Money laundering is the process used to transform monetary proceeds derived from criminal activities into funds and assets that appear to have come from legitimate sources. Although the magnitude of global money laundering is unknown, many estimates suggest annual ranges in the hundreds of billions of dollars. The process of money laundering generally takes place in three stages: placement, layering, and integration. In the placement stage, cash is converted into monetary instruments, such as money orders or traveler’s checks, or deposited into financial institution accounts. In the layering stage, these funds are transferred or moved into other accounts or other financial institutions to further obscure their illicit origin. In the integration stage, the funds are used to purchase assets in the legitimate economy or to fund further activities. All financial sectors and certain commercial businesses can be targeted during one or more of these stages. Many of these entities are required to report transactions with certain characteristics to law enforcement if they appear to be potentially suspicious. The transactions would generally fall within either the placement or layering stage if they proved to be involved in money laundering. Transaction reporting requirements are discussed further later in this report. Figure 1 shows the three stages of money laundering. Terrorist financing is generally characterized by different motives than money laundering and the funds involved often originate from legitimate sources. However, the techniques for hiding the movement of funds intended to be used to finance terrorist activity—techniques to obscure the origin of funds and the ultimate destination—are often similar to those used to launder money. Therefore, Treasury, law enforcement agencies, and the federal financial regulators often employ similar approaches and techniques in trying to detect and prevent both money laundering and terrorist financing. Agencies under the Departments of the Treasury, Justice, and Homeland Security are to coordinate with each other and with financial regulators in combating money laundering. Within Treasury, the Financial Crimes Enforcement Network (FinCEN) was established in 1990 to support law enforcement agencies by collecting, analyzing, and coordinating financial intelligence information to combat money laundering. In addition to FinCEN, Treasury components actively involved in anti-money laundering and antiterrorist financing efforts include the Executive Office for Terrorist Financing and Financial Crimes, the Office of International Affairs, and the Internal Revenue Service and its Criminal Investigation unit (IRS-CI). Department of Justice components involved in efforts to combat money laundering and terrorist financing include the Criminal Division’s Asset Forfeiture and Money Laundering Section (AFMLS) and Counterterrorism Section, the Federal Bureau of Investigation (FBI), the Drug Enforcement Administration (DEA), and the Executive Office for U.S. Attorneys (EOUSA) and U.S. Attorneys Offices. With the creation of DHS in March 2003, anti-money laundering activities of the Customs Service were transferred from Treasury to DHS’s Bureau of Immigration and Customs Enforcement (ICE). The financial regulators who oversee financial institutions’ anti-money laundering efforts include the depository institution financial regulators— the Federal Reserve Board (FRB), FDIC, Office of the Comptroller of the Currency (OCC), Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA)—and also the Securities and Exchange Commission (SEC), which regulates the securities markets, and the Commodity Futures Trading Commission (CFTC), which regulates commodity futures and options markets. While OCC and OTS are bureaus within Treasury, the FRB, FDIC, NCUA, SEC, and CFTC are independent agencies that are not part of the executive branch. Figure 2 shows the primary agencies responsible for combating money laundering and terrorist financing before the creation of DHS. Figure 3 shows the primary agencies responsible for combating money laundering and terrorist financing after the creation of DHS. Given law enforcement’s mixed history of both productive partnerships and turf-protection battles, proponents of the Strategy Act envisioned that the implementation of an annual NMLS would inaugurate a new level of coordination and cooperation between law enforcement agencies. The NMLS also sought to coordinate the efforts of law enforcement agencies and financial regulators to ensure that financial institutions were sufficiently vigilant to detect possible money laundering and that they reported any suspicious activity to law enforcement agencies to assist in their efforts to investigate money laundering and, more recently, terrorist financing. The process for developing the NMLS has varied slightly from year to year, but it has generally involved Treasury working with other agencies to develop a draft. Treasury officials said that they have sometimes asked officials from other agencies to take the lead in drafting certain sections that pertain particularly to their efforts. In other instances, Treasury has drafted the sections and asked for participating agencies’ review and comments on the sections relevant to them. Upon completion of the draft NMLS, the relevant agencies are given the opportunity to clear the final document through the Office of Management and Budget’s clearance process, which requires that the agencies approve the document, that is, signify their agreement with its contents. Treasury officials told us that by approving the NMLS through this process, the agencies have agreed to it and should be held accountable to Congress and the public to complete their assigned responsibilities. The drafting process has generally resulted in a document that lists four to six broad goals, each containing objectives, which in turn contain a list of priorities. Over time, the goals have changed, sometimes in their wording or order, and other times to cover new threats. For example, in the wake of September 11, the 2002 NMLS added the goal, “Focus Law Enforcement and Regulatory Resources on Identifying, Disrupting, and Dismantling Terrorist Financing Networks.” As of September 24, the 2003 NMLS had not yet been issued. Table 1 shows the NMLS goals from 1999 through 2002 and the number of objectives and priorities. The Strategy Act also created an operating mechanism within which to enhance interagency coordination of law enforcement investigations— HIFCAs. In accordance with the Strategy Act and the 1999 NMLS: HIFCA designations would allow law enforcement to concentrate its resources in areas where money laundering or related financial crimes appeared to be occurring at a higher rate than average. An interagency HIFCA Designation Working Group would review requests for such designations and provide advice for selections to be made by the Secretary of the Treasury, in consultation with the Attorney General. A money laundering action team, where appropriate, would be created when a HIFCA was designated to spearhead a coordinated federal, state, and local anti-money laundering effort in the area, or an existing task force already on the ground would be mobilized. The 2001 NMLS specified that HIFCAs were to be operational and conduct investigations designed to result in indictments, convictions, and seizures, rather than focusing principally on intelligence gathering. Also, the 2001 NMLS reinforced the expectations that HIFCA task forces “will be composed of, and draw upon, all relevant federal, state, and local agencies, and will serve as the model of our anti-money laundering efforts” and that the Departments of the Treasury and Justice were to jointly oversee the HIFCA task forces. The Strategy Act mandated that the NMLS be submitted to Congress by February 1 of each year, 1999 to 2003. The Strategy Act also required that—at the time each NMLS was transmitted to the Congress (other than the first transmission of any such strategy)—the Secretary of the Treasury must submit a report containing an evaluation of the effectiveness of policies to combat money laundering and related financial crimes. The Treasury, Justice, and regulatory agency officials we interviewed said that the NMLS was initially beneficial but, over time, certain factors and events affected its development and implementation. Officials from each of the agencies endorsed the concept of having a national strategy for combating money laundering and related financial crimes. Generally, the officials said that the annual NMLS probably was more beneficial in the first 2 years (1999 and 2000) than in the subsequent years (2001 and 2002). As an initial benefit, for example, Treasury officials said that the NMLS was instrumental in focusing on the need to combat money laundering systemically and not solely on a case-by-case basis, encouraging multiple law enforcement agencies to work together, and raising general awareness of the importance of combating financial crimes. The NMLS enhanced their planning and communication when it was new because it served to formalize interagency communication in a way that had not existed before. Similarly, the officials noted that the early strategies were instrumental in expanding the perspectives of the regulatory agencies by refocusing them on the purposes underlying their BSA responsibilities. The early strategies renewed attention on the fight against money laundering that supports particular reporting or record keeping obligations. That is, due partly to the strategies, the financial regulators became more focused regarding ways in which criminals could be using financial institutions for money laundering activities. However, after the first couple of years, the benefit of the annual NMLS was affected by a number of factors and events, according to the Treasury, Justice, and regulatory agency officials we interviewed. One factor cited was that the principal agencies had significantly differing views about the appropriate purpose and structure of the strategy. For instance, Treasury preferred a document that covered the full breadth and scope of the federal government’s planned anti-money laundering efforts, while Justice preferred a more concise document that included only those priorities that realistically could be addressed during the year. Likewise, the regulatory agencies generally favored a more concise document. Several officials said that this fundamental difference in views resulted in less-than-full commitment or buy-in from some agencies, which lessened the overall benefit of the recent strategies. An event that affected the 2001 NMLS was the change in presidential administrations prior to the strategy’s issuance. Treasury and Justice officials explained that with the arrival of a new administration, it was necessary to revise a nearly complete NMLS to match the new administration’s vision for combating money laundering.