system for  persons transiting the jurisdiction’s borders, either inbound or  outbound, and carrying currency or monetary instruments above a  specified threshold.  8.  International law enforcement cooperation: No known legal  impediments to international cooperation exist in current law.  Jurisdiction cooperates with authorized investigations involving or  initiated by third party jurisdictions, including sharing of records or  other financial data, upon request.  9.  System for identifying and forfeiting assets: The jurisdiction has  established a legally authorized system for the tracing, freezing,  seizure, and forfeiture of assets identified as relating to or generated  by money laundering activities.  10. Arrangements for asset sharing: By law, regulation, or bilateral  agreement, the jurisdiction permits sharing of seized assets with  foreign jurisdictions that assisted in the conduct of the underlying  investigation. No known legal impediments to sharing assets with  other jurisdictions exist in current law.
section_title: Appendix VII: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Juan Gobel (Assistant Director),  Tom Zingale (Analyst-in-Charge), Bethany Benitez, Lynn Cothern, Emily  Desai, David Dornisch, Jeffrey Harner, Grace Lui, Jennifer Schwartz,  Rachel Siegel, and Jena Sinkfield made key contributions to this report.