Aviation:

FAA Needs to Better Prevent, Detect, and Respond to Fraud and Abuse Risks in Aircraft Registration

GAO-20-164: Published: Mar 25, 2020. Publicly Released: Mar 25, 2020.

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Contact:

Rebecca Shea
(202) 512-6722
shear@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

The Federal Aviation Administration manages the U.S. aircraft registry, which maintains information on about 300,000 civil aircraft. Accurate registry information can help investigators combat illegal activities such as drug trafficking or purchasing an aircraft as part of a money laundering scheme.

We found FAA generally relies on self-certification and doesn’t verify key information such as applicant identity or aircraft ownership. Shell company or limited liability company ownership can also make it difficult to determine who ultimately owns an aircraft.

We made 15 recommendations, including that FAA verify key owner information.

Aircraft Registrations by Registration Type, 2018

Pie Chart: Individual-47%; Corporation-22%; LLC-19%; Co-owned-9%; Government-2%; Partnership-1%; and noncitizen corporation- >1%

Pie Chart: Individual-47%; Corporation-22%; LLC-19%; Co-owned-9%; Government-2%; Partnership-1%; and noncitizen corporation- >1%

Additional Materials:

Contact:

Rebecca Shea
(202) 512-6722
shear@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

What GAO Found

To register civil aircraft, the Federal Aviation Administration (FAA) generally relies on self-certification of registrants' eligibility and does not verify key information. According to GAO's review of the registry process, there are risks associated with FAA not verifying applicant identity, ownership, and address information. The registry is further vulnerable to fraud and abuse when applicants register aircraft using opaque ownership structures that afford limited transparency into who is the actual beneficial owner (i.e., the person who ultimately owns and controls the aircraft). Such structures can be used to own aircraft associated with money laundering or other illegal activities (see example in figure). FAA has not conducted a risk assessment that would inform its eligibility review and collection of information to manage risks. Without a risk assessment, FAA is limited in its ability to prevent fraud and abuse in aircraft registrations, which enable aircraft-related criminal, national security, or safety risks.

Case Study Illustrating Aircraft-Related Criminal Activity Risks

102449_HLP_5_v8_McM

FAA makes some use of registry information to detect risks of fraud and abuse, but the format of the data limits its usefulness. Specifically, most data on individuals and entities with potentially significant responsibilities for aircraft ownership, such as trustors and beneficiaries, are stored in files that cannot be readily analyzed due to system limitations. As FAA modernizes its information-technology systems, it has an opportunity to develop data analytics capabilities to detect indicators of fraud and abuse in the registry.

FAA takes administrative actions, such as registration revocations, to respond to registration violations and coordinates with law-enforcement agencies on investigations and enforcement actions such as aircraft seizures. Since 2017, FAA has coordinated with the Departments of Justice (DOJ) and Homeland Security (DHS) as part of an Aircraft Registry Task Force to address aircraft registry vulnerabilities. However, this coordination is informal, and other mechanisms for joint enforcement actions, sharing of information, and use of liaison positions are not in place,

Why GAO Did This Study

The U.S. aircraft registry, managed by FAA, maintains information on approximately 300,000 civil aircraft. FAA issues aircraft registration to individuals and entities that meet eligibility requirements, such as U.S. citizenship or permanent legal residence. Registry fraud and abuse hinders the ability of law-enforcement and safety officials to use the registry to identify aircraft and their owners who might be involved in illicit or unsafe operations.

GAO was asked to examine registry fraud and abuse. This report assesses FAA's actions to (1) prevent, (2) detect, and (3) respond to fraud and abuse risks in aircraft registrations.

GAO reviewed relevant laws, regulations, and FAA policies; reviewed reports, DOJ press releases, and court cases that illustrated risks associated with the registry; analyzed aircraft registry data from fiscal year 2010 through 2018 to identify registrations with risk indicators; and interviewed FAA registry, legal, law-enforcement liaison, and safety officials, as well as officials from DOJ and DHS.

What GAO Recommends

GAO is making 15 recommendations to FAA, including that it collect and verify key information on aircraft owners; undertake a risk assessment of the registry; leverage information-technology modernization efforts to develop data analytics approaches for detecting registry fraud and abuse; and formalize coordination mechanisms with law-enforcement agencies. FAA agreed with all recommendations.

For more information, contact Rebecca Shea at (202) 512-6722 or shear@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of FAA should conduct and document a risk assessment that considers inherent and residual fraud and abuse risks that may enable criminal, national security, or safety risks. (Recommendation 1)

    Agency Affected: Department of Transportation: Federal Aviation Administration: Office of the Administrator

  2. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of FAA should determine impact, likelihood, and risk tolerance as part of a risk assessment. (Recommendation 2)

    Agency Affected: Department of Transportation: Federal Aviation Administration: Office of the Administrator

  3. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of FAA should develop a strategy that outlines specific actions to address analyzed risks, including periodic assessments to evaluate continuing effectiveness of the risk response. (Recommendation 3)

    Agency Affected: Department of Transportation: Federal Aviation Administration: Office of the Administrator

  4. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of FAA should collect and record information on individual registrants, initially including name, address, date of birth, and driver's license or pilot's license, or both, with subsequent PII elements informed by the risk assessment, once completed. (Recommendation 4)

    Agency Affected: Department of Transportation: Federal Aviation Administration: Office of the Administrator

  5. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of FAA should collect and record information on legal entities not traded publicly—on each individual and entity that owns more than 25 percent of the aircraft; for individuals: name, date of birth, physical address, and driver's license or pilot's license, or both; and for entities: name, physical address, state of residence, and taxpayer identification number. (Recommendation 5)

    Agency Affected: Department of Transportation: Federal Aviation Administration: Office of the Administrator

  6. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of FAA should verify aircraft registration applicants' and dealers' eligibility and information. (Recommendation 6)

    Agency Affected: Department of Transportation: Federal Aviation Administration: Office of the Administrator

  7. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of FAA should increase aircraft registration and dealer fees to ensure the fees are sufficient to cover the costs of FAA efforts to collect and verify applicant information while keeping pace with inflation. (Recommendation 7)

    Agency Affected: Department of Transportation: Federal Aviation Administration: Office of the Administrator

  8. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of FAA should ensure, as part of aircraft registry IT modernization, that information currently collected in ancillary files or in PDF format on (1) owners and related individuals and entities with potentially significant responsibilities for aircraft ownership (e.g., beneficial owners, trustors, trustees, beneficiaries, stockholders, directors, and managers) and (2) declarations of international operations is recorded in an electronic format that facilitates data analytics by FAA and its stakeholders. (Recommendation 8)

    Agency Affected: Department of Transportation: Federal Aviation Administration: Office of the Administrator

  9. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of FAA should link information on owners and related individuals and entities with significant responsibilities for aircraft ownership through a common identifier. (Recommendation 9)

    Agency Affected: Department of Transportation: Federal Aviation Administration: Office of the Administrator

  10. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of FAA should, as part of IT modernization, develop an approach to check OFAC sanctions data on owners and related individuals and entities with potentially significant responsibilities for aircraft ownership for coordination with OFAC and to flag sanctioned individuals and entities across aircraft registration and dealer systems. (Recommendation 10)

    Agency Affected: Department of Transportation: Federal Aviation Administration: Office of the Administrator

  11. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of FAA should use data collected as part of IT modernization as well as current data sources to identify and analyze patterns of activity indicative of fraud or abuse, based on information from declarations of international operations, postal addresses, sanctions listings, and other sources, and information on dealers, noncitizen corporations, and individuals and entities with significant responsibilities for aircraft ownership. (Recommendation 11)

    Agency Affected: Department of Transportation: Federal Aviation Administration: Office of the Administrator

  12. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of FAA should develop and implement risk-based mitigation actions to address potential fraud and abuse identified through data analyses. (Recommendation 12)

    Agency Affected: Department of Transportation: Federal Aviation Administration: Office of the Administrator

  13. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of FAA should develop mechanisms, including regulations if necessary, for dealer suspension and revocation. (Recommendation 13)

    Agency Affected: Department of Transportation: Federal Aviation Administration: Office of the Administrator

  14. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of FAA, in coordination with relevant law-enforcement agencies, should enhance coordination within the Aircraft Registry Task Force through collaborative mechanisms such as written agreements and use of liaison positions. (Recommendation 14)

    Agency Affected: Department of Transportation: Federal Aviation Administration: Office of the Administrator

  15. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator of FAA, in coordination with relevant law-enforcement agencies, should develop a mechanism to provide declarations of international operations for law-enforcement purposes. (Recommendation 15)

    Agency Affected: Department of Transportation: Federal Aviation Administration: Office of the Administrator

 

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