International Financial Crime: Treasury's Roles and Responsibilities Relating to Selected Provisions of the USA PATRIOT Act
Published: 2006-05-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Money laundering and terrorist financing can severely affect the nation's economy and also result in loss of lives. To combat these transnational crimes, the Treasury Department (Treasury) and its component bureau, the Financial Crimes Enforcement Network (FinCEN), have key roles. Section 330 of the USA PATRIOT Act encourages the federal government to engage foreign jurisdictions in negotiations to ensure that foreign banks and financial institutions maintain adequate records to combat international financial crime. Treasury plays a lead role in facilitating such efforts. In accordance with its various responsibilities codified by section 361, FinCEN is to coordinate with its foreign counterparts--financial intelligence units (FIU). This report describes (1) Treasury's approach for negotiating with foreign jurisdictions, (2) how FinCEN has contributed to establishing FIUs in foreign countries and enhancing the capabilities of these units, and (3) what actions FinCEN is taking to maximize its performance as a global partner.
section_title: What GAO Found
paragraphs: With Treasury's leadership, the U.S. interagency community has been acting to accomplish the goals articulated in section 330 of the USA PATRIOT Act. In particular, according to Treasury, negotiations with foreign jurisdictions are being accomplished through U.S. interactions with the Financial Action Task Force on Money Laundering (FATF), an intergovernmental entity that has developed international standards for combating money laundering and terrorist financing. Treasury emphasized that enactment of section 330 provided a welcomed congressional endorsement of long-standing U.S. policy to combat international financial crime by negotiating with foreign jurisdictions through multilateral organizations, such as FATF. Since its formation in 1995, FinCEN has helped foreign jurisdictions establish new FIUs and improve the capabilities of existing units. The number of FIUs has jumped from 14 in 1995 to 101 currently, partly because of training and technical support provided by FinCEN and Treasury's Office of Technical Assistance and funding provided by the Department of State. Given the growth in the number of FIUs, future efforts likely will involve giving more attention to improving the capabilities of existing units, especially in reference to combating terrorist financing--an operational task now included in the formal definition of an FIU. To maximize performance as a global partner, FinCEN is taking various actions, such as assigning an analyst to the Federal Bureau of Investigation's Terrorist Financing Operations Section. Also, FinCEN is modernizing the Egmont Secure Web, which is used by FIUs worldwide to exchange sensitive case information. To enhance its responsiveness to FIUs that request case assistance, FinCEN is allocating additional staff to its Office of Global Support and also is developing a new case management system. However, in the most recent customer satisfaction survey, FinCEN invited less than one-half of FIUs to participate and received only two responses. Future surveys would need to be more inclusive and incorporate better survey development and administration practices, such as follow-up efforts to achieve higher response rates, if the surveys are to serve as a useful management information tool for monitoring and enhancing performance.

section_title: Letter
paragraphs: Money laundering and terrorist financing are transnational crimes that can  have devastating effects, involving severe economic consequences as well  as loss of lives. The combating of these crimes demands not only effective  U.S. interagency efforts but also concerted international cooperation. Key  roles are played by the Department of the Treasury (Treasury) and one of  its components, the Financial Crimes Enforcement Network (FinCEN).  Section 330 of the USA PATRIOT Act expresses the sense of the Congress  that the President should direct the Secretary of State, the Attorney  General, or the Secretary of the Treasury to enter into negotiations with  foreign jurisdictions to ensure that foreign banks and other financial  institutions maintain records of transactions and account information  relating to terrorist organizations or their members and to ensure that  such records are made available to U.S. law enforcement and domestic  financial institutions when appropriate. State Department, Justice  Department, and Federal Reserve Board officials told us that the Treasury  Department plays a lead role in addressing the efforts encouraged by  section 330. According to Treasury Department officials, the U.S.  interagency community has been acting to accomplish the goals  articulated in section 330 through ongoing efforts to combat international  financial crime. Section 361 of the USA PATRIOT Act established FinCEN  as a statutory bureau in the Treasury Department and listed its various  duties and powers, which include coordinating with its foreign  counterparts—that is, financial intelligence units (FIUs) in other countries.  These units are specialized governmental agencies created to combat  money laundering, terrorist financing, and other financial crimes. Each  FIU is the respective nation’s central agency responsible for obtaining  information (e.g., suspicious transaction reports) from financial  institutions, processing or analyzing the information, and then  disseminating it to appropriate authorities.
This report addresses the following questions regarding efforts under  sections 330 and 361 of the USA PATRIOT Act to combat money  laundering and terrorist financing:    Under section 330, how has the Department of the Treasury interacted  or negotiated with foreign jurisdictions to promote cooperative efforts  to combat money laundering and terrorist financing?
Under section 361, how has FinCEN contributed to establishing FIUs in  foreign countries and enhancing the capabilities of these units to  combat money laundering and terrorist financing?
What actions is FinCEN taking to maximize its performance as a global  partner in combating money laundering and terrorist financing?
To address these questions, we interviewed responsible officials at and  analyzed relevant documentation obtained from the Departments of  Justice, State, and the Treasury and applicable components. Also, in  further reference to promoting international cooperation, we focused on  obtaining information about Treasury’s role and activities regarding  multilateral organizations—particularly the Financial Action Task Force  on Money Laundering (FATF), an intergovernmental entity that has  developed international standards for combating money laundering and  terrorist financing, and the various FATF-style regional bodies that  implement the standards. We obtained information about FinCEN’s  participation in the Egmont Group, the association of FIUs worldwide,  whose purpose is to facilitate transnational cooperation and information  sharing to combat money laundering and terrorist financing. Regarding  statistical information that we obtained from FinCEN—such as the  number of requests for assistance submitted by foreign FIUs to FinCEN— we discussed the sources of the data with FinCEN officials and worked  with them to resolve any discrepancies. We determined that these data  were sufficiently reliable for the purposes of this review. We conducted  our work from May 2005 through March 2006 in accordance with generally  accepted government auditing standards. Appendix I presents more details  about our objectives, scope, and methodology.
subsections: section_title: Background
paragraphs: In an international context, the Treasury Department is the United States’  counterpart to other nations’ ministries of finance. The department’s  responsibilities, among other things, include safeguarding the U.S.  financial system from abuse by money launderers, terrorists, and other  criminals. Over the years, in carrying out this responsibility, the  department has established relationships with finance ministries, central  banks, and other financial institutions in nations around the world as well  as with multilateral organizations such as FATF, the FATF-style regional  bodies, the International Monetary Fund (IMF), and the World Bank.
FATF is an intergovernmental entity whose purpose is to establish  international standards and to develop and promote policies for combating  money laundering and terrorist financing. At its formation in 1989 by the  United States and other industrialized nations, FATF’s original focus was  to establish anti-money-laundering standards and monitor the progress of  nations in meeting the standards. In 1990, FATF issued its “Forty  Recommendations on Money Laundering” to promote the adoption and  implementation of anti-money-laundering measures. For instance, the  recommendations encouraged nations to enact legislation criminalizing  money laundering and requiring financial institutions to report suspicious  transactions. Following the events of September 11, 2001, FATF expanded  its role to combat terrorist financing. Specifically, in October 2001, FATF  adopted “Eight Special Recommendations on Terrorist Financing.” Among  other actions, these recommendations committed members to criminalize  the financing of terrorism and to freeze and confiscate terrorist assets. In  October 2004, FATF published a ninth special recommendation on  terrorist financing to target cross-border movements of currency and  monetary instruments (“cash couriers”).
Collectively, FATF’s “40 plus 9” recommendations are widely recognized  as the international standards for combating money laundering and  terrorist financing (see app. II). In monitoring nations’ progress in  implementing the recommendations, FATF collaborates with other  multilateral organizations, particularly the FATF-style regional bodies that  represent nations in seven geographic areas. These regional groups are to  help nations in the region to implement the international standards  developed by FATF. Also, these standards have been recognized and  endorsed by the World Bank and IMF for use in conducting evaluations  and assessments of nations’ progress in implementing measures to counter  money laundering and terrorist financing. To be compliant with FATF  recommendations, a nation must, among other measures, establish an  effective FIU.
The United States’ FIU is FinCEN, which was administratively established  in 1990 as a Treasury Department component. FinCEN was 1 of the   14 charter members of the Egmont Group, which was formed in 1995 to  enhance information sharing among FIUs (see app. III). In 2001, section  361 of the USA PATRIOT Act established FinCEN as a statutory bureau in  the Treasury Department. Organizationally, FinCEN is part of Treasury’s  Office of Terrorism and Financial Intelligence, which is the department’s  policy and enforcement entity regarding terrorist financing, money  laundering, financial crime, and sanctions issues. Treasury’s budget  request for fiscal year 2007 included $91.3 million (and 352 full-time- equivalent personnel) to support FinCEN’s mission of safeguarding the  financial system from abuses of money laundering, terrorist financing, and  other financial crime. FinCEN carries out this broad mission by, among  other means, administering the Bank Secrecy Act (BSA) and networking  with domestic regulatory, law enforcement, and intelligence agencies as  well as with foreign counterparts.
section_title: Treasury Department Has a Key Role in Promoting International Cooperation to Combat Money Laundering and Terrorist Financing
paragraphs: Section 330 of the USA PATRIOT Act expresses the sense of the Congress  that the President should direct the Secretary of State, the Attorney  General, or the Secretary of the Treasury to enter into negotiations with  foreign jurisdictions to facilitate cooperative efforts to combat money  laundering and terrorist financing. State Department, Justice Department,  and Federal Reserve Board officials told us that the Treasury Department  plays a lead role in addressing these efforts. According to Treasury  Department officials, the U.S. interagency community has been acting to  accomplish the goals articulated in section 330 through its interactions  with FATF and the FATF-style regional bodies to ensure global  compliance with international standards for combating money laundering  and terrorist financing. Treasury officials also told us that enactment of  section 330 provided a welcomed congressional endorsement of long- standing U.S. government policy to actively engage and negotiate with  foreign jurisdictions through the medium of FATF and the related FATF- style regional bodies. Further, in conjunction with foreign negotiations,  Treasury considers another provision of the USA PATRIOT Act—section  311—to be a useful mechanism for helping to promote compliance with  standards.
subsections: section_title: The Congress Has Encouraged International Cooperative Efforts
paragraphs: “the President should direct the Secretary of State, the Attorney General, or the Secretary  of the Treasury, as appropriate, to seek to enter into and further cooperative efforts,  voluntary exchanges, the use of letters rogatory, mutual legal assistance treaties, and  international agreements to (1) ensure that foreign banks and other financial institutions  maintain adequate records of transaction and account information relating to any foreign  terrorist organization (as designated under section 219 of the Immigration and Nationality  Act), any person who is a member or representative of any such organization, or any  person engaged in money laundering or financial or other crimes; and (2) establish a  mechanism whereby such records may be made available to United States law enforcement  officials and domestic financial institution supervisors, when appropriate.”
Section 330 does not constitute an express mandate—that is, section 330  does not impose an affirmative obligation on any agency or official to  enter into negotiations. Nonetheless, the language of section 330 does  suggest that efforts should be undertaken to engage in appropriate  negotiations.
section_title: Treasury and the Interagency Community Engage in Multilateral Efforts to Promote International Cooperation
paragraphs: State Department, Justice Department, and Federal Reserve Board  officials told us that the lead role regarding the efforts encouraged by  section 330 of the USA PATRIOT Act is held by the Treasury Department.  According to the Treasury Department, the U.S. interagency community is  fulfilling section 330 by actively engaging and negotiating with foreign  jurisdictions through the medium of FATF and the related FATF-style  regional bodies. The U.S. delegation to FATF, which is headed by the  Deputy Assistant Secretary of the Treasury’s Office of Terrorist Finance  and Financial Crime, includes representatives of the Departments of  Homeland Security, Justice, and State; the federal financial regulators; and  the National Security Council.
Regarding efforts encouraged by section 330, Treasury’s Office of Terrorist  Finance and Financial Crime said that the United States—working through  FATF, the FATF-style regional bodies, the International Monetary Fund,  and the World Bank—has led efforts to develop a global system to ensure  that all countries adopt and are assessed against international standards  for protecting financial systems and jurisdictions from money laundering  and terrorist financing. As mentioned previously, these international  standards consist of the FATF “Forty Recommendations on Money  Laundering” and “Nine Special Recommendations on Terrorist Financing”  (see app. II).
Treasury testimony at a congressional hearing in July 2005 before the  Senate Committee on Banking, Housing, and Urban Affairs also cited the  benefits of international standard-setting bodies. Regarding U.S. efforts  and participation in these bodies, the Treasury Under Secretary’s prepared  statement included the following points:“The Financial Action Task Force (FATF) sets the global standards for  anti-money laundering and counter terrorist financing, and it is also  through this venue that we promote results. Treasury, along with our  counterparts at State, Justice, and Homeland Security, has taken an  active role in this 33-member body which articulates international  standards in the form of recommendations, guidelines, and best  practices to aid countries in developing their own specific anti-money  laundering and counter-terrorist financing laws and regulations. … The  success and force of FATF lie not only in the mutual evaluation process  to which it holds its own members, but also in the emergence of FATF- style regional bodies … that agree to adopt FATF standards and model  themselves accordingly on a regional level.”  “Hawala, a relationship-based system of money remittances, plays a  prominent role in the financial systems of the Middle East. …  Internationally, Treasury leadership in the FATF has brought the issue  of hawala to the forefront, resulting in implementation of FATF Special  Recommendation VI, which requires all FATF countries to ensure that  individuals and entities providing money transmission services must be  licensed and registered, and subjected to the international standards  set out by FATF.”  “As governments apply stricter oversight and controls to banks, wire  transmitters, and other traditional methods of moving money, we are  witnessing terrorists and criminals resorting to bulk cash smuggling.  FATF Special Recommendation IX was issued in late 2004 to address  this problem and it calls upon countries to monitor cross-border  transportation of currency and to make sanctions available against  those who make false declarations or disclosures in this regard. This  recommendation has already prompted changes in legislation abroad.”
Further, on July 29, 2005, the United Nations Security Council  unanimously adopted a U.S.-sponsored resolution (Resolution 1617) that,  among other matters, “strongly urges” all member states to “implement the  comprehensive, international standards” embodied in the FATF 40 plus   9 recommendations. Subsequently, at its most recent plenary meeting  (October 12 to 14, 2005), FATF noted that “formal endorsement of the  FATF standards by the U.N. Security Council is a major step toward  effective implementation of the Recommendations throughout the world.”
Regarding the U.S. government’s continuing efforts to actively engage and  negotiate with foreign jurisdictions as encouraged by section 330,  Treasury’s Office of Terrorist Finance and Financial Crime said that  outreach to the international community to enhance global best practices  to combat money laundering and terrorist financing involves various  challenges. These challenges include ensuring that the international  standards are current in reference to emerging trends and technology and  are balanced and flexible enough to be relevant and applicable to all  countries and situations, as well as ensuring that evaluations or  assessments of countries are conducted on a consistent basis and manner.
section_title: Treasury Views Section 330 as a Congressional Endorsement of Long- standing U.S. Government Policy and a Stimulus for Continued Efforts
paragraphs: According to Treasury’s Office of Terrorist Finance and Financial Crime,  interagency efforts to work through FATF and the FATF-style regional  bodies to help ensure global compliance with international standards for  combating money laundering and terrorist financing is a long-standing  policy of the U.S. government—a policy that has had strong support from  the White House. In further elaboration, Treasury officials said that  because working through FATF and the FATF-style regional bodies is a  long-standing policy, no specific guidance was needed from the President  or the White House to implement section 330. That is, Treasury was  already seeking to accomplish the goals articulated in section 330. The  officials commented that passage of section 330 did not cause Treasury or  the interagency community to alter the objectives of ongoing or planned  negotiations. In sum, the Treasury officials stressed that enactment of  section 330 provided a welcomed congressional endorsement of long- standing U.S. government policy and also provided a stimulus for  continued efforts in negotiating with foreign jurisdictions.
section_title: Treasury Considers Section 311 as Particularly Relevant for Negotiating with Foreign Jurisdictions
paragraphs: As an incentive or pressure mechanism that can be used in conjunction  with foreign negotiations, Treasury considers section 311 of the USA  PATRIOT Act to be particularly relevant for helping to ensure global  compliance with international standards for combating money laundering  and terrorist financing. Section 311 authorizes the Secretary of the  Treasury—in consultation with the Secretary of State and the Attorney  General and with consideration of multiple factors—to find that  reasonable grounds exist for concluding that a foreign jurisdiction, a  financial institution, a class of transactions, or a type of account is of  “primary money laundering concern.” Such a designation is a precursor or  condition precedent for taking one or more special measures. For  instance, following a designation and with additional consultation and  consideration of specific factors, the Secretary of the Treasury may  require U.S. financial institutions to take certain “special measures” with  respect to applicable jurisdictions, institutions, accounts, or transactions.  The special measures can range from enhanced recordkeeping or  reporting obligations to a requirement to terminate and not open  correspondent accounts involving the primary money laundering concern.
Since the USA PATRIOT Act was signed into law in October 2001, section  311 designations have been announced for three foreign jurisdictions  (Ukraine, Nauru, and Burma). Treasury’s first use of section 311 authority  was in December 2002, with the designation of Ukraine and Nauru as  being of primary money laundering concern. A third jurisdiction, Burma,  was designated in November 2003.
In addition to foreign jurisdiction designations, Treasury has also used  section 311 authority to designate certain foreign financial institutions as  being of primary money laundering concern. Examples include Myanmar  Mayflower Bank and Asia Wealth Bank (November 2003), Commercial  Bank of Syria (May 2004), First Merchant Bank of the “Turkish Republic of  Northern Cyprus” and Infobank of Belarus (August 2004), and Multibanka  and VEF Banka of Latvia (April 2005). More recently, in September 2005,  Treasury designated Banco Delta Asia SARL, which is located in the  Macau Special Administrative Region, China.
In discussing section 311 with us, Treasury’s Office of Terrorist Finance  and Financial Crime officials characterized designations—even without  subsequent special measures being taken—as a very useful tool for  bringing pressure on countries and institutions to meet international  standards. For example, after being designated by Treasury in December  2002, Ukraine subsequently took steps to address deficiencies by  amending its anti-money-laundering law, its banking and financial services  laws, and its criminal code. Accordingly, Treasury revoked its designation  in April 2003.
section_title: Enhancing the Capabilities of Financial Intelligence Units Is a Continuing Challenge
paragraphs: Since 1995, the number of FIUs recognized by the Egmont Group has  increased more than sevenfold. Attributable reasons include FATF-related  efforts, as well as those of the federal interagency community. A particular  focus of FinCEN—working with federal interagency partners—has been to  provide training and technical assistance to help create and enhance the  capabilities of FIUs. Given the significant growth in the number of FIUs  recognized by the Egmont Group, which now totals 101, more attention is  being focused on improving the capabilities of existing units, especially in  reference to combating terrorist financing—an operational task now  included in the Egmont Group’s definition of an FIU. Generally, FIUs are  evaluated as part of an overall methodology designed to assess a country’s  compliance with the international standards contained in the FATF 40 plus  9 recommendations for combating money laundering and terrorist  financing. According to FinCEN, its efforts to improve the capabilities of  foreign FIUs must be achieved through cooperation, collaboration, and  consensus—given that the Egmont Group is responsible for dealing with  its members’ shortcomings or noncompliance with standards.
subsections: section_title: The Number of Financial Intelligence Units Has Increased Significantly Since 1995
paragraphs: Over the past decade, the number of FIUs recognized by the Egmont  Group increased more than sevenfold, from 14 in 1995 to 101 as of July  2005 (see fig. 1).
A goal of the Egmont Group is to provide a forum for FIUs to improve  support to their respective national programs for combating money  laundering and terrorist financing. Egmont Group membership is not  automatic for new or nascent FIUs. Rather, the Egmont Group has a Legal  Working Group responsible for assessing each FIU-candidate to ensure  that the prospective member meets admission criteria. For instance, the  assessment criteria are used to determine whether the FIU-candidate  meets the Egmont definition of an FIU, has reached full operational status,  and is legally capable and willing to cooperate on the basis of Egmont  principles (see app. III). Also, among other responsibilities, an Egmont  Group member that sponsors or mentors the FIU-candidate is expected to  have first-hand experience (including an on-site visit) to confirm the  operational status of the candidate FIU.
section_title: Growth in the Number of Financial Intelligence Units Is Attributable to Various Reasons
paragraphs: The significant growth in the number of FIUs is attributable to various  reasons, including FATF-related efforts to establish international  standards and promote policies for combating money laundering and  terrorist financing. For example, FATF recommendation number 26 (see  app. II) specifies that countries should establish an FIU that serves as a  national center for receiving (and, as permitted, requesting), analyzing,  and disseminating suspicious transaction reports and other information  regarding potential money laundering or terrorist financing. Moreover, a  contributing role has been played by the Egmont Group, which has an  Outreach Working Group to identify candidate countries for membership  and help them meet international standards.
Further, the growth in the number of FIUs is attributable partly to federal  interagency efforts, including training and technical support provided by  FinCEN and Treasury’s Office of Technical Assistance, as well as funding  provided by the State Department. As a member of the Egmont Group  since 1995, FinCEN in particular has focused its global efforts on assisting  jurisdictions establish new FIUs and improving existing units. For  instance, in helping to establish new FIUs, FinCEN’s assistance has  included a variety of activities, such as performing country assessments,  advising or commenting on draft FIU legislation, providing seminars on  the combating of money laundering, conducting training courses for FIU  personnel, and furnishing technical advice on computer systems.  According to FinCEN, much of its work now involves strengthening  existing FIUs. In this regard, FinCEN’s activities include conducting  personnel exchanges (from foreign FIU to FinCEN and vice versa) and  participating in operational workshops and other training initiatives. Also,  FinCEN noted that much of its assistance involves regional or multilateral  efforts, such as working closely with the Egmont Group of FIUs, the  United Nations, and multilateral development banks.
As an example of a recent FIU-related activity, FinCEN reported that it  sent a four-person team to Saudi Arabia in the first quarter of fiscal year  2006 to conduct an on-site assessment and provide various presentations  (covering, for example, information exchange issues) to employees of the  Saudi FIU. In addition, FinCEN’s activities for fiscal year 2005 included  providing training (either abroad or at FinCEN) to FIU representatives  from various nations, such as Argentina, Brazil, China, Guatemala, South  Korea, Paraguay, and Sri Lanka. For fiscal year 2004, FinCEN reported that  it joined with the United Arab Emirates to host representatives from  Afghanistan, Bangladesh, Maldives, Pakistan, and Sri Lanka on developing  FIUs. Also, FinCEN’s reported activities for fiscal year 2003 include     conducting personnel exchanges with Egmont Group allies from  several Baltic nations (i.e., Estonia, Latvia, and Lithuania), Bolivia,  Turkey, South Korea, Ukraine, and Russia;   co-hosting regional training workshops in Malaysia and Mauritius; and    sponsoring Bahrain, Mauritius, and South Africa as new members into  the Egmont Group—with the latter two countries representing Africa’s  first representatives in the group.
Similarly, according to the State Department, recent activities of  Treasury’s Office of Technical Assistance include (1) providing training  and technical assistance to FIUs in Paraguay and Peru, (2) helping the  Senegal FIU achieve operational status, and (3) working with Ukraine to  streamline its national FIU.
Generally, U.S. government assistance in creating and strengthening FIUs  can be viewed as being one strategic element among several designed to  enhance the capacity of global partners. For instance, the training and  technical assistance that U.S. agencies provide to vulnerable countries are  intended to help the countries develop five elements that, according to the  State Department, are needed for an effective anti-money-laundering and  counter-terrorism-financing regimes—a legal framework, a financial  regulatory system, law enforcement capabilities, judicial and prosecutorial  processes, and an appropriate FIU. However, despite the formation of an  interagency coordination entity—the Terrorist Financing Working  Group—U.S. efforts to coordinate the delivery of training and technical  assistance lack an integrated strategic plan, as we recently reported.  Among other matters, our October 2005 report noted disagreements  between the State and Treasury departments on procedures and practices  for delivering training and technical assistance as well as disagreements  regarding interagency leadership and coordination responsibilities. The  report recommended that the Secretary of State and the Secretary of the  Treasury develop an integrated strategic plan and enter into an agreement  specifying the roles of each department, bureau, and office with respect to  conducting needs assessments and delivering training and technical  assistance. In March 2006, the State Department provided the Congress a  written statement (as required under 31 U.S Code § 720) regarding action  taken on the recommendation. State commented that several steps were  being taken to enhance interagency coordination. The written statement  noted, for example, that the National Security Council and the  departments of State, Justice, the Treasury, and Homeland Security were  reviewing the work of the Terrorist Financing Working Group in light of  recent years’ experience, with a view to making any appropriate updates  and adjustments to enhance its effectiveness.
Also, during our review, State Department officials noted one area where  they would like to augment U.S. assistance to nascent FIUs. This area  involves ensuring that nascent FIUs have appropriate information  technology (hardware and software). The officials emphasized that such  technology is essential to appropriately functioning FIUs. In this regard,  the officials said that the State Department and FinCEN are engaged in  ongoing discussions on how to augment such assistance.
Further regarding future directions, FinCEN’s Deputy Director (who also  chairs the Egmont Committee) commented that there will be continuing  efforts to establish new FIUs, particularly in priority regions (such as the  Middle East and Central Asia) critical to combating money laundering and  terrorist financing. Moreover, given the dynamic growth in the Egmont  Group’s membership, the Deputy Director noted that the Egmont  Committee will be giving more attention to improving the capabilities or  effectiveness of existing FIUs.
section_title: Capabilities of Financial Intelligence Units: Some Aspects Are Covered in Assessments of Compliance with FATF Recommendations
paragraphs: Generally, FIUs are evaluated as part of an overall methodology designed  to assess a country’s compliance with the international standards  contained in the FATF 40 plus 9 recommendations for combating money  laundering and terrorist financing (see app. II). “A key element in the fight against money laundering and the financing of terrorism is the  need for countries to be monitored and evaluated, with respect to these international  standards. The mutual evaluations conducted by the FATF and the FATF-style regional  bodies, as well as assessments conducted by the IMF and the World Bank, are a vital  mechanism for ensuring that the FATF Recommendations are effectively implemented by  all countries.”
Our research and inquiries identified one published study that presented  comparative or multicountry results based on mutual evaluations of  nations’ compliance with the FATF recommendations. The study—Twelve- Month Pilot Program of Anti-Money-Laundering and Combating the  Financing of Terrorism (AML/CFT) Assessments–Joint Report on the  Review of the Pilot Program, March 10, 2004—was prepared jointly by  IMF and the World Bank. The study summarized the results of the mutual  evaluations of 41 jurisdictions, conducted during the 12-month period that  ended in October 2003. The assessments used a common methodology  adopted by FATF and endorsed by the Executive Boards of IMF and the  World Bank. Of the 41 assessments, 33 were conducted by IMF or the  World Bank, and 8 were conducted by FATF and the FATF-style regional  bodies.
In their March 2004 joint report, IMF and the World Bank presented  assessment findings for the 41 jurisdictions in a summary format, rather  than associating compliance levels or deficiencies with any individual  country. For instance, the report made the following general observations:  “Overall compliance with the FATF 40+8 Recommendations is uneven  across jurisdictions. Many jurisdictions show a high level of compliance  with the original FATF 40 Recommendations. The most prevalent  deficiency among all assessments is weaker compliance with the Eight  Special Recommendations on terrorist financing.”   “There is generally a higher level of compliance in high and middle income  countries than in low income countries. Higher income countries typically  have well developed AML/CFT regimes but with specific gaps, especially  concerning the Eight Special Recommendations on terrorist financing.”
The joint report did not separately present or discuss assessment findings  related to the functioning or effectiveness of FIUs. However, two of the 13  main weaknesses identified are directly related to FIUs. These two  weaknesses (see table 1) are topic 12 (no requirement to report promptly  to the FIU if financial institutions suspect that funds stem from criminal  activity) and topic 13 (poor international exchange of information relating  to suspicious transactions and to persons or corporations involved).
The joint report noted that assessments using the common methodology  are increasingly used as a diagnostic tool to identify technical assistance  needs, including assistance for creating and strengthening FIUs.
Although not published, an overview of more recent FIU-related  assessment findings was presented on July 1, 2005, in Washington, D.C.,   at the annual plenary meeting of the Egmont Group. Specifically, an IMF  representative presented summary information covering 29 countries,  whose names were not disclosed. The IMF representative noted that the  information was derived from the results of mutual evaluations or  assessments conducted during 2003 to 2005 using the common  methodology endorsed by FATF, IMF, and the World Bank. According to  the presentation, the findings of the assessments indicated that many of  the FIUs had shortcomings, such as a shortage of staff (one-third of the  total), a lack of political independence (one-fourth), and legal obstacles to  international cooperation (one-third). Other shortcomings cited were  (scope not quantified) lack of clear legal framework, lack of strategic  analysis tools, lack of access to appropriate information and databases,  excessive transmission of information to law enforcement agencies, lack  of guidelines on the identification of suspicious behavior, lack of  feedback, lack of powers to sanction failure to report, and legal obstacles  to the transmission of suspicious transaction reports.
In its January 2006 response to our inquiry, the State Department said that  the U.S. government and other major donors generally are well informed  about the existence of FIUs (and their capabilities and deficiencies) in  those jurisdictions in which the donors wish to participate. State  commented that while mutual evaluations are but one source of  information and can be outdated before being discussed at meetings of the  FATF-style regional bodies, these evaluations are useful in identifying  deficiencies and prompting corrective action by the respective  jurisdiction.
section_title: Dealing with FIU Shortcomings or Noncompliance with Standards Is a Responsibility of the Egmont Group
paragraphs: According to FinCEN’s Deputy Director (and chair of the Egmont  Committee), the Egmont Group is responsible for dealing with its  members’ shortcomings or noncompliance with standards. That is, even  though influential, FinCEN has only one vote within the 101-member  Egmont Group. Therefore, FinCEN’s efforts to improve the capabilities of  foreign FIUs must be achieved through cooperation, collaboration, and  consensus. “A summary of each report will be published on the FATF website and FATF members  have agreed in principle to make public the full mutual evaluation reports (with the  ultimate decision being left to each FATF member for its own report). The FATF intends to  provide comprehensive information on its members’ actions in combating money  laundering and terrorist financing.”
The Deputy Director also commented that the most significant functional  change for the Egmont Group in recent years was expansion of the  definition of an FIU in response to the terrorist attacks of September 11.  Shortly thereafter, at an October 2001 special meeting of the Egmont  Group in Washington, D.C., the members expressed a sense that the  group’s operational functions should expand beyond money laundering to  address terrorist financing. Later, at the Egmont Group’s 12th plenary  meeting—held during June 21 to 25, 2004, and hosted in Guernsey,  Channel Islands—the definition of “financial intelligence unit” was  amended to include a reference to terrorist financing. This new definition  is reflected in the Statement of Purpose of the Egmont Group of  Financial Intelligence Units, which resulted from the Guernsey plenary  meeting. Thus, combating terrorist financing now is included in the  definition of tasks an FIU is required to perform.
According to the Deputy Director, existing FIUs have a grace period of at  least 2 years to become compliant with the new definition. He noted that  throughout the history of the Egmont Group, no member has ever been  excluded from continuing participation. The Deputy Director added,  however, that plenary meetings in recent years have begun to address the  issue of noncompliance. For example, according to documentation of  Egmont Group meetings:  The 11th Egmont Group plenary, held July 21 to 25, 2003, in Sydney,  Australia, marked the “first attempt to establish a procedure for dealing  with members that may no longer meet Egmont standards.”
At the 12th Egmont plenary session, held June 21 to 25, 2004, in  Guernsey, Channel Islands, “a paper was drafted which outlines the  procedures to address those Egmont members that may no longer meet  the established definitions and standards of the Egmont Group, or that  fail to exchange information.”
The Deputy Director said that a paper on noncompliance was also  presented at the most recent Egmont plenary meeting, held June 30 to   July 1, 2005, in Washington, D.C. He added that the issue will be revisited  at the 2006 plenary meeting in Cyprus. He explained that dealing with  noncompliance will be a difficult issue and likely will reflect a go-slow  approach. For instance, the Deputy Director opined that before  administrative action (such as exclusion) is taken, the noncompliant  member probably would be offered ameliorating assistance over an  extended period of time.
section_title: FinCEN Is Taking Various Actions to Maximize Its Performance as a Global Partner, but More Comprehensive Feedback from Financial Intelligence Units Would Be Useful
paragraphs: Since the events of September 11, FinCEN’s most important operational  priority has been to provide counterterrorism support to the law  enforcement and intelligence community. In January 2006, to enhance its  support role, FinCEN assigned an analyst to the FBI’s Terrorist Financing  Operations Section. Also, among other actions to maximize performance  as a global partner in combating money laundering and terrorist financing,  FinCEN is modernizing the Egmont Secure Web—the Internet-based  system developed and maintained by FinCEN and used by FIUs worldwide  to exchange information. Further, FinCEN is allocating additional staff  resources to facilitate responding to foreign requests for assistance and is  developing a new case management system. However, FinCEN’s most  recent customer satisfaction survey of FIUs had limited coverage and a  very low response rate, partly because there was no follow-up with  nonrespondents. Future surveys would need to be more inclusive and  incorporate better survey development and administration practices, such  as follow-up efforts to achieve higher response rates, if the surveys are to  serve as a useful management information tool for monitoring and  enhancing performance.
subsections: section_title: Challenges for FinCEN Include Redirecting Its Efforts to More Complex Cases as well as Supporting the Nation’s Focus on Detecting and Preventing Terrorist Financing
paragraphs: FinCEN has recognized that it faces various challenges, such as  redirecting its efforts to more complex cases, some of which inevitably  have international linkages. Another important challenge is to support the  nation’s focus on detecting and preventing terrorist financing, which also  can involve international linkages. “the FinCEN analytical product we provide to our global counterparts when asked for  information. Today, we are primarily providing the results of a data check. We think we  owe our colleagues more. … e will also be making more requests for information and  analysis from our partners—particularly when the issue involves terrorist financing or  money laundering.” “Like the rest of America, the Financial Crimes Enforcement Network is still adapting to  changes triggered by the events of 9/11. These changes include … supporting the  Department of the Treasury’s new focus on detecting and preventing terrorist financing. …  While the Financial Crimes Enforcement Network has historically developed the  information, analytical processes, and tools required to detect money laundering, we need  to develop additional tools—and to gain access to additional data, including classified  data—in order to better detect terrorist financing.” “FinCEN must upgrade the quality of its analysis related to terrorist financing and money  laundering. FinCEN has begun a major initiative to enhance the ability of FinCEN analysts  to consider all information sources, including, as appropriate, classified data, when  analyzing money laundering and terrorist financing methods. To be successful, this will  require an overall upgrade to the security environment, significant investments in training  and building analytical skills relating to terrorist financing, upgrade of the analytical  software related to text mining, enhanced availability of classified sources … and an  increase in overall personnel security classifications to allow the integration of all  information sources.”
A primary data source used by FinCEN analysts is the government’s  database of BSA-related forms, including suspicious activity reports  (SARs) filed by financial institutions.  An integral part of FinCEN’s  counterterrorism strategy involves reviewing and referring all SARs  related to terrorist financing to law enforcement and intelligence agencies.   For instance, as of September 2005, FinCEN reported that it had  proactively developed and referred a total of 526 potential terrorist  financing leads to appropriate agencies, such as the FBI’s Terrorist  Financing Operations Section and Joint Terrorism Task Forces.
In 2004, the FBI contacted the Director of FinCEN and requested bulk  access to BSA reports for ingestion into the FBI’s system, the Investigative  Data Warehouse (IDW). The FinCEN Director recognized the benefits of  having the data available in this format and approved the request.  According to the FBI:  “ is a centralized, web-enabled, closed system repository for  intelligence and investigative data. This system, maintained by the FBI, allows  appropriately trained and authorized personnel throughout the country to query  for information of relevance to investigative and intelligence matters. In addition  to BSA data provided by FinCEN, IDW includes information contained in myriad  other law enforcement and intelligence community databases. The benefits of  IDW include the ability to efficiently and effectively access multiple databases in a  single query. As a result of the development of this robust information technology,  a review of data that might have previously taken days or months now takes only  minutes or seconds.”
The FBI noted that FinCEN provides the IDW with regular updates of the  BSA data.  Also, the FBI told us that it has not had any discussions with  FinCEN regarding ways to enhance FinCEN’s link-analysis capability.   Generally, link analysis involves use of data mining and other  computerized techniques to identify relationships across organizations,  people, places, events, etc. Rather, the FBI noted that it requested FinCEN  to assign an analyst to the FBI’s Terrorist Financing Operations Section.   Such an assignment, the FBI explained, would provide FinCEN access to  additional data sources, which would be useful to FinCEN in performing  its various roles. FinCEN told us that it accepted this offer almost  immediately, and, subsequently, in January 2006, the designated FinCEN  analyst reported to the FBI to begin initial training (2 weeks) with  Terrorist Financing Operations Section personnel. More recently, in March  2006, in providing us feedback on this arrangement and other interactions,  the FBI commented that it highly values its strong partnership with  FinCEN.
In further reference to analyzing SARs and developing counterterrorism- related leads, we note that FinCEN developed and transmitted a total of  four referrals to FIUs during the past 4 fiscal years, 2002 through 2005. Of  these four referrals, according to FinCEN, two were sent to Spain’s FIU,  one was sent to the United Kingdom’s FIU, and one was sent to both  Canada’s FIU and the United Kingdom’s FIU. In addition to these proactive  referrals, FinCEN emphasized that it regularly interacts with foreign FIUs  to explore opportunities for working on issues of mutual interest. These  efforts, according to FinCEN, essentially achieve the same goals and  results as proactive referrals—and perhaps in a more tailored and effective  manner.
section_title: Modernizing the Egmont Secure Web: Technology Is Critical to Information Sharing, a Core Function of Financial Intelligence Units
paragraphs: Facilitating the cross-border exchange of information is a core function of  FIUs. FinCEN plays a key role in fostering the secure exchange of  information among FIUs, given that FinCEN operates and maintains the  Egmont Secure Web. An Internet-based system, the Egmont Secure Web is  used by FIUs primarily for its encrypted e-mail capability to exchange  sensitive case information. In 1997, FinCEN initially launched the Egmont  Secure Web, and its development was funded solely by the Treasury  Forfeiture Fund.
Operationally, according to FinCEN, the Egmont Secure Web is of  paramount importance to FIUs. For instance, the Egmont Group’s  guidelines—Best Practices for the Exchange of Information between  Financial Intelligence Units—state that, where appropriate, FIUs should  use the Egmont Secure Web, which permits secure online information  sharing among members. According to FinCEN, the system has  encouraged unprecedented cooperation among FIUs because of security,  ease of use, and quick response time. Also, FinCEN officials explained that  the Egmont Secure Web provides online access to many reference  materials, such as official Egmont procedural documents, FIU contact  information, case examples, recently noted trends, and minutes from all  Egmont meetings.
A large majority (96) of the Egmont Group’s 101 members are connected  to the Egmont Secure Web. As of February 2006, 67 of the 96 FIUs each  had one Egmont Secure Web user account, and 29 other FIUs each had  two or more user accounts (see table 2). With 49 user accounts, FinCEN’s  total is nearly three times that of Belgium’s FIU, which has the second  largest number of user accounts (18). For fiscal year 2004, FinCEN  reported that it supported 844 law enforcement cases via information  exchanges with foreign jurisdictions and that an estimated 98 percent of  FinCEN’s responses to these jurisdictions went through the Egmont  Secure Web.
FinCEN is in the process of modernizing the system by acquiring upgraded  hardware and software. FinCEN officials estimated that the upgrade will  be completed by mid-2006 and cost approximately $631,000. Further, the  officials noted the following information:     The U.S. government is the owner of the system and all other users are  stakeholders. In effect, FinCEN is providing a service to a group (i.e.,  the Egmont Group)—of which, FinCEN itself is a member.
The Egmont Secure Web meets or exceeds the requirements for  information systems that handle sensitive but unclassified information.
The issuance of a digital certificate gives some assurance that users  have met security requirements, but the burden is on the respective  FIU to be responsible.
As a further safeguard, the officials noted that the Egmont Secure Web  does not give foreign FIUs access to FinCEN’s internal systems—for  example, the FIUs have no direct access to BSA data.
section_title: Management Information and Customer Feedback Are Important Tools for Monitoring and Improving Performance
paragraphs: Important tools for monitoring and improving performance of any  organization include implementing an effective management information  system and obtaining feedback from customers. Such tools are particularly  relevant for FinCEN, a networking organization that has a significant role  and responsibilities in combating international financial crime.
subsections: section_title: Case Management: New Information System Being Developed to Better Manage Requests for Assistance
paragraphs: In response to our inquiry about what trends are reflected in data  regarding the timeliness of FinCEN’s responses to foreign FIU requests for  assistance, FinCEN officials said that their management information  system does not lend itself easily to the identification of trends. The  officials noted, however, that FinCEN was developing a new case  management system to make statistical information more readily  available. According to FinCEN officials, full implementation of the new  system is scheduled for the last quarter of fiscal year 2008. The officials  told us that as of March 2006, no decision had been reached on the new  system’s hardware or software platform. However, the officials noted that  in developing the new system, FinCEN is coordinating with Treasury’s  Enterprise Architecture Office and also is complying with applicable  guidance from the Office of Management and Budget.
Available case-management statistics show that FinCEN receives more  requests from foreign FIUs than it submits to these counterparts. As table  3 indicates, the number of incoming requests to FinCEN has been about  twice the number of outgoing requests in recent fiscal years.
In managing and processing incoming requests, FinCEN’s policy is to give  priority to terrorism-related requests and other “expedite” requests, such  as those involving imminent law enforcement action or other extenuating  time-sensitive circumstances. FinCEN officials said that responses are  prepared to meet these deadlines. Otherwise, the officials said that  requests from foreign FIUs are to be handled on a first-come, first-served  basis. Generally, the officials noted that the timeliness of FinCEN in  responding to requests from foreign FIUs can depend on a variety of  factors, such as the volume of requests, the types and amount of  information being requested, the number of subjects involved (e.g.,  persons and accounts), whether additional clarifications of the requests  are needed, and even the extent of time zone differences between FinCEN  and the foreign FIUs.
According to FinCEN data, the average time for responding to foreign  requests was 106 days in fiscal year 2002 and increased to 124 days in  fiscal year 2004. The FinCEN officials attributed this increase to various  reasons, including the growing number of FIUs and a loss of contract staff  who handled the majority of the requests from foreign FIUs. More  recently, FinCEN officials said that the average response time had  decreased to 63 days for fiscal year 2005 (through July 25, 2005). To  further improve response times, the officials indicated that FinCEN was  (1) shifting additional employees to its Office of Global Support (within  the Analysis and Liaison Division), which is responsible for processing  requests from foreign FIUs, and (2) hiring contract staff to specifically  handle FIU requests for information.
section_title: Customer Satisfaction Survey of Financial Intelligence Units: Limited Coverage and Low Response Rate
paragraphs: For fiscal year 2005 (through July 25, 2005), a total of 561 requests were  made to FinCEN by 75 foreign customers, primarily FIUs. Sixteen FIUs  accounted for two-thirds of the total requests, as table 4 shows.
One management priority of FinCEN is to periodically conduct customer  satisfaction surveys. The purpose of such surveys is to “identify strengths  and opportunities to improve services to external clients.” FinCEN  contracted with an independent research organization to conduct the most  recent survey, which was designed and implemented during August to  October 2005. To obtain feedback on FinCEN’s support for investigative  cases, one survey instrument was used for both domestic law enforcement  customers (federal, state, and local) and international customers (FIUs).  The survey instrument was designed to obtain feedback on various aspects  of FinCEN’s services provided during fiscal year 2005, such as the ease of  making requests, the timeliness of responses, and the value or usefulness  of information provided.
To facilitate distribution of the survey instrument, FinCEN provided the  contractor with a list of 325 customers, a total consisting of both domestic  and international customers. According to FinCEN, this total represented  all customers who had requested assistance from FinCEN in fiscal year  2005 and for whom FinCEN had valid e-mail addresses. All 325 customers  were invited via e-mail to participate in the Web-based survey.
Of the 325 customers, 41 were FIUs. In answering our inquiry, FinCEN  officials were unable to explain why all FIUs that requested assistance  from FinCEN in fiscal year 2005 were not included in the survey.
Subsequently, from the 325 domestic and international customers invited  to participate in the survey, a total of 78 responses were collected, giving  an overall response rate of 24 percent. Although not broken out separately  in the contractor’s final report, the FIU-related response rate was much  lower, with only 2 of the 41 FIUs responding.
As a result of the low response rate from the FIUs, insufficient information  was received to help FinCEN identify strengths and opportunities to  improve services to external clients. FinCEN did receive feedback on the  level of satisfaction for two FIUs, which is helpful; however, the  experiences of the two FIUs cannot be interpreted as representing the  experiences of other FIUs.
Generally, in conducting a survey, various efforts to promote the highest  possible response rate can be considered during both survey development  and survey administration. During survey development, consideration can  be given to individual and organization characteristics that may affect the  prospective respondents’ level of cooperation in completing the survey.  For instance, the prospective respondents may not want to be critical of  the survey’s sponsor. Another factor that affects cooperation is the burden  that completing the survey instrument imposes on prospective  respondents in terms of their time and the level of effort required to  understand the questions and formulate responses. Pretesting the survey  instrument is a way to help evaluate whether the potentially adverse  effects of these types of factors have been minimized. Further, during  survey administration, follow-up efforts with prospective respondents can  help to promote the highest possible response rate. Such follow-up efforts  can include e-mail messages, letters, or telephone calls. FinCEN officials  told us they were unaware why the response rate from FIUs was low or  whether the survey included any follow-up efforts to obtain responses  from additional FIUs.
In perspective, periodic surveys of customers are not the only method  used by FinCEN to obtain performance feedback. For instance, in  responding to each request for assistance from FIUs, the practice of  FinCEN is to include an accompanying form that solicits feedback  regarding the timeliness of FinCEN’s response and the usefulness of the  specific information provided. According to FinCEN officials, many of the  feedback forms either are not returned or are returned with annotations  indicating, for example, that the usefulness of the information provided by  FinCEN may not be known until some future date. However, even if  request-specific feedback is obtained, FinCEN officials recognize the  benefits of conducting more comprehensive efforts, such as the periodic  customer satisfaction surveys. This recognition, as mentioned previously,  is reflected in FinCEN’s Strategic Plan.
section_title: Conclusions
paragraphs: FinCEN plays a critically important role in international efforts to combat  money laundering and terrorist financing. It has been a leader in the  adoption and implementation of international money laundering  countermeasures and supporting and advancing the Egmont Group’s  principles and activities. A key part of FinCEN’s international role has  been its efforts to respond to requests for information related to possible  international financial crime. Yet, FinCEN’s method for obtaining  performance feedback data from global partners is flawed. Relevant  feedback data include whether FIUs find the information provided by  FinCEN to be substantive, timely, and useful—or how information-sharing  efforts could be improved. Without such data, FinCEN is not in the best  position to help the international community combat financial crime.
In its Strategic Plan, FinCEN recognizes the importance of periodically  surveying its customers to “identify strengths and opportunities to  improve services.” However, FinCEN’s most-recent customer satisfaction  survey of its global partners had limited coverage—with less than one-half  of all FIUs being invited to participate. Also, the response rate was very  low, with no follow-up efforts directed specifically at nonresponding FIUs.  In the future, FinCEN’s customer satisfaction surveys of FIUs need to be  more inclusive and reflect higher response rates if the surveys are to serve  as a useful management information tool for monitoring and enhancing  performance. The importance of monitoring and improving performance  by obtaining feedback from customers is highlighted by the new  operational role of FIUs in combating terrorist financing—a role in which  the sharing or exchanging of information can be especially time critical.
section_title: Recommendation for Executive Action
paragraphs: We recommend that the Director of FinCEN take appropriate steps in  developing and administering future customer satisfaction surveys to help  ensure more comprehensive coverage of and higher response rates from  FIUs. For example, such steps could include pretesting the survey  instrument and following-up with nonresponding FIUs.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report for comment to the departments of the  Treasury, State, Homeland Security, and Justice, and the Federal Reserve  Board. We received written responses from each agency.
The Department of the Treasury responded that it supports our  recommendation that the Director of FinCEN take appropriate steps in  developing and administering future customer satisfaction surveys to help  ensure more comprehensive coverage of and higher response rates from  FIUs. The Department of the Treasury commented that it is committed to  ensuring that customer surveys provide reliable performance feedback.
The Department of State commented that our October 2005 report— Terrorist Financing: Better Strategic Planning Needed to Coordinate  U.S. Efforts to Deliver Counter-Terrorism Financing Training and  Technical Assistance Abroad (GAO-06-19)—was not relevant for  discussion in this report. In our view, however, the October 2005 report  provides relevant perspectives on interagency coordination and strategic  planning, so we retained a brief discussion of it in this report. The  Department of State also provided a technical comment regarding section  311 of the USA PATRIOT Act, which we incorporated where appropriate.
The Department of Homeland Security and the Federal Reserve Board  responded that they had no comments on this report. The Department of  Justice provided technical comments only, which we incorporated in this  report where appropriate.
As arranged with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days after the  date of this report. At that time, we will send copies of this report to  interested congressional committees and subcommittees. We will also  make copies available to others on request. In addition, this report will be  available at no charge on GAO’s Web site at http://www.gao.gov.
If you or your staff have any questions about this report or wish to discuss  the matter further, please contact me at (202) 512-8777 or stanar@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. Other key contributors  to this report were Danny Burton, Frederick Lyles, Natasha Ewing,  Thomas Lombardi, and Evan Gilman.
section_title: Appendix I: Objectives, Scope, and Methodology
subsections: section_title: Objectives
paragraphs: In response to a request from the Chairman, House Committee on the  Judiciary, we reviewed the global or international-related efforts of the  Department of the Treasury and the Financial Crimes Enforcement  Network (FinCEN) to combat money laundering and terrorist financing.  Section 330 of the USA PATRIOT Act expresses the sense of the Congress  that the President should direct the Secretary of State, the Attorney  General, or the Secretary of the Treasury, in consultation with the Board  of Governors of the Federal Reserve, to seek to enter into negotiations  with foreign jurisdictions that may be utilized by a foreign terrorist  organization in order to further cooperative efforts to ensure that foreign  banks and other financial institutions maintain adequate records of  transactions and account information relating to any foreign terrorist  organization or member thereof. The negotiators should also seek to  establish a mechanism whereby those records would be made available to  U.S. law enforcement officials and domestic financial institution  supervisors, when appropriate.
Section 361 of the USA PATRIOT Act established FinCEN as a statutory  bureau in the Treasury Department and listed FinCEN’s various duties and  powers, which include coordinating with foreign counterparts—that is,  financial intelligence units (FIUs) in other countries. These units are  specialized governmental agencies created to combat money laundering,  terrorist financing, and other financial crimes. Each FIU is the respective  nation’s central agency responsible for obtaining information (e.g.,  suspicious transaction reports) from financial institutions, processing or  analyzing the information, and then disseminating it to appropriate  authorities.
Specifically, our review focused on the following questions regarding  efforts under sections 330 and 361 of the USA PATRIOT Act to combat  money laundering and terrorist financing:    Under section 330 of the USA PATRIOT Act, how has the Department  of the Treasury interacted or negotiated with foreign jurisdictions to  promote cooperative efforts to combat money laundering and terrorist  financing?
Under section 361, how has FinCEN contributed to establishing FIUs in  foreign countries and enhancing the capabilities of these units to  combat money laundering and terrorist financing?
What actions is FinCEN taking to maximize its performance as a global  partner in combating money laundering and terrorist financing?
section_title: Scope and Methodology
paragraphs: Initially, in addressing the principal questions, we reviewed sections 330  and 361 of the USA PATRIOT Act and relevant legislative histories. Also,  we reviewed information available on the Web sites of federal entities,  including the departments of the Treasury (and FinCEN), Justice, State,  and Homeland Security. Similarly, we reviewed information available on  the Web sites of relevant multilateral or international bodies, such as   (1) the Financial Action Task Force on Money Laundering (FATF), an  intergovernmental entity whose purpose is to establish international  standards and to develop and promote policies for combating money  laundering and terrorist financing; (2) the various FATF-style regional  bodies; (3) the International Monetary Fund; (4) the World Bank; and   (5) the Egmont Group of FIUs. To obtain additional background and  overview perspectives, we conducted a literature search to identify  relevant reports, studies, articles, and other documents—including  congressional hearing testimony—regarding U.S. and multilateral efforts  to combat money laundering and terrorist financing.
subsections: section_title: Treasury Department Efforts to Accomplish Goals Articulated under Section 330 of the USA PATRIOT Act
paragraphs: Regarding section 330 of the USA PATRIOT Act, to determine how the  Department of the Treasury has interacted or negotiated with foreign  jurisdictions to promote cooperative efforts to combat money laundering  and terrorist financing, we interviewed responsible officials at and  reviewed relevant documentation obtained from the departments of the  Treasury, Justice, and State and the Federal Reserve Board. Also, because  our preliminary inquiries indicated that efforts to accomplish the goals  articulated under section 330 largely involve interactions with multilateral  organizations—particularly FATF—we focused especially on the efforts of  Treasury’s Office of Terrorist Finance and Financial Crime, which leads  the U.S. delegation to FATF and is the department’s policy and  enforcement entity regarding money laundering and terrorist financing.
Further, because section 330 does not specify any consequences or  penalties for noncooperative parties or countries, we determined the  availability of incentive or pressure mechanisms that could be used in  conjunction with negotiations. In this regard, on the basis of Treasury’s  response to our inquiry, we identified federal actions taken under USA  PATRIOT Act section 311, which authorizes the Secretary of the  Treasury—in consultation with the Secretary of State and the Attorney  General—to find that reasonable grounds exist for concluding that a  foreign jurisdiction, a financial institution, a class of transactions, or a type  of account is of “primary money laundering concern.” If such a finding is  made, U.S. financial institutions could be required to take certain “special  measures” against the applicable jurisdictions, institutions, accounts, or  transactions. The special measures can range from enhanced record  keeping or reporting obligations to a requirement to terminate  correspondent banking relationships with the designated entity.
section_title: FinCEN Contributions to Establishing FIUs in Foreign Countries and Enhancing Their Capabilities
paragraphs: In addressing this topic, we first obtained data on the annual growth in the  number of FIUs over the past decade—from 1995, when the Egmont  Group of FIUs was formed, to the present. Also, we obtained overview  information on the history, purposes, and functioning of FIUs. For  instance, the overview information—which was available on the Egmont  Group’s Web site (www.egmontgroup.org) or was otherwise published— included the following:    Statement of Purpose of the Egmont Group of Financial Intelligence    Principles for Information Exchange Between Financial Intelligence  Units for Money Laundering and Terrorism Financing Cases,   Best Practices for the Exchange of Information between Financial  International Monetary Fund and World Bank, Financial Intelligence  Units—An Overview, 2004.
In further reference to establishing FIUs and enhancing their capabilities,  we obtained information on the efforts (e.g., training and technical  support) of FinCEN and other federal contributors, such as Treasury’s  Office of Technical Assistance and the State Department. In so doing, we  interviewed responsible officials at and reviewed relevant documentation  obtained from FinCEN, Treasury, and State. The federal officials we  contacted included FinCEN’s Deputy Director, who chairs the Egmont  Committee, which functions as the consultation and coordination  mechanism for FIU heads and the Egmont Group’s five working groups  (information technology, legal, operational, training, and outreach). The  documentation we reviewed included FinCEN’s annual reports and  strategic plans as well as the international narcotics control strategy  reports released annually by the State Department’s Bureau for  International Narcotics and Law Enforcement Affairs—reports that  present information on FinCEN’s and other federal agencies’ efforts to  create and improve FIUs. In identifying these federal efforts, we did not  attempt to disaggregate or separately quantify contributions attributable to  the respective federal agency. Rather, we made inquiries regarding any  potential issues involving interagency coordination of federal efforts.
Further regarding the capability of FIUs, we identified and reviewed  available studies or reports. In particular, we reviewed a report prepared  by the International Monetary Fund (IMF) and the World Bank that  presented comparative or multicountry results based on mutual  evaluations of nations’ compliance with the FATF recommendations. The  study—Twelve-Month Pilot Program of Anti-Money-Laundering and  Combating the Financing of Terrorism (AML/CFT) Assessments–Joint  Report on the Review of the Pilot Program, March 10, 2004—summarized  the results of the mutual evaluations of 41 jurisdictions, conducted during  the 12-month period that ended in October 2003. The assessments used a  common methodology adopted by FATF and endorsed by the Executive  Boards of IMF and the World Bank.
To obtain more current transnational perspectives on the capability of  FIUs, we attended (as an observer) the most recent annual plenary  meeting (June 30 to July 1, 2005) of the Egmont Group. At the plenary  meeting, held in Washington, D.C., a summary of FIU-related assessment  findings was presented. The information was derived from the results of  mutual evaluations or assessments (of 29 countries) conducted from 2003  to 2005 using the common methodology endorsed by FATF, IMF, and the  World Bank.
section_title: Actions FinCEN Is Taking to Maximize Its Performance as a Global Partner in Combating Money Laundering and Terrorist Financing
paragraphs: We inquired about FinCEN’s efforts to update or modernize the Egmont  Secure Web, which is the Internet-based communications system  developed and maintained by FinCEN and used by FIUs worldwide to  share or exchange information. Generally, the Egmont Secure Web is  considered to be of paramount importance to the operations of FinCEN  and foreign FIUs. For instance, the Egmont Group’s guidelines—Best  Practices for the Exchange of Information between Financial  Intelligence Units—state that, where appropriate, FIUs should use the  Egmont Secure Web, which permits secure online information sharing  among members. FinCEN is in the process of modernizing the system’s  1997 architecture by acquiring upgraded hardware and software. A large  majority (96) of the Egmont Group’s 101 members are connected to the  Egmont Secure Web.
Also, we reviewed annual statistical information on international-related  requests for assistance in developing or investigating cases. Specifically,  for fiscal years 2002 to 2005, we obtained statistics on requests for  assistance submitted by foreign FIUs to FinCEN. To the extent permitted  by available data, we analyzed the statistical information on incoming  requests in reference to the subject matter of the request, the country of  submission, and the timeliness of FinCEN’s response to the submitting  FIU. We did not analyze the quality of FinCEN’s responses to the incoming  requests for assistance. However, we reviewed the results of the most  recent customer feedback survey conducted by FinCEN. Also, we inquired  about FinCEN’s efforts to better monitor or improve timeliness  performance by developing a new case management system and assigning  additional employees to the Office of Global Support, which is responsible  for processing requests from foreign FIUs.
Further, we inquired about FinCEN’s efforts to enhance its analytical  capabilities to handle more complex cases and support the nation’s focus  on detecting and preventing terrorist financing. For example, we  contacted the Federal Bureau of Investigation’s (FBI) Terrorist Financing  Operations Section and the Foreign Terrorist Tracking Task Force.
section_title: Data Reliability
paragraphs: We conducted our work from June 2005 to March 2006 in accordance with  generally accepted government auditing standards. Regarding the  statistical information we obtained from FinCEN—i.e., information  concerning requests for assistance submitted by foreign FIUs to FinCEN— we discussed the sources of the data with FinCEN officials and worked  with them to resolve discrepancies we identified with the data they  provided. As resolved and presented in this report, we determined that  these data were sufficiently reliable for the purposes of this review.
section_title: Appendix II: Financial Action Task Force and Related Regional Bodies
paragraphs: This appendix presents summary information regarding the purposes and  functioning of the Financial Action Task Force on Money Laundering and  the various FATF-style regional bodies—international entities whose  mission focuses on combating money laundering and terrorist financing.  The summary information is derived largely from FATF’s Web site  (www.fatf-gafi.org), which provides links to the regional bodies. Also, we  discussed the information with Treasury Department officials.
subsections: section_title: The Financial Action Task Force and Related Regional Bodies Encompass Member Jurisdictions around the Globe
paragraphs: Initially, FATF was created in 1989 by the G7 nations in response to  growing concerns about money laundering. However, after the events of  September 11, FATF’s mission was expanded to combat the financing of  terrorism. The mission of FATF consists of three principal activities—(1)  setting standards for combating money laundering and terrorist financing,  (2) evaluating the progress of nations in implementing measures to meet  the standards, and (3) identifying and studying methods and trends  regarding money laundering and terrorist financing. In fulfilling this  mission, FATF is assisted by various FATF-style regional bodies that have  been established since 1992. As table 5 indicates, FATF and the related  regional bodies encompass member jurisdictions around the globe.
section_title: FATF Recommendations Provide a Set of Countermeasures against Money Laundering and Terrorist Financing
paragraphs: FATF recommendations are designed to ensure that each nation has in  place a set of countermeasures against money laundering and terrorist  financing. In 1990, FATF issued its “Forty Recommendations on Money  Laundering.” In October 2001, the month following the terrorist attacks in  the United States, FATF issued “Eight Special Recommendations on  Terrorist Financing.” More recently, in October 2004, FATF published a  ninth special recommendation on terrorist financing to target cross-border  movements of currency and monetary instruments. Table 6 summarizes  the “Forty Recommendations on Money Laundering” and the “Nine Special  Recommendations on Terrorist Financing.”
Collectively, these “40 plus 9” recommendations issued by FATF are  recognized as the international standards for combating money laundering  and terrorist financing. Although the FATF recommendations do not  constitute a binding international convention, many countries—e.g.,  member nations of FATF and the FATF-style regional bodies—have made  a political commitment to combat money laundering and terrorist  financing by implementing the recommendations. Moreover, the  international community has recognized the need for monitoring to ensure  that countries effectively implement the FATF recommendations.
section_title: A Widely Adopted Methodology Is Used for Monitoring Compliance with Financial Action Task Force Recommendations
paragraphs: One of the means for monitoring compliance with FATF recommendations  is a mutual evaluation process whereby a team of experts conducts on-site  visits to assess the progress of member countries. To guide the assessment  of a country’s compliance with international standards, a widely adopted  methodology is used—Methodology for Assessing Compliance with the  FATF 40 Recommendations and the FATF 9 Special Recommendations  (updated as of February 2005). In addition to its use by FATF mutual  evaluation teams, the Methodology has also been approved or endorsed by  the FATF-style regional bodies and the Executive Boards of the  International Monetary Fund and the World Bank.
The Methodology reflects the principles and follows the structure of the  FATF recommendations. For each of the recommendations, the  Methodology enumerates elements (“essential criteria”) that should be  present for full compliance. For instance, table 3 shows the essential  criteria used for assessing implementation of FATF Recommendation 26,  which calls for each nation to establish and empower a financial  intelligence unit.
section_title: Appendix III: The Egmont Group of Financial Intelligence Units
paragraphs: This appendix presents summary information regarding the growth of the  Egmont Group, which is an informal global association of governmental  operating units created to support their respective nation’s or territory’s  efforts to combat money laundering and terrorism financing. More  detailed information about the purposes and functioning of the Egmont  Group and its members is available at the entity’s Web site  (www.egmontgroup.org).
subsections: section_title: The Egmont Group of Financial Intelligence Units Has Grown Significantly since 1995
paragraphs: On June 9, 1995, representatives of various nations (including the United  States) and international organizations met at the Egmont-Arenberg palace  in Brussels, Belgium, to discuss ways to enhance mutual cooperation in  combating the global problem of money laundering. A result was creation  of the Egmont Group, whose members are the specialized anti-money- laundering organizations known as financial intelligence units. In  attendance at the 1995 meeting were representatives of 14 of these  governmental units (“disclosure-receiving agencies”) that became the first  Egmont Group members. In the decade since 1995, the group’s  membership has increased significantly, reaching a total of 101  jurisdictions as of July 2005 (see table 8).
section_title: The Egmont Group Provides a Network for Exchanging Information
paragraphs: “A central, national agency responsible for receiving, (and as permitted, requesting),  analyzing and disseminating to the competent authorities, disclosures of financial  I.  concerning suspected proceeds of crime and potential financing of terrorism, or   II.  required by national legislation or regulation, in order to combat money laundering  and terrorism financing.”
This definition, which was adopted in June 2004 at the Egmont Group’s  plenary meeting in Guernsey, reflects an expansion of the role of FIUs to  include combating terrorist financing. “FIUs should be able to exchange information freely with other FIUs on the basis of  reciprocity or mutual agreement and consistent with procedures understood by the  requested and requesting party. Such exchange, either upon request or spontaneously,  should provide any available information that may be relevant to an analysis or  investigation of financial transactions and other relevant information and the persons  or companies involved.”  “An FIU requesting information should disclose, to the FIU that will process the  request, at a minimum the reason for the request, the purpose for which the  information will be used and enough information to enable the receiving FIU to  determine whether the request complies with its domestic law.”  “Information exchanged between FIUs may be used only for the specific purpose for  which the information was sought or provided.”  “The requesting FIU may not transfer information shared by a disclosing FIU to a third  party, nor make use of the information in an administrative, investigative,  prosecutorial, or judicial purpose without the prior consent of the FIU that disclosed  the information.” “If necessary the requesting FIU should indicate the time by which it needs to receive  an answer. Where a request is marked ‘urgent’ or a deadline is indicated, the reasons  for the urgency or deadline should be explained.”  “FIUs should give priority to urgent requests. If the receiving FIU has concerns about  the classification of a request as urgent, it should contact the requesting FIU  immediately in order to resolve the issue. Moreover, each request, whether or not  marked as ‘urgent,’ should be processed in the same timely manner as domestic  requests for information.”  “As a general principle, the requested FIU should strive to reply to a request for  information, including an interim response, within 1 week from receipt in the following  if it can provide a positive/negative answer to a request regarding information it has  if it is unable to provide an answer due to legal impediments.”  “Whenever the requested FIU needs to have external databases searched or query third  parties (such as financial institutions), an answer should be provided within 1 month  after receipt of the request.”  “If the results of the enquiries are still not all available after 1 month, the requested FIU  should provide the information it already has in its possession or at least give an  indication of when it will be in a position to provide a complete answer. This may be  done orally.”  “FIUs should consider establishing mechanisms in order to monitor request-related  information, enabling them to detect new information they receive regarding  transactions, STRs , etc., that are involved in previously  received requests. Such a monitoring system would enable FIUs to inform former  requesters of new and relevant material related to their prior request.”