Section 311 is one of many legal and regulatory resources that the United States uses to combat money laundering and financial crime. U.S. laws and programs aimed at combating money laundering include the Bank Secrecy Act (BSA), which includes Section 311 and authorizes Treasury to promulgate regulations on the reporting and recordkeeping of certain financial transactions; economic and trade sanctions implemented by the Office of Foreign Assets Control (OFAC); and several Justice programs focused on anti-money laundering. The United States is also a member of the Financial Action Task Force (FATF), an intergovernmental body that has created a comprehensive global framework for anti-money laundering efforts and has called for countermeasures against countries that are not complying with this framework. These laws and programs, including Section 311, are part of a broad U.S. money laundering strategy. Issued most recently in 2007, this strategy states that it reflects the U.S. government’s ongoing commitment to attack money laundering and terrorist financing on all fronts, including the formal and informal components of both the domestic and international financial systems. The strategy focuses on three major goals: (1) to more effectively cut off access to the international financial system by money launderers and terrorist financiers; (2) to enhance the federal government’s ability to target major money laundering organizations and systems; and (3) strengthen and refine the anti-money laundering regulatory regime for all financial institutions to improve the effectiveness of compliance and enforcement efforts. The strategy includes, among other items, a commitment to target countries and financial institutions that facilitate money laundering and terrorist financing, including using the full range of measures provided by Section 311 of the USA PATRIOT Act. USA PATRIOT Act Section 311 is currently implemented by Treasury’s Financial Crimes Enforcement Network (FinCEN). Until 2004, the Office of Terrorist Financing and Financial Crime (TFFC) implemented Section 311, according to Treasury officials. Both offices report to Treasury’s Office of Terrorism and Financial Intelligence (TFI). This office contains intelligence and enforcement functions and has the stated twin missions of safeguarding the U.S. financial system against illicit use and combating national security threats. Figure 1 shows the organization of TFI. Section 311 allows Treasury to require domestic financial institutions and agencies to take certain special measures outlined in the provision if it finds reasonable grounds to conclude that a designated foreign jurisdiction, financial institution, or class of transactions is of “primary money laundering concern.” In making a finding that a jurisdiction is of primary money laundering concern—in addition to any information that the Secretary of the Treasury might deem relevant—the Secretary is to consider seven potentially relevant factors. These additional factors include the extent to which the jurisdiction offers special bank secrecy or regulatory advantages to nonresidents as well as the substance and quality of the bank supervisory and anti-money laundering laws in the jurisdiction. In making a finding that an institution, transaction, or type of account is of primary money laundering concern, the Secretary is to consider–in addition to any information the Secretary determines is relevant–three potentially relevant factors, including the extent to which the institution is used to facilitate money laundering and the extent to which it is used to facilitate legitimate business. For a list of all potentially relevant factors Treasury is required to consider, see appendix II. According to the law, the Secretary of the Treasury must consult with State and Justice before designating an institution, jurisdiction, or class of transactions is of primary money laundering concern. Once an institution is designated as being of primary money laundering concern, the Secretary of the Treasury is required to consult with a variety of parties including the Secretary of State, the Chairman of the Board of Governors of the Federal Reserve System, and other appropriate federal agencies, to determine which of the five available special measures to apply. The first four special measures relate to requirements put on U.S. financial institutions or agencies for record keeping, reporting, and collection of certain financial information. The fifth special measure prohibits U.S. financial institutions or agencies from opening or maintaining correspondent accounts or payable through accounts for or on behalf of a foreign bank if the account involves a designated jurisdiction or institution. This special measure may be imposed only by regulation. In selecting which special measures to apply, the Secretary is required to consider four factors. These factors are listed in appendix III. The Administrative Procedure Act, which governs federal rule-making, generally requires that notice of proposed rule-making be published in the Federal Register. It also requires that, after the notice is given, the agency provide interested persons an opportunity to participate in the rule-making through submission of written data, views, or arguments. After consideration of these submissions, the agency is required to incorporate in the rules adopted a concise general statement of their basis and purpose. To implement USA PATRIOT Act Section 311, Treasury used an evolving informal rule-making process that was consistent with requirements in Section 311 and resulted in 11 cases in eight countries from 2002 through 2005. However, Treasury’s process for consulting with two U.S. agencies on findings of primary money laundering concern sometimes made it difficult to provide meaningful consultation during certain key phases of the process, according to Justice and State officials. In the absence of established time frames, officials of these agencies expressed concerns about the amount of time they had for consultation about Section 311 findings. In addition, Treasury did not include these other agencies with expertise in money laundering and international affairs in developing its initial list of targeted financial institutions. Starting in 2006, Treasury changed its targeting procedures and, with Justice, established an interagency working group to discuss potential threats to the U.S. financial system at an earlier stage in the process. However, it is unclear whether the new procedures improved consultation because Treasury’s current process has not resulted in any new Section 311 findings since 2005. To implement USA PATRIOT Act Section 311, Treasury generally pursued the following steps from 2002 through 2005 that evolved over time: 1. Identified target jurisdictions (countries) and financial institutions that presented a potential threat to the U.S. financial system because of money laundering or terrorist financing where Section 311 might be applied. 2. Conducted research to determine which of these jurisdictions or financial institutions were “of primary money laundering concern” and determined which special measures should be applied. 3. Drafted a finding and special measures, usually in a notice of proposed rule-making. 4. Reviewed the proposed rule for legal sufficiency. 5. Consulted with relevant agencies (Justice, State, the Federal Reserve, and other agencies) on a finding and the application of special measures. 6. Obtained clearance to proceed from Treasury’s management. 7. Published a finding or notice of proposed rule-making in the Federal Register. 8. Received and reviewed comments. 9. Consulted, if applicable, with Justice, State, and the Federal Reserve, on the application of special measure 5. 10. Finalized or withdrew the proposed rule, as appropriate. Treasury officials said that they had no single established process to implement Section 311, but developed informal rule-making processes that evolved over time. Prior to 2004, all work on Section 311 cases was conducted by the Office of Enforcement and was primarily the responsibility of Treasury’s Deputy Assistant Secretary for Terrorist Financing and Financial Crime and his staff. At the beginning of 2004, Treasury officials told us a decision was made to move the function of building an administrative record of the supporting evidence associated with each Section 311 case and proposed rule to FinCEN. However, TFFC is still involved in making the determination of when a proposed rule should be published, finalized, or withdrawn, according to Treasury officials. To date, Treasury has issued findings of primary money laundering concern against three jurisdictions and eight financial institutions in eight countries. The first finding of primary money laundering concern was issued in December 2002 and the most recent finding occurred in September 2005. The three countries in these findings were: (1) Ukraine, (2) Nauru, and (3) Burma. The eight financial institutions in these findings were: (1) Asia Wealth Bank (Burma), (2) Myanmar Mayflower Bank (Burma), (3) Commercial Bank of Syria (Syria), (4) First Merchant Bank OSH Ltd. (Turkish Cyprus), (5) Belmetalnergo/Infobank (Belarus), (6) Multibanka (Latvia), (7) VEF Banka (Latvia), and (8) Banco Delta Asia (Macau, China). In all of the cases above, Treasury issued a designation of primary money laundering concern. In all cases but one, Treasury also issued proposed rules regarding the institution or jurisdiction designated to be of primary money laundering concern. These rules proposed that U.S. financial institutions employ Special Measure 5, prohibiting U.S. financial institutions covered by the rule from opening or maintaining correspondent accounts with foreign banks if the account involved designated institutions or jurisdictions. Of the 10 proposed rules it issued under Section 311, Treasury later withdrew 3 and finalized 6, with one rule still outstanding. For additional information on these countries and financial institutions, see appendix IV. To implement the key first step of targeting areas of primary money laundering concern, according to Treasury officials, Treasury identified jurisdictions and financial institutions from several sources. These were multilateral organization recommendations, U.S. law enforcement investigations, joint strategy with State, and broader national security concerns. For the jurisdictions it targeted from 2002 through 2005—the countries of Burma, Nauru, and Ukraine—Treasury officials said they relied largely on recommendations from the FATF, an international body whose purpose is the development and promotion of national and international policies to combat money laundering and terrorist financing, as well as on internal Treasury research and other sources. The first opportunity to use Section 311 arose out of the FATF’s Non-Cooperative Countries and Territories (NCCT) process, according to Treasury officials.