Aviation: FAA Needs to Better Prevent, Detect, and Respond to Fraud and Abuse Risks in Aircraft Registration
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%
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
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.
Recommendations
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.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Office of the Administrator | 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) |
The agency agreed with this recommendation. In March 2021, FAA reported that the Aircraft Registry officials conducted a fraud risk assessment, in partnership with other FAA stakeholders, in summer-fall 2020. In March 2022, FAA provided us with a civil aircraft registration fraud risk assessment. The assessment identified inherent and residual risks that fall into compliance, operational, legal, reputational, and reporting categories. FAA further determined risk tolerance, risk priority based on risk likelihood and impact, and developed risk treatment recommendations and tasks to mitigate identified risks. These actions meet the intent of the recommendation and are consistent with leading practices identified in GAO's Fraud Risk Framework.
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| Office of the Administrator | The Administrator of FAA should determine impact, likelihood, and risk tolerance as part of a risk assessment. (Recommendation 2) |
The agency agreed with this recommendation. In March 2021, FAA reported that the Aircraft Registry officials conducted a fraud risk assessment, in partnership with other FAA stakeholders, in summer-fall 2020. In March 2022, FAA provided us with a civil aircraft registration fraud risk assessment. The assessment identified inherent and residual risks that fall into compliance, operational, legal, reputational, and reporting categories. FAA further determined risk tolerance, risk priority based on risk likelihood and impact, and developed risk treatment recommendations and tasks to mitigate identified risks. These actions meet the intent of the recommendation and are consistent with leading practices identified in GAO's Fraud Risk Framework.
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| Office of the Administrator | 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) |
The agency agreed with this recommendation. In March 2022, FAA provided us with a civil aircraft registration fraud risk management strategy. The strategy, among other things, outlined responsible organizations and timeframes for specific actions to address analyzed risks within strategy areas such as rulemaking, agreements, process updates, information technology updates, training, and change management. The strategy also included plans for periodic assessments. These actions meet the intent of our recommendation and are consistent with leading practices identified in GAO's Fraud Risk Framework.
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| Office of the Administrator | 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) |
The agency agreed with this recommendation. In March 2021, FAA reported that it has determined that rulemaking was not required to collect personally identifiable information (PII). In March 2022, FAA reported that the ability to collect additional PII will be optional in the Civil Aviation Registry Electronic Services (CARES) system, and that PII will be collected and sent to a third party service for verification. FAA also plans to coordinate with external law enforcement partners for enhanced identity assurance. We will continue to monitor FAA's progress in this area.
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| Office of the Administrator | 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) |
The agency agreed with this recommendation. In March 2021, FAA reported that in late 2020 the agency held focus group meetings with a variety of end users and subject matter experts as well as developed requirements for data collection as part of the fraud risk assessment it had conducted in response to Recommendations 1 and 2. In March 2022, FAA reported that the agency anticipates the data collection to be included in the Civil Aviation Registry Electronic Services (CARES) system after refining requirements with external government agencies. We will continue to monitor FAA's progress in this area.
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| Office of the Administrator |
Priority Rec.
The Administrator of FAA should verify aircraft registration applicants' and dealers' eligibility and information. (Recommendation 6) |
The agency agreed with this recommendation. In March 2021, FAA reported that it plans to include verification of eligibility for individuals and entities as part of the Civil Aviation Registry Electronic Services (CARES) system. In March 2022, FAA reported that it is partnering with external government agencies to identify ways to share data and verify eligibility. We will continue to monitor FAA's progress in this area.
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| Office of the Administrator |
Priority Rec.
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) |
The agency agreed with this recommendation. In March 2021, FAA reported that the agency will need a minimum of six months of recordation data, from the time the Civil Aviation Registry Electronic Services (CARES) system is live, to assess and inform new fee amounts. In March 2022, FAA reported that the agency anticipates to initiate rulemaking for aircraft and airmen registration fees in 2024. We will continue to monitor FAA's progress in this area.
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| Office of the Administrator | 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) |
The agency agreed with this recommendation. In March 2021, FAA reported that it plans to include aircraft ancillary documents in the Civil Aviation Registry Electronic Services (CARES) system. In March 2022, FAA reported that it is partnering with an external government agency to extract information from ancillary files. Additionally, the agency plans for ancillary files scanned into CARES to be stored in a format that allows for analysis and database searches. We will continue to monitor FAA's progress in this area.
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| Office of the Administrator | 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) |
The agency agreed with this recommendation. In March 2021, FAA reported that this functionality is being considered as part of the Civil Aviation Registry Electronic Services (CARES) system. In March 2022, FAA reported that this functionality will be a part of CARES data migration plan with details to be determined in the coming months. We will continue to monitor FAA's progress in this area.
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| Office of the Administrator | 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) |
The agency agreed with this recommendation. In March 2021, FAA reported that it is coordinating the implementation of this recommendation with its law enforcement partners. In March 2022, FAA reported that checks of OFAC sanctions data will be coordinated with other government agencies to limit the number of the Civil Aviation Registry Electronic Services (CARES) system interfaces with that contain personally identifiable information. The agency will also determine the timeline for this capability in the coming months. We will continue to monitor FAA's progress in this area.
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| Office of the Administrator | 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) |
The agency agreed with this recommendation. In March 2021, FAA reported that it is coordinating the implementation of this recommendation with its law enforcement partners. In March 2022, FAA reported that requirements for fraud prevention and detection algorithms will be coordinated with other government agencies in the coming months. We will continue to monitor FAA's progress in this area.
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| Office of the Administrator | The Administrator of FAA should develop and implement risk-based mitigation actions to address potential fraud and abuse identified through data analyses. (Recommendation 12) |
The agency agreed with this recommendation. In March 2021, FAA reported that, based on the fraud risk assessment conducted by the agency in response to Recommendations 1 and 2, it is developing a fraud risk management strategy, to include periodic assessments. In March 2022, FAA reported that it completed the strategy that includes periodic assessments. However, FAA has yet to develop data analytics activities that respond to identified fraud and abuse risks. We will continue to monitor FAA's progress in this area.
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| Office of the Administrator | The Administrator of FAA should develop mechanisms, including regulations if necessary, for dealer suspension and revocation. (Recommendation 13) |
The agency agreed with this recommendation. In March 2021, FAA reported that implementation of this recommendation, as well as some other recommendations, may require rulemaking. The agency anticipates consolidating its rulemaking into a single package. In March 2022, FAA reported that it continues to consider rulemaking, but may also identify alternatives to rulemaking to address this recommendation. We will continue to monitor FAA's progress in this area.
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| Office of the Administrator | 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) |
The agency agreed with this recommendation. In March 2021, FAA reported that the agency is coordinating with its law enforcement stakeholders. In March 2022, FAA reported that, as future coordination and data sharing may require technology updates, FAA anticipates that written agreements would be finalized by the end of 2023. We will continue to monitor FAA's progress in this area.
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| Office of the Administrator | 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) |
The agency agreed with this recommendation. In March 2021, FAA reported that it plans to develop this capability as part of the Civil Aviation Registry Electronic Services (CARES) system. In March 2022, FAA reported that the capability will be developed as part of CARES enhancements, and the agency plans to test this feature with relevant stakeholders in 2023. We will continue to monitor FAA's progress in this area.
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