Moving Illegal Proceeds:

Challenges Exist in the Federal Government's Effort to Stem Cross-Border Currency Smuggling

GAO-11-73: Published: Oct 25, 2010. Publicly Released: Nov 30, 2010.

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U.S. Customs and Border Protection (CBP) is the lead federal agency responsible for inspecting travelers who seek to smuggle large volumes of cash--called bulk cash--when leaving the country through land ports of entry. It is estimated that criminals smuggle $18 billion to $39 billion a year in bulk cash across the southwest border. The Financial Crimes Enforcement Network (FinCEN) is responsible for reducing the risk of cross-border smuggling of funds through the use of devices called stored value, such as prepaid cards. GAO was asked to examine (1) the extent of actions taken by CBP to stem the flow of bulk cash leaving the country and any challenges that remain, (2) the regulatory gaps, if any, of cross-border reporting and other anti-money laundering requirements of stored value, and (3) if gaps exist, the extent to which FinCEN has addressed them. To conduct its work, GAO observed outbound operations at five land ports of entry. GAO also reviewed statutes, rules, and other information for stored value. This is a public version of a law enforcement sensitive report that GAO issued in September 2010. Information CBP deemed sensitive has been redacted.

In March 2009, CBP created an Outbound Enforcement Program aimed at stemming the flow of bulk cash leaving the country, but further actions could be taken to address program challenges. Under the program, CBP inspects travelers leaving the country at all 25 land ports of entry along the southwest border. On the Northern border, inspections are conducted at the discretion of the Port Director. From March 2009 through June 2010, CBP seized about $41 million in illicit bulk cash leaving the country at land ports of entry. Stemming the flow of bulk cash, however, is a difficult and challenging task. For example, CBP is unable to inspect every traveler leaving the country at land ports of entry and smugglers of illicit goods have opportunities to circumvent the inspection process. Other challenges involve limited technology, infrastructure, and procedures to support outbound operations. CBP is in the early phases of this program and has not yet taken some actions to gain a better understanding of how well the program is working, such as gathering data for measuring program costs and benefits. By gathering data for measuring expected program costs and benefits, CBP could be in a better position to weigh the costs of any proposed expansion of the outbound inspection program against likely outcomes. Regulatory gaps of cross-border reporting and other anti-money laundering requirements exist with the use of stored value. For example, travelers must report transporting more than $10,000 in monetary instruments or currency at one time when leaving the country, but FinCEN does not have a similar requirement for travelers transporting stored value. Similarly, certain anti-money laundering regulations, such as reports on suspicious activities, do not apply to the entire stored value industry. The nature and extent of the use of stored value for cross-border currency smuggling and other illegal activities remains unknown, but federal law enforcement agencies are concerned about its use. FinCEN is developing regulations, as required by the Credit CARD Act of 2009, to address gaps in regulations related to the use of stored value for criminal purposes, but much work remains. FinCEN has not developed a management plan that includes, among other things, target dates for completing the regulations. Developing such a plan could help FinCEN better manage its rulemaking effort. When it issues the regulations, law enforcement agencies and FinCEN may be challenged in ensuring compliance by travelers and industry. For example, FinCEN will be responsible for numerous tasks including issuing guidance for compliance examiners, revising the way in which it tracks suspicious activities related to stored value, and addressing gaps in anti-money laundering regulations for off-shore entities that issue and sell stored value. GAO recommends that CBP, among other things, gather data on program costs and benefits and that FinCEN develop a plan, including target dates, to better manage its rulemaking process. CBP and FinCEN concurred with these recommendations.

Status Legend:

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

    Recommendations for Executive Action

    Recommendation: To strengthen FinCEN's rulemaking process and to ensure IRS compliance examiners consistently apply the anti-money laundering requirements under the Credit CARD Act, the Director of FinCEN should update its written plan by describing, at a minimum, target dates for implementing all of the requirements under the Credit CARD Act to include FinCEN's overall strategy and risk mitigation plans and target dates for issuing notices of proposed rulemaking and final rules.

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

    Status: Closed - Implemented

    Comments: The Credit CARD Act of 2009 requires that the Financial Crimes Enforcement Network (FinCEN) develop regulations related to the use of stored value cards for criminal purposes. We found that FinCEN was in the process of developing and issuing regulations and had developed initial plans for issuing the final rules for stored value. However, its plans were missing key elements consistent with best practices for project management. Therefore, we recommended FinCEN update its plan by describing, at a minimum, target dates for implementing all of the requirements under the Credit CARD Act to include FinCEN's overall strategy and risk mitigation plans and target dates for issuing notices of proposed rulemaking and final rules. In February 2011, in response to our recommendation, FinCEN provided GAO with a management plan that described, among other things, FinCEN's overall strategy for implementing the anti-money laundering requirements under the Credit CARD Act, target dates for issuing proposed and final rules, and potential risks and plans to mitigate these risks. This management plan is consistent with our recommendation.

    Recommendation: To strengthen CBP's implementation of the Outbound Enforcement Program as well as its planning efforts related to the program, the Secretary of Homeland Security should direct the Commissioner of CBP to 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, weapons, and other goods that stem from criminal activities by working with other federal law enforcement agencies involved in developing assessments on bulk cash and other illegal goods leaving the country.

    Agency Affected: Department of Homeland Security

    Status: Closed - Implemented

    Comments: We found that U.S. Customs and Border Protection (CBP) recognized that obtaining better data on the threat of bulk cash smuggling and other illegal activities is one key to understanding the effectiveness of its Outbound Enforcement Program. However, CBP had yet to develop a performance measure that showed the degree to which its efforts were stemming the flow of bulk cash leaving the country. Therefore, 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, weapons, and other goods that stem from criminal activities. In June 2011, CBP reported that it had developed 3 performance measures to measure the extent to which the Outbound Enforcement Program is stemming the flow of bulk cash, weapons, and other goods that stem from criminal activities. The 3 measures were: (1) The amount of currency seized on exit from the United States, (2) The number of weapons seized on exit from the United States, and (3) The number of persons arrested for violating U.S. laws and regulations while attempting to exit the United States. These performance measures are consistent with our recommendation.

    Recommendation: To strengthen CBP's implementation of the Outbound Enforcement Program as well as its planning efforts related to the program, the Secretary of Homeland Security should direct the Commissioner of CBP to direct and ensure that managers at land ports of entry develop policies and procedures that address officer safety, such as detailing how officers should conduct outbound inspections on a busy highway environment.

    Agency Affected: Department of Homeland Security

    Status: Closed - Implemented

    Comments: We found that U.S. Customs and Border Protection (CBP) had not yet developed policies and procedures to help ensure officer safety in conducting outbound operations. As a result, we recommended that CBP direct and ensure that managers at land ports of entry develop policies and procedures that address officer safety. In August 2012, CBP issued a management directive on outbound enforcement operations. As such, we are closing this recommendation as implemented.

    Recommendation: To strengthen CBP's implementation of the Outbound Enforcement Program as well as its planning efforts related to the program, the Secretary of Homeland Security should direct the Commissioner of Customs and Border Protection (CBP) to collect cost and benefit data that would enable a cost/benefit analysis of the Outbound Enforcement Program to better inform decisions on where scarce resources should be applied. These data could include cost data on training and using currency canine for outbound operations as part of the Outbound Workload Staffing Model, cost estimates for equipping officers, installing technology to support outbound operations, assessments of infrastructure needs at port of entry outbound lanes, an estimate of the costs resulting from travelers waiting to be inspected, and information on quantifiable benefits, such as seizures, as well as non-quantifiable benefits resulting from outbound inspections.

    Agency Affected: Department of Homeland Security

    Status: Closed - Implemented

    Comments: We found that U.S. Customs and Border Protection (CBP) was in the early phases of its Outbound Enforcement Program and that CBP had limited data on the expected costs and benefits of the program. As a result we recommended that CBP collect cost and benefit data that would enable a cost/benefit analysis of the Outbound Enforcement Program to better inform decisions on where scarce resources should be applied. On January 2, 2013, CBP reported to GAO that it has conducted studies of Southwest Border outbound crossings and, using data from those studies, developed a cost-benefit analysis report. As this cost and benefit data will enable CBP to better inform decisions on where scarce resources should be applied, we are closing the recommendation as implemented.

    Recommendation: To strengthen FinCEN's rulemaking process and to ensure IRS compliance examiners consistently apply the anti-money laundering requirements under the Credit CARD Act, the Director of FinCEN should revise its guidance manual to include specific examination policies and procedures, including for transaction testing, for IRS examiners to follow at a MSB that issues, sells, and/or redeems stored value.

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

    Status: Open

    Comments: The Credit CARD Act of 2009 requires that the Financial Crimes Enforcement Network (FinCEN) develop regulations related to the use of stored value cards for criminal purposes. In October 2010, we found that FinCEN was developing regulations, as required by the Act, to address gaps in regulations related to the use of stored value for criminal purposes. However, FinCEN had not developed a management plan that includes, among other things, target dates for completing the regulations. We concluded that developing such a plan could help FinCEN better manage its rulemaking effort. In particular, we found that when it issues the regulations, law enforcement agencies and FinCEN may be challenged in ensuring compliance by travelers and the money services business (MSB) industry. For example, FinCEN will be responsible for numerous tasks including issuing guidance for Internal Revenue Service (IRS) examiners responsible for ensuring MSB compliance with the new regulations. Therefore, we recommended that FinCEN revise its guidance manual to include specific examination policies and procedures for IRS examiners to follow at a MSB that issues, sells, and/or redeems stored value. In December 2010, FinCEN reported that it planned to update the MSB examination manual once draft regulations were finalized. As of July 2012, FinCEN stated that it had formed a working group consisting of the IRS, the Conference of State Bank Supervisors, the Money Transmitter Regulators Association, and select state representatives, to begin developing a workplan for drafting the prepaid access sections of the revised manual. Development of updates to the MSB Examination Manual to incorporate FinCEN's revised prepaid access regulation has proven to be more complicated than originally anticipated given some of the unique aspects of the prepaid access industry. In the meantime, FinCEN was engaging with regulators who are utilizing existing examination guidance to conduct initial examinations of providers of prepaid access, and, according to FinCEN, the experience gained through these initial examinations would inform the development of appropriate revisions to the Manual, including in the area of transaction testing. In June 2013, FinCEN reported to us that detailed procedures for IRS personnel will be added to the Internal Revenue Manual (IRM) by September 2013, and that higher level procedures will be added to the MSB Examination Manual at a later date. According to FinCEN, the detailed procedures in the IRM will inform those that make it into the Manual. To fully address this recommendation, FinCEN needs to provide the revised IRM.

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