International Financial Crime: Treasury's Roles and Responsibilities Relating to Selected Provisions of the USA PATRIOT Act
Released: 2006-06-12T00:00:00

Letter

Background

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.

Treasury Department Has a Key Role in Promoting International Cooperation 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 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.

The Congress Has Encouraged International Cooperative Efforts

“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.

Treasury and the Interagency Community Engage in Multilateral Efforts to Promote International Cooperation

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.

Treasury Views Section 330 as a Congressional Endorsement of Long- standing U.S. Government Policy and a Stimulus for Continued Efforts

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.

Treasury Considers Section 311 as Particularly Relevant for Negotiating with Foreign Jurisdictions

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.

Enhancing the Capabilities of Financial Intelligence Units Is a Continuing Challenge

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.

The Number of Financial Intelligence Units Has Increased Significantly Since 1995

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.

Growth in the Number of Financial Intelligence Units Is Attributable to Various Reasons

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.

Capabilities of Financial Intelligence Units: Some Aspects Are Covered in Assessments of Compliance with FATF Recommendations

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.

Dealing with FIU Shortcomings or Noncompliance with Standards Is a Responsibility of the Egmont Group

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.

FinCEN Is Taking Various Actions to Maximize Its Performance as a Global Partner, but More Comprehensive Feedback from Financial Intelligence Units Would Be Useful

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.

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

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.

Modernizing the Egmont Secure Web: Technology Is Critical to Information Sharing, a Core Function of Financial Intelligence Units

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.

Management Information and Customer Feedback Are Important Tools for Monitoring and Improving Performance

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.

Case Management: New Information System Being Developed to Better Manage Requests for Assistance

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.

Customer Satisfaction Survey of Financial Intelligence Units: Limited Coverage and Low Response Rate

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.

Conclusions

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.

Recommendation for Executive Action

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.

Agency Comments and Our Evaluation

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.

Appendix I: Objectives, Scope, and Methodology

Objectives

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?

Scope and Methodology

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.

Treasury Department Efforts to Accomplish Goals Articulated under Section 330 of the USA PATRIOT Act

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.

FinCEN Contributions to Establishing FIUs in Foreign Countries and Enhancing Their Capabilities

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.

Actions FinCEN Is Taking to Maximize Its Performance as a Global Partner in Combating Money Laundering and Terrorist Financing

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.

Data Reliability

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.

Appendix II: Financial Action Task Force and Related Regional Bodies

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.

The Financial Action Task Force and Related Regional Bodies Encompass Member Jurisdictions around the Globe

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.

FATF Recommendations Provide a Set of Countermeasures against Money Laundering and Terrorist Financing

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.

A Widely Adopted Methodology Is Used for Monitoring Compliance with Financial Action Task Force Recommendations

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.

Appendix III: The Egmont Group of Financial Intelligence Units

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).

The Egmont Group of Financial Intelligence Units Has Grown Significantly since 1995

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).

The Egmont Group Provides a Network for Exchanging Information

“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.”