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entitled 'Moving Illegal Proceeds: Opportunities Exist for 
Strengthening the Federal Government's Efforts to Stem Cross-Border 
Currency Smuggling' which was released on March 9, 2011. 

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United States Government Accountability Office: 


Before the Senate Caucus on International Narcotics Control: 

For Release on Delivery: 
Expected at 2:30 p.m. EST:
Wednesday, March 9, 2011: 

Moving Illegal Proceeds: 

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

Statement of Richard M. Stana, Director:
Homeland and Security Issues: 


Chairwoman Feinstein, Ranking Member Grassley, and Members of the 

I am pleased to be here today to discuss federal efforts to stem 
currency smuggling across our nation's borders. Mexican drug- 
trafficking organizations, terrorist organizations, and other groups 
with malevolent intent finance their operations by moving funds into 
or out of the United States. For example, a common technique used for 
taking proceeds from drug sales in the United States to Mexico is a 
method known as bulk cash smuggling.[Footnote 1] The National Drug 
Intelligence Center (NDIC) has stated that proceeds from drug 
trafficking generated in this country are smuggled across the 
southwest border and it estimates that the proceeds total from $18 
billion to $39 billion a year. NDIC also estimates that Canadian drug-
trafficking organizations smuggle significant amounts of cash across 
the northern border from proceeds of drugs sold in the United States. 

In addition to bulk cash smuggling, 21st century methods and 
technologies of laundering money have emerged. In 2009, NDIC stated 
that new financial products and technologies present unique 
opportunities for money launderers as well as unprecedented challenges 
to the intelligence, law enforcement, and regulatory communities. NDIC 
and others cited the use of prepaid cards or gift cards that are 
loaded with currency or value--also called stored value--as presenting 
a compact and easily transportable method to move money into and out 
of the United States. 

U.S. Customs and Border Protection (CBP)--a major component in the 
Department of Homeland Security (DHS)--is the lead federal agency in 
charge of securing our nation's borders. In March 2009, the Secretary 
of Homeland Security called on CBP to help stem the flow of bulk cash 
and weapons moving south by inspecting travelers leaving the United 
States for Mexico--an effort called outbound operations. In addition, 
the Financial Crimes Enforcement Network (FinCEN)--a bureau in the 
Department of the Treasury (Treasury)--seeks to deter and detect 
criminal activity and safeguard the financial system from the risk 
that terrorists and other criminals may fund their operations through 
financial institutions in the United States. Among other things, 
FinCEN is responsible for administering laws aimed at preventing 
criminals from abusing U.S. financial systems. 

My testimony today is based on our October 2010 report on cross-border 
currency smuggling and updated information on bulk cash seizures and 
the status of one our recommendations.[Footnote 2] Like the report, it 
will cover the following three issues: (1) the actions CBP has taken 
to stem the flow of bulk cash leaving the country through land ports 
of entry and the challenges that remain, (2) the regulatory gaps that 
exist for cross-border reporting and other anti-money laundering 
requirements involving the use of stored value, and (3) the extent to 
which FinCEN has taken action to address these regulatory gaps. 

To conduct our work, we visited and observed outbound operations at 
five ports of entry (Blaine, Washington; Buffalo, New York; El Paso, 
Texas; Laredo, Texas; and San Ysidro, California) that provided us 
examples of outbound operations on the northern and southwest border 
with high traffic volume. We reviewed and analyzed data on the amount 
of bulk cash seized from March 2009 through June 2010 and for this 
testimony updated bulk cash seizure data through February 22, 2011. We 
assessed the reliability of these data and concluded that they were 
sufficiently reliable for our purposes. We also reviewed CBP's 
policies and procedures and strategic plan for its outbound operations 
at land ports of entry. For this testimony, we updated the status of 
our recommendation to CBP that it establish a performance measure for 
its outbound program. We reviewed current regulations and statutes 
that govern issuers, sellers, and redeemers of stored value and 
interviewed officials or obtained information from DHS, Treasury, and 
the Department of Justice. We reviewed relevant legislation and 
proposed rules related to stored value.[Footnote 3] More detailed 
information on our scope and methodology appears in our October 2010 
report. We conducted our work in accordance with generally accepted 
government auditing standards. 

CBP Has Established an Outbound Enforcement Program, but Further 
Actions Are Needed to Address Program Challenges: 

In March 2009, CBP reestablished the Outbound Enforcement Program 
within its Office of Field Operations. [Footnote 4]As a result of its 
outbound enforcement activities, CBP seized about $67 million in 
illicit bulk cash leaving the country at land ports of entry--97 
percent of which was seized along the southwest border--from March 
2009 through February 22, 2011. Total seizures account for a small 
percentage of the estimated $18 billion to $39 billion in illicit 
proceeds being smuggled across the southwest border annually. 

CBP has succeeded in establishing an Outbound Enforcement Program, but 
the program is in its early phases and there is a general recognition 
by CBP managers and officers that the agency's ability to stem the 
flow of bulk cash is limited because of the inherent difficulty in 
identifying travelers who attempt to smuggle cash. Beyond this 
inherent difficulty, in our October 2010 report we identified 
management challenges in three main areas. First, addressing 
limitations in staffing, infrastructure, and technology, among other 
things, could require substantial capital investments at all ports of 
entry. For example, license plate readers are available at 48 of 118 
outbound lanes on the southwest border and none of the 179 outbound 
lanes on the northern border. Additionally, CBP officials have 
estimated that there are a limited number of outbound lanes networked 
to support computer stations or wireless computing. However, CBP lacks 
data on the benefits and costs of an expanded program and as a result 
may be unable to most effectively inform decisions on how to apply 
scarce resources. We recommended that CBP collect data on program 
costs and benefits to better inform resource decisions. CBP concurred 
with this recommendation and stated that it is taking action to 
address the recommendation. 

Second, policies and procedures to ensure the safety of officers 
involved in outbound operations are not in place. In our October 2010 
report, we recommended that CBP direct and ensure that managers at 
land ports of entry develop policies and procedures that address 
officer safety. At all five ports of entry we visited, we observed 
that officers used the side of the highway to conduct secondary 
inspections, while other vehicles moved past, potentially endangering 
officers. At one port of entry, officers conducted inspections of the 
underside of vehicles by lying on the ground with their legs exposed 
while traffic moved by in neighboring lanes at speeds up to 
approximately 25 miles per hour. CBP concurred with our recommendation 
and stated that it will, among other things, require each port 
director to develop procedures that address the safety challenges at 
the port of entry. 

Third, CBP has developed a strategic plan for its outbound program, 
but it has yet to develop a performance measure that assesses the 
effectiveness of the program. In our October 2010 report, we 
recommended that CBP develop a performance measure that informs CBP 
management, Congress, and other stakeholders about the extent to which 
the Outbound Enforcement Program is effectively stemming the flow of 
bulk cash and other illegal goods by working with other federal law 
enforcement agencies. CBP concurred with our recommendation. In 
February 2011, CBP issued a performance measure for its outbound 
program that involves the amount of currency and the number of weapons 
seized, however, this does not fully address our recommendation 
because it does not measure the degree to which the program is 
effectively stemming the flow of bulk cash, weapons, and other goods 
that result from criminal activities. CBP stated in response to our 
recommendation that it would, among other things, investigate the use 
of a random sampling process in the outbound environment that would 
provide statistically valid compliance results for outbound operations. 

Regulatory Gaps Involving Cross-Border Reporting and Other Anti-Money 
Laundering Requirements Exist for Stored Value: 

Criminals can use other methods of transporting proceeds from illegal 
activities across the nation's borders, including stored value. 
Regulatory exemptions heighten the risk that criminals may use stored 
value to finance their operations. For example, unlike its 
requirements for cash, FinCEN does not require travelers to report 
stored value in excess of $10,000 to CBP when crossing the border. In 
addition, Money Services Businesses (MSBs) that offer stored value 
products are exempt from three key anti-money laundering provisions of 
the Bank Secrecy Act (BSA).[Footnote 5] These exemptions involve 
FinCEN not specifically requiring MSBs (1) that are sole issuers, 
sellers, or redeemers of stored value to register with FinCEN, (2) to 
develop and implement a customer identification program, and (3) to 
report suspicious transactions involving stored value. 

Together, these exemptions heighten the risk that criminals may 
exploit existing vulnerabilities to move criminal proceeds using 
stored value devices. For example, law enforcement has documented at 
least two mechanisms for moving currency out of the country using 
stored value devices. First, illegal proceeds can be loaded on stored 
value devices and physically carried across the border. Second, 
illicit proceeds can be moved out of the country by shipping stored 
value cards, where co-conspirators can use the cards to make purchases 
or to withdraw cash from local ATMs. Our report details specific 
examples showing how stored value can be used to transport millions of 
dollars in illegal proceeds across the nation's borders. 

Efforts Are Underway to Address Regulatory Gaps to Stored Value, but 
Much Work Remains: 

FinCEN is in the process of developing and issuing regulations to 
address the risk associated with the illicit use of stored value, as 
required by the Credit Card Accountability Responsibility and 
Disclosure Act of 2009 (Credit CARD Act),[Footnote 6] but much work 
remains and it is unclear when the agency will issue the final 
regulations. In June 2010, FinCEN issued a Notice of Proposed 
Rulemaking (NPRM) that addressed regulatory gaps in the following 
three areas: (1) providers of prepaid access[Footnote 7] must register 
with FinCEN as a MSB, identify each prepaid program for which it is 
the provider of prepaid access, and maintain a list of its agents; (2) 
providers and sellers of prepaid access must establish procedures to 
verify the identity of a person who obtains prepaid access, including 
obtaining the person's name, date of birth, and address; and (3) MSBs 
must file reports on suspicious activities related to prepaid access. 
At the time of today's testimony, FinCEN had not issued the final rule. 

The June 2010 NPRM, however, did not address risks related to the 
international transport of stored value. FinCEN stated that it plans 
to regulate the cross-border transport of stored value in a future 
rulemaking. According to FinCEN officials, they did not address the 
cross-border transport of stored value in the June 2010 NPRM because 
addressing other regulatory gaps had a higher priority. 

In our October 2010 report, we identified management challenges 
related to FinCEN's efforts in two areas. First, FinCEN's initial 
plans for issuing the final rules for stored value did not assess 
which risks might affect the project, prioritize risks for further 
analysis by assessing their probability of occurrence, or develop 
actions to reduce threats to the project as suggested by best 
practices for project management. A project management plan that is 
consistent with best practices could help FinCEN better manage its 
rulemaking effort. In addition to identifying and mitigating risks 
associated with the regulatory process, a project management plan 
could also help FinCEN (1) track and measure progress on tasks 
associated with completing mandated requirements and (2) identify 
points throughout the project to reassess efforts under way to 
determine whether goals and milestones are achievable or project 
changes are necessary. In our October 2010 report, we recommended that 
FinCEN update its written plan by describing, at a minimum, target 
dates for implementing all of the requirements under the Credit CARD 
Act. FinCEN concurred with our recommendation and stated that while it 
is challenging to identify target dates for a phased rulemaking, it 
will update its plans accordingly. 

Second, FinCEN's approach for addressing vulnerabilities with cross- 
border currency smuggling and other illicit use of stored value 
depends, in part, on ensuring that industry complies with the new 
rules. In 2008, FinCEN issued guidance for examiners who monitor MSB 
compliance with anti-money laundering requirements. However, this 
guidance lacks specific information for examiners to follow when 
assessing MSB compliance by issuers, sellers, and redeemers of stored 
value. In July 2010, FinCEN officials told us that they intend to 
update their 2008 guidance to reflect final rules on MSBs, but they 
were uncertain when they will do so. In our October 2010 report, we 
recommended that FinCEN revise its guidance manual to include specific 
examination policies and procedures, including transaction testing, 
for examiners to follow at an MSB that issues, sells, and/or redeems 
stored value. FinCEN concurred with our recommendation and stated that 
once the initial rulemaking is finalized, it will then update the 

This concludes my prepared testimony. I would be pleased to respond to 
any questions that the members of the caucus may have. 

Contacts and Acknowledgments: 

For further information regarding this testimony, please contact 
Richard M. Stana at (202) 512-8777 or Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this statement. Individuals who made key 
contributions to this testimony are Michael P. Dino, Assistant 
Director; Susan Quinlan, Assistant Director; David Alexander; Neil 
Asaba; Chuck Bausell; Willie Commons III; Kevin Copping; Ron LaDue 
Lake; Jan Montgomery; Jessica Orr; Jerome Sandau; Wesley Sholtes; 
Jonathan Smith, and Katy Trenholme. 

[End of section] 


[1] Under 31 U.S.C. § 5332, bulk cash smuggling is defined as 
knowingly concealing and transporting or attempting to transport more 
than $10,000 in currency or monetary instruments into or out of the 
United States with the intent to evade the federal reporting 
requirements. Under 31 U.S.C. § 5316, a person or an agent or bailee 
of the person must file a report when the person, agent, or bailee 
knowingly transports, is about to transport, or has transported, 
monetary instruments of more than $10,000 at one time into or out of 
the United States. 

[2] GAO, Moving Illegal Proceeds: Challenges Exist in the Federal 
Government's Effort to Stem Cross-Border Currency Smuggling, 
[hyperlink,] (Washington D.C.: 
Oct. 25, 2010). 

[3] Amendments to the Bank Secrecy Act Regulations-Definitions and 
Other Regulations Relating to Prepaid Access, 75 Fed. Reg. 36589 
(proposed June 28, 2010). 

[4] Prior to September 11, 2001, the former U.S. Customs Service 
conducted outbound inspections. After this date, port directors had 
the discretion to continue outbound operations, but only two ports of 
entry continued to conduct outbound operations in a routine fashion. 
The Outbound Enforcement Program was reestablished, under CBP, on 
March 12, 2009, when the Secretary of Homeland Security called on CBP 
to stem the flow of cash and weapons that were being taken into Mexico 
through land ports of entry. 

[5] 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). 

[6] Pub. L. No. 111-24, 123 Stat. 1734 (2009). 

[7] FinCEN proposes to revise the BSA regulations applicable to MSBs 
with regard to stored value by, among other things, renaming "stored 
value" as "prepaid access." FinCEN proposes to define "prepaid access" 
as an electronic device or vehicle, such as a card, plate, code, 
number, electronic serial number, mobile identification number, 
personal identification number, or other instrument that provides a 
portal to funds or the value of funds that have been paid in advance 
and can be retrievable and transferable at some point in the future. 

[End of section] 

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