Mr. Chairman and Members of the Subcommittee: I am pleased to be here today to discuss the various anti-money laundering roles of the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). My statement will outline both the results of recently completed work and preliminary results of ongoing work that we have undertaken at the request of this Subcommittee. Treasury describes FinCEN as a network that links the law enforcement, financial, and regulatory communities to make the prevention, detection, and prosecution of money laundering more effective. Created in 1990, FinCEN’s original mission centered on providing direct support to law enforcement agencies that investigate money laundering and other financial crimes. For example, to support an investigation of drug trafficking, FinCEN accessed various computerized databases to identify and analyze financial transactions that might indicate how the proceeds of crime were concealed. Such support still remains FinCEN’s primary mission even though, over time, the agency’s responsibilities have become more multifaceted. For example, in May 1994, Treasury significantly expanded FinCEN’s role, giving it responsibility for promulgating regulations under the Bank Secrecy Act (BSA), evaluating violations of BSA requirements and recommending appropriate civil penalties, and leading Treasury’s efforts to combat money laundering domestically and internationally. As its responsibilities increased, FinCEN’s staffing levels have remained fairly constant. For example, FinCEN had 156 staff on board in fiscal year 1992 and 162 staff on board in fiscal year 1997. FinCEN’s fiscal year 1998 budget is about $24 million. of, products and services provided by FinCEN to the law enforcement community; (2) the process for developing and issuing BSA regulations; (3) FinCEN’s efforts in assessing civil penalties for BSA violations; and (4) the role FinCEN plays in promoting international awareness of money laundering. We have completed our work and issued a report on the second topic—i.e., FinCEN’s regulatory process—and our work on the other three topics is still ongoing. For all four topics, I will now briefly summarize the results of our work to date, beginning with our current work on FinCEN’s law enforcement support role. Since its inception in 1990, FinCEN has expanded the types of products and services it provides to the law enforcement community. From 1990 to 1992, FinCEN provided primarily two types of support: (1) tactical support, which included information and leads in direct support of law enforcement investigations; and (2) strategic support, which included analysis and reports on more broadly scoped topics related to money laundering. In 1993, FinCEN initiated its artificial intelligence system, which provides computerized analyses of financial data to identify individuals and businesses possibly involved in financial crimes. In 1994, to leverage its resources in aiding law enforcement investigative efforts, FinCEN developed two self-help programs. One is a “platform” concept whereby designated employees of other federal agencies can visit FinCEN to access databases and conduct research to support their respective agency’s investigations. The other is Project Gateway, which provides designated state and local law enforcement officials with direct, on-line access to BSA financial data. To determine the trends in the quantities of support provided by FinCEN from 1990 to 1997, we obtained and analyzed FinCEN workload documents and relevant information from FinCEN’s computerized databases. Our preliminary analysis of FinCEN data indicate that in recent years, FinCEN has issued fewer tactical, strategic, and artificial intelligence products. A primary reason FinCEN officials gave for this change is that FinCEN’s staffing levels have remained fairly constant over the years, while its overall mission has expanded. Consequently, FinCEN chose to dedicate fewer staff to generate these products. Also, FinCEN has encouraged, trained, and increasingly relied on agencies to use self-help programs to conduct research and analysis for cases that do not require FinCEN’s expertise. Because of reductions in tactical staff, beginning in 1995, FinCEN decided to stop accepting certain types of requests that do not directly support law enforcement functions (e.g., requests involving background checks for employment or security clearance purposes). FinCEN also decided to self-initiate fewer products—particularly regarding strategic support and artificial intelligence analyses—because fewer staff supported these activities and because agencies reportedly often did not take any action as a result of the products provided. At the Subcommittee’s request, we surveyed representative samples of federal and state agency officials to obtain their perceptions about the usefulness of the tactical support they received from FinCEN. Over 90 percent of the federal respondents said that, overall, the case-specific products they received from FinCEN were useful. State responses were similar to the federal responses. The survey results indicated that FinCEN’s tactical products assisted law enforcement investigations in various ways, such as providing investigative leads or listing assets not previously identified. Further, FinCEN’s records showed that some federal field offices, states, and High Intensity Drug Trafficking Areas (HIDTA) requested little or no tactical support from FinCEN during the period we reviewed, April 1996 to March 1997. To determine the reasons why this support was not requested, we surveyed 129 Treasury and Justice field offices and each of the 22 HIDTAs that had been designated as of December 1997. We also interviewed officials from 9 of the 10 states that, according to FinCEN’s records, made either 1 or no requests for FinCEN’s tactical support from April 1996 to March 1997. Survey results generally did not indicate dissatisfaction with FinCEN’s products. Rather, survey respondents cited other reasons for their limited use of FinCEN. These reasons included reliance on in-house capabilities and the availability of intelligence or analytical support centers other than FinCEN. However, we found that some federal officials we surveyed were not aware of the various products and services offered by FinCEN and that FinCEN has neither developed nor widely disseminated guidelines specifying when law enforcement officials should request FinCEN’s support. office that plans to help agencies improve their money-laundering detection and prevention programs. This office will also provide case-specific support to the law enforcement and regulatory communities. Also, FinCEN has initiated efforts to “partner” with the law enforcement community to provide strategic and artificial intelligence products that are more useful to the relevant agencies. To determine the usefulness of FinCEN’s self-help programs, we conducted (1) in-person or telephone interviews with officials from three of the four agencies that most frequently used platforms in 1997 and (2) telephone interviews with officials from the four states that made the most Gateway queries in 1997. According to the federal and state officials we interviewed, these self-help programs are useful to agencies in combating money laundering and other financial crimes. FinCEN data show that an increasing number of federal and state agencies are using these self-help mechanisms. FinCEN data also show an increase in the number of times FinCEN used Project Gateway to alert an agency that another agency had an interest in the same investigative subject. Currently, we are in the process of finalizing our work on FinCEN’s law enforcement support role, and we expect to issue the Subcommittee a report later this spring. In September 1994, Congress enacted major legislation, the Money Laundering Suppression Act of 1994 (MLSA). This act authorized or required the promulgation of significant new BSA regulations. BSA regulations form the core element of Treasury’s programs to prevent and detect money laundering. Several weeks ago, we issued the Subcommittee a report on the results of our review of FinCEN’s regulatory role. We reported that FinCEN’s process for developing and issuing BSA regulations was generally designed to reflect standardized procedures set forth in the Administrative Procedure Act. In addition, we reported that FinCEN used a partnering approach to actively seek input from the law enforcement, regulatory, and financial services communities. respect to the MLSA provisions shows that it intended that those initiatives be completed in a timely manner. Further, at the time of our review, final regulations to implement several provisions of the 1994 act were still pending. Specifically, we reported that FinCEN had not issued final regulations regarding card clubs, foreign bank drafts, registration of money services businesses, discretionary exemptions from filing currency transaction reports, and delegation of civil penalty authority. Unquestionably, the intended law enforcement benefits of the MLSA amendments cannot be fully achieved until all of the regulations are implemented. We concluded that FinCEN needs to better communicate its regulatory priorities and time lines, particularly regarding regulations authorized or required by the MLSA. In commenting on a draft of our report, the Director, FinCEN, said he believed that his agency had adequately communicated its rulemaking agenda to the appropriate congressional committees. From our perspective, however, information was not uniformly or routinely communicated by FinCEN to all interested congressional parties. Because of the ad hoc approach FinCEN used in communicating the progress it had made in meeting regulatory initiatives, congressional committees were not in a good position to assess FinCEN’s regulatory program, including the agency’s prioritization of regulatory initiatives, the time lines for issuing final regulations, and the allocation of resources necessary for completing these initiatives. Thus, we continue to believe that FinCEN needs to systematically and periodically keep the appropriate congressional committees informed about its plans, priorities, target dates, and accomplishments concerning these important statutory directives. When the MLSA is implemented, one of its provisions may lighten FinCEN’s responsibilities by delegating authority to impose civil penalties for BSA violations to the appropriate federal banking regulatory agencies. The purpose of this delegation is to increase efficiency by allowing these agencies to impose civil penalties directly, rather than referring violations to FinCEN.