Money Laundering: A Framework for Understanding U.S. Efforts Overseas
Published: 1996-05-24T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO provided information on U.S. efforts to combat international money laundering, focusing on: (1) U.S. money-laundering controls; (2) how U.S. law enforcement agencies coordinate their anti-money-laundering activities with European officials; and (3) U.S. participation in international money-laundering agreements.
section_title: What GAO Found
paragraphs: GAO noted that: (1) the United States relies on financial institutions to report suspect transactions to regulatory and law enforcement authorities; (2) some financial institutions rely on a "know your customer" policy to identify suspected money launderers; (3) European countries model their anti-money-laundering activities after 1991 European Union directives and U.S. financial institutions; (4) European countries require their financial institutions to record but not report large currency transactions; (5) European law enforcement officials believe that the United States should establish a single liaison office to coordinate money-laundering cases; (6) the United States participates in bilateral and multilateral agreements to establish global anti-money-laundering policies, enhance cooperation, and facilitate the exchange of information; (7) U.S. multilateral efforts are coordinated through the Financial Action Task Force, which encourages both member and nonmember countries to adopt money-laundering legislation and controls; and (8) the United States has entered into several bilateral agreements to facilitate the flow of information concerning criminal matters.

section_title: Letter
paragraphs: Money laundering is the act of converting money gained from illegal activity, such as drug smuggling, into money that appears legitimate and in which the source cannot be traced to the illegal activity. It is a global problem that needs to be fought collectively by the international community. The United States is focusing increased attention on the foreign aspects of its efforts to combat money laundering, particularly as U.S. efforts make it more difficult for individuals to launder money domestically. In connection with other work we were performing abroad, you asked us to provide information on U.S. efforts to combat overseas money laundering.
As agreed with you, this report provides a framework for understanding U.S. overseas efforts to combat international money laundering rather than an assessment of overall U.S. anti-money-laundering activities. Specifically, this report describes (1) U.S. and selected European countries’ approaches to combating money laundering through regulation of financial institutions, (2) U.S. bank regulators’ oversight of money-laundering controls at overseas branches of U.S. banks, (3) U.S. law enforcement agencies’ efforts to coordinate their overseas anti-money-laundering activities among themselves and with law enforcement agencies in these European countries, and (4) U.S. participation in international arrangements to combat money laundering abroad. Our work, which focused on these four issues, was not intended to cover the entire range of U.S. anti-money-laundering efforts worldwide, nor was it intended to cover all of the responsibilities the various agencies have in combating money laundering.
subsections: section_title: Background
paragraphs: Federal law enforcement officials estimate that between $100 billion and $300 billion in U.S. currency is “laundered” each year. The U.S. approach to money-laundering prevention and detection includes criminal enforcement and civil regulatory efforts. Numerous U.S. agencies play a role in combating money laundering. Law enforcement agencies within the Departments of Justice and the Treasury have the greatest involvement in domestic and international criminal investigations involving money laundering. FRB and OCC have the primary responsibility for examining and supervising the overseas branches of U.S. banks to ascertain the adequacy of the branches’ anti-money-laundering controls. The Financial Crimes Enforcement Network (FinCEN), a Treasury agency, provides governmentwide intelligence and analysis that federal, state, local, and foreign law enforcement agencies can use to aid in the detection, investigation, and prosecution of domestic and international money laundering and other financial crimes.
In addition, other U.S. agencies have a role in combating money laundering, including the Department of State. Specifically, the Department of State works with U.S. and multilateral organizations in developing global anti-money-laundering policies. The Department of State also is involved in coordinating U.S. anti-money-laundering activities overseas, including training. Further, the Department of State provides an annual assessment of narcotics and money-laundering problems worldwide. Among other things, this assessment describes money-laundering activities in many countries and rates money-laundering risks for these countries. (See app. II for the Department of State’s prioritization of money-laundering activities in specific countries, for 1995.)
section_title: Scope and Methodology
paragraphs: To understand U.S. approaches to combating money laundering through regulation of financial institutions and U.S. bank regulators’ oversight of money-laundering controls at overseas branches of U.S. banks, we interviewed FRB and OCC officials and examiners, including the OCC’s London branch examiners. We also interviewed officials from FinCEN, 3 large U.S. banks that have branches or subsidiaries in most of the European countries we visited, and 11 U.S. overseas financial institution branches that U.S. embassy officials recommended to us. These branches were located in seven selected West and Central European countries—England, France, Germany, Hungary, Italy, Poland, and Switzerland. These countries were recommended to us by the Department of State and the Secret Service as countries that could provide us with information on overseas money laundering and on the overseas counterfeiting of U.S. currency. The latter was the subject of a concurrent review we conducted when visiting these countries. We reviewed our past reports, FRB and OCC examination manuals covering anti-money-laundering examination procedures, and various papers presented at the American Bankers Association’s October 1994 Money-Laundering Enforcement Seminar in Washington, D.C. We also reviewed testimony by Treasury and FRB officials and looked at recent anti-money-laundering legislation and regulations.
To understand the approach taken by the European countries we visited toward combating money laundering through financial institutions, we conducted interviews with officials of 12 regulatory and supervisory agencies from the 7 European countries. We also conducted interviews with officials from 24 European and U.S. financial institutions located in these countries. We obtained documentation from each country we visited on policies to combat money laundering through financial institutions. In addition, we interviewed FATF’s Secretary and reviewed FATF’s six annual reports from 1990 through 1995, which contained information on the U.S.’ and the five West European countries’—England, France, Germany, Italy, and Switzerland—anti-money-laundering policies. We reviewed a report developed by the EU Banking Federation’s Fraud Working Group on the status of member countries’ implementation of the EU’s Directive on money laundering and a study entitled Money-Laundering and Financial Institutions: National and International Law. The study described and compared U.S. and EU approaches to combating money laundering through financial institutions.
To understand how U.S. law enforcement agencies coordinated their overseas criminal investigations involving money laundering among themselves and with host countries’ law enforcement agencies, we interviewed U.S. law enforcement officials from the Customs Service, the Secret Service, IRS, DEA, and FBI. We interviewed headquarters officials as well as field staff in U.S. embassies in England, France, Italy, and Switzerland. We also interviewed officials from the International Criminal Police Organization (Interpol) and law enforcement officials from six of the seven European countries we visited to obtain their views on coordinating money-laundering investigations with U.S. law enforcement agencies. We reviewed two U.S. MOUs that described which U.S. law enforcement agencies had jurisdiction over crimes associated with money laundering. We reviewed the Department of State’s 1995 narcotics report and FinCEN’s 1992 report entitled An Assessment of Narcotics Related Money-Laundering to obtain descriptions of international money-laundering cases.
To obtain information on U.S. participation in international arrangements such as FATF, we interviewed Treasury, Justice, Department of State, OCC, and FRB officials as well as government officials in the European countries we visited. We reviewed FATF’s annual reports and interviewed FATF’s Secretary to obtain information on the task force’s current status. The Department of State’s 1995 narcotics report provided us with information on the bilateral agreements on information sharing that the United States has entered into with other countries.
Information on foreign law in this report does not reflect our independent legal analysis but is based on interviews and secondary sources.
We obtained comments on a draft of this report from the Departments of the Treasury, Justice, and State; the Office of the Comptroller of the Currency, and the Federal Reserve Board. These comments are discussed on page 19 and reprinted in appendixes VI, VII, VIII, IX, and X, respectively.
We conducted our work between June 1994 and May 1995 and updated our information as of February 1996 in accordance with generally accepted government auditing standards.
section_title: U.S. and European Approaches to Combating Money Laundering Through Financial Institutions
subsections: section_title: U.S. Approaches
paragraphs: Until the past few years, the U.S.’ anti-money-laundering efforts under BSA have tended to rely heavily on regulations requiring financial institutions to routinely report currency transactions that exceed $10,000, primarily through filing CTRs with IRS. The United States has also relied on financial institutions to report to regulatory and law enforcement authorities, those customers who are engaged in known or suspected financial crimes or suspected of circumventing CTR requirements. Over the past few years, U.S. bank regulators have required that financial institutions adopt anti-money-laundering programs that, at a minimum, include (1) internal policies, procedures, and controls; (2) the designation of a compliance officer; (3) ongoing training of employees; and (4) an independent audit to test the adequacy of these programs.
Financial institutions have also adopted so-called “know your customer” policies to help them identify customers engaged in known or suspected financial crimes. Under these policies, which are currently voluntary, but which the Treasury plans to make mandatory in 1996, financial institutions are to verify the business of a new account holder and report any activity that appears to be inconsistent with that account holder’s type of business. Banking association officials view “know your customer” policies, which they said the majority of banks have already voluntarily adopted, as among the most effective means of combating money laundering.
According to a senior Treasury official, the U.S.’ anti-money-laundering efforts under BSA are expected to rely more on suspicious transaction reporting. U.S. anti-money-laundering efforts are expected to continue relying on CTRs, but to a lesser extent. This change in emphasis from routine reporting of currency transactions above a given threshold to reporting of suspicious transactions is a key component of a flexible and cost-efficient compliance program required to combat money laundering through financial institutions, according to the Treasury. In a related matter, the Treasury said it is working on meeting a statutory goal seeking a 30-percent reduction in the number of CTRs filed by financial institutions. Congress took this action in part because of concerns about (1) the burdens imposed on the banking industry of routinely filing millions of CTRs annually, (2) the costs incurred by the Treasury of processing these CTRs, and (3) the ability of law enforcement to use information from the Treasury’s cluttered CTR database. The BSA Advisory Group, which consists of officials from the Treasury and bank regulators and representatives from financial institutions, is identifying and increasing the categories of businesses that will not have to file routine CTRs, as a means to reach the 30-percent reduction goal, according to Treasury officials.
U.S. regulatory and banking association officials told us that the ongoing shift toward greater reliance on suspicious transaction reports necessitates several key changes. They said it will require more training for financial institutions on identifying suspicious transactions. This activity entails a greater degree of judgment on the part of bank employees than recording and forwarding CTRs. In addition, it necessitates greater feedback from regulators and law enforcement agencies on how individual institutions can determine what types of transactions are suspicious. The BSA Advisory Group, among other things, is working with the Treasury to provide greater guidance to financial institutions on identifying suspicious transactions, according to Treasury officials.
section_title: West European Approaches
paragraphs: The anti-money-laundering approaches of four of the five West European countries we visited—England, France, Germany, and Italy—are modeled after a 1991 EU Directive on money laundering, which lists anti-money-laundering controls that members are required to incorporate in their domestic laws. Controls outlined in the directive were patterned after anti-money-laundering recommendations adopted by FATF (see pp. 15-16) and include some of the controls U.S. regulators rely on in this country. These European countries require recording large currency transactions; however, with the exception of Italy, they do not require routinely reporting such transactions that the United States has relied on under BSA. Instead, they have chosen to emphasize the use of suspicious transaction reports and “know your customer” policies, according to European regulators.
Financial institutions in two of the five West European countries we visited are required to forward suspicious transaction reports to a single designated agency, a feature that the Treasury recently incorporated into U.S. suspicious transaction reporting requirements. England and France have each designated a single government agency at the national level responsible for receiving and acting on suspicious transaction reports. Financial institutions in the other three countries are to forward such reports to various national and local government agencies.“Know your customer” policies in the West European countries we visited are somewhat more comprehensive than comparable U.S. policies that are voluntary for U.S. banks, according to European bank and regulatory officials. As in the United States, “know your customer” policies in these European countries involve institutions verifying the identity and banking practices of account holders so that unusual transactions can be identified. However, “know your customer” policies in the European countries we visited go one step further than U.S. policies in that they require institutions to identify not only the customer opening the account, but also any other person or entity that may benefit from the account.
section_title: Central European Approaches—Hungary and Poland
paragraphs: Hungary and Poland have adopted anti-money-laundering measures following the EU Directive but have faced constraints in implementing and enforcing these laws. Bank regulatory and law enforcement officials in those countries told us that they lacked the resources and training to adequately combat financial crimes, including money laundering. These officials told us that they looked to the United States and the EU to continue providing training and financial support to help their countries’ bankers and law enforcement agencies implement new anti-money-laundering controls.
Officials from both countries said that their banks’ pursuit of new deposits has tended to cause them to neglect adequate background checks of depositors. In Hungary, we were told that financial institutions, overwhelmed with new banking activity, were unable to interview and research depositors as thoroughly as western banks do. Polish government officials said that banks in that country were reluctant to inform law enforcement agencies about suspected money launderers because of their uncertainty about how to resolve apparent conflicts between Poland’s bank secrecy laws and recently adopted anti-money-laundering statutes. Widespread confusion about the new reporting requirements has resulted in few banks reporting suspicious transactions, according to the officials.
FinCEN and Interpol have recently initiated Project Eastwash, in an attempt to assess money laundering in 20 to 30 countries throughout East and Central Europe and the former Soviet Union. According to FinCEN officials, as of late 1995 on-site visits had been made to five countries to assess the law enforcement, regulatory, legislative, and financial industry environment in each nation. Information from these visits is to be used for policy guidance and resource planning for both the countries assessed and U.S. and international anti-money-laundering organizations, according to these officials.
section_title: U.S. Approaches to Combating Money Laundering Through Overseas Branches of U.S. Banks
paragraphs: U.S. banks had over 380 overseas branches located in 68 countries as of August 1995. These branches, which are direct extensions of U.S. banks, are bound by the host countries’ anti-money-laundering laws rather than U.S. anti-money-laundering laws, according to OCC and FRB officials. Moreover, bank, privacy, and data protection laws in some of these countries serve to prevent U.S. regulators from conducting on-site examinations of U.S. bank branches located within their borders. Of the seven European countries we visited, U.S. regulators were allowed to enter England, Germany, and Italy to examine U.S. bank branches. They were not allowed to enter Switzerland and France to examine branches of U.S. banks because of these countries’ strict bank secrecy and data protection laws. According to OCC officials, U.S. regulators have not tried to examine branches in Poland and Hungary and were unsure if they would be able to if the need arose.
OCC and FRB officials said that in host countries that allow U.S. regulators to conduct on-site examinations of the anti-money-laundering controls of U.S. banks, such examinations are of a much narrower scope than those of banks located in the United States. This is partially due to constraints posed by host country bank, privacy, and data protection laws. The OCC officials told us that in a typical examination of an overseas bank branch’s anti-money-laundering controls, regulators mainly interview branch officials to determine if the bank has written anti-money-laundering policies and procedures, including “know your customer” policies. The officials said that U.S. regulators also interview branch officials to determine whether the bank has adopted internal controls to prevent money laundering. In contrast, in the United States, anti-money-laundering examinations—known as “BSA examinations”—call for regulators to interview bank officials, review the bank’s anti-money-laundering policies and procedures, test these policies and procedures, and examine transactions to check for violations of BSA.
OCC and FRB officials also said that the expense of sending examiners overseas limits the amount of time examiners can spend reviewing the anti-money-laundering controls of U.S. banks. While overseas, regulators focus most of their time examining the safety and soundness of the branch, according to the these regulatory officials. OCC overseas examination procedures, for example, call for the anti-money-laundering portion of the examination to be brief and for it to avoid placing an undue burden on the scope of the overall examination. OCC and FRB officials also indicated that another factor limiting the scope of money-laundering examinations of U.S. overseas branches is the small volume of currency transactions at these branches compared with branches in the United States. According to these regulatory officials, some overseas branches serve as wholesale providers of banking services to corporations and conduct very few cash transactions.
FRB officials told us that they have recently developed money-laundering examination procedures to be used by its examiners to address the uniqueness of overseas branches’ operations and to fit within the short time frames of these examinations. These procedures were tested in November 1995 and are to be implemented into the FRB’s examination procedures soon, according to FRB officials.
In countries with laws that serve to prohibit U.S. regulators from entering to examine U.S. branches, U.S. regulators must rely on other means besides on-site examinations for obtaining information on U.S. overseas branches’ anti-money-laundering controls, according to FRB and OCC officials. For example, under current policies, U.S. regulators rely on exchanging information with various foreign banking regulators on their respective examinations of one anothers’ existing foreign-based branches. In other cases, FRB can deny a bank’s application to open a branch in a country with strict bank secrecy laws if it does not receive assurance from the bank that its branch will have sufficient anti-money-laundering controls in place.
section_title: U.S. Law Enforcement Agencies’ Overseas Anti-Money- Laundering Efforts
paragraphs: The United States has various law enforcement agency personnel located abroad to (1) serve as overseas liaisons for U.S. law enforcement agencies’ international criminal investigations; and (2) share information with and, in some cases, assist their foreign law enforcement counterparts in criminal investigations, including money laundering. Personnel who work for U.S. law enforcement agencies abroad, and IRS, which has some enforcement duties, have a range of responsibilities on investigating crimes involving money laundering, as shown in table 1.
subsections: section_title: Some European Officials Are Concerned About Coordination With U.S. Law Enforcement
paragraphs: European law enforcement officials we spoke with acknowledged the important role that U.S. law enforcement agencies play in investigating overseas money-laundering cases. French officials noted that U.S. law enforcement agencies are very active in fighting money laundering and understand that international cooperation is essential. Other European officials acknowledged the value of U.S. law enforcement agencies in providing training on identifying money-laundering schemes. However, some British and Swiss law enforcement officials we spoke with said that too many U.S. agencies are involved in money-laundering inquiries. They said this overlap makes it difficult, in some cases, to determine which U.S. agency they should coordinate with.
These British and Swiss officials indicated that designating a single U.S. office to serve as a liaison on these money-laundering cases would improve coordination. The British law enforcement officials described a recent case in which they had difficulty coordinating their efforts with U.S. law enforcement agencies because they did not know which U.S. agency had responsibility for the case. The British officials indicated that DEA, the Customs Service, and FBI all had independent operations, and all claimed lead responsibility for the case. Our discussions with European law enforcement officials, although providing some instances of coordination problems, did not afford sufficient data to determine whether this is a serious or widespread problem. Furthermore, at the time of our visit, the United States was just beginning to implement efforts to improve coordination of overseas drug money-laundering investigations as discussed in the following section.
section_title: U.S. Officials’ Views on Law Enforcement Coordination
paragraphs: U.S. law enforcement officials we spoke with acknowledged that the number of agencies with jurisdiction over money-laundering investigations could cause confusion among their overseas counterparts about which U.S. agency they should coordinate with. While these officials indicated that U.S. interagency coordination has been both a domestic and international concern for some time, they did describe recent steps to improve coordination.
Specifically in regard to improving overseas money-laundering coordination, they pointed to the signing of an MOU adopted by a number of U.S. agencies in July 1994. The MOU describes procedures for allocating jurisdiction over international drug money-laundering investigations. Law enforcement officials were optimistic that the MOU, which was signed by representatives of the Secretary of the Treasury, the Attorney General, and the Postmaster General, would improve overseas anti-money-laundering coordination. Although law enforcement officials are optimistic about improvements in coordination, we have not assessed how well U.S. international investigations involving money laundering are being coordinated.
While approving of efforts to improve coordination, these officials did not support designating a single point of contact on overseas money-laundering investigations to improve interagency coordination. Customs Service officials indicated that designating such a contact would pose a threat to their ability to maintain relationships they had built over time with their overseas law enforcement counterparts. They also said it would jeopardize their ability to make full use of the years of expertise they had gained in investigating money-laundering cases.
In addition to law enforcement agencies’ coordination efforts, the Department of State also has responsibility for coordinating U.S. law enforcement activities in host countries. In a host country, the Department of State’s Chief of Mission is statutorily responsible for directing, coordinating, and supervising U.S. government personnel, except certain military personnel, according to Department of State officials. For example, in Italy, the Chief of Mission was beginning an initiative to improve U.S. law enforcement coordination in that country, in the face of downsizing of U.S. government personnel abroad.
section_title: International Arrangements to Combat Overseas Money Laundering
paragraphs: The United States works with other countries through multilateral and bilateral treaties and arrangements to establish global anti-money-laundering policies, enhance cooperation, and facilitate the exchange of information on money-laundering investigations.
subsections: section_title: Multilateral Efforts to Establish Global Anti-Money-Laundering Policies
paragraphs: FATF is the major forum for the U.S.’ and other countries’ multilateral efforts to promote the adoption of and to harmonize global anti-money-laundering controls. Since its inception at the 1989 Group of Seven (G-7) Economic Summit in Paris, FATF has worked to persuade member and nonmember countries to institute effective anti-money-laundering measures and controls. In furtherance of its mission, FATF in 1990 released a set of 40 recommendations on money-laundering measures. These recommendations describe measures that countries should adopt to control money laundering through financial institutions and improve international cooperation in money-laundering investigations. (See app. III for a summary of the 40 recommendations.) FATF has also developed a peer review process, known as “mutual evaluations,” to monitor members’ adherence to these recommendations.
section_title: FATF Achievements and Suggested Changes in Emphasis
paragraphs: During 1995, FATF completed its first round of mutual evaluations of its members’ progress on implementing the 40 recommendations. FATF found that most member countries have made satisfactory progress in carrying out the recommendations, especially in the area of establishing money-laundering controls at financial institutions. FATF has also continued to identify global money-laundering trends and techniques, including conducting surveys of Russia’s organized crime and Central and East European countries’ anti-money-laundering efforts. FATF has also expanded its outreach efforts by cooperating with other international organizations, such as the International Monetary Fund, Interpol, the Customs Cooperation Council, and the Commonwealth Secretariat, and by its outreach efforts to nonmember countries in Asia, the Caribbean, South America, Eastern Europe, Russia, and other parts of the world.
While noting FATF’s achievements, officials from two member nations we visited provided their suggestions on where they believe FATF should direct its emphasis. An Italian official we spoke with told us that FATF needs to facilitate information sharing among members’ law enforcement agencies. A Swiss official told us FATF needs to direct more emphasis towards helping members develop and adopt practical techniques and tools to prevent and detect sophisticated money-laundering schemes. For example, he believed that FATF should alert members to the need for banks to concentrate more attention on analyzing cumulative bank transactions to gain a better picture of a client’s transaction patterns. He also believed that FATF needs to provide members with information on suspicious wire transfers and “shell” corporations formed solely to launder money. (See app. IV for a description of U.S. and international efforts to prevent money laundering through wire transfers.) On November 28-29, 1995, FATF members met in Paris to discuss current and emerging money-laundering schemes. Officials from Interpol and the United Nations Drug Control Program were also present. While most of the meeting focused on money-laundering schemes in FATF member countries, some attention was given to schemes in nonmember countries, with special attention given to countries in the former Soviet Union and in Central and East Europe.
section_title: U.S.’ Role in FATF
paragraphs: The Treasury’s Under Secretary for Enforcement assumed the FATF presidency in July 1995. The Under Secretary’s strategic plan for his 1-year term was to build upon three ongoing FATF initiatives and to realize sufficient progress so that FATF could complete these initiatives by 1999—the year in which the task force is scheduled to cease its operations.
One initiative involved the continuous monitoring of new anti-money-laundering laws and regulations FATF member countries have implemented in response to the 40 recommendations. Such monitoring efforts include self-assessments that have been ongoing since 1990, cross-country reviews that began in 1994, and the previously discussed mutual evaluations that all member nations had undergone by the end of 1994. Another initiative involved completing work on revising the 40 recommendations, creating an ongoing dialogue between FATF and international banks, and furthering FATF efforts to identify money-laundering methods. For example, FATF continues to monitor members’ progress in countering money launderers’ use of wire transfers and has recently begun to address electronic banking and its implications for money laundering. The third initiative involved the expansion of FATF’s relations with nonmember nations that began in 1991, by continuing to coordinate with regional and international organizations.
According to the FATF Secretary, U.S. leadership of the task force is expected to build upon FATF relations with nonmember nations made possible through the coordinated efforts of U.S. embassies located around the world. In addition, FATF is expected to benefit from close coordination with FinCEN. According to the FATF Secretary, this closer coordination should provide FATF with improved money-laundering intelligence that will allow it to develop a better overview of global money-laundering problems.
section_title: More Recent Multilateral Initiatives
paragraphs: A more recent multilateral effort involves the United States and other countries in the Western Hemisphere. In December 1994, the 34 leaders of the Western Hemisphere met at the Summit of the Americas in Miami, Florida. At the summit, the leaders signed a Declaration of Principles that included a commitment to fight drug trafficking and money laundering. The summit documents also detailed a plan of action to which the leaders affirmed their commitment. One action item called for a working-level conference on money laundering, to be followed by a ministerial conference, to study and agree on a coordinated hemispheric response to combat money laundering.
The ministerial conference, held in December 1995, at Buenos Aires, Argentina, represented the beginning of a series of actions each country committed to undertake in the legal, regulatory, and law enforcement areas. U.S. Department of Justice officials told us that the conference created an awareness that money laundering is not only a law enforcement issue, but it is also a financial and economic issue, requiring a coordinated interagency approach.
As part of another multilateral effort, FinCEN is working with other countries to develop and implement Financial Information Units (FIU) modeled, in large part, on FinCEN operations. FinCEN has also met with officials from other countries’ FIUs to discuss issues common to FIUs worldwide. The most recent meeting was held in Paris in November 1995, during which issue-specific working groups were created to address common concerns, such as the use of technology and the consideration of legal matters in exchanging intelligence information.
section_title: International Money-Laundering Agreements
paragraphs: Before the more recent multilateral efforts and the formation of FATF in 1989, the United States was signatory to two multilateral agreements that remain key to the U.S.’ and other nations’ multilateral efforts. One, the 1988 Basle Committee on Banking Regulations and Supervisory Practices’ Statement of Principles on Money Laundering, recommended that financial institutions ensure full customer identification, compliance with anti-money-laundering laws, and cooperation with law enforcement agencies on money-laundering cases. The second agreement, the 1988 United Nations (U.N.) Vienna Convention, stipulated that all signatories should criminalize drug money laundering and that countries should cooperate and work to prevent bank secrecy laws from interfering with criminal investigations. Five of the seven European countries we visited—England, France, Germany, Italy, and Poland—have adopted the U.N. Vienna Convention. Switzerland, which has not ratified the convention, has substantially met the goals of the convention, according to the Department of State. At the time we completed our fieldwork, Hungary had not ratified the convention, although it had passed legislation in 1995 that harmonized its existing laws with those of the convention, according to the Department of State.
section_title: Bilateral Agreements to Improve Cooperation in International Money-Laundering Cases
paragraphs: Bilateral agreements for combating international money laundering that the United States has entered into include mutual legal assistance treaties (MLAT), financial information exchange agreements, and customs mutual assistance agreements. In recent years, according to U.S. Treasury officials, the United States has relied on these agreements with individual countries (1) to improve cooperation in international investigations, prosecutions, and forfeiture actions involving money laundering and (2) to facilitate information exchanges on criminal investigations, including money-laundering investigations. However, the Department of State’s 1995 annual report on global narcotics crime, which discusses current U.S. concerns about international anti-money-laundering efforts, concluded that many countries still refuse to share information with other governments about financial transactions that could facilitate global money-laundering investigations. (See app. V for a summary of the Department of State’s 1995 list of concerns about international anti-money-laundering efforts.)
section_title: Agency Comments and Our Evaluation
paragraphs: We were provided written comments on a draft of this report by the Department of the Treasury, which incorporated comments from the Customs Service, FinCEN, and IRS; the Department of Justice, which incorporated comments from the Criminal Division, FBI, and DEA; the Department of State; OCC; and FRB. (See apps. VI, VII, VIII, IX, and X.) The Departments of the Treasury and Justice said they generally agreed with the information presented in this report. However, they, along with the Department of State, indicated that our description of U.S. efforts to detect and prevent domestic and international money laundering was incomplete. Their comments also included technical changes and/or factual updates that we have incorporated where appropriate.
In general, they said that we did not sufficiently describe U.S. efforts to combat money laundering and the roles of their respective agencies and in some cases did not sufficiently elaborate on U.S. domestic efforts. Our report was not intended to cover the broad range of U.S. anti-money-laundering activities worldwide, nor was it intended to comment on all the responsibilities that the various agencies had in combating money laundering. Rather, our objective, as stated at the beginning of this report, was to provide a framework for understanding U.S. overseas activities based largely on the discussions held in seven countries we visited. Nonetheless, the agencies provided additional information, which we incorporated in our report where appropriate.
The Department of State also commented that we did not fully discuss its role in the fight against global money laundering. It also stated that we did not address the role of the U.S. chiefs of mission, especially with respect to coordinating U.S. government personnel in foreign countries. We have revised the report to recognize the Department of State’s role in helping establish U.S. policy on money laundering and its role as a participant in international organizations such as FATF and the United Nations. We have included a discussion of the chiefs of missions’ overseas role in coordinating U.S. government personnel, including U.S. law enforcement agencies. We also discussed the Department of State’s role in coordinating international law enforcement training. However, we have not assessed the effectiveness of this role.
We are sending copies of this report to interested congressional committees, to the Secretaries of the Departments of the Treasury and State, the Attorney General, the Comptroller of the Currency, and the Chairman of the Federal Reserve Board. We will also make copies available to others on request.
Major contributors to this report are listed in appendix XI. Please call me on (202) 512-8984 if you or your staff have any questions about this report.
section_title: Countries That Have Signed Bilateral Agreements With the United States to Share Information on Criminal, Currency, and Customs Matters
paragraphs: The United States has entered into various bilateral treaties and agreements with other countries to facilitate its efforts in combating international money-laundering activities.
The Department of Justice, in cooperation with the Department of State, has negotiated mutual legal assistance treaties (MLAT) to aid cooperation in criminal matters, including money laundering. The United States has signed MLATs with 23 countries; however, it has only implemented these agreements with 14 of them.
The Department of the Treasury, with the cooperation of the Departments of State and Justice, has negotiated Financial Information Exchange Agreements (FIEA) with other countries. These are agreements to share currency transaction information to help investigate possible illicit activities, such as money laundering. The Treasury has signed FIEAs with seven Central and South American countries, including Mexico, but is awaiting ratification of these agreements in two of the countries.
The Customs Service has negotiated mutual assistance agreements to coordinate joint investigations with overseas law enforcement agencies. Currently, the U.S. Customs Service has 24 of these agreements in force with other countries and has signed, but not put into force, agreements with two other countries. The countries that have signed bilateral treaties and agreements with the United States are presented in table I.1. (continued) (U.K.) (Table notes on next page)
Y = An agreement has been signed and brought into force unless otherwise noted. N = No agreement has been signed.
section_title: Major Money-Laundering Countries in 1995
paragraphs: The State Department is required by law to identify major money-laundering countries and provide certain specific information for each such country. The Department of State works with other agencies from the Departments of the Treasury and Justice to put this information together. Countries are categorized into six levels of risk (high, medium-high, medium, low-medium, low, and no priority) on the basis of the degree to which they are at risk of experiencing money-laundering activities, as shown in table II.1.
Aruba, Canada, Cayman Islands, Colombia, Germany, Hong Kong, Italy, Mexico, the Netherlands, Nigeria, Panama, Singapore, Switzerland, Thailand, the U.K., the United States, and Venezuela Argentina, Brazil, Costa Rica, Ecuador, India, Japan, Liechtenstein, Luxembourg, the Netherlands Antilles, Pakistan, Paraguay, Russia, Spain, Turkey, Uruguay, and the United Arab Emirates Antigua, Australia, Austria, the Bahamas, Bahrain, Belgium, Belize, Bolivia, Bulgaria, Burma, the Channel Islands, Chile, China, Cyprus, France, Gibraltar, Greece, Guatemala, Hungary, Israel, South Korea, Kuwait, Lebanon, Macau, Madeira/Azores, Malaysia, Montserrat, Morocco, Peru, the Philippines, Poland, St. Vincent, and Taiwan Côte d’Ivoire, Cuba, Denmark, the Dominican Republic, Egypt, Nepal, Portugal, Sri Lanka, Trinidad, and Vanuatu (continued)
section_title: Synopsis of the 40 Financial Action Task Force Recommendations
paragraphs: The Financial Action Task Force (FATF) recommended that each member country take these actions: 1. implement the 1988 Vienna Convention, which includes criminalizing drug money laundering and cooperating with other countries on money-laundering investigations; 2. prevent financial institution secrecy laws from inhibiting the recommendations; 3. increase multilateral cooperation in money-laundering investigations; 4. make money laundering a crime; 5. extend money-laundering offenses beyond narcotic trafficking into other crimes, such as bank and insurance fraud, arms trafficking, and other serious crimes; 6. apply anti-money-laundering measures to individuals who knew or should have known that the money they received came from a criminal activity; 7. subject corporations, not only their employees, to criminal liability if they are found guilty of money laundering; 8. enable authorities to confiscate the proceeds or property obtained from criminal activity; 9. apply recommendations to nonbank financial institutions, such as exchange houses, money transmitters, brokerage houses, and check-cashing services; 10. take steps to ensure that the recommendations are implemented to cover not only banks, but also nonbank financial institutions; and 11. consider developing a list of nonbank financial institutions dealing with cash so that members can make them subject to these recommendations.
FATF recommended that financial institutions take the following actions: 12. eliminate anonymous accounts and identify and record the identity of clients; 13. identify the true beneficiary of an account; 14. for at least 5 years, maintain records that can be used in money-laundering investigations of domestic and international transactions; 15. pay special attention to complex, unusual, and large transactions and unusual patterns of transactions that have no apparent economic or visible, lawful purpose; 16. permit or require financial institutions to report suspicious transactions. Protect the institutions from criminal and civil liability for disclosing information on their clients when they suspect the client is engaging in a criminal activity; 17. do not permit financial institutions to warn customers about transaction reporting; 18. comply with instructions from competent authorities on steps to take when reporting suspicious transactions; 19. when no requirement to report suspicious transactions exists, deny assistance to customers possibly executing suspicious transactions, and close their accounts; 20. develop programs against money laundering; and 21. pay special attention to business from countries that have not adopted or have insufficiently adopted the 40 recommendations; FATF recommended that individual countries take the following actions: 22. apply FATF recommendations to financial institutions’ branches and subsidiaries located abroad; 23. study the feasibility of detecting large international movements of cash at borders; 24. consider the feasibility of reporting to a national agency all domestic and international transactions above a fixed amount; and 25. encourage countries to develop modern and secure money-management methods, such as checks or direct deposits, to possibly isolate money launderers, who tend to use cash.
FATF recommended that regulatory and administrative authorities take the following actions: 26. ensure that supervised institutions have adequate money laundering programs; 27. designate authorities in other professions dealing with cash to also be held accountable to the recommendations; 28. establish guidelines to assist financial institutions in detecting suspicious transactions that could relate to money laundering; and 29. guard against control of financial institutions by criminals or their confederates.
FATF recommended that national administrations, including law enforcement agencies, financial institutions, and financial institution regulators and supervisors, take the following actions: 30. consider recording in the aggregate international flows of cash and 31. designate international authorities to gather and disseminate information on money-laundering developments.
FATF recommended that countries take the following actions: 32. cooperate to exchange information on suspicious transactions, persons, and corporations; 33. ensure, on a bilateral or multilateral basis, that variances in standards do not affect mutual legal assistance; 34. support international cooperation with a network of agreements based on generally shared legal concepts to effect mutual assistance; 35. encourage international conventions in such areas as the confiscation of proceeds from criminal activity; 36. encourage cooperation between countries’ law enforcement and bank regulatory agencies in money-laundering investigations; 37. establish procedures for mutual assistance in money-laundering investigations and prosecutions; 38. ensure means to respond expeditiously to foreign requests to identify, seize, freeze, and confiscate proceeds or other property of money-laundering activities; 39. consider mechanisms to facilitate prosecution of defendants charged with money laundering in more than one jurisdiction; and 40. establish procedures to extradite individuals charged with money laundering.
section_title: Some U.S. and International Initiatives to Detect Money Laundering Through Wire Transfers
paragraphs: Various U.S. agencies, such as the Office of Technology Assessment(OTA), the Federal Reserve Board (FRB), and the Financial Crimes Enforcement Network (FinCEN), and international organizations such as FATF, are working on or have developed initiatives to prevent money laundering through wire transfers. These initiatives have been developed as money launderers have continued to exploit wire transfers to move their illicit funds.
subsections: section_title: Money Launderers’ Use of Wire Transfers
paragraphs: According to FinCEN, money launderers have found that wire transfers are an integral means by which to move their funds around the world because wire transfers are a quick, easy, efficient, and reliable method of transferring funds. Wire transfers take on various forms. In their simplest form, wire transfers can involve individuals calling, faxing, or sending a wire message to a friend instructing payment to another party. More complex wire transfers involve using remittance corporations (money transmitters), such as Western Union, to wire money to another party.
The most complex and largest wire transfer systems, in terms of U.S. dollars moved, are the Clearing House Interbank Payments System (CHIPS), the Society for Worldwide Interbank Financial Telecommunication (SWIFT), and Fedwire. These are the systems for which regulators in the United States and other countries, and FATF, are developing initiatives to detect and analyze money laundering.
section_title: The OTA Wire Transfer Initiative
paragraphs: At the request of the Permanent Subcommittee on Investigations, the Senate Committee on Governmental Affairs, OTA studied the feasibility of developing a computer model to monitor wire transfers as they take place—referred to as a “real time” model—for money laundering.
However, according to OTA officials, various factors made it infeasible to develop such a “real time” model.
The sheer volume of wire transfers makes it difficult to monitor accounts.
For example, in 1994, the daily dollar volume through Fedwire and CHIPS was $800 billion and $1 trillion, respectively.
The information contained on wire transfer records is insufficient for law enforcement agencies to build a case. Regulators from the United States, other countries, and FATF are currently working on initiatives to improve the type of information contained on wire transfer records.
Government agencies do not have sufficient knowledge of how money launderers use wire transfers.
Bankers, regulators, and law enforcement agents find it extremely difficult to distinguish legitimate wire transfers from illegitimate transfers. Money launderers continue to develop ingenious schemes to use wire transfers to make their funds appear legitimate. OTA officials indicated that law enforcement agents would need to supplement wire transfer information with other information on an account to determine whether the wire transfer transaction could be illegitimate.
According to OTA, while the “real time” computer model was infeasible, a modified model could be implemented. This model would require FinCEN to extract wire transfer records from financial institutions and combine this information with a FinCEN database. This model would not be in real time, but it would use additional information from FinCEN that could help law enforcement agents distinguish legitimate from illegitimate wire transfers. The major problem with implementing this modified model, according to OTA, is that Congress might have to change legislation to allow greater access to wire transfer records.
section_title: FRB Wire Transfer Initiative
paragraphs: FRB has developed the capability to electronically scan the most recent 180 days of wire transfers over Fedwire for customers identified by law enforcement as potentially engaging in money laundering. According to FRB officials, due to the computing resources required and the daily volume over Fedwire, they cannot retrieve the information from Fedwire on a “real-time” basis, but rather must conduct searches after the close of the regular business day. Another step FRB must take is to ensure that requests from law enforcement agencies to scan Fedwire do not violate a customer’s right to financial privacy. Access by law enforcement to information from Fedwire is controlled by title II of the Electronic Communications Privacy Act (P.L. 99-508, Oct. 21, 1986). According to an FRB official, FRB has rarely used this scanning capability because of the difficulty in obtaining a search warrant to scan Fedwire for customer transactions.
FRB is also undertaking an initiative to increase the amount of information contained in Fedwire’s record format. According to FRB officials, the initiative will include, among other things, additional information on the originator and beneficiary of the wire transfer. This new format is to be implemented by the end of 1997 and may be useful to law enforcement agencies in money-laundering investigations, according to FRB officials.
section_title: FinCEN Wire Transfer Initiatives
paragraphs: FinCEN is involved in a variety of wire transfer initiatives, including making presentations to U.S. banking regulators, financial institutions, law enforcement agencies, state agencies, and others on the fundamentals of wire transfers and schemes that money launderers use to move their funds through the wire transfer systems. For example, FinCEN has developed a report on the use of remittance corporations for money laundering. FinCEN also assists other U.S. agencies that are working on wire transfer initiatives. In addition, FinCEN played a large role in obtaining feedback from financial institutions to arrive at the final version of the new wire transfer regulations. These new regulations, which the Treasury jointly published with the bank regulatory agencies, go into effect on May 28, 1996, and will require financial institutions to maintain records for 5 years on certain wire transfers of $3,000 or more.
section_title: Multilateral Wire Transfer Initiatives Through SWIFT and CHIPS
paragraphs: FATF and some of its member countries have requested that CHIPS and SWIFT ask their member financial institutions to record sufficient information on wire transfers to identify the originator of these transfers. These activities are part of an ongoing FATF effort to control money laundering through wire transfers. According to FinCEN officials, SWIFT users have sometimes identified the originator as “our good customer” instead of providing the name of the originator. FATF and others have encouraged SWIFT users to be as specific as possible on identifying who originated the wire transfer. U.S. and British regulators have also worked with CHIPS to identify money-laundering schemes and improve information contained in the wire transfer record. The Bank of England encouraged CHIPS to create a new data-entry point in the wire transfer record that would identify the depositor in the transaction.
section_title: The Department of State Concerns Regarding Financial Crimes and Money Laundering, in 1995
paragraphs: The Department of State’s International Narcotics Control and Strategy Report of March 1995 included a list of international money-laundering concerns for 1995 and beyond. A summary of some of these concerns follows:
Over 100 governments have ratified the 1988 Vienna Convention. However, these countries do not enforce the Vienna Convention’s anti-money-laundering provisions in the same manner, thus contributing to the continued high level of global financial crime.
Too many governments place limitations on money-laundering countermeasures, particularly the requirement that the offense of money laundering must be predicated upon conviction for a drug-trafficking offense.
Too many governments still refuse to share information about financial transactions with other governments to facilitate international money-laundering investigations.
Governments and multilateral organizations need to improve communication on money-laundering schemes.
Criminals have developed techniques beyond wire transfers to hide the source of their funds. Some techniques involve using a seemingly endless variety of licit and illicit financial instruments, including letters of credit, bonds and other securities, prime bank notes, and guarantees.
Governments have developed few anti-money-laundering controls on wire transfers. This problem is compounded by the fact that these transfers are coming increasingly from banks in countries with inadequate money-laundering controls.
Direct access banking (favored customers are given the bank’s software and allowed to process transactions directly through their accounts) and pass-through banking limit the bank’s ability to monitor account activity.
Countries with financial systems that need capital may place less emphasis on prudent banking practices and safeguards. These countries may also be vulnerable to overt and covert takeovers of financial institutions by criminal groups.
Nonbank financial systems (exchange houses, brokerage houses, check-cashing services, etc.) are still unevenly regulated in most parts of the world. These institutions in the United States will be subject to federal regulation when new U.S. regulations are issued.
An increasing number of countries outlaw money laundering and allow the forfeiture of assets, but many remain obliged to inform account holders that the government is investigating them and may take action against their accounts—giving criminals time to move assets and leave town.
There is an urgent need to impose corporate as well as individual sanctions against financial institutions that repeatedly fail to take prudent measures to prevent their institutions from being used to launder money.
Financial institutions’ branches, subsidiaries, and other foreign operations continue to figure prominently in money-laundering and financial crimes. Bank management needs to ensure that the governments and regulatory agencies in all countries/territories they serve are enforcing the same high standards as their charter governments.
Countries that cooperate on money-laundering investigations and prosecutions need to share forfeited proceeds so as to equitably reflect their respective contributions.
section_title: Comments From the Department of the Treasury
paragraphs: The following are GAO’s comments on the Department of the Treasury’s letter dated March 25, 1996.
subsections: section_title: GAO’s Comments
paragraphs: 1. The Department of the Treasury indicated that money laundering prevention and detection involves a two-pronged approach consisting of civil regulation and criminal enforcement. We have revised this report to include the Treasury’s description of the U.S. approach. 2. The Department of the Treasury noted that federal statutes mandating currency reporting requirements and criminalizing money laundering have been in existence since the 1970s. Our report noted that the 1970 Bank Secrecy Act mandated, among other things, the currency transaction report (CTR), however, we have revised this report to include a description of other reports beyond the CTR. We have also revised this report to include a description of the 1986 Money Laundering Control Act, which made the act of money laundering a crime. 3. The Department of the Treasury indicated that money-laundering investigations are complex and international in scope, requiring the cooperation and coordination of federal, state, and local law enforcement agencies. We note in this report that numerous law enforcement agencies are involved in criminal investigations involving money laundering. We focus on federal agencies in this report because they are the primary agencies involved in overseas money-laundering cases. The Department of the Treasury also pointed out that federal agencies have established executive agreements to ensure that domestic and international money-laundering investigations are coordinated. We acknowledge these agreements; however, we also discuss concerns expressed to us about U.S. law enforcement coordination on criminal investigations involving money laundering. 4. The Department of the Treasury indicated that our list of FATF outreach efforts was incomplete. We have revised this report to include FATF’s additional outreach efforts.
section_title: Comments From the Department of Justice
paragraphs: The following are GAO’s comments on the Department of Justice’s letter dated February 20, 1996.
subsections: section_title: GAO’s Comments
paragraphs: 1. The Department of Justice stated that there are other cash reporting requirements under the Bank Secrecy Act (BSA) in addition to the currency transaction report (CTR). It also stated that BSA requirements go well beyond cash transaction reporting to include requirements that financial institutions maintain BSA compliance programs. We have revised the text to include a description of these other cash reporting requirements and of BSA compliance programs that regulators require financial institutions to maintain. 2. The Department of Justice pointed out that law enforcement investigation of crimes associated with money laundering and law enforcement intelligence sharing identify the majority of the money-laundering offenses and are among the most productive ways to detect money-laundering offenses. This report points out that law enforcement investigations of crimes associated with money laundering and intelligence sharing are among the methods used to combat money laundering. However, the scope of our work did not include a review of the effectiveness of various tools and methods U.S. law enforcement agencies use to detect domestic and international money laundering. 3. The Department of Justice stated that BSA now requires nonbank financial institutions to report suspicious financial transactions and to institute anti-money-laundering programs. Under the Annunzio-Wylie Anti-Money-Laundering Act of 1992, the Secretary of the Treasury was authorized to require financial institutions to report suspicious transactions and adopt anti-money-laundering programs. We have not assessed the extent to which nonbank financial institutions have adopted anti-money-laundering programs. However, it is important to note that while recent regulations require banks and other depository institutions to report suspicious transactions, similar regulations for nonbank financial institutions have not been finalized. 4. The Department of Justice agreed with our assessment that FATF is the preeminent international body specializing in the fight against money laundering. However, Justice pointed out that the United States is involved in several other international initiatives to combat money laundering. These initiatives include the Organization of American States, the Annual Asian Money-Laundering Symposium, and the Summit of the Americas. We have revised the draft to include descriptions of some international initiatives beyond FATF, including a description of the Summit of the Americas.
section_title: Comments From the Department of State
paragraphs: The following are GAO’s comments on the Department of State’s letter dated March 11, 1996.
subsections: section_title: GAO’s Comments
paragraphs: 1. The Department of State pointed out that our focus on money-laundering issues in the seven European countries we visited is not representative of money-laundering issues in different parts of the world, such as the Caribbean, Asia, and Africa. We recognize that the money-laundering issues in the European countries we visited may be different from those in other parts of the world. As we note in this report, our scope was limited to these seven countries in order to also conduct our concurrent work on counterfeit currency. On the basis of our discussions with banking regulators and Treasury and Justice officials, certain issues we discuss are relevant to other parts of the world. For example, the issues related to U.S. banking regulators’ oversight of U.S. overseas branches’ anti-money-laundering controls would also be applicable to other countries besides the seven European countries we visited. Likewise, our discussion on FATF efforts expands beyond those of the European countries we visited. Nevertheless, we revised the report to include more recent U.S. international initiatives that focus on different parts of the world, such as the Summit of the Americas. 2. The Department of State commented that in certain sections of this report, we suggest problems in U.S. efforts to combat money laundering overseas and that we do not substantiate instances where these problems have prevented the enforcement of U.S. laws. As an example, they pointed out that we suggest that U.S. regulators are routinely denied opportunities to examine U.S. overseas branches for compliance with U.S. anti-money-laundering laws, but that we do not substantiate instances where these problems have interfered with or prevented the enforcement of U.S. laws. We did not intend to suggest that regulators are routinely denied opportunities to examine overseas branches, and we have revised the text to ensure that there is no such inference. Also, we have revised the text to more clearly state that in some countries, U.S. regulators are prevented from conducting on-site examinations of U.S. bank branches. The Department of State further noted that even in countries in which U.S. regulators conduct on-site examinations of U.S. banks, they do not examine these banks to determine if they comply with U.S. anti-money-laundering laws. We agree with the Department of State and have revised this report to clarify this point. We also noted that in countries in which U.S. regulators can conduct on-site examinations of U.S. banks’ anti-money-laundering controls, these examinations are not as thorough as those in the United States. 3. The Department of State commented that our discussion on U.S. approaches to combat money laundering through financial institutions appears to imply that the Federal Reserve Board (FRB) and the Office of the Comptroller of the Currency (OCC) have lead agency responsibility for money laundering. We did not intend to imply that these two regulators are solely responsible or have lead responsibility for all U.S. anti-money-laundering efforts. We have revised our discussion on U.S. approaches to combating money-laundering through financial institutions to more clearly specify that under the Bank Secrecy Act of 1970, as amended, the regulators require that financial institutions maintain and file certain records as well as develop money-laundering compliance programs, including “know your customer” policies. As we note in this report, U.S. law enforcement agencies play a key role in investigating crimes involving money laundering. However, we did not review the effectiveness of various tools and methods they use to detect domestic and international money laundering such as undercover operations, “stings,” informants, and wiretaps. 4. The Department of State pointed out that both law enforcement agencies and regulators have begun to rely more on “know your customer” policies and the reporting of suspicious transactions. We have revised the text to acknowledge that both law enforcement agencies and regulators, under BSA, are expected to rely more on the reporting of suspicious transactions. 5. The Department of State commented that our description of the European Union (EU) Directive could be read to suggest that the EU countries followed the U.S.’ lead in drafting the directive. We have revised our discussion to specify that the EU Directive was patterned after anti-money-laundering recommendations adopted by FATF. 6. The Department of State indicated that the draft gave the erroneous impression of European CTR reporting in several instances. The Department of State further commented that only two countries (the United States and Australia) require routine reporting of currency transactions. We revised the text to clarify that West European countries we visited require recording large currency transactions and that Italy also requires routine reporting of currency transactions. 7. The Department of State commented that our discussion on U.S. regulators’ oversight of overseas branches of U.S. banks can be read to suggest that cooperation with Switzerland is a problem. We have revised the text to more explicitly state that U.S. regulators cannot conduct on-site examinations of U.S. banks in countries with strict bank secrecy laws such as Switzerland. We discuss several other measures, such as exchanges of bank examinations among regulators, that U.S. regulators can use to assess U.S. branches’ anti-money-laundering controls in countries such as Switzerland. However, we did not assess the effectiveness of such measures. 8. The Department of State commented that we may be unduly negative about FATF because we mention two members who expressed concerns about the direction of FATF. We did not intend to be unduly negative of FATF and have revised the text. To add balance, we revised the text to add information on more recent FATF initiatives that focus on the identification and dissemination of current and emerging money-laundering schemes. 9. The Department of State noted that our discussion on the U.S. presidency of FATF could suggest that the United States initiated (1) FATF’s monitoring of members’ new laws, (2) FATF’s efforts to identify new money-laundering schemes, and (3) FATF’s external relations. We have revised the text to better reflect the role that the United States has played during its tenure as president, which is to build upon those efforts that FATF initiated over the past few years. 10. The Department of State pointed out that we do not explain the underlying reason why the United States has one approach to combat money laundering through financial institutions while other countries have a different approach. We focused our efforts on becoming familiar with and describing the U.S. and European approaches rather than focusing on determining the underlying reasons why the United States and Europe adopted their respective approaches. 11. The Department of State noted that our footnote on Switzerland’s role in adopting the EU Directive was potentially misleading. We have revised the footnote to more accurately describe Switzerland’s role. 12. The Department of State indicated that our statement that U.S. regulators cannot exchange information requested for law enforcement purposes may be incorrect. We have revised this report to focus only on the procedures for the exchange of supervisory and examination information between U.S. regulators and foreign counterparts, as described in OCC document PPM-5500-1, dated May 25, 1993. We did not review policies and procedures U.S. banking regulators and their foreign counterparts follow for the exchange of information for law enforcement purposes.
section_title: Comments From the Office of the Comptroller of the Currency
section_title: Comments From the Federal Reserve Board
paragraphs: The following are GAO’s comments on the Federal Reserve Board’s letter dated January 31, 1996.
subsections: section_title: GAO’s Comments
paragraphs: 1. FRB provided us with information on several of its more recent anti-money-laundering initiatives that were not covered in our draft. These initiatives include new examination procedures for overseas branches of U.S. banks, new wire transfer regulations, and new efforts to expand the information contained in Fedwire records. We have revised this report to include a description of these efforts. 2. FRB said that our statement, in the draft of this report, that it was forced to stop the scanning initiative of Fedwire is erroneous. In a subsequent discussion, an FRB official clarified FRB’s position on this matter. He told us that for all practical purposes the scanning program is not used because of the difficulty in obtaining a search warrant required to get individual records from Fedwire. We have revised this report to reflect the clarified FRB position on the use of the scanning initiative.
section_title: Major Contributors to This Report
subsections: section_title: Headquarters, Washington, D.C.
section_title: Office of the General Counsel, Washington, D.C.
section_title: San Francisco/Seattle Field Offices
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