From the U.S. Government Accountability Office, www.gao.gov Transcript for: Trafficking and Money Laundering Description: Criminal organizations and terrorist groups use money laundering to carry out their crimes, including human trafficking or trafficking of other goods like illegal drugs and wildlife. In 2021, Treasury's Financial Crimes Enforcement Network (FinCEN) cited these illegal financial activities as a national priority for federal anti-money laundering efforts. We’ll find out more about this issue and FinCEN’s efforts from GAO’s Michael Clements. Related GAO Work: GAO-22-104807, Trafficking and Money Laundering: Strategies Used by Criminal Groups and Terrorists and Federal Efforts to Combat Them Released: December 2021 [Music] [Mike Clements:] Trafficking in money laundering pose, threats to national security, the well-being of U.S. citizens and the integrity of our financial system. [Holly Hobbs:] Hi and welcome to GAO's Watchdog Report. Your source for news and information from the U.S. Government Accountability Office. I'm your host, Holly Hobbs. Criminal organizations and terrorist groups use money laundering to carry out their crimes, including human trafficking or trafficking of other goods like illegal drugs and wildlife. In 2021, Treasury's Financial Crimes Enforcement Network cited these illegal financial activities as a national priority for federal anti-money laundering efforts. Today, we'll find out more from GAO's Mike Clements, an expert on financial markets and a director in our Financial Markets and Community Investment team. Thanks for joining us. [Mike Clements:] Thanks for having me. [Holly Hobbs:] So Mike, can you give us an idea of how big of a problem this is? [Mike Clements:] There’s not a widely agreed upon number that would get to the scope of this problem, in part because the crime oftentimes goes undetected. But the consequences of this trafficking activity can be significant. For example, drug trafficking leads to violence in our street and for the drug users, it can lead to addiction and premature death. In the case of human trafficking, the activity deprives people of their dignity and freedom. [Holly Hobbs:] And how does it work, exactly? [Mike Clements:] Trafficking is generally described in three stages—origin, transit and destination. For example, if we think of the drug trafficking context, the drugs are manufactured, for example, in South America. They are then transmitted and then ultimately distributed in the United States. Once those trafficking activities take place. The criminal needs to launder the money, or clean the money for future use. Essentially, make money from illicit activities appear legitimate in resources. [Holly Hobbs:] What were some of the strategies that criminal organizations use to launder money? [Mike Clements:] Money laundering can involve a range of cash and non-cash strategies. Some of these are quite simple to ones that are more complex. There are funnel accounts where individuals involved in the criminal activity can deposit money, for example, in different geographic locations across the United States. They would be consolidated in one location and then move to another country. There's also trade based money laundering. This would be through mis-invoicing of goods and services involved in trade as a mechanism again to move money out of the United States. [Holly Hobbs:] And what about terrorist organizations? Are they using the same methods? [Mike Clements:] Terrorism financing again is similarly described in three stages—raising funds, moving funds and then the use of the funds. Terrorism financiers use many of the same strategies to money launder that criminal organizations do. For example, cryptocurrency. If funds are raised within the United States, the cash could be converted into a cryptocurrency and then quickly moved offshore to the terrorist financier’s home country, to which then funds can be used to conduct training activities or other terrorist related activities. [Holly Hobbs: So how are federal law enforcement agencies, like say the FBI, involved? [Mike Clements:] Combating trafficking-related money laundering is spread across many federal agencies. The Department of Homeland Security, Department of Justice and related law enforcement agencies investigate and prosecute trafficking and the related money laundering. The challenge here is that it's fragmented, again, across these many agencies. So what they attempt to do is use coordination through interagency task force. [Holly Hobbs:] And what about other federal entities like Treasury? [Mike Clements:] The Financial Crimes Enforcement Network, which is part of the Treasury, working within the Bank Secrecy Act, are important information sources for money laundering. The Bank Secrecy Act requires financial institutions to know their customers, but also file reports of suspicious activities. So, for example, if a financial institution notices an individual making frequent cash deposits that are unexpected, it's expected to then file a suspicious activity report. FinCEN will then gather and analyze those various reports and distribute its analysis to law enforcement to help them in their investigations and prosecutions of crimes, but also the financial institutions to make them aware of these type of activities and what to be on the lookout for. [MUSIC:] [Holly Hobbs:] So what Mike just told us that criminal and terrorist organizations use a range of strategies to launder money earned through illegal activities or fundraising. And that federal law enforcement as well as Treasury’s Financial Crimes Enforcement Network are working together to prevent these activities. So, Mike, this is not a new problem. Do we know why FinCEN cited this as a priority in 2021? What changed? [Mike Clements:] The main change here was the fiscal year 2021 National Defense Authorization Act included a requirement for FinCEN to publish the national priorities for countering money laundering and terrorism financing. So this was FinCEN's first report. That said, FinCEN has issued guidance to financial institutions on these topics in the past, and it's based upon its analysis of these Bank Secrecy Act reports that financial institutions file, along with input from law enforcement. [Holly Hobbs:] And last question, what's the bottom line of this report? [Mike Clements:] Trafficking in money laundering pose threats to national security, the well-being of U.S. citizens, and the integrity of our financial system. The responsibility here to address these crimes is spread across many financial agencies and financial institutions, and interagency collaboration and coordination with the private sector are essential to the success of these efforts. [Holly Hobbs:] That was Mike Clements talking about goes review of federal efforts to detect and stop money laundering. Thanks for your time, Mike. [Mike Clements:] Thank you for having me. [Holly Hobbs:] And thank you for listening to the Watchdog Report. To hear more podcasts, subscribe to us on Apple Podcasts, Spotify or wherever you listen and make sure to leave a rating and review to let others know about the work we're doing. For more from the congressional watchdog, the U.S. Government Accountability Office, visit us at GAO.gov.