Bank Secrecy Act:

Federal Agencies Should Take Action to Further Improve Coordination and Information-Sharing Efforts

GAO-09-227: Published: Feb 12, 2009. Publicly Released: Mar 16, 2009.

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The legislative framework for combating money laundering began with the Bank Secrecy Act (BSA) in 1970 and most recently expanded in 2001with the USA PATRIOT Act. The Financial Crimes Enforcement Network (FinCEN) administers BSA and relies on multiple federal and state agencies to ensure financial institution compliance. GAO was asked to (1) describe how BSA compliance and enforcement responsibilities are distributed, (2) describe how agencies other than FinCEN are implementing those responsibilities and evaluate their coordination efforts, and (3) evaluate how FinCEN is implementing its BSA responsibilities. Among other things, GAO reviewed legislation, past GAO and Treasury reports, and agreements and guidance from all relevant agencies; and interviewed agency, association, and financial institution officials.

FinCEN is responsible for the administration of the BSA regulatory structure, and has delegated examination responsibility to the federal banking regulators (Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift Supervision, and National Credit Union Administration), the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Internal Revenue Service (IRS). The federal banking regulators, SEC, CFTC, securities and futures self-regulatory organizations (SRO), and state agencies also have their own separate authorities to examine for compliance among institutions they supervise and take enforcement actions for noncompliance. FinCEN has retained enforcement authority for BSA and may take enforcement actions independently or concurrently with the regulators. While federal agencies have enhanced their BSA compliance programs, opportunities exist to improve interagency and state examination coordination. The federal banking regulators issued an interagency examination manual; SEC, CFTC, and their respective SROs developed BSA examination modules; and FinCEN and IRS, which examines nonbank financial institutions (NBFI), issued an examination manual for money services businesses (MSB). However, IRS has not fully coordinated MSB examination schedules with the states that also examine MSBs, potentially missing opportunities to reduce duplication and leverage resources. The federal financial regulators traditionally have different compliance approaches for their industries. With respect to BSA, multiple regulators are examining for compliance with the same legislation across industries and, for some larger holding companies, within the same institution. However, they do not have a mechanism through which all regulators discuss (without industry present) how to promote greater consistency, reduce unnecessary regulatory burden, and identify concerns across industries. Federal banking regulators reported improved transparency and coordination of enforcement actions. While FinCEN has increased regulatory resources, provided examination support, and made advances in outreach, it could improve its informationsharing efforts. FinCEN improved its system for tracking referrals but lack of a process for communication between IRS and FinCEN for IRS referrals, coupled with IRS's limited enforcement authority, may delay timely feedback to IRS-examined institutions. FinCEN completed more information-sharing memorandums of understanding (MOU) with federal and state agencies, but did not sign its MOU with CFTC until January 2009, which limited their information-sharing efforts. Some state regulators and securities and futures regulators continue to have no electronic access to BSA data. Lack of direct access to BSA data impedes their ability to identify potential risk areas on which to focus their examinations and effectively leverage resources. FinCEN officials said they finalized a data-access template in July 2008, and had begun providing more electronic access.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To reduce the potential for duplicative efforts and better leverage limited examination resources, the Commissioner of IRS should work with state agencies to develop a process by which to coordinate MSB examination schedules between IRS and state agencies that conduct BSA examinations of MSBs.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: In May 2011, IRS Small Business/Self Employed (SB/SE) had finalized a process and guidance for conducting joint Bank Secrecy Act (BSA) and state examinations of money services businesses MSBs. The guidance explains how IRS and states will leverage resources to examine MSBs with the goals of providing a consistent approach and preventing duplicative efforts. To help support this effort, IRS worked with state regulators to develop a standard format for pre-examination document requests and for documenting exam findings and recommendations. These efforts will help to maximize the use of IRS and state resources and prevent duplicate efforts.

    Recommendation: Further, to build on improvements made in examination processes vital to ensuring BSA compliance, the heads of FinCEN, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), SEC, CFTC, and IRS should direct the appropriate staff to consider developing or using an existing process to share and discuss information on BSA/AML examination procedures and general trends regularly in a nonpublic setting.

    Agency Affected: Commodity Futures Trading Commission

    Status: Closed - Implemented

    Comments: In response to GAO's recommendation, the Federal Financial Institutions Examination Council (FFIEC) agencies (Federal Reserve, FDIC, OCC, OTS, and NCUA) used the existing Bank Secrecy Act/Anti-Money Laundering (BSA/AML) working group to invite the IRS, the SEC, and CFTC to attend regularly scheduled meetings once a quarter.The first meeting occurred in April 2009.

    Recommendation: Further, to build on improvements made in examination processes vital to ensuring BSA compliance, the heads of FinCEN, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), SEC, CFTC, and IRS should direct the appropriate staff to consider developing or using an existing process to share and discuss information on BSA/AML examination procedures and general trends regularly in a nonpublic setting.

    Agency Affected: United States Securities and Exchange Commission

    Status: Closed - Implemented

    Comments: In response to GAO's recommendation, the Federal Financial Institutions Examination Council (FFIEC) agencies (Federal Reserve, FDIC, OCC, OTS, and NCUA) used the existing Bank Secrecy Act/Anti-Money Laundering (BSA/AML) working group to invite the IRS, the SEC, and CFTC to attend regularly scheduled meetings once a quarter.The first meeting occurred in April 2009.

    Recommendation: Further, to build on improvements made in examination processes vital to ensuring BSA compliance, the heads of FinCEN, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), SEC, CFTC, and IRS should direct the appropriate staff to consider developing or using an existing process to share and discuss information on BSA/AML examination procedures and general trends regularly in a nonpublic setting.

    Agency Affected: Department of the Treasury: Office of Thrift Supervision

    Status: Closed - Implemented

    Comments: In response to our recommendation, SEC has been included in Federal Financial Institutions Examination Council (FFIEC) working group meetings with the federal banking regulators and the Financial Crimes Enforcement Network (FinCEN). SEC accepted an invitation to participate in these meetings once per quarter and attended its first meeting in April 2009.

    Recommendation: Further, to build on improvements made in examination processes vital to ensuring BSA compliance, the heads of FinCEN, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), SEC, CFTC, and IRS should direct the appropriate staff to consider developing or using an existing process to share and discuss information on BSA/AML examination procedures and general trends regularly in a nonpublic setting.

    Agency Affected: Federal Deposit Insurance Corporation

    Status: Closed - Implemented

    Comments: In response to GAO's recommendation, the Federal Financial Institutions Examination Council (FFIEC) agencies (Federal Reserve, FDIC, OCC, OTS, and NCUA) used the existing Bank Secrecy Act/Anti-Money Laundering (BSA/AML) working group to invite the IRS, the SEC, and CFTC to attend regularly scheduled meetings once a quarter.The first meeting occurred in April 2009.

    Recommendation: Further, to build on improvements made in examination processes vital to ensuring BSA compliance, the heads of FinCEN, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), SEC, CFTC, and IRS should direct the appropriate staff to consider developing or using an existing process to share and discuss information on BSA/AML examination procedures and general trends regularly in a nonpublic setting.

    Agency Affected: Federal Reserve System

    Status: Closed - Implemented

    Comments: In response to GAO's recommendation, the Federal Financial Institutions Examination Council (FFIEC) agencies (Federal Reserve, FDIC, OCC, OTS, and NCUA) used the existing Bank Secrecy Act/Anti-Money Laundering (BSA/AML) working group to invite the IRS, the SEC, and CFTC to attend regularly scheduled meetings once a quarter.The first meeting occurred in April 2009.

    Recommendation: Further, to build on improvements made in examination processes vital to ensuring BSA compliance, the heads of FinCEN, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), SEC, CFTC, and IRS should direct the appropriate staff to consider developing or using an existing process to share and discuss information on BSA/AML examination procedures and general trends regularly in a nonpublic setting.

    Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency

    Status: Closed - Implemented

    Comments: In response to GAO's recommendation, the Federal Financial Institutions Examination Council (FFIEC) agencies (Federal Reserve, FDIC, OCC, OTS, and NCUA) used the existing Bank Secrecy Act/Anti-Money Laundering (BSA/AML) working group to invite the IRS, the SEC, and CFTC to attend regularly scheduled meetings once a quarter.The first meeting occurred in April 2009.

    Recommendation: Further, to build on improvements made in examination processes vital to ensuring BSA compliance, the heads of FinCEN, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), SEC, CFTC, and IRS should direct the appropriate staff to consider developing or using an existing process to share and discuss information on BSA/AML examination procedures and general trends regularly in a nonpublic setting.

    Agency Affected: Department of the Treasury: Financial Crimes Enforcement Network

    Status: Closed - Implemented

    Comments: The Federal Financial Institutions Examination Council (FFIEC) Bank Secrecy Act/Anti-Money Laundering (BSA/AML) working group meetings(consisting of FinCEN, the Federal Reserve, FDIC, OCC, OTS, NCUA, and the Conference of State Bank Supervisors) provides an opportunity to use The FFIEC extended invitations the IRS, the SEC, and CFTC to participate in regularly scheduled meetings once a quarter. The first meeting occurred in April 2009.

    Recommendation: Further, to build on improvements made in examination processes vital to ensuring BSA compliance, the heads of FinCEN, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), SEC, CFTC, and IRS should direct the appropriate staff to consider developing or using an existing process to share and discuss information on BSA/AML examination procedures and general trends regularly in a nonpublic setting.

    Agency Affected: National Credit Union Administration

    Status: Closed - Implemented

    Comments: In response to our recommendation, CFTC has been included in Federal Financial Institutions Examination Council (FFIEC) working group meetings with the federal banking regulators and the Financial Crimes Enforcement Network (FinCEN). CFTC has been invited to participate in these meetings once per quarter, with the first such meeting occurring in April 2009. CFTC also participates in a number of other interagency groups including the Data Management Council and the Bank Fraud Working Group, which CFTC believes allows for significant information sharing including information regarding examination procedures.

    Recommendation: Further, to build on improvements made in examination processes vital to ensuring BSA compliance, the heads of FinCEN, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), SEC, CFTC, and IRS should direct the appropriate staff to consider developing or using an existing process to share and discuss information on BSA/AML examination procedures and general trends regularly in a nonpublic setting.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: In response to GAO's recommendation, the Federal Financial Institutions Examination Council (FFIEC) agencies (Federal Reserve, FDIC, OCC, OTS, and NCUA) used the existing Bank Secrecy Act/Anti-Money Laundering (BSA/AML) working group to invite the IRS, the SEC, and CFTC to attend regularly scheduled meetings once a quarter.The first meeting occurred in April 2009.

    Recommendation: The heads of SEC and CFTC should consider including the SROs that conduct BSA examinations.

    Agency Affected: United States Securities and Exchange Commission

    Status: Closed - Implemented

    Comments: SEC made a formal request to the AML Working Group of the Federal Financial Institutions Examination Council (FFIEC) to include representatives from the Financial Industry Regulatory Authority (FINRA) (the largest securities firm self-regulatory organization) to in the quarterly meetings SEC is now invited to with the banking regulators. In addition, staff from the SEC and FINRA meet on a quarterly basis to discuss BSA and anti-money laundering issues, and at the invitation of SEC staff, representatives from OCC, and the Federal Reserve recently attended a quarterly meeting. SEC and FINRA plan to continue to invite representatives from each of the federal financial regulators to these quarterly meetings on a regular basis.

    Recommendation: The heads of SEC and CFTC should consider including the SROs that conduct BSA examinations.

    Agency Affected: Commodity Futures Trading Commission

    Status: Closed - Not Implemented

    Comments: CFTC does not believe including SROs in interagency meetings is advisable because (1) concerns have been raised about whether meetings fall under the Federal Advisory Act and therefore may be subject to access restrictions on SROs, and (2) the CFTC is not aware of any mechanism under the BSA to enforce SAR confidentiality restrictions upon SROs, and discussions of specific SAR details have occurred in past interagency meetings.

    Recommendation: To improve its efforts to administer BSA, the Director of FinCEN should expeditiously work with the Commissioner of IRS to establish a mutually agreed-upon process that facilitates communication on IRS referrals and ensures timely feedback to IRS-examined institutions

    Agency Affected: Department of the Treasury: Financial Crimes Enforcement Network

    Status: Closed - Implemented

    Comments: FinCEN and IRS will meet to establish a mutually agreed-upon process for the timely delivery and resolution of matters of noncompliance. As agreed at an April 2009, meeting, FinCEN and IRS plan to establish a working group to create procedures, including proposed time frames for making appropriate enforcement decisions. In May 2010, FinCEN and IRS finalized a referral process plan which outlines the steps each agency will take to coordinate and process AML deficiency referrals that IRS have sent to FinCEN based on findings from IRS BSA examinations. The plan includes instructions for FinCEN and IRS staff on circumstances and timing for contacting staff from the other agency to discuss referrals and make each other aware of any actions, as well as establishes time frames for making decisions regarding referrals and providing feedback to financial institutions. In addition, the plan also creates mechanisms for FinCEN and IRS staff to communicate on a regular basis to discuss the status of IRS referrals.

    Recommendation: To improve its efforts to administer BSA, the Director of FinCEN should expeditiously finalize data-access MOUs with SROs conducting BSA examinations, and states agencies conducting anti-money laundering (AML) examinations that currently have no direct access to BSA data.

    Agency Affected: Department of the Treasury: Financial Crimes Enforcement Network

    Status: Closed - Implemented

    Comments: Since the issuance of our report in February 2009, FinCEN has signed eight new data access MOUs with state regulatory agencies and also signed 12 expanded data access MOUs with state agencies that previously had more limited access agreements. In 2010, FinCEN began a multi-year information technology modernization program that included the development of FinCEN Query, a new system for authorized users, including regulatory agencies, to query BSA data. FinCEN Query became available in fall 2012. FinCEN is currently in the process of signing MOUs with five additional state regulatory agencies that requested access. After these MOUs are completed, FinCEN estimated that it will have data access agreements with 80 percent of state agencies that conduct BSA examinations. FinCEN stated that it will then contact any state regulatory agencies that have not requested access to BSA data to ascertain their interest. As of early September 2013, FinCEN was in the process of completing a data access MOU with securities SRO, FINRA. Prior to issuance of our report, FinCEN signed a data access MOU with CFTC. FinCEN will not pursue a data access MOU with the commodities SRO - National Futures Association based on CFTC's recommendation.

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