This is the accessible text file for GAO report number GAO-03-813 
entitled 'Combating Money Laundering: Opportunities Exist to Improve 
the National Strategy' which was released on October 27, 2003.

This text file was formatted by the U.S. General Accounting Office 
(GAO) to be accessible to users with visual impairments, as part of a 
longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov.

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately.

Report to Congressional Requesters:

United States General Accounting Office:

GAO:

September 2003:

COMBATING MONEY LAUNDERING:

Opportunities Exist to Improve the National Strategy:

Combating Money Laundering:

GAO-03-813:

GAO Highlights:

Highlights of GAO-03-813, a report to congressional requesters

Why GAO Did This Study:

Money laundering is a serious crime, with hundreds of billions of 
dollars laundered annually. Congress passed the Money Laundering and 
Financial Crimes Strategy Act of 1998 to better coordinate the efforts 
of law enforcement agencies and financial regulators in combating 
 money laundering. This act required the issuance of an annual 
National Money Laundering Strategy for 5 years, ending with the 
issuance of the 2003 strategy. To help with deliberations on 
reauthorization, as agreed with your offices, GAO determined (1) 
agency perspectives on the benefit of the strategy and factors that 
affected its development and implementation, (2) whether the strategy 
has served as a useful mechanism for guiding the coordination of 
federal law enforcement agencies’ efforts, (3) the role of the 
strategy in influencing the activities of federal financial 
regulators, and (4) whether the strategy has reflected key critical 
components.

What GAO Found:

Treasury, Justice, and financial regulatory officials with whom GAO 
spoke said that the National Money Laundering Strategy was initially 
beneficial but that, over time, certain factors and events affected 
its development and implementation. They endorsed the concept of a 
strategy to coordinate the federal government’s efforts to combat 
money laundering and related financial crimes. They also said that the 
strategy initially had a positive effect on promoting interagency 
planning and communication, but different agency views emerged over 
the scope and commitment required, and other events affected the 
strategy, such as the September 11 terrorist attacks and the creation 
of the Department of Homeland Security.  

The strategy generally has not served as a useful mechanism for 
guiding the coordination of federal law enforcement agencies’ efforts 
to combat money laundering and terrorist financing. While Treasury and 
Justice made progress on some strategy initiatives designed to enhance 
interagency coordination of money laundering investigations, most have 
not achieved the expectations called for in the annual strategies. 
Also, the 2002 strategy did not address agency roles in investigating 
terrorist financing, thus, it did not help resolve potential 
duplication of efforts and disagreements over which agency should lead 
investigations. In May 2003, Justice and Homeland Security reached an 
agreement aimed at resolving these problems.

Most financial regulators GAO interviewed said that the strategy had 
some influence on their anti-money laundering efforts because it 
provided a forum for enhanced coordination, particularly with law 
enforcement agencies. However, they said that it has had less 
influence than other factors. They described several other influences 
on their efforts, particularly their ongoing oversight 
responsibilities in ensuring compliance with the Bank Secrecy Act and, 
more recently, the USA PATRIOT Act, which was passed in October 2001 
to fight terrorist financing and increase anti-money laundering 
efforts. 

GAO’s work reviewing national strategies has identified several 
critical components needed for development and implementation; 
however, key components have not been well reflected in the strategy. 
The first is clearly defined leadership, with the ability to marshal 
necessary resources. However, the leadership for the strategy has not 
agreed on the strategy’s scope or ensured that target dates for 
completing initiatives were met. The second is clear priorities, as 
identified by threat and risk assessments, to help focus resources on 
the greatest needs. Each strategy contained more priorities than could 
be realistically achieved and none of the strategies was linked to a 
threat and risk assessment. The third is that established 
accountability mechanisms provide a basis for monitoring and assessing 
program performance. While later strategies contained several 
initiatives designed to establish performance measures, as of July 
2003, none had yet been completed. Officials attributed this to the 
difficulty in establishing such measures for combating money 
laundering.

What GAO Recommends:

GAO recommends that, if the requirement for a national strategy is 
reauthorized, the Secretaries of the Treasury and Homeland Security 
and the Attorney General strengthen the leadership structure for 
strategy development and implementation, require processes to ensure 
key priorities are identified, and establish accountability 
mechanisms. The departments generally concurred with GAO’s report.

www.gao.gov/cgi-bin/getrpt?GAO-03-813.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Rich Stana at (202) 
512-8777 or Davi D'Agostino at (202) 512-8678.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Early Benefit of the NMLS Was Affected by Certain Factors and Events:

NMLS Generally Has Not Been as Useful as Envisioned for Guiding the 
Coordination of Law Enforcement Efforts:

NMLS Has Had Some Influence on Financial Regulators' Efforts, but Other 
Factors Played a Larger Role:

The Annual NMLS Has Not Reflected Critical Components Identified by GAO 
as Key to Developing and Implementing National Strategies:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendix I: Scope and Methodology:

Appendix II: Legislation Has Expanded the Responsibility to Combat Money 
Laundering:

Appendix III: Summary of Key Anti-Money Laundering Provisions in Title 
III of the USA PATRIOT Act and Rules:

Appendix IV: Comments from the Department of the Treasury:

Appendix V: Comments from the Department of Justice:

Appendix VI: Comments from the Department of Homeland Security:

Appendix VII: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Acknowledgments:

Related GAO Products:

Tables:

Table 1: NMLS Goals, Objectives, and Priorities, 1999 through 2002:

Table 2: Status of HIFCA Task Forces as of May 2003:

Table 3: Status of NMLS Initiatives Related to HIFCA Oversight:

Table 4: NMLS Initiatives to Review Bank Examination Procedures, as of 
July 2003:

Table 5: Annual NMLS--Dates Submitted to Congress:

Table 6: Status of 2002 NMLS Initiatives Designed to Measure 
Performance:

Figures:

Figure 1: The Three Stages of Money Laundering:

Figure 2: Principal Agencies Responsible for NMLS before the Creation 
of DHS:

Figure 3: Principal Agencies Responsible for NMLS after the Creation of 
DHS:

Abbreviations:

AFMLS: Asset Forfeiture and Money Laundering Section:

BSA: Bank Secrecy Act:

CFTC: Commodity Futures Trading Commission:

DEA: Drug Enforcement Administration:

DHS: Department of Homeland Security:

EOUSA: Executive Office for U.S. Attorneys:

FBI: Federal Bureau of Investigation:

FDIC: Federal Deposit Insurance Corporation:

FinCEN: Financial Crimes Enforcement Network:

FRB: Federal Reserve Board:

HIFCA: High Intensity Money Laundering and Related Financial Crime Area:

ICE: Bureau of Immigration and Customs Enforcement:

IRS-CI: Internal Revenue Service-Criminal Investigation:

JTTF: Joint Terrorism Task Force:

MLCA: Money Laundering Control Act of 1986:

NCUA: National Credit Union Administration:

NMLS: National Money Laundering Strategy:

OCC: Office of the Comptroller of the Currency:

OGQ: Operation Green Quest:

OTS: Office of Thrift Supervision:

SAR: Suspicious Activity Report:

SEC: Securities and Exchange Commission:

TFOS: Terrorist Financing Operations Section:

USA PATRIOT Act: Uniting and Strengthening America by Providing 
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 
2001:

United States General Accounting Office:

Washington, DC 20548:

September 26, 2003:

The Honorable Charles E. Grassley 
Chairman, 
Caucus on International Narcotics Control 
United States Senate:

The Honorable Carl Levin 
Ranking Minority Member 
Permanent Subcommittee on Investigations 
Committee on Governmental Affairs 
United States Senate:

Money laundering--the process of disguising or concealing illicit funds 
to make them appear legitimate--is a serious issue, with an estimated 
$500 billion to $1 trillion laundered worldwide annually, according to 
the United Nations Office of Drug Control and Prevention. Money 
laundering provides the fuel for drug dealers, arms traffickers, 
terrorists, and other criminals to operate and expand their activities, 
which can have devastating social and economic consequences.

Although the U.S. government had been working to combat money 
laundering for many years, efforts by law enforcement and regulatory 
agencies took on particular urgency, as the operations of large-scale 
criminal organizations grew increasingly sophisticated. To better 
coordinate the anti-money laundering efforts of federal, state, and 
local law enforcement agencies and financial regulators, Congress 
enacted the Money Laundering and Financial Crimes Strategy Act of 1998 
(Strategy Act).[Footnote 1] This act called for the annual issuance of 
a strategy to combat money laundering--the National Money Laundering 
Strategy (NMLS). This requirement will end with the issuance of the 
2003 strategy unless reauthorized by Congress. In anticipation of 
reauthorization discussions, Congress is interested in knowing how the 
strategy has affected coordination and whether improvements could be 
made to increase its benefits.

While money laundering first became a federal crime in 1986 with the 
passage of the Money Laundering Control Act,[Footnote 2] law 
enforcement and the federal financial regulators had sought to protect 
the U.S. financial system from certain types of criminal activity since 
the passage of the Bank Secrecy Act (BSA) in 1970, which instituted 
currency reporting requirements.[Footnote 3] By periodically amending 
the BSA, Congress has added anti-money laundering requirements for many 
types of financial institutions and transactions. Such amendments and 
the resulting regulations have increased the number of federal agencies 
with responsibility for ensuring compliance with anti-money laundering 
requirements, thereby creating a need to coordinate the efforts of 
numerous financial regulatory and law enforcement agencies. Appendix II 
describes major anti-money laundering legislation since 1970.

The Strategy Act requires the President--acting through the Secretary 
of the Treasury and in consultation with the Attorney General and other 
relevant federal, state, and local law enforcement and regulatory 
officials--to develop and submit the annual NMLS to Congress by 
February 1 of each year from 1999 through 2003. The goal of the 
Strategy Act is to increase coordination and cooperation among the 
various regulatory and enforcement agencies and to effectively 
distribute resources to combat money laundering. The Strategy Act 
requires the NMLS to define comprehensive, research-based goals, 
objectives, and priorities for reducing money laundering and related 
financial crime in the United States. The NMLS has generally included 
multiple priorities to combat money laundering to guide federal 
agencies' activities. Additionally, the Strategy Act authorizes the 
Secretary of the Treasury to designate High Intensity Money Laundering 
and Related Financial Crime Areas (HIFCA), in which federal, state, and 
local law enforcement would work cooperatively to develop a focused and 
comprehensive approach to targeting money laundering 
activity.[Footnote 4]

In the wake of the September 11, 2001, terrorist attacks, Congress 
passed the Uniting and Strengthening America by Providing Appropriate 
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA 
PATRIOT Act) to, among other things, both fight terrorist financing and 
increase anti-money laundering efforts through further expansion of the 
types of financial institutions and transactions that are subject to 
anti-money laundering record keeping and reporting 
requirements.[Footnote 5] The NMLS has also changed to reflect new 
federal priorities in the aftermath of September 11, 2001, including a 
goal to combat terrorist financing in 2002.

To assist in congressional deliberations on whether there is a 
continuing need for an annual NMLS, this report discusses the results 
of our review of the development and implementation of the 1999 through 
2002 strategies. Specifically, as agreed with your offices, our 
objectives were to determine (1) agency perspectives on the benefit of 
the NMLS and factors that affected its development and implementation, 
(2) whether the strategy has served as a useful mechanism for guiding 
the coordination of federal law enforcement agencies' efforts to combat 
money laundering and terrorist financing, (3) the role of the NMLS in 
influencing the anti-money laundering and antiterrorist financing 
activities of the federal financial regulators, and (4) whether the 
NMLS has reflected the critical components we have found to be 
necessary for the development and implementation of such a strategy.

To determine agency perspectives on the benefit of the NMLS, we 
interviewed responsible officials at and reviewed relevant 
documentation obtained from the principal law enforcement components 
with anti-money laundering responsibilities at the Departments of the 
Treasury, Justice, and Homeland Security and the federal financial 
regulatory agencies.[Footnote 6] In general, our work reviewing the 
strategy's usefulness for guiding the coordination of law enforcement 
agencies' efforts consisted of (1) examining the structure and 
operation of HIFCA task forces, (2) analyzing the implementation of 
NMLS initiatives to enhance interagency coordination, and (3) assessing 
the extent to which the 2002 NMLS addressed agency roles in combating 
terrorist financing. We did this by interviewing relevant agency 
officials, reviewing agency policies for coordination, evaluating 
staffing levels and other resources devoted to NMLS initiatives, and 
reviewing the NMLS. Our work determining the role of the NMLS in 
influencing the efforts of the federal financial regulators focused 
primarily on the NMLS goal that sought to coordinate their efforts. In 
2002, the goal was, "Prevent Money Laundering Through Cooperative 
Public-Private Efforts and Necessary Regulatory Measures." This goal 
had similar titles in earlier strategies (see table 1). We also 
examined the role the financial regulators played in supporting 
Treasury's efforts under the NMLS goal to strengthen international 
cooperation to fight money laundering. To do this, we interviewed 
financial regulatory, Treasury, and law enforcement agency officials. 
We also reviewed regulatory examination guidelines, policies, and 
training information. To determine whether the NMLS reflected 
components we have found necessary for national strategies, we reviewed 
drafts of the strategies from 1999 to 2002, interviewed officials that 
had been involved in the development and implementation of the 
strategies, and compared the results from this work with findings from 
our past work reviewing national strategies and their implementation.

We conducted our work from June 2002 to August 2003 in accordance with 
generally accepted government auditing standards. Additional 
information on our scope and methodology is discussed in appendix I.

Results in Brief:

The Treasury, Justice, and financial regulatory agency officials we 
interviewed generally agreed that the NMLS was initially beneficial but 
that, over time, certain factors and events affected its development 
and implementation. The officials endorsed the concept of a strategy to 
coordinate the federal government's efforts to combat money laundering 
and related financial crimes. Generally, the officials commented that 
the annual NMLS probably was more beneficial in the first 2 years (1999 
and 2000) than in the subsequent years (2001 and 2002). For example, 
Treasury officials said that the NMLS was initially instrumental in 
focusing on the need to combat money laundering systemically and not 
solely on a case-by-case basis. However, different agency views emerged 
about the appropriate scope of the NMLS and the level of agency 
commitment to the strategy that was required. Thus, the officials said 
the strategy did not reach its potential for integrating and 
harmonizing the nation's efforts to combat money laundering and related 
financial crimes. In addition, other events affected or delayed the 
strategy's implementation. For example, changes in the administration 
and senior agency officials led to major revisions to the NMLS in 2001 
and 2002. In addition, the 2001 strategy was issued on September 12, 
2001. Subsequent to the attacks of September 11, the government's focus 
changed to terrorist financing, making money laundering less of a 
priority. More recently, the 2003 strategy was delayed, in part, 
because the creation of the Department of Homeland Security (DHS) 
brought a new player into the mix with the transfer of Treasury's 
enforcement functions and staff to the new department.

As a mechanism for guiding the coordination of federal law enforcement 
agencies' efforts to combat money laundering and related financial 
crimes, the NMLS has had mixed results but generally has not been as 
useful as envisioned by the Strategy Act. For example, although 
expected to have a central role in coordinating law enforcement 
agencies' efforts to combat money laundering, HIFCA task forces 
generally had not yet been structured and operating as intended and had 
not reached their expectations for leveraging investigative resources 
or creating investigative synergies. In some cases, federal law 
enforcement agencies had not provided the levels of commitment and 
staffing to the task forces called for by the strategy. Further, while 
Treasury and Justice made progress on some NMLS initiatives designed to 
enhance interagency coordination of money laundering investigations, 
most had not achieved the expectations called for in the annual 
strategies, including plans to (1) use a centralized system to 
coordinate investigations and (2) develop uniform guidelines for 
undercover investigations. Headquarters officials cited differences in 
the various agencies' anti-money laundering priorities as a primary 
reason why initiatives had not achieved their expectations. Moreover, 
due to difficulties in reaching agreement over which agency should lead 
investigations, the 2002 NMLS did not address agency and task force 
roles and interagency coordination procedures for investigating 
terrorist financing. Law enforcement officials told us that the lack of 
clearly defined roles and coordination procedures contributed to 
duplication of efforts and disagreements over which agency should lead 
investigations. To help resolve these long-standing jurisdictional 
issues, in May 2003, the Attorney General and the Secretary of Homeland 
Security signed a memorandum of agreement regarding roles and 
responsibilities in investigating terrorist financing. It is too soon 
to determine whether the agreement will be successful in resolving 
these issues.

Most financial regulators we interviewed said that the NMLS had some 
influence on their anti-money laundering efforts because it provided a 
forum for enhanced coordination, particularly with law enforcement 
agencies. Law enforcement agency officials said the level of 
coordination between their agencies and the financial regulators was 
good. However, the financial regulators also said that other factors 
had more influence on them than the strategy. For example, the 
financial regulators cited their ongoing oversight responsibilities in 
ensuring compliance with the BSA as a primary influence on them. 
Another influence has been anti-money laundering working groups, some 
of which were initiated by the financial regulators or law enforcement 
agencies prior to enactment of the Strategy Act. The officials said 
that the U.S. government's reaction to September 11, which included a 
change in government perspective and new regulatory requirements placed 
on financial institutions by the USA PATRIOT Act, has driven their 
recent anti-money laundering and antiterrorist financing efforts. 
Although the financial regulators said that the NMLS had less influence 
on their anti-money laundering activities than other factors, they have 
completed the tasks for which the NMLS designated them as lead agencies 
over the years, as well as most of the tasks for which they were to 
provide support to Treasury.

In recent years, our work in reviewing national strategies for various 
crosscutting issues has identified several critical components needed 
for their development and implementation, including effective 
leadership, clear priorities, and accountability mechanisms.[Footnote 
7] For a variety of reasons, these critical components generally have 
not been fully reflected in the development and implementation of the 
annual NMLS. For example, the joint Treasury-Justice leadership 
structure that was established to oversee NMLS-related activities 
generally has not resulted in (1) reaching agreement on the appropriate 
scope of the strategy; (2) ensuring that target dates for completing 
strategy initiatives were met; and (3) issuing the annual NMLS by 
February 1 of each year, as required by the Strategy Act. Although 
Treasury generally took the lead role in strategy-related activities, 
the department had no incentives or authority to get other departments 
and agencies to provide necessary resources and participation. Also, 
the annual strategies have not identified and prioritized issues that 
required the most immediate attention. Each strategy has contained more 
priorities than could be realistically achieved, the priorities have 
not been ranked in order of importance, and no priority has been 
explicitly linked to a threat and risk assessment. Further, although 
the 2001 and 2002 strategies contained initiatives to measure program 
performance, none had been used to ensure accountability for results. 
Officials attributed this to the difficulty in establishing such 
measures for combating money laundering. In addition, Treasury has not 
provided annual reports to Congress on the effectiveness of policies to 
combat money laundering and related financial crimes, as required by 
the Strategy Act.

If Congress reauthorizes the requirement for an annual NMLS, this 
report provides recommendations for the Secretary of the Treasury, 
working with the Attorney General and the Secretary of Homeland 
Security, to (1) strengthen the leadership structure responsible for 
strategy development and implementation, (2) ensure that clear 
priorities are identified, and (3) establish accountability mechanisms, 
so that the NMLS better meets its interagency coordination and 
cooperation expectations.

In commenting on a draft of this report, Treasury said that our 
recommendations are important, should Congress reauthorize the 
legislation requiring future strategies; Justice said that our 
observations and conclusions will be helpful in assessing the role that 
the strategy process has played in the federal government's efforts to 
combat money laundering; and DHS said that it agreed with our 
recommendations. The seven federal financial regulatory agencies did 
not address our recommendations, although the Federal Deposit Insurance 
Corporation (FDIC) noted that should a national money laundering 
strategy continue, annual goals should be achievable and roles and 
responsibilities clearly defined. The National Security Council did not 
respond to our request for comments.

Background:

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.

Figure 1: The Three Stages of Money Laundering:

[See PDF for image]

[End of figure]

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.

Many Agencies Are Responsible for Combating 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).[Footnote 8]

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.[Footnote 9] 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.

Figure 2: Principal Agencies Responsible for NMLS before the Creation 
of DHS:

[See PDF for image]

[End of figure]

Figure 3: Principal Agencies Responsible for NMLS after the Creation of 
DHS:

[See PDF for image]

[End of figure]

NMLS Was Intended to Coordinate the U.S. Government's Anti-Money 
Laundering Efforts:

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.

Table 1: NMLS Goals, Objectives, and Priorities, 1999 through 2002:

NMLS year: 1999; NMLS goals: 1. Strengthening domestic enforcement to 
disrupt the flow of illicit money; Objectives: 8; Priorities[A]: 21.

NMLS goals: 2. Enhancing regulatory and cooperative public-
private efforts to prevent money laundering; Objectives: 7; 
Priorities[A]: 15.

NMLS goals: 3. Strengthening partnerships with state and 
local governments to fight money laundering throughout the United 
States; Objectives: 5; Priorities[A]: 5.

NMLS goals: NMLS yearTotal: 4. Strengthening international cooperation 
to disrupt the global flow of illicit money; Objectives: NMLS 
yearTotal: 6; Priorities[A]: 25.

Total; Objectives: 26; Priorities[A]: 66.

NMLS year: 2000; NMLS goals: 5. Strengthening domestic enforcement to 
disrupt the flow of illicit money; Objectives: 9; Priorities[A]: 18.

NMLS goals: 6. Enhancing regulatory and cooperative public-
private efforts to prevent money laundering; Objectives: 7; 
Priorities[A]: 16.

NMLS goals: 7. Strengthening partnerships with state and 
local governments to fight money laundering throughout the United 
States; Objectives: 4; Priorities[A]: 5.

NMLS goals: 8. Strengthening international cooperation 
to disrupt the global flow of illicit money; Objectives: 7; 
Priorities[A]: 19.

Total; Objectives: 27; Priorities[A]: 58.

NMLS year: 2001; NMLS goals: 9. Focus law enforcement efforts on the 
prosecution of major money laundering organizations and systems; 
Objectives: 5; Priorities[A]: 15.

NMLS goals: 10. Measure the effectiveness of anti-money 
laundering efforts; Objectives: 1; Priorities[A]: 4.

NMLS goals: 11. Prevent money laundering through cooperative 
public-private efforts and necessary regulatory measures; Objectives: 
4; Priorities[A]: 13.

NMLS goals: 12. Coordinate law enforcement efforts with 
state and local governments to fight money laundering throughout the 
United States; Objectives: 3; Priorities[A]: 6.

NMLS goals: 13. Strengthening international cooperation 
to combat the global problem of money laundering; Objectives: 5; 
Priorities[A]: 13.

Total; Objectives: 18; Priorities[A]: 51.

NMLS year: 2002; NMLS goals: 14. Measure the effectiveness of anti-
money laundering efforts; Objectives: 2; Priorities[A]: 9.

NMLS goals: 15. Focus law enforcement and regulatory 
resources on identifying, disrupting, and dismantling terrorist 
financing networks; Objectives: 3; Priorities[A]: NMLS 
year: 11.

NMLS goals: 16. Increase the investigation and prosecution 
of major money laundering organizations and systems; Objectives: NMLS 
year: 4; Priorities[A]: 11.

NMLS goals: 17. Prevent money laundering through cooperative 
public-private efforts and necessary regulatory measures; Objectives: 
2; Priorities[A]: 7.

NMLS goals: 18. Coordinate law enforcement efforts with 
state and local governments to fight money laundering throughout the 
United States; Objectives: 3; Priorities[A]: 5.

NMLS goals: 19. Strengthen international anti-money 
laundering regimes; Objectives: 5; Priorities[A]: 10.

Total; Objectives: 19; Priorities[A]: 50.

Source: NMLS 1999 to 2002.

[A] The NMLS for 1999 and 2000 used the term "Action Item," and the 
NMLS for 2001 and 2002 used the term "Priority.":

[End of table]

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.[Footnote 10] 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.[Footnote 11]

* 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.

Early Benefit of the NMLS Was Affected by Certain Factors and Events:

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. This redrafting 
process caused the NMLS to be issued very late, leaving little time to 
implement any goals or objectives before drafting the 2002 NMLS.

The officials said that the implementation of the recent strategies has 
been affected most significantly by external events--particularly 
September 11, 2001, and its aftermath, which included passage of the 
USA PATRIOT Act and the creation of DHS. Treasury and Justice officials 
said that the 2001 NMLS, which was issued on September 12, 2001, was 
virtually obsolete at issuance because the nature of the issues they 
faced had just changed dramatically. After September 11, combating 
terrorist financing became a major element of the federal government's 
anti-money laundering efforts, but it was not part of the 2001 NMLS.

The passage of the USA PATRIOT Act increased the requirements on many 
financial institutions for conducting due diligence, record keeping, 
reporting, and sharing information. Because implementing the USA 
PATRIOT Act became the main focus for the financial regulators in the 
2002 NMLS, financial regulators attributed their efforts to the USA 
PATRIOT Act rather than the NMLS. The creation of DHS required the 
transfer of most of the law enforcement functions and staff from 
agencies formerly under Treasury to the new agency. Justice anti-money 
laundering components remained in Justice. Treasury and Justice 
officials said that the implementation of some 2002 NMLS priorities was 
delayed pending formation of the new department. They also said that 
issuance of the 2003 NMLS has been delayed by the same disruptions.

NMLS Generally Has Not Been as Useful as Envisioned for Guiding the 
Coordination of Law Enforcement Efforts:

As a mechanism for guiding the coordination of federal law enforcement 
agencies' efforts to combat money laundering and related financial 
crimes, the NMLS has had mixed results and--according to the evidence 
we reviewed and the officials we contacted--generally has not been as 
useful as envisioned by the Strategy Act. For example, although 
expected to have a key role in the federal government's efforts to 
disrupt and dismantle large-scale money laundering organizations, HIFCA 
task forces generally were not yet structured and operating as intended 
and had not reached their expectations for leveraging investigative 
resources or creating investigative synergies. Further, while Treasury 
and Justice made progress on some NMLS initiatives designed to enhance 
interagency coordination of money laundering investigations, most had 
not achieved the expectations called for in the annual strategies. 
Moreover, the 2002 NMLS did not address agency roles and interagency 
coordination procedures for conducting terrorist financing 
investigations.

HIFCA Task Forces Generally Had Not Yet Been Structured and Operating 
as Intended:

As envisioned by the Strategy Act, HIFCAs represent a major NMLS 
initiative and were expected to have a flagship role in the U.S. 
government's efforts to disrupt and dismantle large-scale money 
laundering operations. They were intended to improve the coordination 
and quality of federal money laundering investigations by concentrating 
the investigative expertise of federal, state, and local agencies in 
unified task forces, thereby leveraging resources and creating 
investigative synergies. While neither the Strategy Act nor the annual 
NMLS specified a time frame for when designated HIFCAs were to become 
fully operational, we found that the task forces had made some progress 
but generally had not yet been structured and operating as intended. As 
of July 2003, Treasury and Justice were in the process of reviewing the 
HIFCA task forces to remove obstacles to their effective operations. 
The results of this review could provide useful input for an evaluation 
report on the HIFCA program, which the Strategy Act requires Treasury 
to submit to the Congress in 2004.

Status of HIFCA Task Forces:

In May 2003, we contacted each of the seven designated HIFCAs to obtain 
information on the status of their task forces (see table 2). At that 
time, two of the seven HIFCAs (the Southwest Border and Miami) had not 
started operations. Law enforcement officials in the Southwest Border 
area cited several reasons for the HIFCA's nonoperational status, 
including (1) difficulty in coordinating activities in such a large 
area and (2) lack of funds to persuade state and local officials to 
participate.[Footnote 12] In Miami, federal law enforcement officials 
had met but had not reached agreement on how the HIFCA should be 
structured or how it should operate. For example, the officials had not 
agreed on whether the Miami HIFCA should conduct investigations or 
focus principally on intelligence gathering.

Table 2: Status of HIFCA Task Forces as of May 2003:

Date designated: March 2000; HIFCA: Los Angeles; Start date[A]: 
September 2001; Lead agency: IRS-CI; Number of participating law 
enforcement agencies: Federal: 10; Number of participating law 
enforcement agencies: State: 2; Number of participating law enforcement 
agencies: Local: 4; Number of participating law enforcement agencies: 
Total: 16; Shared office space?[B]: No.

HIFCA: New York/New Jersey; Start date[A]: March 2000; Lead agency: 
ICE and IRS-CI; Number of participating law enforcement agencies: 
Federal: 10; Number of participating law enforcement agencies: State: 
6; Number of participating law enforcement agencies: Local: 21; 
Number of participating law enforcement agencies: Total: 37;  
Shared office space?[B]: Yes.

HIFCA: Puerto Rico; Start date[A]: March 2000; Lead agency: ICE 
and IRS-CI; Number of participating law enforcement agencies: Federal: 
6; Number of participating law enforcement agencies: State: 3; 
Number of participating law enforcement agencies: Local: 1; Number of 
participating law enforcement agencies: Total: 10; Shared 
office space?[B]: Yes.

HIFCA: September 2001: Southwest Border; Start date[A]: September 2001: 
Not yet operating.

Date designated: September 2001; HIFCA: Chicago; Start date[A]: 
September 2002; Lead agency: IRS-CI; Number of participating law 
enforcement agencies: Federal: 3; Number of participating law 
enforcement agencies: State: 1; Number of participating law enforcement 
agencies: Local: 0; Number of participating law enforcement agencies: 
Total: 4; Shared office space?[B]: Yes.

HIFCA: January 2003: San Francisco; Start date[A]: January 2003: 
September 2002; Lead agency: January 2003: ICE and IRS-CI; Number of 
participating law enforcement agencies: Federal: January 2003: 7; 
Number of participating law enforcement agencies: State: January 2003: 
0; Number of participating law enforcement agencies: Local: January 
2003: 0; Number of participating law enforcement agencies: Total: 
January 2003: 7; January 2003: Shared office space?[B]: 
January 2003: No.

Date designated: January 2003; HIFCA: Miami; Start date[A]: Not yet 
operating.

Source: Representatives from the seven designated HIFCAs and federal 
agency data.

[A] The start date is the date local HIFCA officials considered the 
task force to be conducting either investigations or intelligence 
gathering activities.

[B] According to Treasury and Justice officials, a key to the success 
of the HIFCA program is the ability to promote interagency cooperation 
by locating task force participants together in the same office space.

[End of table]

In September 2003, in commenting on a draft of this report, Justice 
said that while the Southwest Border HIFCA has not worked out as 
intended, the participants in Texas and Arizona met on numerous 
occasions over the past 4 years in an attempt to find an organizational 
structure that could meet the needs of all of the participants. Justice 
also said that headquarters officials and participants in the Southwest 
Border area recently decided that the dual-state HIFCA was too 
ambitious and that the HIFCA should be limited to Texas and relocated 
to augment an existing task force.

Although the 2001 NMLS specified that HIFCAs were to conduct 
investigations rather than principally gather intelligence, we found 
that two of the five operating task forces (Los Angeles and San 
Francisco) were primarily focusing on intelligence gathering 
activities--such as reviews of Suspicious Activity Reports (SAR) and 
other information required by the BSA--and had not established 
multiagency investigative units to act on the intelligence.[Footnote 
13] HIFCA officials in Los Angeles told us they planned to locate task 
force participants together in the same area in mid-or late-2003, at 
which time multiagency investigative units would be established. In San 
Francisco, a HIFCA official told us their proposal to become a HIFCA 
specified that the task force would focus on intelligence and that 
there were no plans to establish multiagency investigative units within 
the HIFCA. Treasury and Justice officials responsible for overseeing 
the HIFCAs told us that headquarters was reluctant to require the task 
forces to establish multiagency investigative units, primarily because 
the Strategy Act did not provide additional funds or personnel to 
establish such units. The officials noted that even though the 2001 
NMLS specified that HIFCAs were to conduct investigations, task forces 
that focus on intelligence gathering activities but do not conduct 
investigations do enhance interagency efforts to combat money 
laundering.

Also, because the investigative activities of the three HIFCAs that had 
multiagency investigative units (Chicago, New York/New Jersey, and 
Puerto Rico) were based on task force structures already in place 
before the HIFCA designation, the overall effect of the NMLS on these 
task forces is unclear. For example, the New York/New Jersey HIFCA 
essentially represented a renaming of the well-established El Dorado 
Money Laundering Task Force, which had existed since 1992. As mentioned 
previously, a HIFCA task force could be (1) created when a HIFCA was 
designated or (2) based on an existing task force.

Further, in some cases, federal law enforcement agencies had not 
provided the levels of commitment and staffing to the HIFCA task forces 
called for by the strategy. As shown in table 2, ICE and/or IRS-CI were 
designated the lead agency in each of the five operational task forces. 
We found that most of the HIFCAs did not have DEA or FBI agents 
assigned full-time to the task forces. For example, regarding the three 
HIFCAs with multiagency investigative units, DEA and the FBI were not 
members of the Chicago HIFCA, DEA was not a member of the New York/New 
Jersey HIFCA, and both DEA and the FBI had only part-time 
representation on the Puerto Rico HIFCA. As also shown in table 2, four 
of the five operating HIFCAs had little or no participation from state 
and local law enforcement agencies, with the notable exception being 
the New York/New Jersey HIFCA. The NMLS called for each HIFCA to 
include participation from all relevant federal, state, and local 
agencies.

Justice headquarters officials said the main problem with supporting 
the HIFCA task forces was the absence of additional funds or personnel 
to offer law enforcement agencies in return for their participation. A 
DEA official told us that, because of differences in agencies' 
guidelines for conducting undercover money laundering investigations, 
DEA will not dedicate staff to HIFCA task force investigative units but 
will support intelligence-related activities.[Footnote 14] FBI 
officials cited resource constraints as the primary reason why the 
bureau does not fully participate. Various task force officials 
mentioned lack of funding to compensate or reimburse participating 
state and local law enforcement agencies as a barrier to their 
participation in HIFCA operations. Further, Treasury and Justice 
officials noted that a key to the success of the HIFCA program is the 
ability to promote interagency cooperation by locating task force 
participants together in the same office space. Accordingly, the 2002 
NMLS called for headquarters to examine how to fund the colocation of 
HIFCA task force participants absent funds appropriated specifically 
for that purpose.

While we recognize that federal law enforcement agencies have resource 
constraints and competing priorities, we note that HIFCA task forces 
were expected to make more effective use of existing resources or of 
such additional resources as may be available. Without commitment and 
staffing from relevant federal, state, and local agencies, the task 
forces cannot fully leverage resources and create investigative 
synergies, as envisioned by the Strategy Act.

Oversight of HIFCA Task Forces Has Not Met Expectations:

Treasury and Justice have not provided the level of oversight of the 
HIFCA task forces called for by the NMLS. For example, in response to 
our initial inquiries and formal requests for information, Treasury and 
Justice officials responsible for overseeing the HIFCA task forces 
could not readily provide basic information, such as names of 
participating agencies and contact persons or the results of task force 
operations.[Footnote 15] Also, as shown in table 3, Treasury and 
Justice had not addressed various NMLS initiatives designed to oversee 
HIFCA operations, and many of the initiatives were still ongoing well 
past expected completion dates. Fully addressing these initiatives 
could help ensure accountability within the HIFCAs, as well as refine 
the operational mission, structure, and composition of the task forces.

Table 3: Status of NMLS Initiatives Related to HIFCA Oversight:

Annual: NMLS: 2000 NMLS; NMLS initiative: Oversee newly designated 
HIFCA task forces:

NMLS initiative: 1. Report on the progress of the HIFCA task 
forces; Target date for completion: (1) December 2000; Target 
date met?: No; Status (as of July 2003)[A]: Not addressed.

NMLS initiative: 2. Formulate a reporting system so that 
the impact of the HIFCAs can be evaluated; Target date for completion: 
(2) During the year; Target date met?: 
No; Status (as of July 2003)[A]: Ongoing.

Annual: 2001 NMLS; NMLS initiative: Design the organizational 
structure of HIFCA task forces and designate regional task force 
directors; Target date for completion: October 2001; Target date met?: 
No; Status (as of July 2003)[A]: Not addressed.

NMLS initiative: HIFCA representatives will brief Treasury and 
Justice officials on:

NMLS initiative: 3. HIFCA activities and coordination efforts; 
Target date for completion: (1) March 2002; Target date met?: 
No; Status (as of July 2003)[A]: Not addressed.

NMLS initiative: 4. The progress of investigations and the 
involvement of federal, state, and local law enforcement and regulatory 
agencies; Target date for completion: (2) Quarterly; Target date 
met?: No; Status (as of July 2003)[A]: Not addressed.

NMLS initiative: Establish a new asset forfeiture 
reporting system for HIFCA task forces and implement its usage; Target 
date for completion: March 2002; Target date met?: 
No; Status (as of July 2003)[A]: Ongoing.

Annual: 2002 NMLS; NMLS initiative: Review HIFCA task forces to 
remove obstacles to their effective operation:

NMLS initiative: 5. Review the progress of each HIFCA and assess 
how well the HIFCA concept is working; Target date for completion: 
(1) December 2002; Target date met?: (1) No; Status (as of 
July 2003)[A]: (1) Ongoing.

NMLS initiative: 6. Recommend what changes to make so that the 
HIFCAs can achieve their mission objectives; Target date for 
completion: (2) February 2003; Target date met?: (2) No; 
Status (as of July 2003)[A]: (2) Ongoing.

NMLS initiative: Each HIFCA will report on participation of state 
and local enforcement, regulatory, and prosecution agencies, and 
identify steps needed to include participation of all relevant 
agencies; Target date for completion: November 2002; Target date 
met?: No; Status (as of July 2003)[A]: Ongoing.

NMLS initiative: Provide advanced money laundering 
training in each of the six HIFCA locations; Target date for 
completion: November 2002; Target date 
met?: Yes; Status (as of July 2003)[A]: Completed[B].

Source: GAO analysis of the NMLS (2000 through 2002) and interviews 
with Treasury and Justice headquarters officials.

[A] "Not addressed" indicates that Treasury and Justice took little or 
no action on the NMLS initiative and that no future action is planned. 
"Ongoing" indicates that Treasury and Justice had not completed the 
initiative by its target date, but there was ongoing or planned future 
work related to the initiative.

[B] Advanced money laundering training was not provided to the 
Southwest Border HIFCA, because the HIFCA did not have an operational 
task force.

[End of table]

Treasury and Justice officials told us the primary reasons for not 
addressing or not yet completing the HIFCA initiatives were that 
headquarters (1) was reluctant to impose a structure or reporting 
requirement on the field without offering any new resources and (2) did 
not believe that a single structure could fit every HIFCA. The 
officials also said that the individual HIFCAs were in the best 
position to address their specific needs and problems. Further, the 
officials told us that, while most of the HIFCA initiatives had not 
been addressed or were not yet completed, the HIFCA structure at 
headquarters has provided a framework for regular interagency meetings 
to discuss money laundering trends and ways to improve interagency 
cooperation.

As shown in table 3, although only one of the HIFCA initiatives was 
completed by the specified milestone or goal date, many of the 
initiatives were still ongoing. For example, the 2002 NMLS called for a 
review of HIFCA task forces to remove obstacles to their effective 
operation. Specifically, the initiative called for an interagency HIFCA 
team to (1) review the accomplishments of the HIFCA task forces to 
date; (2) examine structural and operational issues, including how to 
fund the colocation of participants in HIFCA task forces absent funds 
appropriated for that purpose; and (3) examine existing operations and 
make recommendations to ensure that each HIFCA is composed of all 
relevant federal, state, and local enforcement authorities, 
prosecutors, and financial supervisory agencies as needed. As of July 
2003, the HIFCA review team was still in the process of assessing the 
HIFCAs. When completed, the team's review could provide useful input 
for an evaluation report on the effectiveness of and the continued need 
for HIFCA designations, which is required by the Strategy Act to be 
submitted to the Congress in 2004.

Money Laundering Training Was Provided to HIFCAs:

According to the 2002 NMLS, Treasury and Justice have conducted a 
substantial amount of fundamental, advanced, and specialized money 
laundering training to task forces, agencies, investigators, and 
prosecutors. For example, as included in the 2002 NMLS (see table 3), 
the Federal Law Enforcement Training Center, in cooperation with 
Treasury and Justice, have provided an advanced money laundering 
training course in six HIFCA locations. According to a Federal Law 
Enforcement Training Center official, approximately 900 to 1,000 agency 
representatives have participated in the 3-day training seminar. The 
official said that the training focused on numerous issues, including 
money laundering statutes, the impact of the USA PATRIOT Act, basic and 
international banking, asset forfeiture issues, and specific money 
laundering schemes and organizations.

NMLS Initiatives to Enhance Coordination of Law Enforcement 
Investigations Generally Were Not Addressed or Were Still Ongoing:

While Treasury and Justice made progress on some NMLS initiatives that 
were specifically designed to enhance coordination of federal law 
enforcement agencies' money laundering investigations, most of the 
initiatives were not addressed or were still ongoing.[Footnote 16] In 
general, the failure to address or complete the initiatives indicates 
that interagency coordination was falling short of expectations.

Progress Was Made on Some Law Enforcement Coordination Initiatives:

Treasury and Justice made progress in implementing some of the NMLS law 
enforcement coordination initiatives. For example, as called for in the 
1999 and 2000 strategies, the departments took steps to (1) enhance the 
money laundering focus of interagency counter-drug task forces and (2) 
collect and analyze information on the money laundering aspects of the 
task forces' investigations. More recently, the 2002 NMLS called for an 
interagency team to identify money laundering-related targets for 
coordinated enforcement action. The strategy noted that targets could 
be particular organizations or systems used or exploited by money 
launderers, such as the smuggling of bulk cash and unlicensed money 
transmitters. In August 2002, Treasury and Justice created an 
interagency team and identified a money laundering-related target and 
four cities in which to conduct investigations. In July 2003, Justice 
officials told us that U.S. Attorneys Office officials had agreed to 
participate in the targeting initiative and that the initiative was 
ongoing.

Most Law Enforcement Coordination Initiatives Were Not Addressed or 
Were Still Ongoing:

Most of the annual strategy initiatives designed to enhance interagency 
coordination of law enforcement investigations were not addressed or 
were still ongoing. Three examples are as follows. First, the Customs 
Service created a Money Laundering Coordination Center in 1997 to (1) 
serve as the repository for all intelligence information gathered 
through undercover money laundering investigations and (2) function as 
the coordination and "deconfliction" center for both domestic and 
international undercover money laundering investigations.[Footnote 17] 
Both the 1999 and the 2000 NMLS contained an initiative to encourage 
all applicable federal law enforcement agencies to participate in the 
Money Laundering Coordination Center. During our review, Customs 
Service officials (before the agency was transferred to DHS) told us 
that, although Justice agencies (including DEA and FBI) were invited to 
use the center, these agencies were only occasional users and did not 
contribute information to the center.[Footnote 18]

DEA and FBI officials told us that their agencies did not use the Money 
Laundering Coordination Center because they could not reach a 
satisfactory memorandum of understanding regarding participation, 
including controls over the dissemination of information. DEA officials 
added that the center does not meet DEA's needs because it is used for 
deconfliction only. In August 2003, the DEA officials said that DEA had 
created and was testing a new database that is designed to be a single 
source for information on money laundering investigations related to 
drug money. The officials added that DEA has briefed Treasury and DHS 
about the new database, but as of August 2003, no other agencies were 
participating.

Second, federal law enforcement agencies do not have uniform guidelines 
applicable to undercover money laundering investigations. According to 
the 2002 NMLS and our discussions with law enforcement officials, the 
lack of uniform guidelines inhibits some agencies from participating in 
investigations that have an international component. For example, a DEA 
official told us that DEA guidelines generally are more restrictive 
than guidelines used by Customs (as part of ICE) in regard to (1) 
obtaining approval to initiate and continue undercover investigations 
and (2) coordinating activities with foreign counterparts. Therefore, 
the officials noted that DEA generally could not participate in 
international undercover money laundering investigations led by 
Customs. The 2002 NMLS called for Treasury and Justice to develop 
uniform undercover guidelines by September 2002 to ensure the full 
participation of all applicable federal law enforcement agencies in 
undercover money laundering investigations. Treasury officials told us 
the initiative is still ongoing but has been put on hold, pending 
reorganizations associated with the creation of DHS.

Third, Treasury and Justice have not yet fully implemented NMLS 
initiatives designed to establish SAR review teams in federal judicial 
districts. The 2001 NMLS contained an initiative that called for the 
creation of a SAR review team in each federal judicial district. 
Generally, each team--to be comprised of an Assistant U.S. Attorney and 
representatives from federal, state, and local law enforcement 
agencies--was expected to evaluate all SARs filed in their respective 
federal judicial district.

The 2001 SAR initiative has been partially implemented. Treasury 
officials noted that Justice has primary responsibility for 
implementation because Justice provides guidance and direction to EOUSA 
and the U.S. Attorneys Offices. According to EOUSA officials, Justice, 
EOUSA, and the U.S. Attorneys Offices have actively encouraged the 
creation of SAR review teams and these efforts remain ongoing. At our 
request, in July 2003, EOUSA conducted an informal survey of U.S. 
Attorneys Offices and reported that at least 33 of the 94 federal 
judicial districts were actively using interagency SAR review teams.

The 2002 NMLS had a more conservative SAR-related initiative, calling 
for the establishment of five additional review teams. Specifically, 
the 2002 NMLS initiative called for Treasury and Justice--by August 
2002--to (1) identify a priority list of five federal judicial 
districts that do not have a SAR review team but could benefit from one 
and (2) work with EOUSA and the respective U.S. Attorneys Offices to 
encourage the creation of interagency review teams.[Footnote 19] As of 
July 2003, this initiative had not yet been completed, but efforts were 
still ongoing.

Further, although not called for by the NMLS, the IRS has had a related 
initiative to create interagency SAR review teams. Specifically, IRS-CI 
data show that IRS has established 41 SAR review teams nationwide--with 
all 35 IRS field offices having at least one functioning team--and that 
most of the review teams had participation from other agencies. 
According to IRS-CI officials, collectively, the 41 teams are to review 
every SAR filed in the 94 federal judicial districts. The officials 
said that at least 4 of the districts in which a HIFCA task force is 
located were using an interagency SAR review team. The officials noted 
that IRS review teams are not to duplicate SAR reviews already 
performed by existing task forces in federal judicial districts.

Reasons for Not Fully Implementing Interagency Coordination 
Initiatives:

Treasury officials told us that resource constraints and competing 
priorities were the primary reasons why many of the law enforcement 
coordination initiatives were not yet fully implemented. Also, the 
officials said that, over the past few years, Treasury has given higher 
priority to other parts of the annual strategy--such as international, 
regulatory, and terrorism-related initiatives--than to domestic law 
enforcement initiatives. Further, the officials said that Treasury 
generally took the lead in implementing the annual strategy but could 
not require other agencies to focus on specific initiatives or 
activities. In this regard, the officials said that other agencies 
frequently had their own priorities.

Justice officials also said that the annual strategies have contained 
more initiatives than realistically could be pursued. The officials 
added that to the extent NMLS initiatives were not completed or target 
dates were missed, it was because of competing priorities or the lack 
of resources available for proper implementation of the strategy. The 
officials noted that there are complex issues involved in attempting to 
coordinate the resources, practices, and priorities of two (and 
sometimes more) departments and several law enforcement agencies, as 
well as U.S. Attorneys Offices throughout the country. Further, Justice 
officials told us that while NMLS initiatives to institutionalize 
coordination may not have been fully implemented, the efforts to do so 
and regular meetings have been continuing.

NMLS Did Not Address Agency Roles and Task Force Coordination in 
Terrorist Financing Investigations, but a Recent Interagency Agreement 
May Help Clarify Roles:

In developing the 2002 NMLS, Treasury and Justice officials met to 
discuss the roles of the various investigative agencies involved in 
combating terrorist financing. However, the two departments could not 
reach agreement, and the 2002 strategy was published without addressing 
the agencies' roles. In general, Justice's position was that it had 
exclusive statutory authority to lead all terrorist financing 
investigations, while Treasury maintained that it also had the 
authority and the needed expertise to lead such 
investigations.[Footnote 20] In commenting on a draft of the 2002 
strategy, the FBI noted the following:

* The strategy does not address the various agencies' duplication of 
efforts to combat terrorist financing.

* By not specifically addressing and delineating the roles of the 
respective agencies, the strategy creates more confusion than it 
resolves and wastes limited resources.

Moreover, the strategy section on U.S. government efforts to identify, 
disrupt, and dismantle terrorist financing networks did not mention or 
clarify roles of the three primary law enforcement task forces involved 
in investigating terrorist financing--Customs' Operation Green Quest 
(OGQ) and the FBI's Terrorist Financing Operations Section (TFOS) and 
Joint Terrorism Task Forces (JTTF).[Footnote 21]

According to Treasury officials, the NMLS drafting process 
realistically could not have been expected to resolve the long-
standing, highly challenging issues associated with the interagency 
jurisdictional dispute. While we agree that it may have been 
unrealistic to expect the drafting process to resolve the long-standing 
issues, we note that a primary role of the NMLS is to enhance 
interagency coordination and help resolve turf-protection battles. 
Because the issue was not addressed in the 2002 NMLS, the problem 
remained, thus leaving unresolved possible duplication of efforts and 
disagreements over which agency should lead investigations. In our 
view, any way the NMLS could have advanced resolution of the matter 
would have been beneficial.

Agencies Did Not Fully Coordinate Terrorist Financing Investigations:

To help avoid overlapping investigations and duplication of efforts, it 
is important that agencies investigating terrorist financing have 
coordination mechanisms. At the policy level, a National Security 
Council policy coordination committee on terrorist financing is 
responsible for coordinating antiterrorist financing 
activities.[Footnote 22] This committee is to consider evidence of 
terrorist financing networks and coordinate strategies for targeting 
terrorists, their financiers, and supporters. At the operational level, 
we found that some interagency coordination of terrorist financing 
investigations existed between agency headquarters' components. For 
example, OGQ and TFOS had assigned one agent to each other's 
headquarters in Washington, D.C. The FBI also was to provide 
information on its activities to OGQ through daily downloads from the 
FBI's terrorist financial database. Further, OGQ and FBI officials told 
us that local mechanisms existed around the country to deconflict 
investigations.

While OGQ and the FBI task forces took steps to inform each other about 
the targets of their investigations, we found that the task forces did 
not fully coordinate their activities. For example, at the three 
locations we visited (Los Angeles, Miami, and New York City), OGQ and 
JTTF officials told us they generally were not aware of each other's 
financial investigations and that the task forces generally did not 
share investigative information. Several officials indicated that there 
were problems with conflicting or competing investigations, including 
disagreements over which task force should lead investigations. 
Officials at all three locations noted that the government's 
antiterrorist financing efforts could be improved if the task forces 
worked more closely with each other or were combined.

Further, at the three locations we visited, IRS-CI officials who had 
agents assigned to the local OGQ and JTTF also indicated that the task 
forces were not fully operating in a coordinated and integrated manner. 
Specifically, in Miami and New York City, IRS-CI officials told us that 
having both OGQ and the JTTF doing the same type of antiterrorist 
financing work was a duplication of effort. IRS-CI officials in Los 
Angeles noted that communication between the two task forces could be 
better. Also, in response to our inquiry about interagency 
coordination, U.S. Attorneys Office officials in the Southern District 
of Florida provided the following response in February 2003:

"With respect to the FBI's Joint Terrorism Task Force (FBI-JTTF) and 
Customs' Operation Green Quest, we would like to see increased 
cooperation and coordination between the agencies. Too often agents of 
the FBI and Customs are investigating terrorist financing independent 
of each other or overlapping in the targets of their investigations. 
Some of the barriers to greater interagency participation may be 
conflicting priorities of each of the agencies. Ongoing battles as to 
which agency is the 'lead' agency continues to be a problem…":

In commenting on a draft of this report, Treasury said that it 
continues to believe that the dispute over who took the lead in 
investigating the financing of terrorism did not necessarily result in 
duplication of efforts. Treasury said that the issue was largely 
definitional, with the FBI leading terrorist investigations with an 
ancillary financial component versus Customs financial investigations 
that might have a terrorist-related connection.

May 2003 Interagency Agreement Defined Agency Roles:

On May 13, 2003, the Attorney General and the Secretary of Homeland 
Security signed a memorandum of agreement regarding the antiterrorist 
financing roles of the respective departments and component agencies. 
In general, the agreement gives the FBI the lead role in investigating 
terrorist financing and specifies that DHS is to pursue terrorist 
financing investigations solely through its participation in FBI-led 
task forces, except as expressly approved by the FBI. Some excerpts 
from the May 2003 agreement are paraphrased substantially as follows:

* The FBI is to lead terrorist financing investigations and operations, 
utilizing the intergovernmental and intra-agency National JTTF at FBI 
headquarters and the JTTFs in the field. Through TFOS, the FBI is to 
provide overall operational command to the national JTTF and the field 
JTTFs.

* After June 30, 2003, DHS is to pursue terrorist financing 
investigations and operations solely through its participation in the 
National JTTF, the field JTTFs, and TFOS, except as expressly approved 
by TFOS.

* The Secretary of Homeland Security agreed that, no later than June 
30, 2003, OGQ was to no longer exist as a program name. The Secretary 
agreed to ensure that any future DHS initiative or program to 
investigate crimes affecting the integrity and lawful operation of U.S. 
financial infrastructures would be performed through the financial 
crimes division at ICE.

The May 2003 agreement also contained several provisions designed to 
enhance the coordination and integration of FBI and ICE financial 
investigations. For example, the agreement calls for the FBI and ICE to 
(1) detail appropriate personnel to each other's task forces, (2) take 
steps to ensure that the detailees have full and timely access to data 
and other information, and (3) develop procedures to ensure effective 
operational coordination of FBI and ICE investigations. Further, the 
FBI Director and the Assistant Secretary for ICE were to provide a 
joint written report on the implementation status of the agreement 4 
months after its effective date to the Attorney General, the Secretary 
of Homeland Security, and the Assistant to the President for Homeland 
Security. However, as of September 24, 2003, the report had not yet 
been issued.

If successful, the May 2003 agreement could prove to be a significant 
step toward establishing a coordinated interagency framework for 
conducting terrorist financing investigations. At the time of our 
review, it was too early to assess the implementation of the agreement.

NMLS Has Had Some Influence on Financial Regulators' Efforts, but Other 
Factors Played a Larger Role:

Most financial regulators we interviewed said that the NMLS had some 
influence on their anti-money laundering and antiterrorist financing 
efforts but that it has had less influence than other factors. 
Officials said that, since September 11, a change in government 
perspective and additional requirements placed on financial 
institutions by the USA PATRIOT Act and its implementing regulations 
have been the primary influences on their efforts. Although the 
financial regulators said that the NMLS had minimal influence on 
establishing priorities for their anti-money laundering and 
antiterrorist financing activities, they have completed the tasks for 
which they were designated as lead agencies over the years, and most of 
those for which they were to provide support to Treasury. The 2002 NMLS 
noted that the financial regulators were responsible for implementing 
the parts of the USA PATRIOT Act that applied to the entities they 
regulate. Appendix III describes the anti-money laundering requirements 
set forth in the USA PATRIOT Act and the rules that have been 
implemented thereunder.

Financial Regulators Said Factors Other Than the NMLS Exerted a Greater 
Influence on Their Anti-Money Laundering Efforts:

Most financial regulators we interviewed said that the NMLS had some 
influence on their anti-money laundering efforts because it has 
provided a forum for enhanced coordination, particularly with law 
enforcement agencies, but that it has had less influence than other 
factors. Similarly, law enforcement agency officials told us that the 
level of coordination between the financial regulators and their 
agencies was good and that they received the assistance and information 
they needed from the regulators. They did not, however, attribute this 
to the strategy but, rather, to legal requirements.

Financial regulators said that several other factors influenced their 
anti-money laundering efforts to a greater extent than the NMLS. These 
factors include working groups that had already developed as a result 
of BSA implementation, the impact of September 11 on raising awareness 
of the importance of fighting money laundering and terrorist financing, 
and the passage of the USA PATRIOT Act. The financial regulators said 
that they have been working on anti-money laundering issues for many 
years and generally initiate their own anti-money laundering 
activities. Bank regulators and SEC pointed out that the BSA was passed 
in 1970 and that they have been concerned with ensuring banks' and 
broker-dealers' compliance with its requirements ever since. The USA 
PATRIOT Act extended responsibility for implementing the BSA to 
additional financial regulators as well as increased anti-money 
laundering requirements for certain financial institutions.[Footnote 
23] Additionally, most financial regulators participate in the BSA 
Advisory Group, in which the financial regulators coordinate and 
communicate among themselves and with financial institutions on 
enforcing BSA requirements. Other coordinating forums include the 
Federal Financial Institutions Examination Council, Financial Action 
Task Force, and USA PATRIOT Act working groups established to develop 
and implement regulations resulting from the passage of the USA PATRIOT 
Act.[Footnote 24]

Although the NMLS provided a forum in which the financial regulators 
could better coordinate with law enforcement agencies, other avenues 
for cooperation are prescribed by law, and some existed before passage 
of the Strategy Act. For example, depository institutions have been 
required to file SARs since 1996. Since December 2002, securities 
brokers and dealers have been required to file SARs with FinCEN as a 
result of the USA PATRIOT Act and its implementing regulations. (See 
app. III.) Certain financial institutions are also required to file 
Currency Transaction Reports with FinCEN for transactions that involve 
$10,000 or more in currency. Like SARs, these reports are supposed to 
be analyzed to look for suspicious activity. Financial regulators said 
they oversee financial institutions' programs for complying with these 
legal requirements because it is their statutory responsibility, not 
because it is included in the NMLS. They said they would do so with or 
without the strategy.

Most officials said that September 11 greatly affected how the 
administration and Congress thought about money laundering because some 
of the techniques used to launder money, illicitly moving funds to 
avoid detection, are similar to those used to finance terrorist 
activity. Some officials said the new administration was more concerned 
with the burden anti-money laundering compliance placed on financial 
institutions prior to September 11, but that the events of September 11 
changed this, resulting in more attention being paid to the importance 
of anti-money laundering compliance. Congress passed the USA PATRIOT 
Act, which, for example, increased the due diligence, reporting, and 
record keeping requirements for some financial institutions to guard 
against their being used by their customers to launder money or finance 
terrorist activity. Some officials noted that USA PATRIOT Act 
requirements reflected topics being discussed in the NMLS and other 
working group meetings that might still have been in the discussion 
phase had not September 11 motivated their inclusion in the USA PATRIOT 
Act, thus requiring Treasury and other agencies to issue regulations. 
Reflecting this change of emphasis, the 2002 NMLS discussed the need to 
adapt traditional methods of combating money laundering to 
unconventional tools used by terrorist organizations to finance their 
operations. According to the 2002 NMLS, the primary responsibility of 
the financial regulators was to participate in the drafting and 
issuance of USA PATRIOT Act regulations and to provide technical 
expertise on the operations of depository institutions and other 
financial institutions to Treasury. The regulators also worked to 
educate financial institutions and their own staff on the new 
requirements.

Federal Financial Regulators Have Been Involved in the Implementation 
of Many Action Items in the NMLS, but Most Have Been Led by Treasury:

The federal financial regulators have participated in the 
implementation of the NMLS from 1999 to 2002 in a variety of ways, 
including participation in working groups established by the NMLS and, 
in 2002, worked with Treasury to implement provisions of the USA 
PATRIOT Act. The federal financial regulators were expected to 
participate in NMLS initiatives, but Treasury, rather than the 
financial regulators, was usually designated as the lead agency 
responsible for implementation.[Footnote 25] Most federal financial 
regulators are independent federal agencies. Therefore, while the 
financial regulators have committed to work with Treasury and Justice 
on NMLS initiatives, they are not required to do so because, with the 
exception of OCC and OTS, they are not part of the executive branch. 
Previous strategies have called for the financial regulators to work 
with Treasury and Justice on several efforts, such as (1) coordinating 
on establishing policies for enhanced information sharing between law 
enforcement agencies and the regulatory agencies, (2) working with the 
financial services industry to develop guidance for financial 
institutions to enhance scrutiny of high-risk money laundering 
transactions and customers, and (3) developing a SAR requirement for 
broker-dealers. However, policies for enhanced information sharing were 
not finalized until the USA PATRIOT Act required that they be 
developed. For example, section 314 of the USA PATRIOT Act was designed 
to enhance cooperation among certain entities involved in the detection 
of money laundering. Section 314(a) encourages regulatory authorities 
and law enforcement authorities to share with financial institutions 
information regarding individuals, entities, and organizations engaged 
in or reasonably suspected based on reliable evidence of engaging in 
terrorist acts or money laundering activities. Section 314(b) 
encourages information sharing among financial institutions 
themselves. In addition, rules promulgated by FinCEN under section 314 
allow law enforcement authorities to make requests to financial 
institutions through FinCEN of certain account information for 
individuals, entities, and organizations that may be engaged in 
terrorist acts or money laundering activities. Information is provided 
to FinCEN, who gives the law enforcement entities a comprehensive 
product. SEC worked with FinCEN on a proposed broker-dealer SAR 
requirement from 1999 to 2001. However, a final rule was not issued 
until 2002, when it was required under the USA PATRIOT Act.

Each NMLS has called for the federal bank regulators as a group or OCC 
individually to lead a review of their bank examination procedures 
regarding anti-money laundering efforts and to implement the results of 
these reviews. While the financial regulators have been involved in a 
variety of different tasks and working groups in the NMLS, they served 
as leads only in these reviews.[Footnote 26] Table 4 lists annual NMLS 
initiatives to review bank examination procedures, the lead agency or 
agencies, and the status of the initiatives.

Table 4: NMLS Initiatives to Review Bank Examination Procedures, as of 
July 2003:

NMLS year: 1999; NMLS initiative[A]: Federal bank regulators, in 
cooperation with the Department of the Treasury, will conduct a review 
of existing bank examination procedures relating to the prevention and 
detection of money laundering at financial organizations, to be 
completed within 180 days.[B] Lead: None designated; Status: 
Completed.

NMLS year: 2000; 

NMLS initiative[A]: The federal bank supervisory 
agencies will implement the results of their 180-day review of bank 
examinations procedures relating to the prevention and detection of 
money laundering at financial organizations. Lead: OCC. Examples of 
anticipated actions:

NMLS initiative[A]: OCC will (1) update Comptroller's 
Handbook for Bank Examiners, including a new requirement to perform 
transactional testing of high-risk accounts at every bank examination 
and (2) implement a program to target for examination those 
institutions that are considered most vulnerable to money laundering; 
Status: (1) Completed; (2) Completed.

NMLS initiative[A]: FDIC will amend examination procedures 
on enhanced guidance to bank examiners on high-risk activities to 
include guidance on foreign correspondent accounts; Status: 
Completed.

NMLS initiative[A]: FDIC and OCC will continue to develop 
interagency anti-money laundering training modules, which will be 
completed in 2000; Status: Completed.

NMLS initiative[A]: The Federal Reserve will: (1) implement 
new procedures that will concentrate on ensuring that banks implement 
effective operating systems and procedures to manage operations legal 
and reputational risks as they pertain to BSA anti-money laundering 
efforts; (2) provide guidance on appropriate levels of enhanced 
scrutiny for high-risk customers and services; and (3) increase 
emphasis on maintaining systems to detect and investigate suspicious 
activity throughout every business sector of a banking organization; 
Status: (1) Completed; (2) Completed; (3) Ongoing.

NMLS initiative[A]: OTS will assess the efficacy of its 
recently revised risk-focused BSA examination procedures and will 
implement enhancements developed by benchmarking with other agencies; 
Status: Completed.

NMLS year: 2001; 

NMLS initiative[A]: Continue to identify and implement 
enhancements to examination procedures where necessary to address the 
ever-changing nature of money laundering. Lead: All federal bank 
regulators; Status: Ongoing.

NMLS year: 2002; 

NMLS initiative[A]: Review current examination 
procedures of the federal supervisory agencies to determine whether 
enhancements are necessary to address the ever-changing nature of money 
laundering, including terrorist financings. Lead: OCC and Treasury; 
Status: Ongoing.

Source: 1999 to 2002 NMLS and financial regulatory data.

[A] The NMLS for 1999 and 2000 used the term "Action Item," and the 
NMLS for 2001 and 2002 used the term "Priority.":

[B] Although NCUA officials said they also completed these initiatives, 
the NMLS named only FRB, OCC, FDIC, and OTS as agencies responsible for 
these initiatives.

[End of table]

The financial regulators have also worked with Treasury as the lead 
agency for the U.S. government's international anti-money laundering 
efforts. Over time, the NMLS has called for the United States to 
strengthen international cooperation and collaboration and to work to 
strengthen the anti-money laundering efforts of other countries. Much 
of Treasury's effort in this area has been done as part of 
multinational bodies, such as the Financial Action Task Force, and 
international financial institutions, such as the World Bank and the 
International Monetary Fund.[Footnote 27] Treasury's efforts, working 
with these bodies, have focused on making anti-money laundering 
assessments a permanent part of the International Monetary Fund and 
World Bank surveillance and oversight of financial sectors and 
providing technical assistance and training to jurisdictions willing to 
make the necessary changes to their anti-money laundering regimes. 
Treasury officials involved in international anti-money laundering 
efforts said that the NMLS has served as a useful tool to plan and 
coordinate their international efforts that include the financial 
regulators, which provide technical assistance and participate in 
international meetings of these bodies. Officials from the FRB, OCC, 
FDIC, OTS, SEC, and CFTC all said that they had worked with Treasury on 
international anti-money laundering efforts, including the preparation 
for or participation in meetings of the Financial Action Task Force and 
of international financial institutions.

The Annual NMLS Has Not Reflected Critical Components Identified by GAO 
as Key to Developing and Implementing National Strategies:

In recent years, our work in reviewing national strategies for various 
crosscutting issues has identified several critical components needed 
for their development and implementation; however, key components have 
not been well reflected in the NMLS.[Footnote 28] These components 
include clearly defined leadership, with the ability to marshal 
necessary resources; setting clear priorities and focusing resources on 
the greatest areas of need, as identified by threat and risk 
assessments; and established accountability mechanisms to provide a 
basis for monitoring and assessing program performance. We identified a 
number of ways in which these critical components could be better 
reflected in the development and implementation of the annual NMLS, 
should it be reauthorized.

NMLS Leadership Structure Generally Has Not Resulted in Consensus on 
the Approach NMLS Should Take:

Our past work in reviewing various national strategies has consistently 
concluded that having clearly defined leadership, with the ability to 
marshal necessary resources, is a critical component of any national 
strategy. For instance, our work has noted the importance of 
establishing a focal point or executive-level structure to provide 
overall leadership that would rise above the interests of any one 
department or agency. Regarding the annual NMLS, we found that the 
joint Treasury-Justice leadership structure generally has not been able 
to reach consensus in developing and implementing the strategies--
particularly in recent years when the structure did not include 
representatives from the two departments' top leadership. This has 
resulted in an inability to reach agreement on the appropriate scope of 
the strategy and ensure that target dates for completing strategy 
initiatives were met.

The Strategy Act required the President, acting through the Secretary 
of the Treasury and in consultation with the Attorney General, to 
produce an annual NMLS. However, Treasury and Justice officials told us 
that the Strategy Act did not provide additional funding or otherwise 
enhance either department's ability to develop and implement the annual 
strategies. Rather, development and implementation of the annual NMLS 
has been dependent largely on consensus-building efforts between 
Treasury and Justice--with Treasury having de facto lead 
responsibility. In this regard, Treasury officials told us that, while 
the department could request participation from other agencies, it had 
no incentives it could use to marshal necessary resources or compel 
participation in implementing initiatives or action items. The Treasury 
officials noted, for example, that the department's inability to compel 
action by other agencies was a contributing factor to delays in 
producing each annual NMLS. As shown in table 5, none of the four 
annual strategies issued to date was submitted to the Congress by 
February 1 of each year, as required by the Strategy Act. As of 
September 24, the 2003 strategy had yet to be submitted.

Table 5: Annual NMLS--Dates Submitted to Congress:

Annual NMLS: Annual 1999; Required issue date: February 1999; Date 
submitted: September 1999; Months late: 7.

Annual NMLS: Annual 2000; Required issue date: February 2000; Date 
submitted: March 2000; Months late: 1.

Annual NMLS: 2001; Required issue date: February 2001; Date submitted: 
September 2001; Months late: 7.

Annual NMLS: 2002; Required issue date: February 2002; Date submitted: 
July 2002; Months late: 5.

Annual NMLS: 2003; Required issue date: February 2003; Date submitted: 
Not yet issued; Months late: More than 7.

Source: Annual NMLS.

[End of table]

The initial NMLS (1999) established a joint leadership structure for 
implementing the strategy. Specifically, the strategy noted that 
overall implementation of the strategy would be guided by an 
interagency Steering Committee chaired by the Deputy Secretary of the 
Treasury and the Deputy Attorney General, with participation of 
relevant departments and agencies. The Steering Committee was to be 
responsible for overseeing action items and timelines and, as 
appropriate, making specific assignments. Also, with respect to action 
items that involved international aspects of anti-money laundering 
efforts, the National Security Council was to have a central role and 
was to advise the Steering Committee, as necessary. The 2000 NMLS also 
called for the Steering Committee to oversee implementation of 
initiatives, although the strategy did not mention a specific role for 
the National Security Council.

According to Treasury officials, the Steering Committee was not 
reconvened to oversee the development and implementation of the 2001 
NMLS, in part because of the change in administrations and the timing 
in making political appointments. Instead, overall responsibility for 
developing and implementing the 2001 NMLS was assumed by two lower-
level officials--a Treasury Deputy Assistant Secretary (Money 
Laundering and Financial Crimes) and a Justice Criminal Division 
Section Chief (Asset Forfeiture and Money Laundering). The 2002 NMLS 
called for Treasury and Justice to reconvene the Steering Committee to 
provide coordination and cooperation among all the participating 
departments and agencies. However, according to Treasury and Justice 
officials, the Steering Committee was not reestablished. Treasury and 
Justice officials with responsibility for developing the strategy and 
overseeing its implementation at those departments said the benefits of 
the Steering Committee were that it brought together the officials who 
were needed to make decisions when those below them could not agree and 
that it could hold those responsible for implementing certain 
priorities accountable for getting things done.

Moreover, the role of the National Security Council in overseeing 
implementation of the annual NMLS remains somewhat unclear.[Footnote 
29] On the one hand, the National Security Council does have a 
designated policy coordination committee responsible for overseeing 
antiterrorist financing activities, including those related to 
implementation of the 2002 NMLS. On the other hand, Treasury and 
Justice officials told us that this policy coordination committee has 
no responsibility for addressing other aspects of the strategy. The 
officials said that they were unaware of any National Security Council 
component responsible for overseeing all aspects of NMLS 
implementation.

NMLS Initiatives Have Not Been Clearly Prioritized:

Our past work in reviewing various national strategies has recognized 
the importance of identifying and prioritizing issues that require the 
most immediate attention. While each NMLS (1999 through 2002) 
identified some "top" priorities, each strategy contained more 
priorities--of seemingly equal importance--than could be realistically 
achieved. Our prior strategy work also has shown that threat and risk 
assessments can be useful in establishing priorities; however, none of 
the money laundering strategies issued to date was preceded or guided 
by such an assessment.

Annual Strategies Have Contained More Priorities Than Could 
Realistically Be Accomplished:

The Strategy Act called for the NMLS to include comprehensive, 
research-based goals, objectives, and priorities for reducing money 
laundering and related financial crimes in the United States. The 1999 
NMLS included a total of 66 priorities, which laid out actions to be 
taken by Treasury, Justice, and the financial regulators; the number 
decreased to 50 in the 2002 NMLS (see table 1). According to Treasury 
officials, Treasury's vision for the annual strategies was to provide 
Congress and the public with a comprehensive document identifying 
current and planned anti-money laundering (and in 2002, antiterrorist 
financing) initiatives. The officials also said that the strategies did 
identify some top priorities for each respective year and that the most 
important priorities generally were discussed in the each strategy's 
executive summary. Nonetheless, the officials acknowledged that, in 
retrospect, each strategy probably contained more priorities than 
realistically could have been completed during the annual strategy 
year.

Similarly, Justice and regulatory officials told us that the annual 
strategies generally have been too long and included too many 
initiatives and priorities to deal with in a given year. The officials 
noted that the strategies looked good on paper and contained important 
issues and concepts but served more as reference documents than 
strategies. The officials said that the annual strategies generally did 
not affect how their agencies set policy direction or aligned 
resources. Also, Justice officials told us that the strategies 
generally did not affect field offices or how field agents conducted 
their work. Justice and regulatory officials told us they would prefer 
a broader, more conceptual and focused strategy with fewer priorities 
and more realistic goals that could be achieved during the year. 
Justice officials noted that target dates for completing strategy 
priorities generally were not met, because there were too many 
priorities and there was no funding or new resources provided to 
implement the plan. Justice officials said that by focusing on too many 
priorities, the strategy can divert resources from investigations and 
other law enforcement activities.

Threat and Risk Assessments Have Not Been Used to Assist in 
Establishing Priorities:

Our past work in reviewing various national strategies has shown that 
threat and risk assessments can serve to better target use of funds, 
set priorities, and avoid duplication of effort.[Footnote 30] For 
example, regarding federal efforts to combat terrorism, the importance 
of setting priorities on the basis of risks was highlighted in our 1998 
testimony before the Subcommittee on National Security, International 
Affairs and Criminal Justice, House Committee on Government Reform and 
Oversight. Our statement emphasized that:

"… a critical piece of the equation in decisions about establishing and 
expanding programs to combat terrorism is an analytically sound threat 
and risk assessment using valid inputs from the intelligence community 
and other agencies. Threat and risk assessments could help the 
government make decisions about how to target investments in combating 
terrorism and set priorities on the basis of risk; identify program 
duplication, overlap, and gaps; and correctly size individual agencies' 
levels of efforts."[Footnote 31]

However, regarding the annual NMLS, none of the four strategies (1999 
through 2002) issued to date was preceded or guided by such an 
assessment. Further, in response to our inquiries, Treasury and Justice 
officials indicated that the 2003 NMLS would not be based on a formal 
assessment of threats and risks.

Law enforcement officials generally had favorable views on the need for 
the NMLS to be driven by some consideration of a threat and risk 
assessment. Justice officials noted that money laundering 
investigations take a lot of expertise, money, and time, and that, in 
their view, a formal assessment of threats and risks would help to set 
NMLS priorities and assist law enforcement in focusing its limited 
resources. Justice officials told us that they drafted a money 
laundering threat assessment in late 2002 and circulated it to other 
law enforcement agencies.[Footnote 32] The officials planned to use the 
assessment as a basis for setting 2003 NMLS priorities. Treasury 
officials generally agreed with the concept of a money laundering 
threat assessment to drive priorities, but told us that the assessment 
prepared by Justice was not useful. The officials added that, in their 
view, Justice's threat assessment mostly contained information that was 
already widely known and, thus, probably was at least implicitly 
considered in setting priorities while drafting the 2003 
strategy.[Footnote 33]

Accountability Mechanisms Have Recently Been Included in the NMLS, But 
None Had Yet Been Completed:

Our past work in reviewing various national strategies has recognized 
the importance of establishing accountability mechanisms to assess 
resource utilization and program performance. The 2001 and 2002 
strategies presented various initiatives designed to establish 
performance measures related to federal anti-money laundering efforts. 
As of July 2003, efforts were ongoing on many of them, while others had 
not been addressed. Another potential accountability mechanism required 
in the Strategy Act was annual reports to Congress on the effectiveness 
of anti-money laundering policies; however, Treasury has not provided 
such reports.

NMLS Initiatives to Establish Performance Measures Have Not Been 
Addressed or Are Ongoing:

Establishing and implementing performance measures for the NMLS would 
assist in monitoring and evaluating law enforcement and financial 
regulatory agencies' anti-money laundering and antiterrorist financing 
efforts. The 2001 strategy was the first annual strategy to call for 
the creation of performance measures and indicators to evaluate results 
against stated goals. The 2002 NMLS continued on the work started under 
the 2001 strategy. Both strategies designated components of Treasury 
and Justice to co-lead the initiatives. As shown in table 6, the 2002 
NMLS contained five initiatives to measure the effectiveness and 
results of federal anti-money laundering activities. As of July 2003, 
Treasury and Justice had not yet completed any of these initiatives, 
although efforts were still ongoing to complete some of them.

Table 6: Status of 2002 NMLS Initiatives Designed to Measure 
Performance:

2002 NMLS initiative: Develop a "traffic light" (e.g., red, yellow, or 
green) system for scoring progress on NMLS goals and providing an 
indication of where the strategy stands at a given point in time; 
Target date for completion: To be presented in 2003 NMLS; Target date 
met?: No[B]; Status (as of July 2003)[A]: Not addressed.

2002 NMLS initiative: Devise and implement a uniform case reporting 
system to measure the results of federal law enforcement agencies' 
anti-money laundering efforts.

2002 NMLS initiative: 1. Consider adapting the case reporting system 
used by an existing federal agency for use by federal law enforcement 
agencies; Target date for completion: (1) Not specified; Target date 
met?: Not applicable; Status (as of July 2003)[A]: (1) Ongoing.

2002 NMLS initiative: 2. Develop recommendations for how qualitative 
factors, such as case significance, can be incorporated into 
quantitative measures of success; Target date for completion: (2) 
November 2002; Target date met?: No; Status (as of July 2003)[A]: (2) 
Ongoing.

2002 NMLS initiative: Establish a standardized reporting system for 
Treasury and Justice to use to quantify assets forfeited or seized 
pursuant to money laundering investigations; Target date for 
completion: Not specified; Target date met?: Not applicable; Status (as 
of July 2003)[A]: Ongoing[C].

2002 NMLS initiative: Analyze "cost of doing criminal business" 
initiatives to develop a pricing model for laundering money in non-
narcotics-related cases.[D]; Target date for completion: Not specified; 
Target date met?: Not applicable; Status (as of July 2003)[A]: Ongoing.

2002 NMLS initiative: Review the costs and resources devoted to anti-
money laundering efforts. Analyze results from budget data requests, 
and work to ensure that data requests relating to work against 
terrorist financing are also incorporated.[E]; Target date for 
completion: December 2002; Target date met?: No; Status (as of July 
2003)[A]: Not addressed.

Source: 2002 NMLS and interviews with Treasury and Justice officials.

[A] "Not addressed" indicates that Treasury and Justice took little or 
no action on the NMLS initiative and that no future action is planned. 
"Ongoing" indicates that Treasury and Justice had not completed the 
initiative by its target date, but that there was ongoing or planned 
future work related to the initiative.

[B] According to Treasury officials, the 2003 NMLS will not include the 
traffic light scorecard.

[C] According to Treasury officials, the department has had systems in 
place to measure assets forfeited or seized pursuant to Treasury's 
money laundering investigations. EOUSA officials told us that Justice, 
EOUSA, and the U.S. Attorneys Offices--working closely with other 
Justice law enforcement agencies--have ongoing efforts to develop a 
reporting system to accurately measure assets forfeited or seized. The 
officials noted that developing such a system is a complicated and 
time-consuming process. Also, the officials said that future efforts to 
develop a standardized reporting system inevitably would have to 
include DHS.

[D] In 2001, the Customs Service's Money Laundering Coordination Center 
completed a study to determine the percentage commission charged to 
launder money in narcotics cases. The study was to serve as a baseline 
for tracking changes in the commission rate over time. The 2002 NMLS 
also noted that another federal agency had conducted a study relating 
to the cost of doing business for alien smuggling. The 2002 strategy 
called for FinCEN to lead an effort to examine these business model 
assessments to determine if a systematic model could be constructed to 
apply to all types of money laundering cases.

[E] In 2001, the Office of Management and Budget obtained budget data 
from law enforcement and financial regulatory agency units that were 
involved in the prevention, investigation, or prosecution of money 
laundering.

[End of table]

Generally, the purpose of the 2002 NMLS measurement initiatives was to 
provide Congress and other policymakers a basis for (1) evaluating 
federal agencies' anti-money laundering efforts and results and (2) 
deciding how to deploy limited public resources most effectively. For 
example, the traffic-light scorecard was intended to provide 
information on the overall performance of the federal government's 
efforts to combat money laundering and assess how well the government 
was executing each of the six goals described in the 2002 strategy (and 
future strategies). Also, the 2002 NMLS notes that the initiative to 
review law enforcement and financial regulatory costs and resources 
devoted to anti-money laundering activities was designed to permit 
Congress and other policymakers to draw informed conclusions about the 
effectiveness of those activities.

The 2002 NMLS noted that, while deceptively easy to articulate in the 
abstract, the task of developing meaningful performance measures for 
federal agencies engaged in combating money laundering has proven to be 
quite difficult. Treasury officials also told us that (1) the 2002 
strategy was not published until July 2002, which did not leave much 
time for either implementation or evaluation and (2) several 
measurement initiatives were put on hold pending the reorganization 
associated with DHS. Further, the officials noted that Treasury 
generally had no plans to report on performance progress (results and 
accomplishments) made under the 2002 strategy.

The 2002 strategy did provide, for the first time in an NMLS, some 
baseline facts and figures designed to help determine how well the 
federal government was succeeding in its efforts to detect, prevent, 
and deter money laundering. For example, the strategy published U.S. 
Sentencing Commission data for fiscal year 2000 regarding defendants 
sentenced in federal court for the principal offense of money 
laundering. The 2002 strategy noted that the Sentencing Commission data 
could be tracked over a period of years and, thereby, serve as one 
measure for evaluating progress in combating money laundering.

Treasury Has Not Met the Requirement for Annual Effectiveness Reports:

The Strategy Act 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 submit a report containing an 
evaluation of the effectiveness of policies to combat money laundering 
and related financial crimes.[Footnote 34] As of July 2003, Treasury 
had not submitted any effectiveness reports. Treasury officials said 
they did not see this as a requirement to submit a separate report and, 
in their view, the strategy itself has been used to report on the 
effectiveness of the government's anti-money laundering efforts. The 
officials explained that the "accomplishment" sections that were added 
to the 2002 strategy were intended to meet the Strategy Act's reporting 
requirement.

We believe that this information does not fully meet the Strategy Act's 
requirement, because the accomplishment sections generally provided 
descriptive information about initiatives rather than evaluations of 
the effectiveness of policies to combat money laundering and related 
financial crimes. For example, an accomplishment section in the 2002 
strategy noted that HIFCA task forces initiated over 100 investigations 
in 2001, but the section did not address the effectiveness of the HIFCA 
concept or the task forces.

Ways to Incorporate Critical Strategy Components into the NMLS:

We identified a number of ways in which the critical components for 
national strategies could be incorporated into the NMLS, should 
Congress decide to continue the requirement. To incorporate a more 
clearly defined leadership structure that has the ability to marshal 
resources for a coordinated effort against money laundering and 
terrorist financing, a high-level leadership mechanism could be 
reestablished or a single official could be designated to carry out 
this responsibility. The role of the leadership structure would be to 
marshal resources to ensure that the vision laid out in the strategy is 
achieved, resolve disputes between agencies, and ensure accountability 
for strategy implementation. This leadership mechanism would also be in 
a good position to evaluate annual progress and report such progress to 
Congress, as is currently required of Treasury. This is especially 
critical now that there are three principal departments with anti-money 
laundering and antiterrorist financing responsibilities, in addition to 
the federal financial regulators.

One way to help set clear priorities and focus resources on the areas 
of greatest need would be to require that the strategy be linked to a 
periodic threat assessment. Such an assessment would outline what the 
lead agencies see as the most significant threats. This would provide a 
better basis to draft a strategy to address these threats. Performance 
could be measured by the level of progress made in combating these 
threats.

One way to improve accountability for the agencies and regulators 
following the strategy would be for the strategy to set broad policy 
objectives that leave it to the principal agencies to develop outcome-
oriented performance measures that are linked to the NMLS's goals and 
objectives. These performance measures would be reflected in the 
agencies' annual performance plans. However, our work showed that, 
throughout its history, the NMLS has tried to specify detailed 
priorities for each objective, many of which were not accomplished or, 
in the case of the financial regulators, would have been accomplished 
for statutory reasons even without a strategy.

Conclusions:

The annual NMLS has had mixed results in guiding the efforts of law 
enforcement and financial regulators in the fight against money 
laundering and, more recently, terrorist financing. Through our work in 
reviewing other national strategies, we have identified critical 
components needed for successful development and implementation; but, 
to date, these components have not been well reflected in the annual 
NMLS. We believe that incorporating these critical components into the 
NMLS would improve its development and implementation. For example, the 
current NMLS leadership structure has not reached consensus on the 
approach the strategy should take or ensured that goals and objectives 
are met, and has failed to issue any of the annual strategies on time. 
A clearly defined high-level leadership structure could better ensure 
that resources are appropriately marshaled for achieving the strategy's 
vision and goals.

Also, without an assessment of threats and risks, it is difficult to 
determine what the highest-priority activities should be. Linking the 
strategy's development to a periodic assessment of threats and risks 
could help set priorities and ensure that resources are focused on the 
areas of greatest need. Moreover, such assessments could be helpful in 
tracking progress made in combating money laundering and terrorist 
financing.

Furthermore, the establishment of accountability mechanisms could help 
to provide a basis for monitoring and assessing NMLS implementation. 
One possible mechanism would be linking the relevant agencies' 
performance plans more closely to NMLS goals and objectives. Another 
mechanism would be to ensure that periodic progress reports are 
submitted to Congress, as currently required by the Strategy Act.

In sum, if Congress decides to reauthorize the requirement for an 
annual NMLS, adoption of these critical components in the agencies' 
future efforts could help to resolve or mitigate the deficiencies we 
identified.

Recommendations for Executive Action:

If Congress reauthorizes the requirement for an annual NMLS, we 
recommend that the Secretary of the Treasury, working with the Attorney 
General and the Secretary of Homeland Security, take appropriate steps 
to:

* strengthen the leadership structure responsible for strategy 
development and implementation by establishing a mechanism that would 
have the ability to marshal resources to ensure that the strategy's 
vision is achieved, resolve disputes between agencies, and ensure 
accountability for strategy implementation;

* link the strategy to periodic assessments of threats and risks, which 
would provide a basis for ensuring that clear priorities are 
established and focused on the areas of greatest need; and:

* establish accountability mechanisms, such as (1) requiring the 
principal agencies to develop outcome-oriented performance measures 
that must be linked to the NMLS's goals and objectives and that also 
must be reflected in the agencies' annual performance plans and (2) 
providing Congress with periodic reports on the strategy's results.

Agency Comments and Our Evaluation:

We provided a draft of this report for review and comment to the 
Departments of the Treasury, Justice, and Homeland Security; seven 
federal financial regulatory agencies (FRB, FDIC, OCC, OTS, NCUA, SEC, 
and CFTC); and the National Security Council.

In written comments, Treasury said that our recommendations for 
improving the process for creating the NMLS and enhancing 
accountability of all agencies with responsibility for combating 
financial crimes and the financing of terrorism are important, should 
Congress reauthorize the legislation requiring future strategies. 
Justice did not specifically address our recommendations but said that 
our observations and conclusions will be helpful in assessing the role 
that the strategy process has played in the federal government's 
efforts to combat money laundering. For example, Justice concurred with 
our conclusion that linking the strategy's development to a threat 
assessment could help set priorities and ensure that limited resources 
are focused on the areas of greatest need. DHS said that it would work 
with the Secretary of the Treasury as recommended and would do its part 
to implement necessary actions to address concerns raised in the 
report.

Treasury, Justice, and DHS said that the lack of funds to finance NMLS 
development and implementation was an impediment and that the success 
of the HIFCA program in particular would be enhanced by an independent 
funding source. While we did not assess the participating agencies' 
funding decisions regarding the NMLS or the HIFCA program, our report 
acknowledges that federal law enforcement agencies have resource 
constraints and competing priorities. We also note, however, that a 
primary purpose of the NMLS was to improve the coordination and quality 
of federal anti-money laundering investigations by concentrating and 
leveraging existing resources, including funding. Further, the report 
notes that HIFCA task force officials said that the lack of funding to 
compensate or reimburse participating state and local law enforcement 
agencies was a barrier to their participation. The 2002 NMLS called for 
an interagency team to examine how to fund the colocation of 
participants in HIFCA task forces absent funds appropriated for that 
purpose. At the time of our review, this initiative had not yet been 
completed.

Treasury also said that it has satisfied the Strategy Act requirement 
that it submit a report to Congress--at the time the NMLS is submitted-
-on the effectiveness of policies to combat financial crimes. Treasury 
said that (1) evaluations of effectiveness have been contained in the 
NMLS itself and (2) any evaluation of effectiveness logically forms a 
part of the NMLS. While the annual strategies have contained some 
useful information to help Congress better understand programs to 
combat money laundering and terrorist financing, the strategies 
generally have provided descriptive information about NMLS initiatives 
rather than evaluations of the effectiveness of policies. As noted in 
our report, Treasury and Justice have efforts under way to measure 
performance that, when completed, could provide useful input into an 
overall evaluation of the effectiveness of policies to combat financial 
crimes.

DHS highlighted the value of its Money Laundering Coordination Center, 
stating that the center has provided information to DEA, FBI, and other 
outside agencies on at least 46 occasions and that DEA was the most 
active outside agency user of the center, with at least 21 requests for 
assistance. While the sharing of relevant information is commendable, 
as mentioned in our report, DEA officials told us that the center does 
not meet DEA's needs and that DEA has created a new database for 
information on money laundering investigations related to drugs. DHS 
also provided additional information on (1) methods used by ICE to 
coordinate terrorist financing investigations with other agencies and 
(2) steps taken by ICE and the FBI to implement the May 2003 memorandum 
of agreement between Justice and DHS regarding roles and 
responsibilities in investigating terrorist financing.

The full text of Treasury's, Justice's, and DHS's written comments are 
reprinted in appendix IV, V, and VI, respectively. The three 
departments also provided technical comments and clarifications, which 
have been incorporated in this report where appropriate.

Of the seven federal financial regulatory agencies, four (FRB, FDIC, 
NCUA, and SEC) provided technical comments and clarifications, which 
have been incorporated in this report where appropriate. The other 
three agencies (OCC, OTS, and CFTC) had no comments. FDIC also said 
that, should a national money laundering strategy continue, annual 
goals should be achievable and roles and responsibilities clearly 
defined.

The National Security Council did not respond to our request for 
comments.

As arranged with your offices, unless you publicly announce its 
contents earlier, we plan no further distribution of this report until 
30 days after its issue date. At that time, we will send copies of this 
report to interested congressional committees and subcommittees. We 
will also make copies available to others on request. In addition, the 
report will be available at no charge on GAO's Web site at http://
www.gao.gov.

If you or your staffs have any questions about this report or wish to 
discuss the matter further, please contact Richard M. Stana at (202) 
512-8777 or by e-mail at stanar@gao.gov or Davi M. D'Agostino at (202) 
512-8678 or by e-mail at dagostinod@gao.gov. GAO contacts and key 
contributors to this report are listed in appendix VII.

Richard M. Stana, Director Homeland Security and Justice:

Davi M. D'Agostino, Director Financial Markets and Community 
Investment:

Signed by Richard M. Stana and Davi M. D'Agostino: 

[End of section]

Appendix I: Scope and Methodology:

We conducted our work from June 2002 to August 2003 in accordance with 
generally accepted government auditing standards.

To determine agency perspectives on the benefit of the annual National 
Money Laundering Strategy (NMLS), we interviewed responsible officials 
at and reviewed relevant documentation obtained from the principal law 
enforcement components with anti-money laundering responsibilities at 
the Departments of the Treasury, Justice, and Homeland Security and the 
federal financial regulatory agencies. To determine whether the NMLS 
has served as a useful mechanism for guiding law enforcement agencies' 
efforts, we (1) compared the structure and operation of High Intensity 
Money Laundering and Related Financial Crime Area (HIFCA) task forces 
to guidance provided in the strategies, (2) assessed whether the 
implementation of NMLS initiatives to enhance interagency coordination 
has met strategic goals, and (3) assessed the extent to which the 2002 
NMLS addressed agency roles in combating terrorist financing. To do 
this, we interviewed responsible officials and reviewed documentation 
from the four primary agencies responsible for investigating money 
laundering and related financial crimes--Treasury's Internal Revenue 
Service-Criminal Investigation (IRS-CI), Justice's Federal Bureau of 
Investigation (FBI) and Drug Enforcement Administration (DEA), and 
Homeland Security's Bureau of Immigration Control and Enforcement 
(ICE).[Footnote 35] For investigations of terrorist financing, we 
reviewed the roles and activities of and interviewed officials from 
ICE's Operation Green Quest (OGQ) and two FBI components--Terrorist 
Financing Operations Section (TFOS) and Joint Terrorism Task Forces 
(JTTF).[Footnote 36] Our work with law enforcement agencies was 
conducted at the principal federal agencies' headquarters in 
Washington, D.C., and at field office locations in three major U.S. 
financial centers (Los Angeles, Miami, and New York City).

To determine the role of the NMLS in influencing the anti-money 
laundering activities of federal financial regulators, we reviewed 
their efforts to carry out the NMLS 2002 goal, "Prevent Money 
Laundering Through Cooperative Public-Private Efforts and Necessary 
Regulatory Measures," and its earlier iterations. We gathered 
information on these agencies' anti-money laundering and antiterrorist 
financing efforts--including efforts to implement provisions of the 
Uniting and Strengthening America by Providing Appropriate Tools 
Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT 
Act)--and determined the influence of the NMLS on those efforts. We 
also examined the role the financial regulators played in supporting 
Treasury's efforts under the NMLS goal to strengthen international 
cooperation to fight money laundering. To do this work, we interviewed 
responsible headquarters officials and reviewed documentation from the 
Commodity Futures Trading Commission (CFTC), Federal Deposit Insurance 
Corporation (FDIC), Federal Reserve Board (FRB), National Credit Union 
Administration (NCUA), Office of the Comptroller of the Currency (OCC), 
Office of Thrift Supervision (OTS), Treasury, and Securities and 
Exchange Commission (SEC). We also interviewed officials from the law 
enforcement agencies listed above to assess coordination between law 
enforcement and the financial regulators.

To compare NMLS efforts to the components we have found are necessary 
for a successful strategy, we reviewed drafts of the strategies from 
1999 to 2002, interviewed officials who had been involved in the 
development and implementation of the strategies, and compared the 
results from this work with findings from our past work reviewing 
national strategies and their implementation.

[End of section]

Appendix II: Legislation Has Expanded the Responsibility to Combat Money 
Laundering:

The U.S. government's framework for preventing, detecting, and 
prosecuting money laundering has been expanded through additional 
pieces of legislation since its inception in 1970 with the Bank Secrecy 
Act (BSA).[Footnote 37] The BSA required, for the first time, that 
financial institutions maintain records and reports that financial 
regulators and law enforcement agencies have determined have a high 
degree of usefulness in criminal, tax, and regulatory matters. The BSA 
authorizes the Secretary of the Treasury to issue regulations on the 
reporting of certain currency transactions. The BSA had three main 
objectives: create an investigative audit trail through regulatory 
reporting standards; impose civil and criminal penalties for 
noncompliance; and improve detection of criminal, tax, and regulatory 
violations.

The reporting system implemented under the BSA was by itself an 
insufficient response to money laundering because, under the BSA, 
anybody who satisfied the reporting requirements would not be subject 
to money laundering violations. Thus, Congress enacted the Money 
Laundering Control Act of 1986 (MLCA),[Footnote 38] which made money 
laundering a criminal offense separate from any BSA reporting 
violations. It created criminal liability for individuals or entities 
that conduct monetary transactions knowing that the proceeds involved 
were obtained from unlawful activity and made it a criminal offense to 
knowingly structure transactions to avoid BSA reporting. Penalties 
under the MLCA include imprisonment, fines, and forfeiture.

Congress enacted the Money Laundering Prosecution Improvements Act of 
1988 to enhance the provisions of the BSA and the MLCA and amended 
provisions in both statutes.[Footnote 39] The Improvements Act aimed to 
increase the cooperation that the government receives from financial 
institutions by imposing liability and fines on facilitators, such as 
negligent bankers. It also expanded the definition of a financial 
institution under the BSA and permitted government agencies to 
undertake sting operations.

The Annunzio-Wylie Anti-Money Laundering Act of 1992 amended the BSA in 
a number of ways.[Footnote 40] It authorized Treasury to require 
financial institutions to report any suspicious transaction relevant to 
a possible violation of a law. It also authorized Treasury to require 
financial institutions to carry out anti-money laundering programs and 
create record-keeping rules relating to fund transfer transactions. 
Annunzio-Wylie also made the operation of an illegal money transmitting 
business a crime.

As authorized by Annunzio-Wylie, in 1996, Treasury issued a rule 
requiring that banks and other depository institutions use a Suspicious 
Activity Report (SAR) form to report activities involving possible 
money laundering. During the same year, bank regulators issued 
regulations requiring all depository institutions to report suspected 
money laundering as well as other suspicious activities using this 
form. The bank regulators also placed SAR requirements on the 
subsidiaries, including broker-dealer firms, of the depository 
institutions and their holding companies under their jurisdiction.

The Money Laundering and Financial Crimes Strategy Act of 1998 
(Strategy Act)[Footnote 41] amended the BSA to require the President, 
acting through the Secretary of the Treasury, in consultation with the 
Attorney General and other relevant agencies, including state and local 
agencies, to coordinate and implement a national strategy, produced 
annually for 5 years beginning in 1999, to address money laundering. In 
addition, it requires the Secretary of the Treasury to designate 
certain areas as high-risk areas for money laundering and related 
financial crimes and to establish a Financial Crime-Free Communities 
Support Program. The purpose of demarcating areas as high risk is to 
designate the communities that experience severe problems with money 
laundering that need more help. The Strategy Act also authorizes 
federal funding of efforts by state and local law enforcement agencies 
to investigate money laundering activities. In 1999, Treasury consulted 
with 18 federal agencies, bureaus, and offices in developing the NMLS. 
By 2002, that number had increased to over 25. The Strategy Act 
provides that the NMLS should include:

1. Goals for reducing money laundering and related financial crimes in 
the United States.

2. Goals for coordinating regulatory efforts to prevent the 
exploitation of financial systems in the United States through money 
laundering.

3. A description of operational initiatives to improve the detection 
and prosecution of money laundering and related financial crimes and 
the seizure and forfeiture of the proceeds derived from those crimes.

4. The enhancement of partnerships between the private financial sector 
and law enforcement agencies with regard to the prevention and 
detection of money laundering and related financial crimes.

5. The enhancement of cooperative efforts between the federal 
government and state and local officials, including state and local 
prosecutors and other law enforcement officials; and cooperative 
efforts among the several states and between state and local officials, 
including state and local prosecutors and other law enforcement 
officials.

In the wake of the September 11 terrorist attacks, Congress enacted the 
Uniting and Strengthening America by Providing Appropriate Tools 
Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act) on 
October 25, 2001.[Footnote 42] The passage of the USA PATRIOT Act was 
prompted, in part, by the enhanced awareness of the importance of 
combating terrorist financing as part of the U.S. government's overall 
anti-money laundering efforts, because terrorist financing and money 
laundering both involve similar techniques. Title III of the USA 
PATRIOT Act, among other things, expands Treasury's authority to 
regulate the activities of U.S. financial institutions; requires the 
promulgation of regulations; imposes additional due diligence 
requirements; establishes new customer identification requirements; 
and requires financial institutions to maintain anti-money laundering 
programs. In addition, title III adds activities that can be prosecuted 
as money laundering crimes and increases penalties for activities that 
were money laundering crimes prior to enactment of the USA PATRIOT Act. 
Further, title III amends various sections of the BSA, the MLCA, and 
other statutes. Appendix III contains a detailed summary of key 
provisions in title III of the USA PATRIOT Act.

[End of section]

Appendix III: Summary of Key Anti-Money Laundering Provisions in Title 
III of the USA PATRIOT Act and Rules:

[See PDF for image]

[End of figure]

[End of section]

Appendix IV: Comments from the Department of the Treasury:

DEPARTMENT OF THE TREASURY WASHINGTON, D.C. 20220:

September 15, 2003:

Mr. Richard M. Stana Director:

Homeland Security and Justice:
United States General Accounting Office 
Washington, D.C. 20548:

Ms. Davi M. D'Agostino 
Director:

Financial Markets and Community Investment 
United States General Accounting Office 
Washington, D.C. 20548:

Dear Mr. Stana and Ms. D'Agostino:

Thank you for the opportunity to comment on the September 2003 draft 
report entitled, "Combating Money Laundering: Opportunities Exist to 
Improve the National Strategy" (GAO-03-813). We welcome the assessment 
of both the successes and challenges associated with the National Money 
Laundering Strategy (NMLS). In particular, we believe that your 
recommendations for improving the process for creating the NMLS and 
enhancing accountability of all agencies with responsibility for 
combating financial crime and the financing of terrorism are important, 
should Congress reauthorize the enabling legislation.

Treasury is committed to working across agency and departmental lines 
to develop a cohesive strategy for attacking financial crime and 
terrorist financing through all available channels, including criminal 
investigations, the domestic regulatory regime, and the international 
financial system. In the assessment of the process for creating such a 
strategy, we appreciate the GAO's recognition of the practical 
difficulties associated with ensuring accountability for the goals and 
priorities identified. The dedicated professionals within the U.S. 
Government share the common goal of stemming the flow of illicit funds 
and funds intended to finance terrorism; however, that overarching goal 
and related activities are certainly affected by competing priorities 
and limited resources. Thus, priorities identified within the NMLS may 
well shift or be adapted throughout the year to allow for attention to 
be focused on equally, or even more, important objectives that may 
arise.

We concur with the assessment that outside events and legislation have 
a strong influence on the regulatory agenda, and believe that this is 
appropriate. This is reflected in recent strategies in which we have 
identified goals and priorities of Treasury and the regulators that 
arise out of legislation. Treasury, law enforcement, the regulatory 
community, and the financial services industry have been able to attain 
a new level of cooperation as a result of recent events, such as the 
passage of the USA PATRIOT Act. The results have been palpable, such as 
the issuance of smarter regulations tailored to the financial 
institutions affected and an enhanced ability to fight financial crime 
and the financing of terrorism. We have made it part of our strategy to 
continue to foster this cooperation.

An important purpose of the GAO report on the NMLS is to inform 
Congress' consideration of whether to reauthorize the legislation 
requiring future strategies. With this in mind, Treasury has two 
important comments concerning certain aspects of the draft report as 
outlined below because we believe that such issues are relevant to 
Congress' consideration of whether to renew the Strategy Act and, if 
so, in what form. Specifically:

* The draft report discusses problems associated with the High Intensity 
Money Laundering and Related Financial Crime Areas (HIFCAs). While the 
discussion acknowledges the lack of additional resources associated 
with a HIFCA designation, we think it important to emphasize this point 
further. In our view, the lack of funds to finance HIFCA operations is 
an impediment to their creation and viability. Should the Congress 
choose to reauthorize the HIFCA program, the likelihood of success of 
that program will in large measure be enhanced by attaching an 
independent source of funding.

* Treasury takes the position that the requirement contained in 31 
U.S.C. § 5341(c) - that the Secretary submit a report to Congress, at 
the time the NMLS is submitted, evaluating the effectiveness of 
policies to combat financial crime - has been satisfied by the 
evaluations of effectiveness contained in the NMLS itself. The draft 
GAO report suggests that Treasury has not complied with this 
requirement. Treasury believes that any evaluation of effectiveness 
logically forms a part of the NMLS.

Treasury remains committed to developing a cohesive strategy to combat 
the financing of terrorism and financial crime. We look forward to 
continuing to work with Congress and the GAO to discuss prior 
strategies and our views concerning the possible reauthorization of the 
Strategy Act. Thank you for the opportunity to review and comment on 
the draft report.

Sincerely,

Signed by: 

Juan C. Zarate:

Deputy Assistant Secretary:

Executive Office for Terrorist Financing & Financial Crimes:

[End of section]

Appendix V: Comments from the Department of Justice:

U.S. Department of Justice:

SEP 15 2003:

Washington, D.C 20530:

Mr. Richard M. Stana 
Director, Justice Issues 
General Accounting Office 
Washington, D.C. 20548:

Dear Mr. Stana:

Thank you for the opportunity to review the final draft of the General 
Accounting Office (GAO) report entitled "COMBATING MONEY LAUNDERING: 
Opportunities Exist to Improve the National Strategy, GAO-03-813." This 
draft report was reviewed by representatives of the Department of 
Justice's (DOJ) Criminal Division, Federal Bureau of Investigation, 
Drug Enforcement Administration and the Executive Office of the United 
States Attorneys. This letter constitutes the DOJ's formal comments and 
I request that it be included in the final report. The DOJ's technical 
comments are provided under separate cover and I understand they will 
be incorporated appropriately in the final report.

The extensive effort that your staff has put into this report and the 
opportunity to work with them on this important issue is appreciated. 
The draft report's analysis of the issues surrounding the National 
Money Laundering Strategy (NMLS) represents a comprehensive analysis of 
the strategy process 
issues over the past five years. We believe that the report's 
discussion of the strengths and weaknesses of the strategy process will 
make a significant contribution to future endeavors of this nature.

We would like to comment on several aspects of the draft report. 
However, preliminarily, we would like to emphasize that, even though we 
agree that the strategy did not reach its potential for integrating and 
harmonizing the nation's efforts to combat money laundering, there 
should be no doubt that the DOJ was fully committed to the strategy 
process. Over the past five years, the DOJ, along with the Department 
of the Treasury (Treasury), devoted considerable resources to the 
strategy process. This is especially true with respect to the High 
Intensity Money Laundering and Related Financial Criminal Area (HIFCA) 
program. After the Money Laundering and Financial Crimes Strategy Act 
(the Strategy Act) was passed in 1998, the Treasury set up an 
interagency HIFCA Working Group to develop and implement the HIFCA 
program. This group met industriously over the five-year period to 
develop a program without any additional resources. All of the 
participating agencies put forth their best efforts to work together to 
find the best way to operate the program. The HIFCA Working Group is 
now in the process of conducting a review of the five years of the 
HIFCA program. While the results of the HIFCA program and the strategy 
process as a whole have been varied, this was not due to a lack of 
commitment or effort despite the unfunded mandate.

With respect to the substance of the draft report, the DOJ agrees with 
several of the report's observations and conclusions. First, as we 
stated to the analysts and as reflected in the draft report (p. 48), 
the Strategy Act did not provide additional funding or otherwise 
enhance the DOJ or Treasury's ability to develop and implement the 
annual strategies. As a result, any resources devoted to the strategy 
process were diverted from other ongoing duties. This limited the 
amount of resources that could be devoted to the strategy process. The 
lack of additional resources was especially critical with respect to 
the HIFCA program, where prosecutors and law enforcement agents in the 
field were asked to take on additional responsibilities without any 
resource enhancements. Without supplemental resources, it is difficult 
to develop and implement a new program.

Second, the DOJ agrees with the conclusion that the strategy process 
suffered from the lack of a threat assessment and the lack of clear 
prioritization. We concur with the conclusion that linking the 
strategy's development to a threat assessment could help set priorities 
and ensure that limited resources are focused on the areas of greatest 
need. Without a threat assessment, it is difficult to establish 
priorities and focus resources.

In conclusion, the DOJ would like to commend the GAO analysts who 
worked on this report. DOJ representatives met with them on several 
occasions and they worked diligently to analyze all aspects of this 
issue in a fair and constructive manner. Their observations and 
conclusions will be most helpful in assessing the role that the 
strategy process has played in the federal government's efforts to 
combat money laundering. The DOJ is committed to continuing and 
improving our efforts in this regard and looks forward to working with 
the GAO in the future on the important issue of money laundering.

Sincerely,

Signed by: 

Paul Corts:

Assistant Attorney General for Administration:

cc:

Julie Wellman, Audit Liaison, Criminal Division Donna Enos, Audit 
Liaison, USA:

Marji Snider, Audit Liaison, DEA Monica McLean, Audit Liaison, FBI:

[End of section]

Appendix VI: Comments from the Department of Homeland Security:

U.S. Department of Homeland Security:

Bureau of Immigration and Customs Enforcement:

425 I Street NW Washington, DC 20229:

SEP 25 2003:

Mr. Richard M. Stana:

Director, Homeland Security and Justice Issues:

Ms. Davi M. D'Agostino Director, Financial Markets and Community 
Investment:

U.S. General Accounting Office 441 G Street, NW:

Washington, DC 20548:

Dear Mr. Stana and Ms. D'Agostino:

We have received your draft report, Combating Money Laundering: 
Opportunities Exist to Improve the National Strategy, GAO-03-813 and 
appreciate being provided the opportunity to comment. Overall we agree 
to work with the Secretary of the Treasury as recommended and we will 
do our part to implement necessary actions to address concerns raised 
in the report. Below we have commented on each recommendation as well 
as on information presented in the report.

Recommendation: Strengthen the leadership structure responsible for 
strategy development and implementation by establishing a mechanism 
that would have the ability to marshal resources to ensure the 
strategy's vision is achieved, resolve disputes between agencies, and 
ensure accountability for strategy implementation.

We wish to note the lack of funding to support the High Intensity 
Laundering and Related Financial Crime Areas (HIFCA) program, one of 
the major initiatives in the National Money Laundering Strategy (NMLS) 
to enhance information sharing and coordinated investigative activity 
among federal, state and local law enforcement agencies, impacted the 
effectiveness of implementing the strategy. The establishment of the 
Department of Homeland Security should, in time, eliminate duplicative 
functions and enhance coordination of intelligence and investigative 
efforts among its component law enforcement agencies.

Recommendation:	Link the strategy to periodic assessments of threats and 
risks, which would provide a basis for ensuring that clear priorities 
are established and focused on the areas of greater need.

We agree with the intent of the recommendation.

Recommendation: Establish accountability mechanisms, such as (1) 
requiring the principal agencies to develop outcome-oriented 
performance measures that must be linked to the NMLS' goals and 
objectives and that also must be reflected in the agencies' annual 
performance plans and (2) providing Congress periodic reports on the 
strategy's results.

We agree that Congress should be provided with periodic reports 
analyzing the results and effectiveness of the NMLS, and we look 
forward to working on an interagency basis to provide this information 
to the Congress.

Additional Departmental Comments:

HIFCA task forces generally had not yet been structured and operating 
as intended.

Page 21 (first paragraph) states that HIFCAs were expected to have a 
key role in the 
Federal Government's efforts to disrupt and dismantle large-scale money 
laundering. They were intended to improve the coordination and quality 
of federal money laundering investigations by concentrating the 
investigative expertise of federal, state, and local agencies in 
unified 
task forces, thereby leveraging resources and creating investigative 
synergies. While neither the Money Laundering and Financial Crimes 
Strategy Act nor the annual NMLS specified a 
time frame for when designated HIFCAs were to become fully operational, 
we found the task forces had made some progress but generally had not 
yet been structured and operating as intended.

DHS Comments: A significant impediment was that no source of permanent 
funding was provided for HIFCA.	Funds have not been available to support 
co-location of facilities and equipment, which would have facilitated 
collaboration and joint investigations by federal, state and local law 
enforcement.

NMLS initiatives to enhance coordination of law enforcement investi atg 
ions generally were not addressed or were still ongoing.

Page 31 (second paragraph) states Drug Enforcement Administration (DEA) 
and Federal Bureau of Investigation (FBI) officials told the Government 
Accounting Office (GAO) their agencies did not use the Money Laundering 
Coordination Center because they could not reach a satisfactory 
memorandum of understanding regarding participation, including 
controls over the dissemination of information. DEA officials added the 
center does not meet DEA's needs because it is used for deconfliction 
only.

DHS Comments: On scores of occasions, the Money Laundering Coordination 
Center provided information to the DEA, FBI, Internal Revenue Service 
and U.S. Postal Inspection Service. The Money Laundering Coordination 
Center identifies crossovers between money laundering operations and 
investigations worldwide; coordinates the exchange of money laundering 
information between agencies; and identifies methodologies and trends 
gathered from financial investigations, outbound currency operations, 
and Foreign Investigative Teams. DEA was the most active outside agency 
user of the Money Laundering Coordination Center with over 20 requests 
for assistance.

Most law enforcement coordination initiatives were not addressed or 
were still ongoing.

Page 32 (second paragraph) states according to the 2002 NMLS and our 
discussions with:

law enforcement officials, the lack of uniform guidelines inhibits some 
agencies from participating in investigations that have an 
international component. For example, a DEA official told us DEA 
guidelines generally are more restrictive than guidelines used by 
Customs (as part of U.S. Immigration and Customs Enforcement (ICE)) in 
(1) obtaining approval to initiate and continue undercover 
investigations and (2) coordinating activities with foreign 
counterparts. Therefore, the officials noted that DEA generally could 
not participate in 
international undercover money laundering investigations led by U.S. 
Immigration and Customs Enforcement.

DHS Comments: U.S. Immigration and Customs Enforcement's Undercover 
Review Committee, of which the Department of Justice is a participant, 
reviews the progress of each certified undercover operation every 6 
months. If the undercover operation is not achieving minimum goals or 
its performance is unsatisfactory, the operation is closed. Department 
of Justice representatives at committee meetings are extended an 
opportunity to vote in favor of or disapprove all undercover 
operations.

Agencies did not -fully coordinate terrorist financing investigations.

Page 37 (first paragraph) states at the operational level, GAO found 
some interagency coordination of terrorist financing investigations 
existed between agency Headquarters' components. For example, Operation 
Green Quest and the Terrorist Financing Operations Section had assigned 
one agent to each other's Headquarters in Washington, DC. The FBI also 
was to provide information on its activities to Operation Green Quest 
through daily downloads from the FBI's terrorist financial database. 
Further, Operation Green Quest and FBI officials told GAO that local 
mechanisms existed around the country to deconflict investigations.

DHS Comments: The interagency participation, including FBI, at the 
Operation Green Quest Headquarters task force was specifically designed 
to deconflict and coordinate field investigations. This process 
included complete access to investigative data and vetting of 
information to insure no duplication of effort occurred at the 
Headquarters and field office levels.

Agencies did not fully coordinate terrorist financing investigations. 
(Continued):

Page 37 (second paragraph) states that while Operation Green Quest and 
the FBI task forces took steps to inform each other about the targets 
of their investigations, GAO found the task forces did not fully 
coordinate their activities. For example, at the three locations GAO 
visited:

(Los Angeles, Miami, and New York City), Operation Green Quest and 
Joint Terrorism Task Force officials told GAO they generally were not 
aware of each other's financial investigations and the task forces 
generally did not share investigative information. Several officials 
indicated there were problems with conflicting or competing 
investigations, including disagreements over which task force should 
lead investigations. Officials at all three locations noted the 
Government's anti-terrorist financing efforts could be improved if the 
task forces worked more closely with each other or were combined.

DHS Comments: Coordination of terrorist financing investigations was 
conducted at both the Headquarters and field levels. Operation Green 
Quest had a targeting and coordination center located at ICE 
Headquarters in Washington, DC. Staffed by agents and analysts from the 
various participating agencies, including the FBI, the center 
collected, managed, and disseminated financial leads to ICE field 
agents around the country. The center also coordinated and deconflicted 
all terrorist-financing investigations with the participating member 
task force agencies to minimize duplication of investigative efforts 
aimed at terrorist financing networks. This deconfliction took place on 
a daily basis at Headquarters and through ICE agents assigned to the 
Joint Terrorism Task Force at field offices.

May 2003 Interagency Agreement defined agency roles.

Page 38 (third paragraph) states that on May 13, 2003, the Attorney 
General and the Secretary of Homeland Security signed a Memorandum of 
Agreement (MOA) regarding the anti-terrorist financing roles of the 
respective departments and component agencies. In general, the 
agreement gives the FBI the lead role in investigating terrorist 
financing and specifies that DHS is to pursue terrorist financing 
investigations solely through its participation in FBI-led task forces, 
except as expressly approved by the FBI.

DHS Comments: Under the MOA, ICE and the FBI developed collaborative 
procedures to determine whether a case is related to terrorism or 
terrorist financing and should be referred to the Joint Terrorism Task 
Forces. These procedures govern all past, current and future cases with 
terrorist links. The MOA promotes the sharing of intelligence and 
information between the two organizations. To facilitate the exchange 
of information we have created a Joint Vetting Unit within the 
Financial Investigations Division at ICE Headquarters. The Joint 
Vetting Unit uses the existing Operation Green Quest vetting 
methodology to identify financial leads or investigations with a nexus 
to terrorism or terrorism financing. It will be staffed by ICE and FBI 
personnel who will have full access to relevant databases to conduct 
reviews to determine whether ICE leads the appropriate investigation or 
determine if the investigations have a nexus to terrorism or terrorist 
financing.

Additionally, as per the MOA, the Financial Investigations Division has 
assigned two agents to the FBI, one of whom is a senior manager, 
currently in the position of Deputy Section Chief of Terrorist 
Financing Operations Centers.

Thank you again for the opportunity to respond to the draft report.	If 
you have any questions, please contact Kathleen Stanley, Audit Liaison, 
U.S. Immigration and Customs Enforcement, at (202) 353-8031.

Signed by: 

Michael J. Garcia:

Acting Assistant Secretary:

[End of section]

Appendix VII: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Davi M. D'Agostino, (202) 512-8678 Richard M. Stana, (202) 512-8777:

Acknowledgments:

In addition to those named above, Allison Abrams, Thomas Conahan, Eric 
Erdman, Barbara Keller, Marc Molino, Jan Montgomery, Robert Rivas, 
Barbara Roesmann, and Sindy Udell made key contributions to this 
report.

[End of section]

Related GAO Products:

Internet Gambling: An Overview of the Issues. GAO-03-89. Washington, 
D.C.: December 2, 2002.

Interim Report on Internet Gambling. GAO-02-1101R. Washington, D.C.: 
September 23, 2002.

Money Laundering: Extent of Money Laundering through Credit Cards is 
Unknown. GAO-02-670. Washington, D.C.: July 22, 2002.

Money Laundering: Oversight of Suspicious Activity Reporting at Bank-
Affiliated Broker-Dealers Ceased. GAO-01-474. Washington, D.C.: March 
22, 2001.

Suspicious Banking Activities: Possible Money Laundering by U.S. 
Corporations Formed for Russian Entities. GAO-01-120. Washington, D.C.: 
October 31, 2000.

Money Laundering: Observations on Private Banking and Related Oversight 
of Selected Offshore Jurisdictions. GAO/T-GGD-00-32. Washington, D.C.: 
November 9, 1999.

Private Banking: Raul Salinas, Citibank, and Alleged Money Laundering. 
GAO/T-OSI-00-3. Washington, D.C.: November 9, 1999.

Private Banking: Raul Salinas, Citibank, and Alleged Money Laundering. 
GAO/OSI-99-1. Washington, D.C.: October 30, 1998.

Money Laundering: Regulatory Oversight of Offshore Private Banking 
Activities. GAO/GGD-98-154. Washington, D.C.: June 29, 1998.

Money Laundering: FinCEN's Law Enforcement Support Role Is Evolving. 
GAO/GGD-98-117. Washington, D.C.: June 19, 1998.

Money Laundering: FinCEN Needs to Better Manage Bank Secrecy Act Civil 
Penalties. GAO/GGD-98-108. Washington, D.C.: June 15, 1998.

Money Laundering: FinCEN's Law Enforcement Support, Regulatory, and 
International Roles. GAO/T-GGD-98-83. Washington, D.C.: April 1, 1998.

Money Laundering: FinCEN Needs to Better Communicate Regulatory 
Priorities and Timelines. GAO/GGD-98-18. Washington, D.C.: February 6, 
1998.

Private Banking: Information on Private Banking and Its Vulnerability 
to Money Laundering. GAO/GGD-98-19R. Washington, D.C.: October 30, 
1997.

Money Laundering: A Framework for Understanding U.S. Efforts Overseas. 
GAO/GGD-96-105. Washington, D.C.: May 24, 1996.

Money Laundering: U.S. Efforts to Combat Money Laundering Overseas. 
GAO/T-GGD-96-84. Washington, D.C.: February 28, 1996.

Money Laundering: Stakeholders View Recordkeeping Requirements for 
Cashier's Checks As Sufficient. GAO/GGD-95-189. Washington, D.C.: July 
25, 1995.

Money Laundering: U.S. Efforts to Fight It Are Threatened by Currency 
Smuggling. GAO/GGD-94-73, Washington, D.C.: March 9, 1994.

Money Laundering: Characteristics of Currency Transaction Reports Filed 
in Calendar Year 1992. GAO/GGD-94-45FS. Washington, D.C.: November 10, 
1993.

Money Laundering: Progress Report on Treasury's Financial Crimes 
Enforcement Network. GAO/GGD-94-30. Washington, D.C.: November 8, 1993.

Money Laundering: The Use of Bank Secrecy Act Reports by Law 
Enforcement Could Be Increased. GAO/T-GGD-93-31. Washington, D.C.: May 
26, 1993.

Money Laundering: State Efforts to Fight It Are Increasing but More 
Federal Help Is Needed. GAO/GGD-93-1. Washington, D.C.: October 15, 
1992.

Money Laundering: Civil Penalty Referrals for Violations of the Bank 
Secrecy Act Have Declined. GAO/T-GGD-92-57. Washington, D.C.: June 30, 
1992.

Tax Administration: Money Laundering Forms Could Be Used to Detect 
Nonfilers. GAO/T-GGD-92-56. Washington, D.C.: June 23, 1992.

Money Laundering: Treasury Civil Case Processing of Bank Secrecy Act 
Violations. GAO/GGD-92-46. Washington, D.C.: February 6, 1992.

Money Laundering: The Use of Cash Transaction Reports by Federal Law 
Enforcement Agencies. GAO/GGD-91-125. Washington, D.C.: September 25, 
1991.

Money Laundering: The U.S. Government Is Responding to the Problem. 
GAO/NSIAD-91-130. Washington, D.C.: May 16, 1991.

Money Laundering: Treasury's Financial Crimes Enforcement Network. GAO/
GGD-91-53. Washington D.C.: March 18, 1991.

FOOTNOTES

[1] Pub. L. 105-310, 112 Stat. 2941 codified as 31 U.S.C. §§ 5340-42, 
5351-55 (1998).

[2] 18 U.S.C. § 1956-57 (1994).

[3] Currency and Foreign Transactions Reporting Act (commonly referred 
to as the Bank Secrecy Act), Pub. L. No. 91-508, 84 Stat. 1114 (1970) 
(codified as amended in 12 U.S.C. §§ 1829(b), 1951-1959; 31 U.S.C. §§ 
5311-5330.

[4] Such an "area" could be a geographic area, financial system, 
industry sector, or financial institution.

[5] The anti-money laundering provisions are contained in Title III of 
the USA PATRIOT Act, Pub. L. No. 107-56, 115 Stat. 272 (2001). 

[6] The federal financial regulators include the Federal Reserve Board, 
Federal Deposit Insurance Corporation, Office of the Comptroller of the 
Currency, Office of Thrift Supervision, the National Credit Union 
Administration, the Securities and Exchange Commission, and the 
Commodity Futures Trading Commission.

[7] GAO continues to develop critical success factors for evaluating 
national strategies and will report on this work later this year.

[8] Among other duties, Treasury's Executive Office for Terrorist 
Financing and Financial Crimes is charged with developing and 
implementing the NMLS and U.S. government strategies to combat 
terrorist financing. These duties were previously conducted by 
Treasury's Office of Enforcement, which was disbanded in March 2003.

[9] Justice's Asset Forfeiture and Money Laundering Section (AFMLS) is 
the department's focal point for NMLS issues. 

[10] According to the Strategy Act, several factors are to be 
considered in making HIFCA designations, including the population of 
the area, the number of bank and nonbank financial institution 
transactions, and observed changes in trends and patterns of money 
laundering activity. 

[11] Generally, the Secretary and the Attorney General can make 
designations on their own initiative, at the suggestion of other 
federal agencies, or at the formal request of a state or local official 
involved in money laundering detection, prevention, or enforcement.

[12] The Southwest Border HIFCA was designated to focus on a specific 
money laundering system--i.e., the smuggling of bulk cash between the 
United States and Mexico--rather than a specific geographic area. It 
was to include three U.S. judicial districts--the Southern District of 
Texas, the Western District of Texas, and the District of Arizona. 

[13] Pursuant to regulations issued by Treasury as authorized by the 
BSA and each of the bank regulators, certain financial institutions are 
required to file SARs with FinCEN to report transactions involving 
$5,000 or more that they suspect involve funds derived from illegal 
activity. These reports provide information that can enable law 
enforcement agencies to generate investigative leads, understand 
financial relationships in ongoing investigations, and identify 
forfeitable assets. 

[14] As discussed later in this report, the 2002 NMLS called for 
Treasury and Justice to develop uniform guidelines for undercover money 
laundering investigations.

[15] Treasury and Justice were to jointly oversee the HIFCA task 
forces. To assist their efforts, the departments created an interagency 
HIFCA working group. Regarding the 2002 NMLS, the group was to include 
representatives from the Customs Service, DEA, EOUSA, the Executive 
Office for Organized Crime Drug Enforcement Task Forces, FBI, Federal 
Law Enforcement Training Center, FinCEN, IRS-CI, Justice's Asset 
Forfeiture and Money Laundering Section, Office of National Drug 
Control Policy, U.S. Postal Inspection Service, Secret Service, and 
Treasury's Office of Enforcement. 

[16] Each of the four published annual strategies (1999 through 2002) 
presented one or more initiatives to enhance interagency coordination 
of money laundering investigations. Collectively, the four strategies 
presented 14 such initiatives.

[17] Deconfliction is a process that law enforcement agencies use to 
help ensure officer safety during tactical activities such as drug 
stings. For example, by logging each planned activity into a central 
location or deconfliction unit, officers try to ensure that they are 
not targeting another investigation's subjects or otherwise 
compromising an ongoing investigation. 

[18] In March 2003, the Customs Service and the Money Laundering 
Coordination Center were transferred from Treasury to DHS's ICE.

[19] According to the 2002 NMLS, SAR review teams also can review 
selected wire transfers. The strategy noted that expanding the work of 
the teams to include the selective review of wire transfers could help 
law enforcement agencies coordinate their efforts to investigate and 
prosecute money laundering organizations.

[20] In commenting on a draft of this report, Justice said that, in 
summary, 18 U.S.C. § 2332b(f) assigned to the Attorney General primary 
investigative responsibility for all federal crimes of terrorism 
generally, and that 18 U.S.C. § 2339B(e) directed the Attorney General 
specifically to conduct any investigation of a possible violation of 
the federal terrorism financing statutes. 

[21] In March 2003, Customs and OGQ were transferred from Treasury to 
DHS's ICE.

[22] Committee participants include representatives from the 
Departments of the Treasury, Justice, and State; the National Security 
Council; and the intelligence community. 

[23] Not all BSA regulations have been implemented for banks and 
broker-dealers at the same time. The suspicious activity reporting 
requirement for banks was adopted by Treasury in 1996. The suspicious 
activity reporting requirement for most broker-dealers was adopted by 
Treasury in 2002. Broker-dealers affiliated with bank holding companies 
were subject to the earlier 1996 reporting requirement.

[24] The Financial Action Task Force is an international body with 33 
member countries, territories, and organizations that sets 
international standards to assist countries in their efforts to combat 
money laundering and terrorist financing. The U.S. delegation to the 
Financial Action Task Force includes representatives from the 
Departments of the Treasury, Justice, and State.

[25] The 1999 NMLS did not designate leads for priority or action 
items, but the 2000, 2001, and 2002 NMLS did.

[26] However, OCC, along with the Departments of the Treasury and 
State, was designated as lead in the 2001 NMLS for initiating counter 
measures against noncooperative countries and territories. 

[27] As mentioned previously, in addition to Treasury, the U.S. 
delegation to the Financial Action Task Force includes representatives 
from the Departments of Justice and State.

[28] See U.S. General Accounting Office, Combating Terrorism: 
Observations on National Strategies Related to Terrorism, GAO-03-519T 
(Washington D.C.: Mar. 3, 2003); Homeland Security: A Framework for 
Addressing the Nation's Efforts, GAO-01-1158T (Washington D.C.: Sept. 
21, 2001); International Crime Control: Sustained Executive-Level 
Coordination of Federal Response Needed, GAO-01-629 (Washington D.C.: 
Aug. 13, 2001); and Managing for Results: Next Steps to Improve the 
Federal Government's Management and Performance, GAO-02-439T 
(Washington D.C.: Feb. 15, 2002). In addition, GAO continues to develop 
critical success factors for evaluating national strategies related to 
homeland security and terrorism and will report on this topic later 
this year.

[29] In response to our request, National Security Council officials 
declined to meet with us to discuss the Council's role regarding the 
annual NMLS.

[30] U.S. General Accounting Office, Combating Terrorism: Threat and 
Risk Assessments Can Help Prioritize and Target Program Investments, 
GAO-NSIAD-98-74 (Washington D.C.: Apr. 9, 1998).

[31] U.S. General Accounting Office, Combating Terrorism: Observations 
on Crosscutting Issues, GAO/T-NSIAD-98-164 (Washington D.C.: Apr. 23, 
1998).

[32] We reviewed a copy of the draft threat assessment at Justice 
headquarters. However, since the document was never finalized or 
published, we were not in a position to comment on it.

[33] As mentioned previously, the 2003 strategy had not yet been issued 
as of September 24, 2003.

[34] 31 U.S.C. § 5341(c).

[35] Our work at ICE primarily involved the same Customs Service 
officials we contacted at Treasury before they were transferred to 
Homeland Security in March 2003.

[36] OGQ operated through two components--a targeting and coordination 
center located in Washington, D.C., and financial investigation groups 
in 20 U.S. cities. The FBI's TFOS, also located in Washington, D.C., 
was created to provide a centralized component to conduct and 
coordinate terrorist financing investigations. The FBI's 66 JTTFs are 
located throughout the nation to investigate and prevent acts of 
terrorism. 

[37] Currency and Foreign Transactions Reporting Act (commonly referred 
to as the Bank Secrecy Act), Pub. L. No. 91-508, 84 Stat. 1114 (1970) 
(codified as amended in 12 U.S.C. §§ 1829(b), 1951-1959; 31 U.S.C. §§ 
5311-5330.

[38] 18 U.S.C. §§ 1956 -1957 (1994). 

[39] Pub. L. No. 100-690, 102 Stat. 4354-59, 4378 (1988) (codified as 
amended in scattered sections of 12 U.S.C., 18 U.S.C. and 31 U.S.C.).

[40] Pub. L. No. 102-550, 106 Stat. 4044-47 (1992) (codified as amended 
in scattered sections of 12 U.S.C., 18 U.S.C., and 22 U.S.C.).

[41] 31 U.S.C. §§ 5340-42, 5351-55 (1998).

[42] Pub. L. No. 107-56, 115 Stat. 272 (2001).


GAO's Mission:

The General Accounting Office, the investigative arm of Congress, 
exists to support Congress in meeting its constitutional 
responsibilities and to help improve the performance and accountability 
of the federal government for the American people. GAO examines the use 
of public funds; evaluates federal programs and policies; and provides 
analyses, recommendations, and other assistance to help Congress make 
informed oversight, policy, and funding decisions. GAO's commitment to 
good government is reflected in its core values of accountability, 
integrity, and reliability.

Obtaining Copies of GAO Reports and Testimony:

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains 
abstracts and full-text files of current reports and testimony and an 
expanding archive of older products. The Web site features a search 
engine to help you locate documents using key words and phrases. You 
can print these documents in their entirety, including charts and other 
graphics.

Each day, GAO issues a list of newly released reports, testimony, and 
correspondence. GAO posts this list, known as "Today's Reports," on its 
Web site daily. The list contains links to the full-text document 
files. To have GAO e-mail this list to you every afternoon, go to 
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order 
GAO Products" heading.

Order by Mail or Phone:

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to:

U.S. General Accounting Office

441 G Street NW,

Room LM Washington,

D.C. 20548:

To order by Phone: 	

	Voice: (202) 512-6000:

	TDD: (202) 512-2537:

	Fax: (202) 512-6061:

To Report Fraud, Waste, and Abuse in Federal Programs:

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470:

Public Affairs:

Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800 U.S.

General Accounting Office, 441 G Street NW, Room 7149 Washington, D.C.

20548: