Moving Illegal Proceeds:

Opportunities Exist for Strengthening the Federal Government's Efforts to Stem Cross-Border Currency Smuggling

GAO-11-407T: Published: Mar 9, 2011. Publicly Released: Mar 9, 2011.

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This testimony discusses federal efforts to stem currency smuggling across our nation's borders. Mexican drug-trafficking organizations, terrorist organizations, and other groups with malevolent intent finance their operations by moving funds into or out of the United States. For example, a common technique used for taking proceeds from drug sales in the United States to Mexico is a method known as bulk cash smuggling. The National Drug Intelligence Center (NDIC) has stated that proceeds from drug trafficking generated in this country are smuggled across the southwest border and it estimates that the proceeds total from $18 billion to $39 billion a year. NDIC also estimates that Canadian drug-trafficking organizations smuggle significant amounts of cash across the northern border from proceeds of drugs sold in the United States. In addition to bulk cash smuggling, 21st century methods and technologies of laundering money have emerged. In 2009, NDIC stated that new financial products and technologies present unique opportunities for money launderers as well as unprecedented challenges to the intelligence, law enforcement, and regulatory communities. NDIC and others cited the use of prepaid cards or gift cards that are loaded with currency or value--also called stored value--as presenting a compact and easily transportable method to move money into and out of the United States. U.S. Customs and Border Protection (CBP)--a major component in the Department of Homeland Security (DHS)--is the lead federal agency in charge of securing our nation's borders. In March 2009, the Secretary of Homeland Security called on CBP to help stem the flow of bulk cash and weapons moving south by inspecting travelers leaving the United States for Mexico--an effort called outbound operations. In addition, the Financial Crimes Enforcement Network (FinCEN)--a bureau in the Department of the Treasury (Treasury)--seeks to deter and detect criminal activity and safeguard the financial system from the risk that terrorists and other criminals may fund their operations through financial institutions in the United States. Among other things, FinCEN is responsible for administering laws aimed at preventing criminals from abusing U.S. financial systems. This testimony is based on our October 2010 report on cross-border currency smuggling and updated information on bulk cash seizures and the status of one our recommendations. Like the report, it will cover the following three issues: (1) the actions CBP has taken to stem the flow of bulk cash leaving the country through land ports of entry and the challenges that remain, (2) the regulatory gaps that exist for cross-border reporting and other anti-money laundering requirements involving the use of stored value, and (3) the extent to which FinCEN has taken action to address these regulatory gaps.

In March 2009, CBP reestablished the Outbound Enforcement Program within its Office of Field Operations. As a result of its outbound enforcement activities, CBP seized about $67 million in illicit bulk cash leaving the country at land ports of entry--97 percent of which was seized along the southwest border-- from March 2009 through February 22, 2011. Total seizures account for a small percentage of the estimated $18 billion to $39 billion in illicit proceeds being smuggled across the southwest border annually. CBP has succeeded in establishing an Outbound Enforcement Program, but the program is in its early phases and there is a general recognition by CBP managers and officers that the agency's ability to stem the flow of bulk cash is limited because of the inherent difficulty in identifying travelers who attempt to smuggle cash. Beyond this inherent difficulty, in our October 2010 report we identified management challenges in three main areas. First, addressing limitations in staffing, infrastructure, and technology, among other things, could require substantial capital investments at all ports of entry. For example, license plate readers are available at 48 of 118 outbound lanes on the southwest border and none of the 179 outbound lanes on the northern border. Second, policies and procedures to ensure the safety of officers involved in outbound operations are not in place. In our October 2010 report, we recommended that CBP direct and ensure that managers at land ports of entry develop policies and procedures that address officer safety. At all five ports of entry we visited, we observed that officers used the side of the highway to conduct secondary inspections, while other vehicles moved past, potentially endangering officers. At one port of entry, officers conducted inspections of the underside of vehicles by lying on the ground with their legs exposed while traffic moved by in neighboring lanes at speeds up to approximately 25 miles per hour. CBP concurred with our recommendation and stated that it will, among other things, require each port director to develop procedures that address the safety challenges at the port of entry. Third, CBP has developed a strategic plan for its outbound program, but it has yet to develop a performance measure that assesses the effectiveness of the program. In our October 2010 report, we recommended that CBP develop a performance measure that informs CBP management, Congress, and other stakeholders about the extent to which the Outbound Enforcement Program is effectively stemming the flow of bulk cash and other illegal goods by working with other federal law enforcement agencies. CBP concurred with our recommendation. In February 2011, CBP issued a performance measure for its outbound program that involves the amount of currency and the number of weapons seized, however, this does not fully address our recommendation because it does not measure the degree to which the program is effectively stemming the flow of bulk cash, weapons, and other goods that result from criminal activities. CBP stated in response to our recommendation that it would, among other things, investigate the use of a random sampling process in the outbound environment that would provide statistically valid compliance results for outbound operations.

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