Combating Illicit Financing: Treasury's Office of Terrorism and Financial Intelligence Could Manage More Effectively to Achieve Its Mission
Released: 2009-10-26T00:00:00

Letter

Background

After the September 11, 2001, terrorist attacks, Congress passed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, which amended and broadened the scope of the Bank Secrecy Act (BSA) to include additional financial industry sectors and a focus on the financing of terrorism. Subsequently, Congress passed the Intelligence Authorization Act for 2004, which established Treasury’s Office of Intelligence and Analysis (OIA). OIA is a member of the Intelligence Community, as defined under Executive Order 12333, as amended. The Intelligence Reform and Terrorism Prevention Act of 2004 identified the Secretary of the Treasury or his or her designee as the lead U.S. government official to the Financial Action Task Force (FATF), to continue to convene an interagency working group on FATF issues. TFI’s mission is to marshal Treasury’s policy, enforcement, regulatory, and intelligence functions in order to safeguard the U.S. financial system from abuse and sever the lines of financial support to international terrorists, WMD proliferators, narcotics traffickers, money launderers, and other threats to U.S. national security.

The formation of TFI combined both existing and new units of Treasury. Five key components are included under the umbrella of TFI: Office of Foreign Assets Control (OFAC), formed in 1950, administers and enforces sanctions.

Financial Crimes Enforcement Network (FinCEN), formed in 1990, administers and enforces the BSA and serves as the United States’ financial intelligence unit (FIU).

Treasury Executive Office for Asset Forfeiture (TEOAF), formed in 1992, administers the Treasury Forfeiture Fund—the receipt account for the deposit of non-tax forfeitures made by member agencies.

Office of Terrorist Financing and Financial Crimes (TFFC), established in 2004, serves as TFI’s policy and outreach arm.

OIA, also established in 2004, performs Treasury’s intelligence functions, integrating Treasury into the larger Intelligence Community, and providing intelligence support to Treasury leadership.

FinCEN is a Treasury bureau; the other four components are offices within TFI, which is a part of Treasury’s structure of departmental offices. Figure 1 shows TFI’s current organizational structure.

To achieve its mission, TFI components often work with the following: Other U.S. government agencies. For instance, OFAC works with State and Justice, among others, to designate individuals and organizations under 21 separate sanctions programs. TFFC also works with State, Justice, and other agencies in developing and advocating a U.S. position in international forums related to money laundering and illicit financing. In addition, TEOAF works with State and Justice to administer sharing of large case forfeiture proceeds with foreign governments, pursuant to international treaties, whose law enforcement personnel cooperated with U.S. federal investigations.

Other TFI components. For example, OIA provides information to OFAC to assist in making decisions regarding whether to pursue designations of individuals and organizations. For completed designations, OIA also works with OFAC to declassify intelligence information for public dissemination.

Private sector. For example, in its role as the Secretary’s delegated administrator of the BSA, FinCEN regularly interacts with the private sector, including the financial sector. One such mechanism for maintaining formal ties to the private sector is Treasury’s BSA Advisory Group. FinCEN also conducts informal consultations with financial institutions regarding their individual financial intelligence efforts.

Foreign governments and international organizations. Treasury heads the U.S. delegation to the FATF, an international body that develops and implements multilateral standards relating to anti-money laundering and counterterrorist financing. TFFC leads this effort on behalf of Treasury. Similarly, FinCEN works with foreign governments to develop and strengthen capabilities of their FIUs as well as to respond to requests for assistance from foreign FIUs, which totaled more than 1,000 in fiscal year 2008.

As shown in figure 2, the size of TFI’s staff has grown from approximately 500 in fiscal year 2005 to approximately 650 in fiscal year 2008. FinCEN, with 299 full-time equivalents (FTE) in fiscal year 2008, is TFI’s largest component, and OIA gained the most staff—90—from fiscal years 2005 through 2008.

As shown in figure 3, TFI’s budget has grown from approximately $110 million in fiscal year 2005 to approximately $140 million in fiscal year 2008. With a budget of approximately $86 million, FinCEN has the largest budget of any TFI component. In addition, OIA’s budget has grown at the greatest rate, from about $9 million in fiscal year 2005 to about $20 million in fiscal year 2008.

TFI Performs Five Functions to Fulfill Its Mission, but Agencies Differ about the Quality of Some Interagency Collaboration

According to TFI, it undertakes five functions in order to achieve its mission. Officials from TFI and its interagency partners cited strong collaboration with TFI in several areas, but differ about the quality of collaboration regarding U.S. participation in some international forums.

TFI Performs Five Functions to Fulfill Its Mission

According to TFI, it undertakes five functions to safeguard the financial system from illicit use and to combat rogue nations, terrorist supporters, WMD proliferators, money launderers, drug kingpins, and other national security threats. These functions are (1) building international coalitions, (2) analyzing financial intelligence, (3) administering and enforcing the BSA, (4) administering and enforcing sanctions, and (5) administering forfeited funds.

Building International Coalitions

TFI employs two primary means to build international coalitions to support U.S. national security interests. These are deepening engagement in international forums and improving international partners’ capacity.

Deepening engagement in international forums. TFI and other U.S. agencies participate in several international organizations intended to strengthen the international financial system so that it cannot be exploited by criminal networks. Two examples are the FATF and the Egmont Group. TFFC leads the U.S. delegation to the FATF, while FinCEN leads U.S. participation in the Egmont Group. According to TFI officials, U.S. participation in such organizations provides a unique opportunity to engage with international counterparts in the effort to develop international standards and a framework for countries to implement legal regimes that protect the international financial system from abuse.

TFI also uses international forums to advance the U.S. agenda in areas such as nonproliferation. For example, according to TFI, it has been working closely with other G-7 countries to determine what steps can be taken to isolate proliferators from the international financial system through multilateral action. For instance, according to TFI officials, they are working with State to encourage the more than 85 countries that participate in the Proliferation Security Initiative to use financial measures to combat proliferation support networks.

In addition to playing a leadership role in these organizations and forums, TFI officials report that they are also working to expand these organizations’ membership so as to broaden the reach of international financial standards. For example, as of March 2009, FinCEN was sponsoring 12 countries’ membership in the Egmont Group, including Afghanistan, Saudi Arabia, Pakistan, and Yemen. According to FinCEN officials, the addition of such new members will greatly strengthen FinCEN’s ability to obtain valuable information related to the activities of illicit financial networks.

Improving international partners’ capacity. As part of TFI, FinCEN has made engagement with foreign FIUs in the detection and deterrence of crime one of its strategic objectives. To accomplish this objective, FinCEN has undertaken a variety of efforts to strengthen the global network of FIUs. For example, according to FinCEN officials, they engage in a variety of cooperative efforts with other FIUs aimed at fostering productive working relationships and best practices. In addition, according to TFI officials, they participate in mutual evaluation studies, as part of its participation in the FATF, to identify measures to improve other FATF members’ regulatory regimes related to combating money laundering and terrorist financing. For example, in fiscal year 2008, the FATF performed six mutual evaluations; the United States delegation, led by TFFC, sent representatives to serve as assessors for four of these mutual evaluations.

Analyzing Financial Intelligence

TFI officials cite OIA’s analysis of financial intelligence as a critical part of TFI’s efforts because it underlies TFI’s ability to utilize many of its tools. The first step in disrupting and dismantling illicit financial networks is identifying those networks, according to TFI officials. They said that the creation of OIA was critical to TFI’s ability to effectively identify these illicit financial networks. As a member of the broader intelligence community, OIA performs analysis of intelligence information related to national security threats with a view toward potential action and utilization of tools available to TFI. Staff in other TFI components and TFI management then use this intelligence analysis to draft papers to implement such strategies or actions.

In addition, TFI utilizes intelligence analysis to assess the impact of the actions it takes. For example, according to the Under Secretary for TFI, intelligence analysts have assessed the impact of previous financial actions taken to address the national security threat posed by North Korea. Those assessments were then used to shape the U.S. policy response to the most recent missile and nuclear tests by North Korea.

Administering and Enforcing the BSA

According to TFI officials, FinCEN’s administration of the BSA plays a key role in TFI’s ability to achieve its mission. The BSA includes a variety of reporting and record-keeping requirements that provide useful information to law enforcement and regulatory agencies. For example, pursuant to the BSA, Treasury (FinCEN) requires financial institutions to report suspicious financial activities relevant to a possible violation of law. Such suspicious activity reports (SAR) are then analyzed by FinCEN and made available to the law enforcement and regulatory communities. In 2007, financial institutions filed nearly 1.3 million SARs, which federal, state, and local law enforcement agencies use in their investigations of money laundering, terrorist financing, and other financial crimes.

The BSA, as amended by the USA PATRIOT Act, also grants Treasury additional authorities, which are delegated to FinCEN, to combat money laundering and terrorist financing. For example, Section 311 of the USA PATRIOT Act amended the BSA to provide an additional tool to safeguard the U.S. financial system from illicit foreign financial institutions and networks. According to TFI officials, Section 311 is an important and extraordinarily powerful tool, as it authorizes Treasury to find a foreign jurisdiction, foreign financial institution, type of account, or class of transaction as being of “primary money laundering concern.” Such a finding enables Treasury to impose a range of special measures that U.S. financial institutions must take to protect against illicit financing risks posed by the target. These special measures range from enhanced record- keeping and reporting requirements up to prohibiting U.S. financial institutions from maintaining certain accounts for foreign banks if they involve foreign jurisdictions or institutions found to be of primary money laundering concern.

Administering and Enforcing Sanctions

The imposition of economic sanctions has been a long-standing tool for addressing a range of national security threats. OFAC currently maintains primary responsibility for administering more than 20 separate sanctions programs. (See app. II for a list of current U.S. sanctions programs.) These sanctions programs fall into two categories: (1) country-based programs that apply sanctions to an entire country—such as Cuba, Iran, or Sudan— and (2) targeted, list-based programs that address individuals or entities engaged in specific types of activities such as terrorism, WMD proliferation, or narcotics trafficking. For example, according to TFI officials, they use the authorities under the International Emergency Economic Powers Act and Executive Order 13224 to designate those who provide support to terrorists, freezing any assets they have under U.S. jurisdiction and preventing U.S. persons from doing business with them. From fiscal years 2004 through 2008, Treasury designated or supported the designation of more than 1,900 individuals and organizations under various sanctions programs.

To help ensure compliance with U.S. sanctions programs, Treasury also has the authority to impose civil penalties on individuals and organizations that violate U.S. sanctions. From 2004 through 2008, OFAC imposed more than 1,500 civil penalties related to violations of its sanctions programs. As a result, OFAC assessed nearly $15 million in penalties.

Administering Forfeited Funds

According to TEOAF, an important tool in the U.S. fight against money laundering is asset forfeiture. Forfeiture assists in the achievement of TFI’s mission in two ways. First, asset forfeiture strips away the profit from illegal activity, thus making it less attractive. According to TEOAF, in fiscal year 2008 it received more than $500 million in total forfeiture revenue; the majority, after net expenses, came from forfeitures processed by Immigration and Customs Enforcement and the Internal Revenue Service–Criminal Investigation. Second, according to the Director of TEOAF, the revenue derived from such forfeited assets can be used to fund federal law enforcement activities, including initiatives directed at further combating illicit financing networks. For example, in fiscal year 2008, TEOAF provided approximately $1 million in funding to Immigration and Customs Enforcement to provide training to international partners. Specifically, the funding was provided to allow the expansion of existing training activities to assist in combating bulk cash smuggling by terrorist groups and other criminal networks.

Despite General Approval of Interagency Collaboration with TFI, Agencies Differ on Quality of Collaboration for International Forums

Collaborating with interagency partners is important to TFI’s ability to perform effectively. Many of the tools TFI utilizes to combat national security threats involve multiple agencies reviewing the proposed action. For example, according to Treasury officials, they consult with officials from State, Justice, and the Department of Homeland Security on decisions to designate individuals or organizations that support terrorism. In addition, other tools, such as advocating actions to strengthen the international financial system through the FATF, benefit from the expertise and input from collaboration with a variety of agencies, including State, Justice, the Securities and Exchange Commission, the Department of Homeland Security, and others. Prior GAO work has identified several practices that can enhance and sustain such interagency collaboration. One such practice is establishing compatible policies, procedures, and other means to operate across agency boundaries.

Another practice is developing a mechanism for monitoring, evaluating, and reporting on the results of collaborative efforts.

Officials at TFI and other agencies said that they generally are satisfied with the quality of interagency collaboration. TFI’s interagency partners report close, collaborative relationships in many situations. For example, State officials told us that they have strong working relationships with officials in almost all TFI components. They highlighted their collaboration with TFI during the designation process and suggested that it is generally effective. These officials commented that if State has information from its embassies abroad that indicates that a specific designation would be particularly damaging to U.S. foreign policy interests, they relay this information to Treasury and discuss alternative approaches. State officials added that the designation process operates effectively, even when agencies may have disagreements over a particular designation, because the National Security Council leads a process to coordinate terrorism designations. It serves as an impartial arbiter that prevents any single agency from exerting too much influence. In addition, Justice officials described a strong working relationship with FinCEN regarding asset forfeiture and money laundering issues. Specifically, they recounted effective communication and information sharing. For example, Justice officials told us that FinCEN has granted Justice access to BSA data, thus allowing Justice to perform its own analyses for law enforcement purposes. Additionally, Justice officials said that FinCEN has helped them utilize its network of international contacts at other countries’ FIUs.

However, TFI’s interagency partners have expressed concerns regarding collaboration in other areas. For example, in September 2008, we reported that State and Justice expressed concerns regarding Treasury’s consultations with them when implementing Section 311 of the USA PATRIOT Act. In addition, TFI and other agencies’ officials differed about the effectiveness of interagency collaboration for the function of building international coalitions, particularly when participating in the international forums of the FATF and FATF-Style Regional Bodies (FSRB). On the one hand, TFFC officials suggest that interagency collaboration regarding the FATF and FSRBs has been highly effective over the past 5 years and that Treasury’s ability to effectively lead the U.S. delegation has been greatly strengthened by the participation of a wide variety of regulatory, law enforcement, and other agencies. The Deputy Assistant Secretary for Terrorist Financing and Financial Crimes added that during this time, there have been no major disagreements between agencies regarding the positions the United States should take in such international forums. TFI officials also stated that interagency collaboration runs smoothly and that they were unaware of any significant concerns regarding the quality of interagency collaboration.

Officials from State and Justice, however, indicated that the quality of interagency collaboration regarding the FATF and FSRBs has declined substantially over the past 5 years. These officials expressed two types of concerns regarding TFI’s collaboration with other agencies regarding participation in international forums: (1) the exclusion of non-Treasury personnel in key situations and (2) the extent to which TFI makes unilateral decisions regarding the U.S. government position.

With regard to TFI’s exclusion of non-Treasury personnel in key situations, TFI and other agencies differ. State and Justice officials cited several examples of situations they believe undermined U.S. effectiveness at combating illicit financing networks. For example, according to State officials, a State official who has taken the necessary training has not been allowed to participate as a member of the U.S. team conducting FATF mutual evaluations. According to these officials, this results in the exclusion of senior staff with significant experience and expertise that could benefit the evaluation teams. In response, TFFC officials indicated that they have included other agencies in the mutual evaluation process. For example, they indicated that officials from Justice and other agencies participated in at least six mutual evaluations from 2004 through 2009. According to TFI, it encourages and attempts to facilitate such participation by other agency officials who have attended the necessary 1- week training course and whose agencies will pay for their travel to foreign countries to conduct and defend their evaluations.

Additionally, Justice officials stated that when TFI allows other agencies to review and comment on U.S. policy proposals related to anti-money laundering and counterterrorist financing, it consistently provides too little time for review. Specifically, Justice officials told us that TFI regularly provides agencies 24 hours to review and provide comments on policy proposals, which may make it impossible for agencies to conduct an appropriate review and effectively excludes them from the process. According to TFI officials, they distribute materials as soon as possible; for FATF materials this occurs within 24 hours of receiving them, though they acknowledge that they often are provided short deadlines by the FATF Secretariat. According to TFI officials, they sometimes request an extension of the deadline or submit the U.S. response late in order to obtain interagency views.

With regard to concerns about TFI’s unilateral decision making, TFI and other agencies also differed. State and Justice officials cited a situation related to the U.S. position on how to treat the European Union (as a single entity or as separate countries) for the purposes of cash-smuggling regulations. According to State and Justice officials, during interagency meetings prior to the FATF working group session at which the issue was to be discussed, a consensus U.S. position was developed. However, State and Justice officials said that at the FATF plenary meetings, Treasury officials advocated a position that was different from the consensus U.S. position agreed to in advance of the meeting. A Treasury official told us that the agency did not deviate from the consensus position agreed to before the meeting.

Justice, State, and Treasury officials said that there is no guidance specifying how the interagency process should operate to develop U.S. positions in advance of FATF meetings. Specifically, there is no guidance regarding the process or time frames for circulating or approving U.S. policy statements to be made at international meetings to discuss anti- money laundering and counterterrorist financing issues. In addition, there is no formal mechanism for monitoring, evaluating, or reporting on the results of agencies’ collaborative efforts.

According to State and Justice officials, the inconsistent quality of interagency collaboration may undermine some efforts to combat illicit financing networks through international forums. State officials suggested that the exclusion of non-Treasury personnel may mean that expertise available within the U.S. government is not effectively utilized, thus potentially weakening the United States’ ability to influence international partners’ actions. In addition, they suggested that unilateral action by Treasury in international forums may cause confusion among international partners regarding the nature of the U.S. position on key issues. On the basis of comments they received from foreign officials, Justice and State officials concluded that such confusion might weaken the United States’ ability to influence the activities of international partners. TFFC responded that it has not observed any confusion among its international partners in FATF regarding the U.S. position on key issues.

Justice and State officials did not raise similar concerns concerning FinCEN’s collaboration when participating with them on issues related to the Egmont Group. In contrast, Justice officials expressed some criticisms of more recent collaboration with OFAC on issues such as information sharing. OFAC responded that it has regular contact with Justice with respect to enforcement matters and that the two agencies have an ongoing dialogue regarding information sharing. OFAC also noted that only a small subset of its enforcement cases involve the type of knowing conduct that is appropriate for referral to criminal authorities.

TFI Has Not Clearly Aligned Its Resources with Priorities or Performed Comprehensive Workforce Planning

While TFI has conducted strategic planning activities at different levels within the organization, TFI as a unit has not fully adopted certain key practices. In particular, TFI has not clearly aligned its resources with its priorities. TFI’s strategic planning documents do not consistently integrate discussion of the resources needed to achieve TFI’s strategic objectives. In addition, TFI’s resource levels for each component cannot be clearly linked to its workload. Also, while some TFI components have taken the initiative to conduct some workforce planning activities, TFI management has not developed a process for conducting comprehensive strategic workforce planning.

TFI Has Not Clearly Aligned Its Resources with Its Priorities

Our review of TFI’s and its components’ strategic planning documents and discussions with TFI officials showed that TFI has not clearly aligned its resources with its priorities. TFI officials indicated that priorities could be identified in TFI’s strategic plan. TFI identified four relevant strategic plans: one for TFI as a whole and one each for FinCEN, OIA, and TEOAF.

Strategic plans are used to communicate what an organization seeks to achieve in the upcoming years, according to Treasury instructions. The goals and strategies presented in the plan provide a road map for both the organization and its stakeholders. Strategic plans should guide the formulation and execution of the budget as well as other decision making that shapes and guides the organization. These plans are a tool for setting priorities and allocating resources consistent with these priorities, according to Treasury. Our previous work has shown that strategic plans should clearly link goals and objectives to the resources needed to achieve them and are especially important in those cases where agencies submit a strategic plan for each of their major components and a strategic overview that under the guidance is to show the linkages among these plans. Government Performance and Results Act guidance also establishes six key elements of successful strategic plans, and Treasury’s instructions suggest plan formats.

However, we found that TFI’s and its components’ strategic plans do not consistently integrate discussion of the resources necessary to achieve TFI objectives. Specifically, we found that FinCEN’s and TEOAF’s strategic plans contain some discussion of the resources needed to achieve their objectives.

TFI’s and OIA’s strategic plans do not contain discussion of the resources needed to achieve their objectives.

OFAC and TFFC do not currently have strategic plans.

While TFI’s strategic plan includes a mission statement; a list of threats, goals, and objectives; and means and strategies, it does not include any discussion or analysis of TFI’s resource needs. Moreover, TFI’s strategic plan lists all four of its goals, and each of its means and strategies under each goal as equivalent: it does not indicate any prioritization among its various goals, means, and strategies.

The Under Secretary for TFI said that he uses the annual budget process to align resources with priorities. However, two reasons suggest why the results of the budget process do not necessarily reflect TFI’s strategic priorities. First, there are many other factors that affect the budget process that are unrelated to TFI’s priorities. The amount of resources TFI seeks is integrated into a larger Treasury budget request, which may entail modifying TFI’s request. Congress, then, may choose to provide more or less than the amount of resources to TFI that Treasury requested. Second, the annual budget process reflects priorities only for a given year, unlike strategic plans, which are intended to be multiyear documents and thus reflect longer-term priorities.

Further, the linkage between the resources allocated to each TFI component and its workload is unclear. Estimated workload measures for each of TFI’s components show a growth in workload since 2005, but it is unclear how this growth relates to resource increases. For example, one measure of FinCEN’s workload—the number of SARs it must analyze— has increased 50 percent and the number of employees in FinCEN has increased 3 percent. In addition, TEOAF has seen an 83 percent increase in the value of seized assets it manages and the number of FTEs has grown 10 percent. Further, the number of OFAC licensing actions increased 56 percent while the number of FTEs grew 18 percent. Additionally, OIA experienced a more than 500 percent increase in intelligence taskings from 2006 to 2008 and has received a 200 percent increase in FTEs. Finally, TFFC estimates that its workload related to developing policy papers, legislative and rulemaking papers, trips, and public outreach events increased between 100 and 200 percent from 2005 to 2009; its FTEs grew nearly 80 percent from 2005 to 2008.

According to TFI officials, their ability to allocate resources to their highest priorities is constrained in some circumstances. The Under Secretary and other TFI officials identified activities related to Iran and North Korea as persistent priorities. However, OFAC officials noted that in spite of the importance of Iran- and North Korea-related activities, they must expend a significant amount of resources on implementing the Cuba embargo. With regard to acting on specific licensing requests for exports and travel to Cuba, according to OFAC officials, they have little flexibility under the law. OFAC is required to process all license applications that it receives. For 2005 through 2008, this amounted to more than 200,000 licensing actions—more than 95 percent of which related to the Cuba program. In 2008 alone, OFAC responded to nearly 60,000 licensing requests related to the Cuba travel program. OFAC officials characterized this situation as a resource burden.

In contrast, according to OFAC officials, they have some flexibility regarding how they enforce the Cuba sanctions program, for example, through the assessment of civil penalties for violations. According to OFAC officials, for many years (through 2005), OFAC assessed a large number of civil penalties related to the Cuba travel regulations. As violations of these regulations have a relatively small financial penalty associated with them, the average penalty amount was relatively low. Since 2006, according to OFAC officials, they have consciously utilized the flexibility they are allowed in order to dedicate their enforcement resources to higher-value areas (e.g., those related to trade with Cuba, Iran, and North Korea). As a result, the number of penalties assessed annually related to the Cuba sanctions program has dropped significantly, from 498 in 2005 to 46 in 2008. At the same time, the average value of OFAC’s civil penalties for violations of all sanctions programs has increased significantly, from approximately $2,400 in 2005 to nearly $31,000 in 2008.

TFI Has Not Taken a Comprehensive Approach to Strategic Workforce Planning

Despite efforts by some components, TFI management has not yet conducted comprehensive activities to address the key principles of strategic workforce planning. According to the Under Secretary, TFI’s workforce is its greatest asset, and ensuring that it is the right size and includes the right skills is critical to TFI’s future ability to achieve its mission. Prior GAO work has identified key principles to assist agencies in conducting strategic workforce planning. Among these principles are (1) involving top management, employees, and other stakeholders in developing, communicating, and implementing the strategic workforce plan, and (2) monitoring and evaluating the agency’s progress toward its human capital goals and the contribution that human capital results have made toward achieving programmatic results.

According to TFI officials, some TFI components have taken the initiative individually to perform some strategic workforce planning activities. Specifically, as a Treasury bureau, FinCEN has an internal human resources group that, among other things, performs some strategic workforce planning activities. For example, according to FinCEN officials, they undertook an effort to identify mission critical occupations, which resulted in designating three positions as mission critical. As a result, FinCEN developed plans to address human capital challenges related to these occupations and regularly reports to Treasury’s Office of the Deputy Assistant Secretary for Human Resources and Chief Human Capital Officer on its progress. In addition, OIA has taken a variety of steps to address human capital challenges. For example, according to OIA officials, to address challenges in recruiting and retaining intelligence analysts, OIA cataloged the human capital flexibilities available to provide recruiting and retention incentives. As a result, OIA officials indicated that they have identified and are now able to utilize a variety of human capital flexibilities, such as student loan repayment to attract and retain staff and the Pat Roberts Intelligence Scholarship Program to pay for the continuing educational needs of its analysts.

Nonetheless, TFI management has not yet conducted comprehensive activities to address the key principles of strategic workforce planning for TFI as a whole. TFI top management has not set the overall direction and goals of workforce planning or evaluated progress toward any human capital goals. The Under Secretary for TFI told us that since the creation of TFI, growing OIA’s human capital has been one workforce planning priority. He also stated that he has conducted additional targeted workforce planning in consultation with the heads of the largest TFI components, such as FinCEN. However, neither TFI officials nor Treasury human capital officials were aware of any explicit workforce planning goals set by TFI management. In addition, TFI officials were unaware of any formal reviews or reports that evaluated the contribution of human capital results to achieving programmatic goals.

Moreover, TFI currently lacks an effective process for conducting comprehensive strategic workforce planning. According to the Under Secretary for TFI, most workforce planning takes place as a part of the annual budget process. TFI has not established a separate, comprehensive strategic workforce planning process led by TFI management. According to an official from Treasury’s Office of the Deputy Assistant Secretary for Human Resources and Chief Human Capital Officer, the office has provided targeted workforce planning assistance to OIA and, in spring 2009, began discussing how they could assist TFI in broader workforce planning efforts. In particular, they cited the need to conduct an overall workforce analysis and succession planning.

According to TFI’s Senior Resource Manager, TFI’s workforce planning mainly occurs as a component of the annual budget preparation process. As a part of this process, individual components can request additional staff resources for priority initiatives they identify. TFI management then evaluates these individual proposals and determines what will be included in TFI’s budget request.

Without the benefit of comprehensive strategic workforce planning to assist in identifying solutions, it is unclear whether TFI will be able to effectively address persistent workforce challenges. These include the following: Lack of comprehensive training needs assessment. While some TFI components have assessed the training needs of their staff, there has been no similar TFI-wide effort. Without such an assessment, it is unclear whether TFI staff are being prepared to address the challenges posed by illicit financing in the future.

Obstacles to hiring intelligence analysts. According to officials from OIA and Treasury’s Office of the Deputy Assistant Secretary for Human Resources and Chief Human Capital Officer, OIA continues to be at a competitive disadvantage relative to other agencies in the Intelligence Community regarding recruiting. Specifically, according to Treasury officials, most other agencies in the Intelligence Community can hire intelligence analysts into the excepted service, thus bypassing the need for competitive selection of candidates. In addition, OIA lacks direct hire authority for its intelligence analysts. According to OIA officials, these challenges make OIA’s hiring process more complicated and lengthier than those of other agencies in the Intelligence Community.

TFI Has Not Yet Developed an Appropriate Set of Performance Measures, but Continues to Work to Improve Its Efforts

TFI has not yet developed an appropriate set of performance measures, but continues to attempt to improve its efforts. Since TFI was formed, its individual performance measures have varied substantially in number and the extent to which they address attributes of successful performance measures that GAO has identified. For fiscal year 2008, the performance measures of TFI’s components vary in the extent to which they address attributes of successful performance measures identified by GAO. TFI’s performance measures address many, but not all, of these attributes. According to Treasury officials, TFI recognizes the need to improve its performance measures, and is developing a new set of measures to assess its performance. However, our review of a draft version of these revised measures suggests that some concerns would remain if they are implemented as proposed.

Performance Measures Related to TFI Functions Have Varied over the Years

As shown in figure 4, since its formation in 2004, TFI’s performance measures have varied over time. TFI reported on 11 total measures in fiscal year 2005, 9 measures in fiscal year 2006, 10 measures in fiscal year 2007, and 20 measures in fiscal year 2008. The number and content of performance measures have varied within components over time, as well. For example, FinCEN had 6 measures in fiscal year 2007 and 16 in fiscal year 2008. Components have frequently introduced new measures only to discontinue them in subsequent years. For instance, OFAC reported 4 measures in fiscal year 2005, and then discontinued 3 for fiscal year 2006. OIA, newly formed in 2004, reported 1 performance measure in fiscal year 2006 and none the following years. The extent of inconsistency in TFI’s performance measures creates challenges for managers to using performance data in making management decisions.

According to TFI officials, the sharp increase in the number of performance measures reported in fiscal year 2008 was a response to the evaluation and recommendations of the Office of Management and Budget’s (OMB) Program Assessment Rating Tool (PART) in 2005 and 2006. The PART process identified potential enhancements to FinCEN’s performance measures, leading to the inclusion of new measures for FinCEN. FinCEN officials said that Treasury performance officials asked that the newly developed measures be added to FinCEN’s contribution to the fiscal year 2008 performance and accountability report. According to officials in Treasury’s Office of Strategic Planning and Performance Management (OSPPM), the nature of FinCEN’s work is operational, making it easier to evaluate the bureau’s performance. TFI’s policy-making components, such as TFFC, have found it more difficult to develop meaningful performance metrics.

TFI’s Current Performance Measures Exhibit Many, but Not All, Attributes of Successful Performance Measures

The performance measures TFI currently has in place also vary in the degree to which they exhibit the attributes of successful performance measures. Prior GAO work has identified nine attributes of successful performance measures. Table 1 shows the nine attributes, their definitions, and the potentially adverse consequences of not having the attribute.

TFI’s performance measures address many of these attributes of successful performance measures, but do not fully address other attributes. Figure 5 represents our assessment of TFI’s 20 performance measures versus the key attributes of successful performance measures.

According to our analysis, TFI’s 20 measures have many of the attributes of successful performance measures, including the following.

Measurable target. All 20 of TFI’s measures have measurable, numerical targets in place. Numerical targets allow officials to more easily assess whether goals and objectives were achieved because comparisons can be made between projected performance and actual results.

Limited overlap. We found limited overlap among TFI’s 20 measures, that is, little or no unnecessary or duplicate information provided by the measures.

Objectivity. We found all of TFI’s measures to be objective, or reasonably free from significant bias.

Governmentwide priorities. We also determined that TFI’s 20 measures are linked to broader priorities such as cost-effectiveness, quality, and timeliness.

However, the measures did not fully satisfy the following attributes.

Linkage. Six TFI measures are not clearly linked to Treasury goals. For example, TEOAF measures the proportion of its forfeitures that come from high-impact cases. However, it is unclear why high-impact cases in particular are measured as opposed to all cases. Our analysis could not link TEOAF’s measure to broader agencywide goals related to removing or reducing threats to national security.

Core program activities. Seven TFI measures do not sufficiently cover core program activities. For example, OFAC has three main responsibilities related to the administration of sanctions: (1) issuing licenses, (2) designation programs, and (3) enforcement through civil penalties. However, OFAC’s one performance measure only assesses cases involving civil penalties resulting from sanctions violations.

Balance. We found that TFI’s set of performance measures is not balanced. In fiscal year 2008, TFI reported on 20 measures, 16 of which related to FinCEN’s programs and activities, 1 that related to OFAC, 1 that related to TEOAF, 2 that related to TFFC, and none that related to OIA. As a result, a disproportionate number of measures (16) relate to administering and enforcing the BSA and none to the analysis of financial intelligence. An emphasis on one priority at the expense of others may skew the overall performance and preclude TFI’s managers from understanding the effectiveness of their programs in supporting Treasury’s overall mission and goals. In addition, the lack of balance exhibited by TFI’s measures may give the impression that administering the BSA is prioritized over other functions, such as the analysis of financial intelligence or administration of licensing and designations programs.

TFI Is Working to Replace Its Performance Measures, but Some Concerns Remain

Treasury officials acknowledge the limits of TFI’s current performance measurement and have been working to enhance its measures, by replacing them with a single new TFI-wide measure. According to OSPPM officials, they began an initiative to overhaul TFI’s performance measurement in 2007. OSPPM officials stated that TFI’s performance measures did not effectively reflect the impact of TFI’s activities. After consultation with each TFI component, OSPPM decided to design a new composite measure that will provide a way to assess how TFI is performing overall as a unit. The new measure would outline the roles and functions of TFI’s components and evaluate the outcomes of their activities. However, the process of reforming TFI’s performance measurement has not been completed. The implementation of the new measure is still uncertain, although TFI management approved its use in May 2009 and components finalized the measures they will contribute.

According to a Treasury official, OSPPM decided on the format of the new composite measure after researching other federal agencies’ approaches to performance measurement, as well as those of management consultancies in the private sector. The composite measure takes a similar form to the measure implemented for Treasury’s Office of Technical Assistance (OTA), first reported in Treasury’s fiscal year 2008 performance and accountability report. The measure aims to provide a more comprehensive snapshot of the outcome of OTA’s activities by measuring impact and traction.

The composite measure for TFI will align the two Treasury outcomes that relate to their activities with TFI’s performance goals and focus areas, according to Treasury. Each focus area corresponds with a TFI component (OFAC, OIA, TFFC, and FinCEN). The components will track 3 to 6 performance measures and will assign a numeric score to the performance at the end of the year. Each component’s measures will be combined to reach an overall score for the component. In the end, an overall score for TFI will be determined by averaging the individual scores of the components.

All TFI components except TEOAF have been involved in the process of developing the composite measure. Both OSPPM and TEOAF officials stated that TEOAF would not be included, since its work did not logically fit in one of the focus areas. OIA, TFFC, and OFAC have developed new measures to assess the impact of their activities. FinCEN will use 5 of its existing measures for its contribution to the composite measure.

TFI faces significant challenges in developing and implementing the new composite measure. There is an inherent difficulty in creating quantitative measures for policy organizations, whose activities may not be easily represented with numbers. Many TFI managers pointed to the difficulty of making qualitative information measurable for performance reporting.

While the initiative to improve TFI’s performance measurement is a positive step, our preliminary analysis raises concerns regarding the extent to which the new TFI composite measure will allow full and accurate assessment of TFI’s performance. For example, we identified the following concerns: Objectivity and reliability of survey-based measures. OIA has developed surveys to measure the timeliness, relevance, and accuracy of its intelligence support, all-source analysis, and security and counterintelligence. The survey respondents are internal customers of OIA’s products within Treasury such as the Deputy Secretary, Under Secretaries, Assistant Secretaries, Deputy Assistant Secretaries, and senior staff. The objectivity of the surveys is not clear given that respondents’ answers may be biased because they have a vested interest in the outcome, as it is a reflection on their performance. The reliability of the measures is also questionable, as only between 7 and 13 internal customers—rather than external customers in the Intelligence Community—will be asked to complete the survey. TFI believes that while there is no perfect method for evaluating OIA’s performance, the surveys are an effective means for Treasury policymakers to assess OIA’s performance. They also noted their plan to survey customers in other parts of the Intelligence Community in 2010.

Lack of validation for some components’ self-assessment-based measures. Some components’ performance measures rely exclusively on self-assessments by component managers and lack external verification. For example, TFFC has 4 measures for which management will compile supporting information and assign a high, medium, or low rating for TFFC’s performance in that area. Treasury and TFI acknowledge (but have not yet addressed) a lack of a process to independently verify TFFC’s self- assessment. OTA’s composite measure, which OSPPM officials cited as similar to TFI’s, also uses elements of self-assessment, but those results are independently validated by an external source and reviewed by Treasury.

Calculation of overall TFI score. According to TFI, to calculate the composite measure, individual components’ results will be averaged into a single TFI measure. Since the components are not all contributing the same number of measures to the overall composite measure, averaging components’ scores means components’ individual performance measures are not weighted equally in TFI’s overall measure.

Conclusions

Since its creation in 2004, TFI has undertaken a variety of activities to address a broad range of national security threats, such as enhancing the use of financial intelligence against terrorism and the proliferation of weapons of mass destruction. In addition, TFI and its components have taken some steps toward more effective management of TFI as an organization. For instance, TFI and some components have developed strategic plans and have performed workforce planning activities.

Nonetheless, TFI has not fully utilized some management tools to create an integrated organization with a consistent, well-documented approach to planning and managing its operations. As a result, additional opportunities for improvement exist. First, despite the critical role interagency collaboration plays in many of TFI’s functions and general approval by key interagency partners, such collaboration may not be as effective as it could be in certain respects. TFI and some of its interagency partners had strikingly different perceptions about the quality of collaborative efforts involving multilateral forums. Lacking clearly documented policies and procedures for collaboration in this area, interagency partners were unsure how to resolve their differences. Without a mechanism to monitor and report on the results of such interagency collaboration, TFI officials were generally unaware that differences existed or what impact they might be having, and thus saw no need to take steps to understand or address them. Second, TFI management has not clearly aligned its resources with its priorities. Without clear, consistent objectives and an understanding of how resources are aligned with them, it may be unclear to Congress, TFI’s interagency partners, or even TFI staff what TFI’s priorities are and whether TFI has sufficient resources to address them. In addition, while some components have undertaken workforce planning activities, TFI management has yet to implement a comprehensive strategic workforce planning process for TFI as a whole. As a result, TFI may be at risk of not having the workforce required to address future national security threats. Finally, TFI’s performance reporting has been uneven. Though TFI has been working to improve its ability to effectively measure its performance as a unit, TFI has not yet developed a set of performance measures that embody the attributes of successful performance measures. Without a set of effective performance measures, it is difficult to judge how well TFI is achieving its mission.

Recommendations for Executive Action

To help strengthen Treasury’s ability to achieve its strategic goal of preventing terrorism and promoting the nation’s security through strengthened international financial systems, we recommend that the Secretary of the Treasury direct the Under Secretary for Terrorism and Financial Intelligence to take the following four actions: 1. develop and implement, in consultation with interagency partners participating in international forums related to anti-money laundering and counterterrorist financing issues, (a) compatible policies, procedures, and other means to operate across agency boundaries and (b) a mechanism for monitoring, evaluating, and reporting on interagency collaboration; 2. develop and implement policies and procedures for aligning resources with TFI’s strategic priorities; 3. develop and implement a TFI-wide process, including written guidance, that addresses the key principles of strategic workforce planning; and 4. ensure that TFI’s performance measures exhibit the key attributes of successful performance measures.

Agency Comments and Our Evaluation

We provided a draft copy of this report to the Departments of the Treasury, State, and Justice. Justice and State declined to provide comments. Treasury provided comments, which are reprinted in appendix IV.

Treasury’s comments highlighted what it views as TFI’s significant contributions since 2005. Treasury said that TFI has helped reduce the threat of terrorist financing, stating that al Qaeda is in its worst financial position in at least 3 years. In addition, Treasury highlighted TFI’s efforts to counter the financing of proliferation, for example, using Executive Order 13382 to isolate banks, companies, and individuals tied to North Korean, Iranian, and Syrian proliferation.

Treasury’s comments also discussed ongoing or planned actions related to our four recommendations:

With regard to our recommendation that TFI develop and implement policies and procedures to operate across agency boundaries and develop a mechanism for monitoring, evaluating, and reporting on interagency collaboration, the Under Secretary for Terrorism and Financial Intelligence indicated that his counterparts in other agencies have never expressed concerns about process or substance to him regarding TFI’s collaboration. Nonetheless, Treasury stated that it would redouble its efforts to coordinate with other agencies, but did not identify specific steps it plans to take. As discussed in our report, we recommend that such steps include developing clear policies for conducting and monitoring the results of interagency collaboration.

In response to our recommendation to develop and implement policies and procedures for aligning resources with TFI’s strategic priorities, Treasury indicated that TFI is working to improve its processes in this area. While Treasury stated that its use of the annual budget process has worked well to match resources to strategic goals, we have concluded that the annual budget process does not necessarily reflect TFI’s strategic priorities, in part because it reflects priorities for only a given year and not longer- term priorities.

In relation to our recommendation to develop and implement a TFI-wide process to address the key principles of strategic workforce planning, Treasury commented that it is working with Johns Hopkins University’s Capstone Consulting to develop a workforce planning model for Treasury. As a part of this effort, TFI plans to develop and disseminate written guidance establishing a process to align resources with TFI and Treasury strategic goals in the next 12 months.

Finally, Treasury stated that it will work to implement our recommendation to ensure that TFI’s performance measures exhibit the key attributes of successful performance measures. At the same time, Treasury contends that TFI’s true performance will often be best conveyed through briefings to those who possess the appropriate security clearances. To ensure that such briefings provide systematic evidence regarding TFI’s performance, they should include assessments based on performance measures that exhibit the key attributes of successful performance measures discussed in this report. Further, we would note that using classified information to help assess TFI’s performance does not preclude TFI from developing unclassified performance measures or from producing an unclassified assessment of its performance. In fact, Treasury’s statements about the financial condition of al Qaeda referenced in its response to this report provide Treasury’s assessment of TFI’s impact on al Qaeda without disclosing classified information.

As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees as well as the Secretaries of the Treasury, State, and Justice. We will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staff has any questions about this report, please contact me at (202) 512-4347 or YagerL@gao.gov. GAO staff who contributed to this report are included in appendix V.

Appendix I: Scope and Methodology

To analyze the Office of Terrorism and Financial Intelligence’s (TFI) use of its tools to address national security threats, we reviewed Treasury reports and documents related to its efforts since 2004. For example, we reviewed all of Treasury’s performance and accountability reports and FinCEN’s annual reports since TFI was formed. We also reviewed other documents discussing activities involving TFI, including the National Money Laundering Strategy and the National Strategy for Combating Terrorism. To identify practices for enhancing interagency collaboration, we reviewed prior GAO reports. We then interviewed officials from Treasury and its key interagency partners (the Departments of State and Justice) to understand TFI’s processes for interagency collaboration.

To analyze TFI’s efforts to conduct strategic resource planning, we reviewed a variety of Treasury documents. To identify TFI’s priorities, we reviewed documents such as Treasury’s performance and accountability reports, congressional testimony by the Under Secretary for Terrorism and Financial Intelligence, and TFI’s Web site. In addition, we reviewed documentation from TFI and its components related to strategic planning, including the current strategic plans for TFI and each component. Further, we reviewed TFI data regarding the number of staff (full-time equivalents or FTE) in each TFI component for fiscal years 2005 through 2008. We then obtained data from TFI components to illustrate how their workload has changed over time. We determined that these data are sufficiently reliable for the purpose of this report. Additionally, we reviewed prior GAO work related to principles of effective strategic workforce planning. To determine the extent to which TFI’s practices reflect these principles, we interviewed TFI management, including the Under Secretary for Terrorism and Financial Intelligence and managers from TFI components. Further, we interviewed officials from Treasury’s Office of the Deputy Assistant Secretary for Human Resources and Chief Human Capital Officer.

To analyze the extent to which TFI’s performance measures provide an effective assessment of TFI’s performance, we reviewed Treasury’s reporting on TFI’s performance. Specifically, we analyzed the performance measures contained in Treasury’s performance and accountability reports for fiscal years 2005 through 2008. We also evaluated TFI’s performance measures for fiscal year 2008 against key attributes of successful performance measures. To perform this evaluation, two analysts independently assessed each of the performance measures against the nine attributes identified in the specifications for each attribute included in that report. Those analysts then met to discuss and resolve any differences in the results of their analyses. A supervisor then reviewed and approved the final results of the analysis. To obtain information on TFI’s process to improve its set of performance measures, we interviewed officials from each TFI component and Treasury’s Office of Strategic Planning and Performance Management. We also obtained a copy of draft TFI performance measures that will be presented to the Office of Management and Budget for its review. We then interviewed officials from each TFI component and Treasury’s Office of Strategic Planning and Performance Management regarding how the data for these draft performance measures would be obtained and how the overall TFI composite measure would be developed.

We also present data on TFI staffing and budget for fiscal years 2005 through 2008. As these data are presented for background purposes, we did not assess their reliability.

Appendix II: Current U.S. Sanctions Programs

Appendix II: Current U.S. Sanctions Programs Office of Foreign Assets Control country-based sanctions programs Office of Foreign Assets Control list-based sanctions programs Liberia (former regime of Charles Taylor)

Appendix III: GAO Assessment of TFI’s Fiscal Year 2008 Performance Measures

Yes

Appendix IV: Comments from the Department of the Treasury

Appendix V: GAO Contact and Staff Acknowledgments

Staff Acknowledgments

In addition to the individual named above, Jeff Phillips (Assistant Director), Jason Bair, Lisa Reijula, Katherine Brentzel, Martin de Alteriis, and Mary Moutsos made key contributions to this report. Elizabeth Curda, Karen Deans, Cardell Johnson, Barbara Keller, and Hugh Paquette also contributed to the report.