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Testimony: 

Before the Subcommittee on Oversight and Investigations, Financial 
Services Committee, House of Representatives: 

United States Government Accountability Office: 
GAO: 

For Release on Delivery: 
Expected at 2:00 p.m. EDT:
Wednesday, April 28, 2010: 

Anti-Money Laundering: 

Better Communication Could Enhance the Support FinCEN Provides to Law 
Enforcement: 

Statement of Eileen R. Larence:
Director, Homeland Security and Justice: 

GAO-10-622T: 

GAO Highlights: 

Highlights of GAO-10-622T, a testimony before the Subcommittee on 
Oversight and Investigations, Financial Services Committee, House of 
Representatives. 

Why GAO Did This Study: 

Financial investigations are used to combat money laundering and 
terrorist financing, crimes that can destabilize national economies 
and threaten global security. The Financial Crimes Enforcement Network 
(FinCEN), within the Department of the Treasury, supports law 
enforcement agencies (LEAs) in their efforts to investigate financial 
crimes by providing them with services and products, such as access to 
financial data, analysis, and case support. This statement discusses 
the extent to which the law enforcement community finds FinCEN’s 
support useful in its efforts to investigate and prosecute financial 
crimes. This statement is based on work GAO completed and issued in 
December 2009. 

What GAO Found: 

In December 2009, we reported that the majority of 25 LEAs GAO 
surveyed found FinCEN’s support useful in their efforts to investigate 
and prosecute financial crimes, but FinCEN could enhance its support 
by better informing LEAs about its services and products and actively 
soliciting their input. Of the 20 LEAs that responded to a question 
GAO posed about which FinCEN services they found most useful, 16 LEAs 
cited direct access to Bank Secrecy Act data—records of financial 
transactions possibly indicative of money laundering that FinCEN 
collects—as the most valuable service FinCEN provides. Additionally, 
11 federal LEAs cited a tool that allows federal LEAs to reach out, 
through FinCEN, to financial institutions nationwide to locate 
financial information related to ongoing investigations as a key 
service offered by FinCEN. To further enhance the value and relevance 
of its analytic work to LEAs, FinCEN has sought to increase 
development of complex analytic products, such as reports identifying 
trends and patterns in money laundering. Sixteen law enforcement 
agencies GAO surveyed reported that they generally found these complex 
analytic products useful. 

However, we reported that three of five LEAs that are among FinCEN’s 
primary federal customers stated that FinCEN does not provide detailed 
information about the various types of complex analytic products it 
can provide. Three of FinCEN’s primary customers also stated that they 
would like more information about when completed products become 
available. In December 2009, we recommended that FinCEN clarify the 
types of complex analytic products it can provide to LEAs. FinCEN 
agreed with our recommendation and in April 2010 outlined plans to 
improve communication with law enforcement regarding FinCEN’s 
services, products, and capabilities. All five LEAs also reported that 
FinCEN does not actively seek LEAs’ input about ongoing or planned 
analytic products, though four of these LEAs believed that doing so 
could improve the quality and relevance of the products FinCEN 
provides to its customers. We recommended that FinCEN establish a 
process for soliciting input regarding the development of its analytic 
products. FinCEN agreed with our recommendation and in April 2010 
outlined a number of steps it plans to take to better assess law 
enforcement needs, including ongoing efforts to solicit input from 
LEAs. Finally, liaisons from four of FinCEN’s top five federal LEAs 
reported that their agencies do not have sufficient opportunities to 
provide input when FinCEN is considering regulatory changes because 
their comments often contain sensitive information that may compromise 
investigative techniques or strategies used in ongoing investigations. 
We recommended that FinCEN develop a mechanism to collect sensitive 
information regarding regulatory changes from LEAs. In April 2010, 
FinCEN reported that it developed an approach for collecting sensitive 
information without making the comments publicly available. 

What GAO Recommends: 

In December 2009, GAO recommended that, among other things, FinCEN 
clarify the types of complex analytic products it can provide to LEAs; 
establish a process for soliciting input regarding the development of 
analytic products; and develop a mechanism to collect sensitive 
information from LEAs regarding regulatory changes. FinCEN agreed with 
our recommendations and outlined efforts it plans to take in response 
to our findings. 

View [hyperlink, http://www.gao.gov/products/GAO-10-622T] or key 
components. For more information, contact Eileen Larence at (202) 512-
8777 or larencee@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the services and products 
that the Department of the Treasury's Financial Crimes Enforcement 
Network (FinCEN) provides to law enforcement in support of their 
efforts to investigate money laundering, terrorist financing, and 
other financial crimes. Successful investigations into financial 
crimes can support the prosecution of money laundering, drug 
trafficking, and terrorist financing--crimes that have the potential 
to destabilize national economies and threaten global security. The 
Bank Secrecy Act (BSA), enacted in 1970, authorized the Secretary of 
the Treasury to establish anti-money laundering record keeping and 
reporting requirements for domestic financial institutions to help 
prevent abuse of the nation's financial system.[Footnote 1] The BSA 
has three main objectives: create an investigative audit trail through 
regulatory reporting standards; impose civil and criminal penalties 
for noncompliance; and improve the detection of criminal, tax, and 
regulatory violations. Under the BSA's reporting requirements, 
financial institutions must retain records and file BSA reports when 
doing so would have a high degree of usefulness in criminal, tax, and 
regulatory investigations or in the conduct of intelligence activities 
to protect against international terrorism. For example, suspicious 
activity reports (SARs) are filed by financial institutions to inform 
the federal government of any suspicious transaction related to a 
possible violation of law or regulation.[Footnote 2] 

FinCEN, established in 1990 to oversee the administration of the BSA, 
helps to prevent financial crime by serving as a governmentwide, 
service-oriented, financial information-sharing agency to more than 
275 federal and state law enforcement agencies. In supporting law 
enforcement, FinCEN administers the financial transaction reporting 
system for the recordkeeping and reporting requirements mandated or 
authorized under the BSA. FinCEN is also responsible for the 
administration of BSA compliance in the financial industry and, as 
such, indirectly works to support law enforcement by developing and 
implementing regulatory standards so that law enforcement agencies 
have accurate and relevant information for conducting financial crimes 
investigations. Among other things, the support FinCEN provides to 
domestic law enforcement agencies in their efforts to investigate and 
prosecute financial crimes includes providing access to the BSA data 
to identify individuals, financial transactions, or accounts suspected 
of being connected to money laundering, terrorist financing, or other 
financial crimes. FinCEN also responds to requests from law 
enforcement agencies for information pertaining to specific 
investigations, and produces analytic products covering a range of 
issues related to financial crimes.[Footnote 3] For example, FinCEN 
has produced strategic reports examining the processes and actors, 
both licit and illicit, involved in the flow of currency between the 
United States and neighboring countries along various regions of the 
U.S. borders. We issued a report in December 2009 that addressed 
FinCEN's role in supporting law enforcement efforts to investigate and 
prosecute financial crimes such as money laundering and terrorist 
financing.[Footnote 4] My statement today highlights findings and 
recommendations from that report and addresses the extent to which the 
law enforcement community finds FinCEN's support useful in their 
efforts to address such crimes. 

For our December 2009 report, among other things, we surveyed a 
nonprobability sample of 29 federal and state law enforcement agencies 
that included the primary users of FinCEN's services and products in 
fiscal years 2001 through 2007. In total, we received usable 
questionnaires from 25 of the 29 agencies we surveyed. We asked them 
about the extent to which they found FinCEN's services and products 
useful.[Footnote 5] We also interviewed officials from 8 of the 25 
federal and state law enforcement agencies responding to our 
questionnaire including the agencies that FinCEN has identified as its 
top five federal law enforcement customers regarding the extent to 
which FinCEN's support has contributed to their investigations of 
financial crimes.[Footnote 6] We also reviewed a number of FinCEN 
reports and strategic plans including an internal assessment of the 
support FinCEN's Analysis and Liaison Division (ALD) provides to its 
domestic law enforcement customers.[Footnote 7] We conducted this work 
in accordance with generally accepted government auditing standards. 
More detail on our scope and methodology is included in our December 
2009 report.[Footnote 8] 

Law Enforcement Finds a Number of FinCEN's Services and Products 
Useful, but Would Like More Information about Select Products and 
Opportunities to Provide FinCEN with Input about Some Types of Support: 

In our December 2009 report, we found that law enforcement agencies we 
surveyed generally reported finding FinCEN's services and products 
useful, citing direct access to BSA data, on-site liaisons, and access 
to financial information on people or organizations suspected of being 
involved in significant money laundering or terrorist financing 
activities--known as the 314(a) process--as those that are among the 
most useful.[Footnote 9] However, we found that FinCEN could (1) 
better inform law enforcement of the types of complex analytic 
products that it can provide, (2) more clearly define the types of 
requests for complex analytic support that it will accept, and (3) 
actively solicit input on the development of complex analytic products 
in order to help law enforcement better utilize FinCEN's expertise and 
enhance the value of the products it provides to law enforcement. 
Finally, we found that while FinCEN has taken initial steps to more 
actively solicit law enforcement input on proposed regulatory actions, 
FinCEN lacks a mechanism to allow law enforcement agencies to submit 
sensitive information regarding the potential impact of proposed 
regulatory actions on financial crimes investigations. 

Law enforcement agencies cited direct access to BSA Data, the 314(a) 
process, and on-site liaisons as the most useful services FinCEN 
provides. Most law enforcement agencies responding to our survey (16 
out of 20) cited direct access to BSA data as most useful and 19 out 
of 22 agencies responding indicated that BSA data was the FinCEN 
service they used most often.[Footnote 10] Liaisons from three of 
FinCEN's top five federal law enforcement customers noted that direct 
access to the BSA database provides law enforcement a means to access 
these data in order to help identify, deter, and detect money 
laundering or other potential financial crimes related to a range of 
criminal activity. As a result of the Uniting and Strengthening 
America By Providing Appropriate Tools Required to Intercept and 
Obstruct Terrorism Act of 2001 (USA PATRIOT Act), FinCEN also 
introduced a new tool to further assist federal law enforcement 
agencies in their investigations of financial crimes.[Footnote 11] 
This tool, developed by FinCEN in response to Section 314(a) of the 
USA PATRIOT Act, enables federal law enforcement agencies to reach out 
to financial institutions across the country for potential information 
related to financial crimes investigations. FinCEN facilitates the 
314(a) process through the use of a secure communications system. This 
system allows law enforcement to quickly locate financial data, such 
as open accounts and financial transactions related to ongoing 
investigations of persons, entities, or organizations suspected of 
being involved in significant money laundering or terrorist financing 
activities. Federal law enforcement agencies reported that the 314(a) 
process is a key service offered by FinCEN that provides case-specific 
and timely information to support ongoing law enforcement 
investigations. Specifically, all 11 federal agencies we surveyed that 
had a basis to judge the 314(a) process responded that it was either 
very or extremely helpful. Finally, law enforcement agencies reported 
that being able to maintain agency liaisons on-site at FinCEN is 
another valuable service FinCEN provides, facilitating law enforcement 
agency access to FinCEN's services and products.[Footnote 12] 
Specifically, all 9 of the federal law enforcement agencies responding 
to the questionnaire that indicated they had on-site liaisons reported 
that it was extremely helpful. 

FinCEN has sought to increase its production of more complex analytic 
products, which law enforcement agencies report are also helpful in 
financial crimes investigations. As more law enforcement agencies 
gained the ability to directly access the BSA data and conduct their 
own searches of the data, their reliance on FinCEN to conduct basic 
queries on their behalf has decreased. We reported that from 2004 
through 2007, requests to FinCEN to conduct such queries decreased 80 
percent from 2,048 to 409.[Footnote 13]As a result, FinCEN has 
identified a need to redefine its role in supporting law enforcement 
agencies and to enhance the value and relevance of its analytic work. 
As part of this effort, in recent years FinCEN has sought to increase 
its production of more sophisticated complex analytic products. These 
products range from complex tactical case support requiring large-
scale BSA data analysis, to a variety of strategic projects, studies, 
and trend analyses intended to identify and explain money laundering 
methodologies or assess threats posed by large-scale money laundering 
and terrorist financing activities. For example, in 2007 FinCEN 
provided a study to one law enforcement agency that identified 
currency flows between the United States and another country which 
helped this agency to identify potential patterns in drug trafficking. 
Based on responses to our survey and interviews, law enforcement 
agencies reported general satisfaction with FinCEN's analytic 
products. For example, when asked why they requested analytic support 
from FinCEN, 15 out of 17 agencies that indicated they had made such 
requests reported that they did so because they believed FinCEN has 
unique expertise related to analyzing the BSA data.[Footnote 14] 
Additionally, liaisons from all of FinCEN's top five federal law 
enforcement customers specifically highlighted technical reference 
manuals as one of the most useful complex analytic products FinCEN 
produces. FinCEN's technical reference manuals provide practical 
information on a variety of issues, including how particular financial 
transfer or payment mechanisms may be used to launder money. 

FinCEN could better inform law enforcement about the types of complex 
analytic products it can provide and when those products become 
available. We reported that according to liaisons from three of 
FinCEN's top five federal law enforcement customers, FinCEN does not 
provide detailed information about each type of product that would 
help law enforcement agencies to fully understand the various types of 
support FinCEN can provide.[Footnote 15] Senior ALD officials also 
acknowledged that they could clarify and better communicate to their 
law enforcement customers the various types of complex analytic 
products FinCEN can provide. In addition, in both interviews and in 
response to open-ended survey questions, officials from 7 of the 25 
law enforcement agencies we surveyed, including three of FinCEN's top 
five federal law enforcement customers, also indicated that they would 
like more information about when completed products become available. 
[Footnote 16] These liaisons noted that because FinCEN does not 
actively communicate with them about when completed products are 
available, they may not be aware of all of FinCEN's products that 
could be useful in their investigations of financial crimes. 
Similarly, an official from one of FinCEN's top five federal law 
enforcement customers noted that, in some cases, analyses FinCEN 
conducts for one customer might also be useful to the investigations 
of other financial crimes. 

In an internal report generated by ALD staff in August 2008, ALD 
officials acknowledged that law enforcement liaisons reported that 
they would like FinCEN to provide clear guidance on the dissemination 
of its products.[Footnote 17] FinCEN officials also noted that they 
typically observe the "third-party rule" on dissemination of 
information obtained from the requesting agency and, in some cases, 
this may limit their ability to share products that are completed in 
response to a request from a single customer. The rule generally 
provides that information properly released by one agency to another 
agency cannot be released by the recipient agency to a third agency 
without prior knowledge and consent of the agency that originally 
provided the information. The third-party rule applies to all data and 
information FinCEN receives from the agencies with which it works on a 
specific project. However, officials further stated that they are 
committed to looking for ways to better publicize FinCEN's analytic 
work and will continue to do so within the framework of adequately 
protecting the information provided to them. While we recognize the 
need for FinCEN to protect sensitive information, establishing a 
process to clarify and communicate to law enforcement when and under 
what circumstances FinCEN can or will attempt to share analytic 
products with other law enforcement customers will help ensure that it 
is effectively carrying out its mission to support the investigation 
and prosecution of financial crimes. We recommended that FinCEN 
clarify and communicate to law enforcement agencies the various types 
of complex analytic products FinCEN can provide and establish a 
process for informing law enforcement agencies about the availability 
of these products. FinCEN agreed with our recommendation and outlined 
plans it would take in order to improve communication with law 
enforcement regarding the services, products, and capabilities FinCEN 
offers. In response to our report, FinCEN officials stated that they 
would compile an inventory of analytic products historically produced, 
those FinCEN should produce, and those requested by law enforcement. 
FinCEN officials reported that it would consult with law enforcement 
partners to refine its recommendations, and then categorize and 
describe the types of analytic products for law enforcement. 

In April 2010, we obtained updated information from FinCEN on the 
status of its efforts to address our recommendations. Specifically, 
FinCEN officials stated that its Office of Law Enforcement Support 
(OLE) created a draft "Menu of Products and Services" which is 
intended to clarify the types of products and services FinCEN's 
analytical operation can provide. According to FinCEN officials, OLE 
also created a draft "Menu of Resources" which describes the data 
sources and other tools available to FinCEN analysts that can be 
utilized in the course of their analytical support operations. These 
officials explained that, while these documents are still in draft 
form, once they are finalized, they will be distributed to its law 
enforcement customers through FinCEN's Secure Outreach Portal, on 
their intranet, and through direct and e-mail contact between FinCEN 
personnel and external agencies. 

Defining the types of requests for complex analytic support that 
FinCEN will accept could also help law enforcement better utilize 
FinCEN's expertise in analyzing the BSA data. While FinCEN has 
informed law enforcement that it is now focusing the support it 
provides predominantly on those requests that it considers to be for 
complex analytic support, we found that it could better inform law 
enforcement about its decision-making process regarding what requests 
it will accept or reject. Law enforcement agencies may submit requests 
for complex analysis in support of specific investigations;[Footnote 
18] however, in interviews with officials from FinCEN's top five 
federal law enforcement customers, liaisons from two of these agencies 
stated that they did not fully understand what types of cases FinCEN 
is willing and able to support.[Footnote 19] Furthermore, in response 
to an open-ended survey question on FinCEN's analytic support, 
officials from two other law enforcement agencies reported that they 
do not fully understand FinCEN's decision-making process for accepting 
or rejecting requests for support. These agencies indicated that while 
they understand that FinCEN has limited staff and resources to 
dedicate to analytic support, FinCEN has not been consistent in 
responding to their requests for support and does not always provide 
explanations why specific requests were rejected. 

In addition, in the internal report generated by ALD staff in August 
2008, ALD officials acknowledged confusion among law enforcement 
customers about the types of requests FinCEN will accept, as well as 
law enforcement agencies' concern that FinCEN does not sufficiently 
explain the reasons for declining specific requests for support. 
Senior officials acknowledged the report's findings and as a first 
step, reorganized ALD in October 2009 in order to realign resources to 
better meet law enforcement's needs. For example, FinCEN officials 
reported that they created a new office within ALD that is responsible 
for providing proactive analysis of BSA data and communicating 
regularly with law enforcement agents in the field. The officials 
stated that they believe the creation of this office will allow them 
to leverage analytical assets and abilities across FinCEN to better 
inform all of their partners within the law enforcement, intelligence, 
regulatory, and financial communities. ALD also identified the 
development and implementation of processes to improve communication 
with its law enforcement customers as a 2010 priority. We recommended 
that FinCEN complete a plan, including identifying the specific 
actions FinCEN will take to better assess law enforcement needs, and 
make the division's operations more transparent to FinCEN's law 
enforcement customers. This plan should include a mechanism for FinCEN 
to communicate to law enforcement agencies its decision-making process 
for selecting complex analytic products to pursue and why FinCEN 
rejects a request. FinCEN agreed with our recommendation and stated 
that in October 2009, it began an effort to address communication with 
law enforcement on three levels: analytical products, workflow 
process, and outreach. The teams assessing workflow processes and 
outreach efforts will make recommendations that will include 
provisions for better assessment of law enforcement needs and more 
insight into FinCEN's decision-making on complex analytical products. 

In April 2010, FinCEN officials reported that they have taken steps to 
collect information about law enforcement customer's priorities, 
needs, and plans. For example, FinCEN officials reported plans to 
create a survey to capture law enforcement agencies' specific 
investigative focus and needs. Furthermore, the officials stated that 
personnel from the Office of Law Enforcement Support working in 
consultation with law enforcement representatives drafted a new data 
collection form for documenting requests for analytic support from law 
enforcement. FinCEN officials also reported that they have established 
a process for reviewing and responding to requests and informing the 
requester of FinCEN's final decision. According to FinCEN officials, 
once requests have been reviewed, completed forms will be scanned and 
retained for future reference so that requestors may be informed as to 
why requests were accepted or denied. 

Actively soliciting input on the development of complex analytic 
products could help FinCEN enhance their value to law enforcement 
agencies. While FinCEN communicates with its law enforcement customers 
about a variety of issues, we reported that the agency could enhance 
the value of its complex analytic work by more actively soliciting law 
enforcement's input about ongoing or planned analytic work. In 
interviews with officials from FinCEN's top five federal law 
enforcement customers, liaisons from all five agencies reported that 
FinCEN does not consistently seek their input about ongoing or planned 
analytic work. Four of the liaisons stated that, as a result, they do 
not have regular opportunities to provide FinCEN with meaningful input 
about what types of products would be useful to them, potentially 
creating a gap between the products the agency generates and the 
products that its law enforcement customers need and want. Similarly, 
three other law enforcement liaisons noted that FinCEN does not 
provide them with regular opportunities to make proposals regarding 
the types of complex analytic products FinCEN should undertake. 
According to FinCEN officials, while the agency primarily relies on ad 
hoc communication with law enforcement agencies--such as talking with 
law enforcement representatives located on-site, with law enforcement 
representatives at conferences, or with individual agents in the 
field--FinCEN does not have a systematic process for soliciting input 
from law enforcement agencies on the development of its complex 
analytic work. 

In their August 2008 internal report, ALD officials acknowledged the 
concerns of its law enforcement customers regarding their lack of 
opportunities to provide input on FinCEN's planned complex analytic 
work, and that FinCEN does not always solicit or incorporate law 
enforcement input in the selection of these products. As a solution, 
the internal report recommended that the law enforcement roundtable be 
used as a forum to discuss proposals for analytic products with 
FinCEN's law enforcement customers.[Footnote 20] While this is a 
productive step, relying solely on the roundtable may not allow 
opportunities for some of FinCEN's other law enforcement stakeholders 
to provide input because the roundtable is typically only attended by 
federal law enforcement customers. Furthermore, not all of FinCEN's 
federal law enforcement customers are able to regularly attend these 
meetings.[Footnote 21] 

FinCEN does use annual surveys and feedback forms to obtain feedback 
from law enforcement on the usefulness of some completed products, 
although these surveys and forms are not designed to obtain detailed 
information on the full range of services and products FinCEN 
provides. For example, the annual surveys do not cover other analytic 
products such as FinCEN's strategic analysis reports or its technical 
reference guides. Actively soliciting stakeholder input and providing 
transparency with regard to decision making are GAO-identified best 
practices for effectively meeting stakeholder needs. Incorporating 
these best practices could help FinCEN maximize the usefulness of its 
support. FinCEN officials emphasized that law enforcement also has a 
responsibility to provide constructive input on FinCEN's services and 
products. While we recognize that communication between FinCEN and its 
law enforcement customers is a shared responsibility, actively 
soliciting stakeholder input will allow FinCEN to capture stakeholder 
interests and better incorporate law enforcement perspectives into the 
development of complex analytic products. As a result, we recommended 
that FinCEN establish a systematic process for actively soliciting 
input from law enforcement agencies and incorporating this input into 
the selection and development of its analytic products. FinCEN agreed 
with this recommendation and outlined efforts it plans to undertake in 
response to our findings. In October 2009, according to FinCEN 
officials, ALD established an Office of Trend and Issue Analysis (OTI) 
which is to focus on the development of strategic-level analysis of 
Bank Secrecy Act data. FinCEN officials also reported that ALD 
reassigned a number of its field representatives to OLE in order to 
better utilize their experience and to enhance communication with law 
enforcement customers. Finally, FinCEN stated that it also plans to 
design an institutional process for collecting the kind of information 
required to gain broader insight into its law enforcement partners' 
priorities. In providing updates on their efforts to address our 
recommendations, FinCEN officials stated that they are making a 
concerted effort to engage their law enforcement customers at a 
variety of organization levels to determine their key priorities and 
how FinCEN can best support their priorities and strategic goals. 

FinCEN has taken initial steps to more actively solicit law 
enforcement input on proposed regulatory actions, but lacks a 
mechanism for collecting sensitive information about these actions. 
Regulatory changes instituted by FinCEN can affect the content or 
structure of BSA data used in law enforcement investigations as well 
as law enforcement's efforts to indict and prosecute financial crimes. 
However, we reported that liaisons from four of FinCEN's top five 
federal law enforcement customers reported concerns that their 
agencies do not have sufficient opportunities to provide input when 
FinCEN is considering proposed regulatory changes. The internal report 
ALD generated in August 2008 also recognized that changes to BSA 
regulations have the potential to alter the kind of information that 
financial institutions report. The report also acknowledged federal 
law enforcement agencies' concerns that FinCEN does not generally 
engage them in the identification and resolution of regulatory issues 
that might influence law enforcement operations. According to senior 
FinCEN officials, the agency recognizes the need to do a better job of 
obtaining law enforcement input on proposed regulatory changes in the 
future and did so in one recent case. Specifically, in developing 
regulations in 2009 related to stored value cards, such as prepaid 
debit cards and gifts cards, FinCEN held multiple meetings with 
representatives from its top five federal law enforcement customers 
specifically designed to obtain their input and provide 
recommendations on developing the proposed regulation.[Footnote 22] 
FinCEN also used the law enforcement roundtable to inform agencies 
about the planned regulatory changes. FinCEN's efforts to actively 
solicit law enforcement input in this case are encouraging, and 
continuing such efforts would help ensure that law enforcement input 
is considered before regulatory changes are made. 

Once FinCEN has decided to move forward with a proposed regulatory 
change, it follows the process laid out in the Administrative 
Procedure Act (APA) for obtaining official comments on the proposal 
from interested stakeholders including regulators, financial 
institutions, and law enforcement agencies. The APA prescribes uniform 
standards for rulemaking and most federal rules are promulgated using 
the APA-established informal rulemaking process, also known as "notice 
and comment" rulemaking. Generally, a notice of proposed rulemaking 
(NPRM) is published in the Federal Register announcing an agency's 
intent to promulgate a rule to the public.[Footnote 23] However, we 
reported that liaisons from four of FinCEN's top five federal law 
enforcement customers reported that the public record is not always 
the most appropriate venue for providing comments on proposed 
regulatory changes because their comments often contain law 
enforcement sensitive information. According to these officials, 
raising these concerns in a public forum may compromise key 
investigative techniques or strategies used in ongoing investigations. 
According to FinCEN officials, at the time of our review, they did not 
have a systematic process for soliciting law enforcement-sensitive 
comments on proposed regulatory changes in a nonpublic docket. The 
importance of stakeholder input in the process of proposing regulatory 
changes is well established--it is the basis for the public comment 
period in the NPRM process. In order to improve FinCEN's efforts to 
receive important information necessary to making decisions about 
proposed regulatory changes, we recommended that FinCEN develop a 
mechanism to collect law enforcement sensitive information from law 
enforcement agencies during the public comment period of the NPRM 
process. FinCEN agreed with our recommendation and stated that it 
would determine and implement appropriate ways to communicate to the 
law enforcement community its ability to receive and use law 
enforcement sensitive information in this context. In April 2010, 
FinCEN officials stated that they have developed an approach for 
collecting law enforcement sensitive information during the public 
notice and comment period of the NPRM process without making the 
comments publicly available. According to FinCEN officials, FinCEN 
will advise law enforcement, through the law enforcement liaisons, 
that they may provide law enforcement sensitive information at the 
time of publication of each NPRM and inform them that FinCEN will not 
post those comments or make them publicly available. 

Mr. Chairman, this concludes my statement. I would be pleased to 
respond to any questions that you or other Members of the Subcommittee 
may have. 

Contacts and Acknowledgments: 

For questions about this statement, please contact Eileen R. Larence 
at (202) 512-8777 or larencee@gao.gov. Contact points for our Offices 
of Congressional Relations and Public Affairs may be found on the last 
page of this statement. 

In addition to the contact above, individuals making key contributions 
to this statement include Kirk Kiester, Assistant Director; Samantha 
Carter, and Linda Miller. Additionally, key contributors to our 
December 2009 report include Hugh Paquette, Miriam Hill, David 
Alexander, George Quinn, Jr., Billy Commons, Jan Montgomery, and Sally 
Williamson. 

[End of section] 

Footnotes: 

[1] Bank Secrecy Act, titles I and II of Pub. L. No. 91-508, 84 Stat. 
1114 (1970) (codified as amended in 12 U.S.C. §§ 1829b, 1951-1959; 31 
U.S.C. §§ 5311-5332). The BSA requires financial institutions to 
maintain records on financial transactions including suspicious 
activity that may be related to money laundering or other financial 
crimes. 

[2] Under the regulations administered by FinCEN, a SAR is generally 
required when a transaction is conducted or attempted by, at, or 
through a financial institution that involves or aggregates at least 
$5,000 in funds or other assets and the institution knows, suspects, 
or has reason to suspect that the transaction: involves funds derived 
from illegal activities; is intended or conducted in order to hide or 
disguise funds or assets derived from illegal activities as part of a 
plan to violate or evade any federal law or regulation or to avoid any 
transaction reporting requirement under federal law or regulation; is 
designed to evade any reporting requirement under federal law or other 
BSA requirement; has no business or apparent lawful purpose; or the 
transaction is not the sort in which the customer would normally be 
expected to engage and there is no reasonable explanation known for 
the transaction; or involves use of the institution to facilitate 
criminal activity. See 31 C.F.R. §§ 103.15-.21. 

[3] FinCEN also collaborates with international counterparts in other 
countries to facilitate sharing of financial information between 
domestic and international law enforcement agencies. For more 
information, see GAO, International Financial Crime: Treasury's Roles 
and Responsibilities Relating to Selected Provisions of the USA 
PATRIOT Act, [hyperlink, http://www.gao.gov/products/GAO-06-483] 
(Washington, D.C.: May 12, 2006). 

[4] GAO, Anti-Money Laundering: Improved Communication Could Enhance 
the Support FinCEN Provides to Law Enforcement, [hyperlink, 
http://www.gao.gov/products/GAO-10-141] (Washington, D.C.: Dec. 14, 
2009). 

[5] Nonprobability sampling is a method of sampling when 
nonstatistical judgment is used to select members of the sample, using 
specific characteristics of the population as criteria. Results from 
nonprobability samples cannot be used to make inferences about a 
population, because in a nonprobability sample some elements of the 
population being studied have no chance or an unknown chance of being 
selected as part of the sample. 

[6] FinCEN has identified the following agencies as its top five 
federal law enforcement customers: the Drug Enforcement 
Administration, the Federal Bureau of Investigation, Immigration and 
Customs Enforcement, the U.S. Secret Service, and the Internal Revenue 
Service's Criminal Investigation Division. 

[7] FinCEN's Analysis and Liaison Division (ALD) is the division 
primarily responsible for providing support to law enforcement 
agencies. 

[8] [hyperlink, http://www.gao.gov/products/GAO-10-141]. 

[9] The "314(a) process" refers to section 314(a) of the USA PATRIOT 
Act which required the Secretary of the Treasury to issue regulations 
to encourage further cooperation among financial institutions, 
financial regulatory authorities, and law enforcement authorities to 
promote sharing information regarding individuals, entities, and 
organizations engaged in or reasonably suspected of engaging in 
terrorist acts or money laundering activities, and to permit the 
sharing of information by law enforcement and regulatory authorities 
with financial institutions regarding persons reasonably suspected of 
engaging in terrorist acts or money laundering activity. 31 U.S.C. § 
5311 note (Cooperative Efforts to Deter Money Laundering). See also 31 
C.F.R. § 103.100. 

[10] Although a total of 25 law enforcement agencies responded to our 
questionnaire, all 25 agencies did not provide responses to each 
question. For example, a total of 20 agencies responded to the 
question regarding which FinCEN service or product they found to be 
most useful, and 22 agencies responded to the question regarding which 
FinCEN service they use most often. 

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

[12] FinCEN provides office space for law enforcement agencies to 
locate full-time liaisons at FinCEN's headquarters in Vienna, Virginia 
to facilitate their agencies' access to FinCEN's services and products. 

[13] FinCEN did not track the number of basic queries requested by law 
enforcement agencies before fiscal year 2004, so FinCEN was unable to 
provide us these data for fiscal years 2001 through 2003. 

[14] Law enforcement agencies were asked about their reasons for 
requesting any type of analytic support from FinCEN, including 
requests for both basic and complex analytic products. 

[15] Our interviews with law enforcement agencies including interviews 
with the liaisons of the five federal agencies that use the most 
FinCEN services and products involved aspects of each agency's 
experiences working with FinCEN. As a consequence, we did not ask the 
same questions of all liaisons in these interviews. Officials with 
these agencies volunteered this information; therefore, we do not know 
the extent to which the other agencies had concerns regarding outreach. 

[16] Because officials volunteered this information in both interviews 
and in response to open-ended survey questions, we do not know the 
extent to which other agencies had similar concerns. 

[17] In 2008, ALD conducted an internal assessment of the support the 
division provides to its domestic law enforcement customers. The 
resulting internal report, provided to senior FinCEN management in 
August 2008, assesses the division's efforts to measure the 
requirements of FinCEN's law enforcement customers and align the 
resources and efforts of ALD personnel to satisfy those requirements. 
This report outlined several recommendations designed to enhance 
FinCEN support and better meet the needs of its law enforcement 
customers. 

[18] This type of support may involve large-scale, in-depth BSA data 
analysis related to specific law enforcement investigations. 

[19] Because officials volunteered information about their concerns 
during interviews, we do not know the extent to which the other three 
agencies may have similar concerns. 

[20] FinCEN holds a series of bimonthly meetings with some federal law 
enforcement representatives, known as the law enforcement roundtable. 
The roundtable is primarily used for general information sharing, such 
as discussing the current missions of participating agencies or 
providing updates about the 314(a) process. According to FinCEN 
officials, the agency does not use the roundtable to discuss ongoing 
investigations or to solicit input from law enforcement about the 
development and prioritization of its complex analytic products. 

[21] FinCEN's state and local law enforcement customers do not attend 
the law enforcement roundtable. 

[22] Stored value cards are prepaid debit cards that use magnetic 
stripe technology to store information about funds that have been 
prepaid to the card. Payroll cards, government benefit cards, gift 
cards, and telephone cards are examples of stored value cards. Stored 
value cards often allow holders to transfer money values anonymously 
without being subject to the same controls required of institutions 
that deal with credit and debit cards. While there are many forms and 
uses of stored value cards in the marketplace, there are two main 
categories: (1) single-purpose or "closed-loop" cards, such as gift 
cards, which can only be used to purchase goods at particular 
retailers, or prepaid telephone cards, which can only be used to make 
telephone calls, and (2) multipurpose or "open-loop" cards, which can 
be used to make debit transactions at a wide variety of retail 
locations, as well as for other purposes, such as receiving direct 
deposits and withdrawing cash from ATMs. 

[23] The APA requires that the NPRM include a statement of the time, 
place, and nature of the public rulemaking proceedings, reference to 
the legal authority under which the rule is proposed, and the terms or 
substance of the proposed rule or a description of the subjects and 
issues involved. The NPRM also generally includes the timing and 
manner in which the public may comment on the proposed rule. E.O. 
12866 states that most rulemakings should include a comment period of 
60 days, and most agencies do provide a 60-day or longer comment 
period for complex or controversial rules. After issuance of the NPRM, 
agencies are generally required to place public comments as well as 
other supporting materials in a rulemaking docket which must be 
available for public inspection. 

[End of section] 

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