|
(Letter Report, 05/24/96, GAO/GGD-96-105).
GAO provided information on U.S. efforts to combat international money
laundering, focusing on: (1) U.S. money-laundering controls; (2) how
U.S. law enforcement agencies coordinate their anti-money-laundering
activities with European officials; and (3) U.S. participation in
international money-laundering agreements.
GAO noted that: (1) the United States relies on financial institutions
to report suspect transactions to regulatory and law enforcement
authorities; (2) some financial institutions rely on a "know your
customer" policy to identify suspected money launderers; (3) European
countries model their anti-money-laundering activities after 1991
European Union directives and U.S. financial institutions; (4) European
countries require their financial institutions to record but not report
large currency transactions; (5) European law enforcement officials
believe that the United States should establish a single liaison office
to coordinate money-laundering cases; (6) the United States participates
in bilateral and multilateral agreements to establish global
anti-money-laundering policies, enhance cooperation, and facilitate the
exchange of information; (7) U.S. multilateral efforts are coordinated
through the Financial Action Task Force, which encourages both member
and nonmember countries to adopt money-laundering legislation and
controls; and (8) the United States has entered into several bilateral
agreements to facilitate the flow of information concerning criminal
matters.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-96-105
TITLE: Money Laundering: A Framework for Understanding U.S.
Efforts Overseas
DATE: 05/24/96
SUBJECT: Money laundering
Law enforcement agencies
Crimes or offenses
Financial institutions
Foreign governments
International cooperation
International agreements
Reporting requirements
Banking regulation
IDENTIFIER: Treasury Financial Crimes Enforcement Network
Australia
United Kingdom
Austria
Belgium
Singapore
Canada
Denmark
Finland
Spain
France
Germany
Greece
Sweden
Hong Kong
Iceland
Ireland
Switzerland
Italy
Japan
Luxembourg
Turkey
New Zealand
Norway
Portugal
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Cover
================================================================ COVER
Report to the Ranking Minority Member, Committee on Banking and
Financial Services, House of Representatives
May 1996
MONEY LAUNDERING - A FRAMEWORK FOR
UNDERSTANDING U.S. EFFORTS
OVERSEAS
GAO/GGD-96-105
Money Laundering
(280131)
Abbreviations
=============================================================== ABBREV
BSA - Bank Secrecy Act
CHIPS - Clearing House Interbank Payments System
CTR - currency transaction report
DEA - Drug Enforcement Administration
EU - European Union
FATF - Financial Action Task Force
FBI - Federal Bureau of Investigation
FinCEN - Financial Crimes Enforcement Network
FIEA - Financial Information Exchange Agreement
FIU - Financial Information Unit
FRB - Federal Reserve Board
G-7 - Group of Seven
Interpol - International Criminal Police Organization
IRS - Internal Revenue Service
MLAT - mutual legal assistance treaty
MOU - memorandum of understanding
OCC - Office of the Comptroller of the Currency
OTA - Office of Technology Assessment
SAR - suspicious activity report
SWIFT - Society for Worldwide Interbank Financial Telecommunication
U.K. - United Kingdom
U.N. - United Nations
Letter
=============================================================== LETTER
B-261874
May 24, 1996
The Honorable Henry B. Gonzalez
Ranking Minority Member
Committee on Banking and Financial Services
House of Representatives
Dear Mr. Gonzalez:
Money laundering is the act of converting money gained from illegal
activity, such as drug smuggling, into money that appears legitimate
and in which the source cannot be traced to the illegal activity. It
is a global problem that needs to be fought collectively by the
international community. The United States is focusing increased
attention on the foreign aspects of its efforts to combat money
laundering, particularly as U.S. efforts make it more difficult for
individuals to launder money domestically. In connection with other
work we were performing abroad, you asked us to provide information
on U.S. efforts to combat overseas money laundering.
As agreed with you, this report provides a framework for
understanding U.S. overseas efforts to combat international money
laundering rather than an assessment of overall U.S.
anti-money-laundering activities. Specifically, this report
describes (1) U.S. and selected European countries'\1 approaches to
combating money laundering through regulation of financial
institutions,\2 (2) U.S. bank regulators' oversight of
money-laundering controls at overseas branches of U.S. banks, (3)
U.S. law enforcement agencies' efforts to coordinate their overseas
anti-money- laundering activities among themselves and with law
enforcement agencies in these European countries, and (4) U.S.
participation in international arrangements to combat money
laundering abroad. Our work, which focused on these four issues, was
not intended to cover the entire range of U.S. anti-money-laundering
efforts worldwide, nor was it intended to cover all of the
responsibilities the various agencies have in combating money
laundering.
--------------------
\1 Throughout this report we use the term "European countries" to
refer to the seven West and Central European countries that we
visited in gathering information for this report: England, France,
Germany, Hungary, Italy, Poland, and Switzerland.
\2 Treasury regulations implementing the statute commonly referred to
as the Bank Secrecy Act (BSA) of 1970, (P.L. 91-508, Oct. 26, 1970)
define the term "financial institution" to include banks, federally
regulated security brokers, currency exchange houses, funds
transmitters, check- cashing businesses, and persons subject to
supervision by state or federal bank supervisory authorities.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
Until recently, the U.S.' anti-money-laundering efforts under the
Bank Secrecy Act (BSA) relied heavily on regulations requiring
financial institutions to routinely report large currency
transactions, primarily through filing currency transaction reports
(CTR) with the Internal Revenue Service (IRS).\3 According to a
senior Treasury official, this reliance will continue, but to a
lesser extent. The United States has also relied on financial
institutions to report financial transactions involving known or
suspected money laundering to regulatory and law enforcement
authorities. It is expected that this practice, under BSA, will be
relied on more heavily, according to the senior Treasury official.
Further, financial institutions have adopted so-called "know your
customer" policies over the past few years to improve identification
of financial transactions of known or suspected money laundering.
The European countries we visited have tended to model their
anti-money-laundering measures after a 1991 European Union (EU)\4
Directive\5 that contains controls similar to those that U.S.
financial institutions follow. Although these countries require
recording large currency transactions, they do not require routinely
reporting such transactions. European countries rely on suspicious
transaction reports and "know your customer" policies, which are
somewhat more comprehensive than comparable U.S. policies, according
to European bank and regulatory officials.
U.S. financial institutions have bank branches located throughout
the world, and U.S. regulators take different approaches to
assessing these branches' anti-money-laundering controls. In some
countries, including England, Germany, and Italy, U.S. regulators
have been able to conduct on-site examinations of U.S. branches'
anti-money-laundering controls. These examinations tend to be less
extensive than those of banks in the United States, according to
Office of the Comptroller of the Currency (OCC) and Federal Reserve
Board (FRB) officials. In other countries, such as Switzerland and
France, U.S. regulators have been unable to conduct on-site
examinations of U.S. branches because of bank, privacy, and data
protection laws in such countries. For these countries, U.S.
regulators use other means besides on-site examinations for assessing
branches' anti-money-laundering controls. For example, U.S.
regulators rely on agreements with their foreign counterparts that
provide for exchanges of information on examinations of each others'
foreign-based branches.
Numerous U.S. law enforcement agencies, including the Drug
Enforcement Administration (DEA), the Federal Bureau of Investigation
(FBI), IRS, the U.S. Customs Service, and the U.S. Secret Service
have responsibilities for investigating domestic and international
crimes involving money laundering. Some European law enforcement
officials acknowledged the important role these U.S. law enforcement
agencies play. However, according to British and Swiss law
enforcement officials, too many U.S. agencies are involved in money-
laundering inquiries. In some cases, this makes it difficult to
determine which U.S. agency they should coordinate with. These
European officials indicated that designating a single U.S. office
to serve as a liaison on these money-laundering cases would improve
coordination. Recent memorandums of understanding (MOU) among U.S.
agencies have attempted to deal with such coordination problems,
which have been the subject of our past reports\6 and congressional
hearings.\7
The United States works with other countries through multilateral and
bilateral treaties and arrangements to establish global
anti-money-laundering policies, enhance cooperation, and facilitate
the exchange of information on money-laundering investigations. The
U.S.' multilateral efforts to establish global anti-money-laundering
policies occur mainly through the Financial Action Task Force
(FATF),\8 established in 1989. FATF has attempted to combat global
money laundering by providing the impetus for member and nonmember
countries to adopt money-laundering legislation and controls. The
United States has also participated in more recent multilateral
efforts to combat money laundering, including those with other
countries in the Western Hemisphere and other parts of the world. In
addition, the United States has entered into bilateral legal,
financial, and customs-oriented agreements with countries to
encourage information exchanges on criminal matters, including money
laundering. (See app. I for a list of countries that have signed
agreements with the United States.)
--------------------
\3 The BSA, as amended, requires that certain large currency
transactions be reported to IRS as prescribed by the Secretary of the
Treasury. In addition to the CTR, other reports prescribed include
the Currency Transaction Report by Casino, the Report of
International Transportation of Currency or Monetary Instruments, and
the Report of Foreign Bank and Financial Accounts. IRS also requires
persons engaged in trade or business (other than financial
institutions required to report under BSA) to file the Report of Cash
Payments Over $10,000 Received in a Trade or Business.
\4 EU countries comprise 15 member nations: Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United
Kingdom (U.K.).
\5 Council Directive of 10 June 1991 on Prevention of the Use of the
Financial System for the Purpose of Money Laundering (91/308/EEC).
\6 See Money Laundering: The U.S. Government Is Responding to the
Problem (GAO/NSIAD-91-130, May 16, 1991). Various GAO reports
discuss the lack of coordination among law enforcement agencies in
areas such as drug trafficking and the apprehension of fugitives.
\7 See Federal Government's Response to Money Laundering: Hearings
Before the Committee on Banking, Finance, and Urban Affairs, House of
Representatives, 103d Cong., 1st sess., (1993).
\8 FATF consists of the following members: Australia, Austria,
Belgium, Canada, Denmark, the European Commission (representing the
EU), Finland, France, Germany, Greece, the Gulf Cooperation Council,
Hong Kong, Iceland, Ireland, Italy, Japan, Luxembourg, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, Turkey, the U.K., and the United States.
BACKGROUND
------------------------------------------------------------ Letter :2
Federal law enforcement officials estimate that between $100 billion
and $300 billion in U.S. currency is "laundered" each year. The
U.S. approach to money-laundering prevention and detection includes
criminal enforcement\9 and civil regulatory efforts. Numerous U.S.
agencies play a role in combating money laundering. Law enforcement
agencies within the Departments of Justice and the Treasury have the
greatest involvement in domestic and international criminal
investigations involving money laundering. FRB and OCC have the
primary responsibility for examining and supervising the overseas
branches of U.S. banks to ascertain the adequacy of the branches'
anti-money-laundering controls. The Financial Crimes Enforcement
Network (FinCEN), a Treasury agency, provides governmentwide
intelligence and analysis that federal, state, local, and foreign law
enforcement agencies can use to aid in the detection, investigation,
and prosecution of domestic and international money laundering and
other financial crimes.
In addition, other U.S. agencies have a role in combating money
laundering, including the Department of State. Specifically, the
Department of State works with U.S. and multilateral organizations
in developing global anti-money- laundering policies. The Department
of State also is involved in coordinating U.S. anti-money-laundering
activities overseas, including training. Further, the Department of
State provides an annual assessment of narcotics and money-laundering
problems worldwide.\10 Among other things, this assessment describes
money-laundering activities in many countries and rates
money-laundering risks for these countries. (See app. II for the
Department of State's prioritization of money- laundering activities
in specific countries, for 1995.)
--------------------
\9 The Money Laundering Control Act of 1986 (P.L. 99-570, Oct. 27,
1986) made money laundering a crime by adding sections 1956 and 1957
to title 18 of the U.S. Code. Section 1956, among other things,
defines money laundering to include financial transactions involving
the proceeds of an unlawful activity or the transportation, including
international transportation, of funds obtained from these
activities. Section 1957, among other things, prohibits knowingly
engaging in monetary transactions involving property valued in excess
of $10,000 from specified unlawful activities. The act also allows
for seizure and forfeiture of property derived from specified
unlawful activity.
\10 See International Narcotics Control Strategy Report, U.S.
Department of State, Bureau for International Narcotics and Law
Enforcement Affairs (Washington, D.C.: Department of State, Apr.
1995).
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3
To understand U.S. approaches to combating money laundering through
regulation of financial institutions and U.S. bank regulators'
oversight of money-laundering controls at overseas branches of U.S.
banks, we interviewed FRB and OCC officials and examiners, including
the OCC's London branch examiners. We also interviewed officials
from FinCEN, 3 large U.S. banks that have branches or subsidiaries
in most of the European countries we visited, and 11 U.S. overseas
financial institution branches that U.S. embassy officials
recommended to us. These branches were located in seven selected
West and Central European countries--England, France, Germany,
Hungary, Italy, Poland, and Switzerland.\11 These countries were
recommended to us by the Department of State and the Secret Service
as countries that could provide us with information on overseas money
laundering and on the overseas counterfeiting of U.S. currency. The
latter was the subject of a concurrent review we conducted when
visiting these countries.\12 We reviewed our past reports, FRB and
OCC examination manuals covering anti-money-laundering examination
procedures, and various papers presented at the American Bankers
Association's October 1994 Money-Laundering Enforcement Seminar in
Washington, D.C. We also reviewed testimony by Treasury and FRB
officials and looked at recent anti-money- laundering legislation and
regulations.
To understand the approach taken by the European countries we visited
toward combating money laundering through financial institutions, we
conducted interviews with officials of 12 regulatory and supervisory
agencies from the 7 European countries. We also conducted interviews
with officials from 24 European and U.S. financial institutions
located in these countries. We obtained documentation from each
country we visited on policies to combat money laundering through
financial institutions. In addition, we interviewed FATF's Secretary
and reviewed FATF's six annual reports from 1990 through 1995, which
contained information on the U.S.' and the five West European
countries'--England, France, Germany, Italy, and
Switzerland--anti-money-laundering policies. We reviewed a report
developed by the EU Banking Federation's Fraud Working Group on the
status of member countries' implementation of the EU's Directive on
money laundering and a study entitled Money-Laundering and Financial
Institutions: National and International Law.\13 The study described
and compared U.S. and EU approaches to combating money laundering
through financial institutions.
To understand how U.S. law enforcement agencies coordinated their
overseas criminal investigations involving money laundering among
themselves and with host countries' law enforcement agencies, we
interviewed U.S. law enforcement officials from the Customs Service,
the Secret Service, IRS, DEA, and FBI. We interviewed headquarters
officials as well as field staff in U.S. embassies in England,
France, Italy, and Switzerland. We also interviewed officials from
the International Criminal Police Organization (Interpol) and law
enforcement officials from six of the seven European countries we
visited to obtain their views on coordinating money-laundering
investigations with U.S. law enforcement agencies. We reviewed two
U.S. MOUs that described which U.S. law enforcement agencies had
jurisdiction over crimes associated with money laundering. We
reviewed the Department of State's 1995 narcotics report and FinCEN's
1992 report entitled An Assessment of Narcotics Related Money-
Laundering to obtain descriptions of international money- laundering
cases.
To obtain information on U.S. participation in international
arrangements such as FATF, we interviewed Treasury, Justice,
Department of State, OCC, and FRB officials as well as government
officials in the European countries we visited. We reviewed FATF's
annual reports and interviewed FATF's Secretary to obtain information
on the task force's current status. The Department of State's 1995
narcotics report provided us with information on the bilateral
agreements on information sharing that the United States has entered
into with other countries.
Information on foreign law in this report does not reflect our
independent legal analysis but is based on interviews and secondary
sources.
We obtained comments on a draft of this report from the Departments
of the Treasury, Justice, and State; the Office of the Comptroller of
the Currency, and the Federal Reserve Board. These comments are
discussed on page 19 and reprinted in appendixes VI, VII, VIII, IX,
and X, respectively.
We conducted our work between June 1994 and May 1995 and updated our
information as of February 1996 in accordance with generally accepted
government auditing standards.
--------------------
\11 Unless otherwise stated, when we refer to European countries we
will be referring to the countries in West and Central Europe that we
visited.
\12 See Counterfeit U.S. Currency Abroad: Issues and U.S.
Deterrence Efforts (GAO/GGD-96-11, Feb. 26, 1996).
\13 One of the authors of the study, Professor Dr. Mark Pieth of the
Institut fªr Rechtwissenschaft, Universitat Basle, Basle,
Switzerland, told us that he expected the study to be published
sometime in 1996.
U.S. AND EUROPEAN APPROACHES
TO COMBATING MONEY LAUNDERING
THROUGH FINANCIAL INSTITUTIONS
------------------------------------------------------------ Letter :4
U.S. APPROACHES
---------------------------------------------------------- Letter :4.1
Until the past few years, the U.S.' anti-money-laundering efforts
under BSA have tended to rely heavily on regulations requiring
financial institutions to routinely report currency transactions that
exceed $10,000, primarily through filing CTRs with IRS. The United
States has also relied on financial institutions to report to
regulatory and law enforcement authorities, those customers who are
engaged in known or suspected financial crimes or suspected of
circumventing CTR requirements.\14 Over the past few years, U.S.
bank regulators have required that financial institutions adopt
anti-money-laundering programs that, at a minimum, include (1)
internal policies, procedures, and controls; (2) the designation of a
compliance officer; (3) ongoing training of employees; and (4) an
independent audit to test the adequacy of these programs.
Financial institutions have also adopted so-called "know your
customer" policies to help them identify customers engaged in known
or suspected financial crimes. Under these policies, which are
currently voluntary, but which the Treasury plans to make mandatory
in 1996, financial institutions are to verify the business of a new
account holder and report any activity that appears to be
inconsistent with that account holder's type of business. Banking
association officials view "know your customer" policies, which they
said the majority of banks have already voluntarily adopted, as among
the most effective means of combating money laundering.
According to a senior Treasury official, the U.S.' anti-money-
laundering efforts under BSA are expected to rely more on suspicious
transaction reporting.\15 U.S. anti-money-laundering efforts are
expected to continue relying on CTRs, but to a lesser extent. This
change in emphasis from routine reporting of currency transactions
above a given threshold to reporting of suspicious transactions is a
key component of a flexible and cost-efficient compliance program
required to combat money laundering through financial institutions,
according to the Treasury. In a related matter, the Treasury said it
is working on meeting a statutory goal seeking a 30-percent reduction
in the number of CTRs filed by financial institutions.\16 Congress
took this action in part because of concerns about (1) the burdens
imposed on the banking industry of routinely filing millions of CTRs
annually, (2) the costs incurred by the Treasury of processing these
CTRs, and (3) the ability of law enforcement to use information from
the Treasury's cluttered CTR database.\17 The BSA Advisory Group,\18
which consists of officials from the Treasury and bank regulators and
representatives from financial institutions, is identifying and
increasing the categories of businesses that will not have to file
routine CTRs, as a means to reach the 30-percent reduction goal,
according to Treasury officials.
U.S. regulatory and banking association officials told us that the
ongoing shift toward greater reliance on suspicious transaction
reports necessitates several key changes. They said it will require
more training for financial institutions on identifying suspicious
transactions. This activity entails a greater degree of judgment on
the part of bank employees than recording and forwarding CTRs. In
addition, it necessitates greater feedback from regulators and law
enforcement agencies on how individual institutions can determine
what types of transactions are suspicious. The BSA Advisory Group,
among other things, is working with the Treasury to provide greater
guidance to financial institutions on identifying suspicious
transactions, according to Treasury officials.
--------------------
\14 On February 5, 1996, the Treasury and banking regulators
finalized rules to require that banks and other depository
institutions file a single report, known as the suspicious activity
report (SAR), to FinCEN for suspicious transactions at or above
$5,000.
\15 For a recent GAO report on suspicious transaction reporting, see
Money Laundering: Needed Improvements for Reporting Suspicious
Transactions Are Planned (GAO/GGD-95-156, May 30, 1995).
\16 The 1994 Money Laundering Suppression Act (P.L. 103-325, Sept.
23, 1994) provides that the Secretary of Treasury shall seek to
reduce, within a reasonable period of time, the number of reports
required to be filed by at least 30 percent.
\17 See Money Laundering: The Volume of Currency Transaction Reports
Filed Can and Should Be Reduced (GAO/T-GGD-94-113, Mar. 15, 1994)
for an analysis of the use of millions of CTRs filed annually.
\18 The 1992 Annunzio-Wylie Anti-Money Laundering Act (P.L. 102-
550, Oct. 28, 1992) required the Treasury to establish a BSA
advisory group to inform the private sector on ways in which BSA and
suspicious transaction information is being used and to advise the
Treasury on how to modify reporting requirements to enhance the
ability of law enforcement to use the information.
WEST EUROPEAN APPROACHES
---------------------------------------------------------- Letter :4.2
The anti-money-laundering approaches of four of the five West
European countries we visited--England, France, Germany, and
Italy--are modeled after a 1991 EU Directive on money laundering,
which lists anti-money-laundering controls that members are required
to incorporate in their domestic laws.\19 Controls outlined in the
directive were patterned after anti-money- laundering recommendations
adopted by FATF (see pp. 15-16) and include some of the controls
U.S. regulators rely on in this country. These European countries
require recording large currency transactions; however, with the
exception of Italy, they do not require routinely reporting such
transactions that the United States has relied on under BSA.
Instead, they have chosen to emphasize the use of suspicious
transaction reports and "know your customer" policies, according to
European regulators.
Financial institutions in two of the five West European countries we
visited are required to forward suspicious transaction reports to a
single designated agency, a feature that the Treasury recently
incorporated into U.S. suspicious transaction reporting
requirements. England and France have each designated a single
government agency at the national level responsible for receiving and
acting on suspicious transaction reports. Financial institutions in
the other three countries are to forward such reports to various
national and local government agencies.\20
"Know your customer" policies in the West European countries we
visited are somewhat more comprehensive than comparable U.S.
policies that are voluntary for U.S. banks, according to European
bank and regulatory officials. As in the United States, "know your
customer" policies in these European countries involve institutions
verifying the identity and banking practices of account holders so
that unusual transactions can be identified. However, "know your
customer" policies in the European countries we visited go one step
further than U.S. policies in that they require institutions to
identify not only the customer opening the account, but also any
other person or entity that may benefit from the account.
--------------------
\19 Switzerland, which is not an EU country, agreed to honor the EU
Directive, according to the Department of State.
\20 While Swiss officials said that financial institutions in
Switzerland are not mandated to report suspicious transactions, they
are liable to prosecution if they carry out a transaction that they
suspect involves money laundering. Switzerland drafted a law in 1994
that would mandate reporting of suspicious transactions. However,
the Swiss Federal Banking Commission and the Swiss Banking
Association have not agreed on the necessity of mandating such
reports, according to the U.S. Department of State.
CENTRAL EUROPEAN
APPROACHES--HUNGARY AND
POLAND
---------------------------------------------------------- Letter :4.3
Hungary and Poland have adopted anti-money-laundering measures
following the EU Directive but have faced constraints in implementing
and enforcing these laws. Bank regulatory and law enforcement
officials in those countries told us that they lacked the resources
and training to adequately combat financial crimes, including money
laundering. These officials told us that they looked to the United
States and the EU to continue providing training and financial
support to help their countries' bankers and law enforcement agencies
implement new anti-money-laundering controls.
Officials from both countries said that their banks' pursuit of new
deposits has tended to cause them to neglect adequate background
checks of depositors. In Hungary, we were told that financial
institutions, overwhelmed with new banking activity, were unable to
interview and research depositors as thoroughly as western banks do.
Polish government officials said that banks in that country were
reluctant to inform law enforcement agencies about suspected money
launderers because of their uncertainty about how to resolve apparent
conflicts between Poland's bank secrecy laws and recently adopted
anti- money-laundering statutes. Widespread confusion about the new
reporting requirements has resulted in few banks reporting suspicious
transactions, according to the officials.
FinCEN and Interpol have recently initiated Project Eastwash, in an
attempt to assess money laundering in 20 to 30 countries throughout
East and Central Europe and the former Soviet Union. According to
FinCEN officials, as of late 1995 on-site visits had been made to
five countries to assess the law enforcement, regulatory,
legislative, and financial industry environment in each nation.
Information from these visits is to be used for policy guidance and
resource planning for both the countries assessed and U.S. and
international anti-money-laundering organizations, according to these
officials.
U.S. APPROACHES TO COMBATING
MONEY LAUNDERING THROUGH
OVERSEAS BRANCHES OF U.S.
BANKS
------------------------------------------------------------ Letter :5
U.S. banks had over 380 overseas branches located in 68 countries as
of August 1995. These branches, which are direct extensions of U.S.
banks, are bound by the host countries' anti-money-laundering laws
rather than U.S. anti- money-laundering laws, according to OCC and
FRB officials. Moreover, bank, privacy, and data protection laws in
some of these countries serve to prevent U.S. regulators from
conducting on-site examinations of U.S. bank branches located within
their borders. Of the seven European countries we visited, U.S.
regulators were allowed to enter England, Germany, and Italy to
examine U.S. bank branches. They were not allowed to enter
Switzerland and France to examine branches of U.S. banks because of
these countries' strict bank secrecy and data protection laws.
According to OCC officials, U.S. regulators have not tried to
examine branches in Poland and Hungary and were unsure if they would
be able to if the need arose.
OCC and FRB officials said that in host countries that allow U.S.
regulators to conduct on-site examinations of the anti-
money-laundering controls of U.S. banks, such examinations are of a
much narrower scope than those of banks located in the United States.
This is partially due to constraints posed by host country bank,
privacy, and data protection laws. The OCC officials told us that in
a typical examination of an overseas bank branch's
anti-money-laundering controls, regulators mainly interview branch
officials to determine if the bank has written anti-money-laundering
policies and procedures, including "know your customer" policies.
The officials said that U.S. regulators also interview branch
officials to determine whether the bank has adopted internal controls
to prevent money laundering. In contrast, in the United States,
anti-money-laundering examinations--known as "BSA examinations"--call
for regulators to interview bank officials, review the bank's
anti-money-laundering policies and procedures, test these policies
and procedures, and examine transactions to check for violations of
BSA.\21
OCC and FRB officials also said that the expense of sending examiners
overseas limits the amount of time examiners can spend reviewing the
anti-money-laundering controls of U.S. banks. While overseas,
regulators focus most of their time examining the safety and
soundness\22 of the branch, according to the these regulatory
officials. OCC overseas examination procedures, for example, call
for the anti-money- laundering portion of the examination to be brief
and for it to avoid placing an undue burden on the scope of the
overall examination. OCC and FRB officials also indicated that
another factor limiting the scope of money-laundering examinations of
U.S. overseas branches is the small volume of currency transactions
at these branches compared with branches in the United States.
According to these regulatory officials, some overseas branches serve
as wholesale providers of banking services to corporations and
conduct very few cash transactions.
FRB officials told us that they have recently developed money-
laundering examination procedures to be used by its examiners to
address the uniqueness of overseas branches' operations and to fit
within the short time frames of these examinations. These procedures
were tested in November 1995 and are to be implemented into the FRB's
examination procedures soon, according to FRB officials.
In countries with laws that serve to prohibit U.S. regulators from
entering to examine U.S. branches, U.S. regulators must rely on
other means besides on-site examinations for obtaining information on
U.S. overseas branches' anti-money- laundering controls, according
to FRB and OCC officials. For example, under current policies, U.S.
regulators rely on exchanging information with various foreign
banking regulators on their respective examinations of one anothers'
existing foreign-based branches. In other cases, FRB can deny a
bank's application to open a branch in a country with strict bank
secrecy laws if it does not receive assurance from the bank that its
branch will have sufficient anti-money- laundering controls in place.
--------------------
\21 The 1994 Money Laundering Suppression Act requires that banking
regulators review and enhance, among other things, the examination
procedures to improve identification of money-laundering schemes
involving financial institutions. A subtask group of the Federal
Financial Institutions Examination Council is working with the
Treasury, FinCEN, and law enforcement agencies on these new
examination procedures.
\22 A safety and soundness examination attempts to measure the
financial stability of an institution.
U.S. LAW ENFORCEMENT AGENCIES'
OVERSEAS ANTI-MONEY- LAUNDERING
EFFORTS
------------------------------------------------------------ Letter :6
The United States has various law enforcement agency personnel
located abroad to (1) serve as overseas liaisons for U.S. law
enforcement agencies' international criminal investigations; and (2)
share information with and, in some cases, assist their foreign law
enforcement counterparts in criminal investigations, including money
laundering. Personnel who work for U.S. law enforcement agencies
abroad, and IRS, which has some enforcement duties, have a range of
responsibilities on investigating crimes involving money laundering,
as shown in table 1.
Table 1
Selected U.S. Agencies' Responsibilities
in Investigations of Crimes Involving
Money Laundering
Overseas role in international criminal
Agency investigations
------------------ --------------------------------------------------
The Treasury
----------------------------------------------------------------------
IRS IRS' Criminal Investigation Division is
responsible for documenting and obtaining witness
testimony in money-laundering cases. They are also
responsible for assisting overseas law enforcement
agencies in their financial investigations and
money-laundering cases.\a
The Customs The Customs Service is responsible for gathering
Service information and assisting on cases such as the
illegal exporting and importing of monetary
instruments and smuggling of goods into the United
States.
The Secret Service The Secret Service is responsible for gathering
information and assisting on cases such as the
counterfeiting of securities of the United States
and postal money orders as well as the
perpetration of fraud in connection with access
devices, such as credit cards.
Justice Department
----------------------------------------------------------------------
DEA DEA is responsible for gathering information and
assisting on investigations into the proceeds
generated from drug trafficking.
FBI FBI is responsible for gathering information and
assisting on a wide variety of investigations from
crimes that generate illicit income, such as
embezzlement, and fraud.
----------------------------------------------------------------------
\a IRS has developed an "international strategy," in which it
anticipates the placement of Criminal Investigation special agents in
three foreign posts: Bogota, Colombia; Mexico City, Mexico; and
Frankfurt, Germany.
Source: U.S. Department of the Treasury and U.S. Department of
Justice.
SOME EUROPEAN OFFICIALS ARE
CONCERNED ABOUT COORDINATION
WITH U.S. LAW ENFORCEMENT
---------------------------------------------------------- Letter :6.1
European law enforcement officials we spoke with acknowledged the
important role that U.S. law enforcement agencies play in
investigating overseas money-laundering cases. French officials
noted that U.S. law enforcement agencies are very active in fighting
money laundering and understand that international cooperation is
essential. Other European officials acknowledged the value of U.S.
law enforcement agencies in providing training on identifying money-
laundering schemes. However, some British and Swiss law enforcement
officials we spoke with said that too many U.S. agencies are
involved in money-laundering inquiries. They said this overlap makes
it difficult, in some cases, to determine which U.S. agency they
should coordinate with.
These British and Swiss officials indicated that designating a single
U.S. office to serve as a liaison on these money- laundering cases
would improve coordination. The British law enforcement officials
described a recent case in which they had difficulty coordinating
their efforts with U.S. law enforcement agencies because they did
not know which U.S. agency had responsibility for the case. The
British officials indicated that DEA, the Customs Service, and FBI
all had independent operations, and all claimed lead responsibility
for the case. Our discussions with European law enforcement
officials, although providing some instances of coordination
problems, did not afford sufficient data to determine whether this is
a serious or widespread problem. Furthermore, at the time of our
visit, the United States was just beginning to implement efforts to
improve coordination of overseas drug money-laundering investigations
as discussed in the following section.
U.S. OFFICIALS' VIEWS ON
LAW ENFORCEMENT COORDINATION
---------------------------------------------------------- Letter :6.2
U.S. law enforcement officials we spoke with acknowledged that the
number of agencies with jurisdiction over money- laundering
investigations could cause confusion among their overseas
counterparts about which U.S. agency they should coordinate with.
While these officials indicated that U.S. interagency coordination
has been both a domestic and international concern for some time,
they did describe recent steps to improve coordination.
Specifically in regard to improving overseas money- laundering
coordination, they pointed to the signing of an MOU adopted by a
number of U.S. agencies in July 1994. The MOU describes procedures
for allocating jurisdiction over international drug money-laundering
investigations. Law enforcement officials were optimistic that the
MOU, which was signed by representatives of the Secretary of the
Treasury, the Attorney General, and the Postmaster General, would
improve overseas anti-money-laundering coordination. Although law
enforcement officials are optimistic about improvements in
coordination, we have not assessed how well U.S. international
investigations involving money laundering are being coordinated.
While approving of efforts to improve coordination, these officials
did not support designating a single point of contact on overseas
money-laundering investigations to improve interagency coordination.
Customs Service officials indicated that designating such a contact
would pose a threat to their ability to maintain relationships they
had built over time with their overseas law enforcement counterparts.
They also said it would jeopardize their ability to make full use of
the years of expertise they had gained in investigating
money-laundering cases.
In addition to law enforcement agencies' coordination efforts, the
Department of State also has responsibility for coordinating U.S.
law enforcement activities in host countries. In a host country, the
Department of State's Chief of Mission is statutorily responsible for
directing, coordinating, and supervising U.S. government personnel,
except certain military personnel, according to Department of State
officials. For example, in Italy, the Chief of Mission was beginning
an initiative to improve U.S. law enforcement coordination in that
country, in the face of downsizing of U.S. government personnel
abroad.
INTERNATIONAL ARRANGEMENTS TO
COMBAT OVERSEAS MONEY
LAUNDERING
------------------------------------------------------------ Letter :7
The United States works with other countries through multilateral and
bilateral treaties and arrangements to establish global
anti-money-laundering policies, enhance cooperation, and facilitate
the exchange of information on money-laundering investigations.
MULTILATERAL EFFORTS TO
ESTABLISH GLOBAL ANTI-MONEY-
LAUNDERING POLICIES
---------------------------------------------------------- Letter :7.1
FATF is the major forum for the U.S.' and other countries'
multilateral efforts to promote the adoption of and to harmonize
global anti-money-laundering controls. Since its inception at the
1989 Group of Seven (G-7)\23 Economic Summit in Paris, FATF has
worked to persuade member and nonmember countries to institute
effective anti-money-laundering measures and controls. In
furtherance of its mission, FATF in 1990 released a set of 40
recommendations on money-laundering measures. These recommendations
describe measures that countries should adopt to control money
laundering through financial institutions and improve international
cooperation in money-laundering investigations. (See app. III for a
summary of the 40 recommendations.) FATF has also developed a peer
review process, known as "mutual evaluations," to monitor members'
adherence to these recommendations.
--------------------
\23 The G-7 industrialized countries consist of Canada, France,
Germany, Italy, Japan, the U.K., and the United States.
FATF ACHIEVEMENTS AND
SUGGESTED CHANGES IN
EMPHASIS
---------------------------------------------------------- Letter :7.2
During 1995, FATF completed its first round of mutual evaluations of
its members' progress on implementing the 40 recommendations. FATF
found that most member countries have made satisfactory progress in
carrying out the recommendations, especially in the area of
establishing money- laundering controls at financial institutions.
FATF has also continued to identify global money-laundering trends
and techniques, including conducting surveys of Russia's organized
crime and Central and East European countries' anti- money-laundering
efforts. FATF has also expanded its outreach efforts by cooperating
with other international organizations, such as the International
Monetary Fund, Interpol, the Customs Cooperation Council, and the
Commonwealth Secretariat, and by its outreach efforts to nonmember
countries in Asia, the Caribbean, South America, Eastern Europe,
Russia, and other parts of the world.
While noting FATF's achievements, officials from two member nations
we visited provided their suggestions on where they believe FATF
should direct its emphasis. An Italian official we spoke with told
us that FATF needs to facilitate information sharing among members'
law enforcement agencies. A Swiss official told us FATF needs to
direct more emphasis towards helping members develop and adopt
practical techniques and tools to prevent and detect sophisticated
money-laundering schemes. For example, he believed that FATF should
alert members to the need for banks to concentrate more attention on
analyzing cumulative bank transactions to gain a better picture of a
client's transaction patterns. He also believed that FATF needs to
provide members with information on suspicious wire transfers and
"shell" corporations formed solely to launder money. (See app. IV
for a description of U.S. and international efforts to prevent money
laundering through wire transfers.) On November 28-29, 1995, FATF
members met in Paris to discuss current and emerging money-laundering
schemes. Officials from Interpol and the United Nations Drug Control
Program were also present. While most of the meeting focused on
money-laundering schemes in FATF member countries, some attention was
given to schemes in nonmember countries, with special attention given
to countries in the former Soviet Union and in Central and East
Europe.
U.S.' ROLE IN FATF
---------------------------------------------------------- Letter :7.3
The Treasury's Under Secretary for Enforcement assumed the FATF
presidency in July 1995. The Under Secretary's strategic plan for
his 1-year term was to build upon three ongoing FATF initiatives and
to realize sufficient progress so that FATF could complete these
initiatives by 1999--the year in which the task force is scheduled to
cease its operations.
One initiative involved the continuous monitoring of new anti-
money-laundering laws and regulations FATF member countries have
implemented in response to the 40 recommendations. Such monitoring
efforts include self-assessments that have been ongoing since 1990,
cross-country reviews that began in 1994, and the previously
discussed mutual evaluations that all member nations had undergone by
the end of 1994. Another initiative involved completing work on
revising the 40 recommendations, creating an ongoing dialogue between
FATF and international banks, and furthering FATF efforts to identify
money-laundering methods. For example, FATF continues to monitor
members' progress in countering money launderers' use of wire
transfers and has recently begun to address electronic banking and
its implications for money laundering. The third initiative involved
the expansion of FATF's relations with nonmember nations that began
in 1991, by continuing to coordinate with regional and international
organizations.
According to the FATF Secretary, U.S. leadership of the task force
is expected to build upon FATF relations with nonmember nations made
possible through the coordinated efforts of U.S. embassies located
around the world. In addition, FATF is expected to benefit from
close coordination with FinCEN. According to the FATF Secretary,
this closer coordination should provide FATF with improved
money-laundering intelligence that will allow it to develop a better
overview of global money-laundering problems.
MORE RECENT MULTILATERAL
INITIATIVES
---------------------------------------------------------- Letter :7.4
A more recent multilateral effort involves the United States and
other countries in the Western Hemisphere. In December 1994, the 34
leaders of the Western Hemisphere met at the Summit of the Americas
in Miami, Florida. At the summit, the leaders signed a Declaration
of Principles that included a commitment to fight drug trafficking
and money laundering. The summit documents also detailed a plan of
action to which the leaders affirmed their commitment. One action
item called for a working-level conference on money laundering, to be
followed by a ministerial conference, to study and agree on a
coordinated hemispheric response to combat money laundering.
The ministerial conference, held in December 1995, at Buenos Aires,
Argentina, represented the beginning of a series of actions each
country committed to undertake in the legal, regulatory, and law
enforcement areas. U.S. Department of Justice officials told us
that the conference created an awareness that money laundering is not
only a law enforcement issue, but it is also a financial and economic
issue, requiring a coordinated interagency approach.
As part of another multilateral effort, FinCEN is working with other
countries to develop and implement Financial Information Units (FIU)
modeled, in large part, on FinCEN operations. FinCEN has also met
with officials from other countries' FIUs to discuss issues common to
FIUs worldwide. The most recent meeting was held in Paris in
November 1995, during which issue-specific working groups were
created to address common concerns, such as the use of technology and
the consideration of legal matters in exchanging intelligence
information.
INTERNATIONAL
MONEY-LAUNDERING AGREEMENTS
---------------------------------------------------------- Letter :7.5
Before the more recent multilateral efforts and the formation of FATF
in 1989, the United States was signatory to two multilateral
agreements that remain key to the U.S.' and other nations'
multilateral efforts. One, the 1988 Basle Committee on Banking
Regulations and Supervisory Practices'\24 Statement of Principles on
Money Laundering, recommended that financial institutions ensure full
customer identification, compliance with anti-money-laundering laws,
and cooperation with law enforcement agencies on money-laundering
cases. The second agreement, the 1988 United Nations (U.N.) Vienna
Convention, stipulated that all signatories should criminalize drug
money laundering and that countries should cooperate and work to
prevent bank secrecy laws from interfering with criminal
investigations. Five of the seven European countries we
visited--England, France, Germany, Italy, and Poland--have adopted
the U.N. Vienna Convention. Switzerland, which has not ratified the
convention, has substantially met the goals of the convention,
according to the Department of State. At the time we completed our
fieldwork, Hungary had not ratified the convention, although it had
passed legislation in 1995 that harmonized its existing laws with
those of the convention, according to the Department of State.
--------------------
\24 The committee includes representatives of the central banks and
supervisory authorities of Belgium, Canada, France, Germany, Italy,
Japan, Luxembourg, the Netherlands, Sweden, Switzerland, the U.K.,
and the United States.
BILATERAL AGREEMENTS TO
IMPROVE COOPERATION IN
INTERNATIONAL
MONEY-LAUNDERING CASES
---------------------------------------------------------- Letter :7.6
Bilateral agreements for combating international money laundering
that the United States has entered into include mutual legal
assistance treaties (MLAT), financial information exchange
agreements, and customs mutual assistance agreements. In recent
years, according to U.S. Treasury officials, the United States has
relied on these agreements with individual countries (1) to improve
cooperation in international investigations, prosecutions, and
forfeiture actions involving money laundering and (2) to facilitate
information exchanges on criminal investigations, including
money-laundering investigations. However, the Department of State's
1995 annual report on global narcotics crime, which discusses current
U.S. concerns about international anti-money-laundering efforts,
concluded that many countries still refuse to share information with
other governments about financial transactions that could facilitate
global money-laundering investigations. (See app. V for a summary
of the Department of State's 1995 list of concerns about
international anti-money-laundering efforts.)
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :8
We were provided written comments on a draft of this report by the
Department of the Treasury, which incorporated comments from the
Customs Service, FinCEN, and IRS; the Department of Justice, which
incorporated comments from the Criminal Division, FBI, and DEA; the
Department of State; OCC; and FRB. (See apps. VI, VII, VIII, IX,
and X.) The Departments of the Treasury and Justice said they
generally agreed with the information presented in this report.
However, they, along with the Department of State, indicated that our
description of U.S. efforts to detect and prevent domestic and
international money laundering was incomplete. Their comments also
included technical changes and/or factual updates that we have
incorporated where appropriate.
In general, they said that we did not sufficiently describe U.S.
efforts to combat money laundering and the roles of their respective
agencies and in some cases did not sufficiently elaborate on U.S.
domestic efforts. Our report was not intended to cover the broad
range of U.S. anti-money- laundering activities worldwide, nor was
it intended to comment on all the responsibilities that the various
agencies had in combating money laundering. Rather, our objective,
as stated at the beginning of this report, was to provide a framework
for understanding U.S. overseas activities based largely on the
discussions held in seven countries we visited. Nonetheless, the
agencies provided additional information, which we incorporated in
our report where appropriate.
The Department of State also commented that we did not fully discuss
its role in the fight against global money laundering. It also
stated that we did not address the role of the U.S. chiefs of
mission, especially with respect to coordinating U.S. government
personnel in foreign countries. We have revised the report to
recognize the Department of State's role in helping establish U.S.
policy on money laundering and its role as a participant in
international organizations such as FATF and the United Nations. We
have included a discussion of the chiefs of missions' overseas role
in coordinating U.S. government personnel, including U.S. law
enforcement agencies. We also discussed the Department of State's
role in coordinating international law enforcement training.
However, we have not assessed the effectiveness of this role.
---------------------------------------------------------- Letter :8.1
We are sending copies of this report to interested congressional
committees, to the Secretaries of the Departments of the Treasury and
State, the Attorney General, the Comptroller of the Currency, and the
Chairman of the Federal Reserve Board. We will also make copies
available to others on request.
Major contributors to this report are listed in appendix XI. Please
call me on (202) 512-8984 if you or your staff have any questions
about this report.
Sincerely yours,
JayEtta Z. Hecker, Associate Director
International Relations and Trade Issues
COUNTRIES THAT HAVE SIGNED
BILATERAL AGREEMENTS WITH THE
UNITED STATES TO SHARE INFORMATION
ON CRIMINAL, CURRENCY, AND CUSTOMS
MATTERS
=========================================================== Appendix I
The United States has entered into various bilateral treaties and
agreements with other countries to facilitate its efforts in
combating international money-laundering activities.
-- The Department of Justice, in cooperation with the Department of
State, has negotiated mutual legal assistance treaties (MLAT) to
aid cooperation in criminal matters, including money laundering.
The United States has signed MLATs with 23 countries; however,
it has only implemented these agreements with 14 of them.
-- The Department of the Treasury, with the cooperation of the
Departments of State and Justice, has negotiated Financial
Information Exchange Agreements (FIEA) with other countries.
These are agreements to share currency transaction information
to help investigate possible illicit activities, such as money
laundering. The Treasury has signed FIEAs with seven Central
and South American countries, including Mexico, but is awaiting
ratification of these agreements in two of the countries.
-- The Customs Service has negotiated mutual assistance agreements
to coordinate joint investigations with overseas law enforcement
agencies. Currently, the U.S. Customs Service has 24 of these
agreements in force with other countries and has signed, but not
put into force, agreements with two other countries. The
countries that have signed bilateral treaties and agreements
with the United States are presented in table I.1.
Table I.1
Bilateral Agreements Brought Into Force
on Criminal, Currency, or Customs
Matters
Customs
Country MLAT FIEA agreements
------------------------- ------------- ------------- -------------
Argentina Y N Y
Australia N N Y
Austria Y\a N Y\
The Bahamas Y N N
Belarus N N Y
Belgium Y\a N Y
Canada Y N Y
Colombia Y\a Y N
Cyprus N N Y
Czech Republic N N Y
Denmark N N Y\b
Ecuador N Y N
Finland N N Y
France N N Y
Germany N N Y
Greece N N Y
Honduras N N Y\b
Hungary Y\a N Y
Italy Y N Y
Jamaica Y N N
South Korea Y\a N Y
Mexico Y Y Y
Morocco Y N N
The Netherlands Y N N
Nigeria Y\a N N
Norway N N Y
Panama Y\a Y\c N
Paraguay N Y\d N
Peru N Y N
The Philippines Y\a N N
Poland N N Y
Russia N N Y
Slovakia N N Y
Spain Y N Y
Sweden N N Y
Switzerland Y N N
Thailand Y N N
Turkey Y N N
The United Kingdom (U.K.) Y\a N Y
The U.K. Caribbean Y N N
territories\e
Uruguay Y N N
Venezuela N Y N
Yugoslavia N N Y
----------------------------------------------------------------------
Legend
Y = An agreement has been signed and brought into force unless
otherwise noted.
N = No agreement has been signed.
\a These agreements have been signed with these countries but have
not been brought into force.
\b The U.S. Customs Service has negotiated agreements with these
countries, but the agreements have not been brought into force.
\c This agreement, along with the MLAT, is awaiting ratification by
the U.S. Senate.
\d This agreement is awaiting approval by the Paraguayan Senate.
\e The U.K. Caribbean territories are the Cayman Islands, Anguilla,
British Virgin Islands, the Turks and Caicos Islands, and Montserrat.
Source: U.S. Department of State.
MAJOR MONEY-LAUNDERING COUNTRIES
IN 1995
========================================================== Appendix II
The State Department is required by law\25 to identify major
money-laundering countries and provide certain specific information
for each such country. The Department of State works with other
agencies from the Departments of the Treasury and Justice to put this
information together. Countries are categorized into six levels of
risk (high, medium-high, medium, low- medium, low, and no priority)
on the basis of the degree to which they are at risk of experiencing
money-laundering activities, as shown in table II.1.
Table II.1
The Department of State's Prioritization
of Money-Laundering Activities in
Specific Countries, for 1995
Priority Location
------------------ --------------------------------------------------
High\a Aruba, Canada, Cayman Islands, Colombia, Germany,
Hong Kong, Italy, Mexico, the Netherlands,
Nigeria, Panama, Singapore, Switzerland, Thailand,
the U.K., the United States, and Venezuela
Medium-high\a Argentina, Brazil, Costa Rica, Ecuador, India,
Japan, Liechtenstein, Luxembourg, the Netherlands
Antilles, Pakistan, Paraguay, Russia, Spain,
Turkey, Uruguay, and the United Arab Emirates
Medium\b Antigua, Australia, Austria, the Bahamas, Bahrain,
Belgium, Belize, Bolivia, Bulgaria, Burma, the
Channel Islands, Chile, China, Cyprus, France,
Gibraltar, Greece, Guatemala, Hungary, Israel,
South Korea, Kuwait, Lebanon, Macau, Madeira/
Azores, Malaysia, Montserrat, Morocco, Peru, the
Philippines, Poland, St. Vincent, and Taiwan
Low-medium\c CÒte d'Ivoire, Cuba, Denmark, the Dominican
Republic, Egypt, Nepal, Portugal, Sri Lanka,
Trinidad, and Vanuatu
Low\c Afghanistan, Andorra, Anguilla, Barbados, Bermuda,
the British Virgin Islands, Cambodia, the Czech
Republic, Estonia, French West Indies, Finland,
Ghana, Haiti, Honduras, Indonesia, Iran, Iraq,
Ireland, Jamaica, Kenya, Laos, Latvia, Lithuania,
Malta, Monaco, New Zealand, Norway, Puerto Rico,
Romania, Sierra Leone, South Africa, St. Kitts,
St. Lucia, Suriname, Sweden, Syria, Ukraine,
Vietnam, and Zambia
No priority\d Albania, Algeria, Angola, Azerbaijan, Bangladesh,
Benin, Botswana, Burkina Faso, Burundi, the
Central African Republic, Cameroon, Cape Verde,
Chad, Comoros, Congo, the Cook Islands, Croatia,
Djibouti, Dominica, El Salvador, Equatorial
Guinea, Eritrea, Ethiopia, Fiji, Gabon, Gambia,
Grenada, Guinea, Guinea-Bissau, Guyana, Iceland,
Jordan, Kiribati, Kyrgystan, Lesotho, Liberia,
Libya, Madagascar, Malawi, the Maldives, Mali, the
Marshall Islands, Mauritania, Mauritius,
Micronesia, Moldova, Mozambique, the Northern
Marianas, North Korea, Namibia, Nauru, Nicaragua,
Niger, Oman, Papua New Guinea, Qatar, Rwanda,
Saudi Arabia, Senegal, the Seychelles, Slovakia,
the Solomon Islands, Somalia, Sudan, Swaziland,
Tajikistan, Tanzania, Togo, Tunisia, Turkmenistan,
the Turks and Caicos, Tuvalu, Uganda, the U.S.
Virgin Islands, Western Sahara, Western Samoa,
Yemen, Zaire, and Zimbabwe
----------------------------------------------------------------------
\a Locations in which action is needed to stem and prevent money
laundering in order to make headway into the international
money-laundering problem.
\b Locations in which a significant volume of money laundering is
occurring, but action to stem and prevent money laundering is not
needed as much as it is needed for high- priority countries.
\c Locations in which a moderate amount of money laundering occurs,
but the situation is not expected to worsen.
\d Locations in which the Department of State is unaware of any money
laundering or where the problem is considered too insignificant to be
a factor in the international drug money- laundering market.
Source: U.S. Department of State.
--------------------
\25 The International Narcotics Control Act of 1992 (P.L. 102-583,
Nov. 2, 1992).
SYNOPSIS OF THE 40 FINANCIAL
ACTION TASK FORCE RECOMMENDATIONS
========================================================= Appendix III
The Financial Action Task Force (FATF) recommended that each member
country take these actions:
1. implement the 1988 Vienna Convention, which includes
criminalizing drug money laundering and cooperating with other
countries on money-laundering investigations;
2. prevent financial institution secrecy laws from inhibiting the
recommendations;
3. increase multilateral cooperation in money-laundering
investigations;
4. make money laundering a crime;
5. extend money-laundering offenses beyond narcotic trafficking into
other crimes, such as bank and insurance fraud, arms trafficking, and
other serious crimes;
6. apply anti-money-laundering measures to individuals who knew or
should have known that the money they received came from a criminal
activity;
7. subject corporations, not only their employees, to criminal
liability if they are found guilty of money laundering;
8. enable authorities to confiscate the proceeds or property
obtained from criminal activity;
9. apply recommendations to nonbank financial institutions, such as
exchange houses, money transmitters, brokerage houses, and
check-cashing services;
10. take steps to ensure that the recommendations are implemented to
cover not only banks, but also nonbank financial institutions; and
11. consider developing a list of nonbank financial institutions
dealing with cash so that members can make them subject to these
recommendations.
FATF recommended that financial institutions take the following
actions:
12. eliminate anonymous accounts and identify and record the
identity of clients;
13. identify the true beneficiary of an account;
14. for at least 5 years, maintain records that can be used in
money-laundering investigations of domestic and international
transactions;
15. pay special attention to complex, unusual, and large
transactions and unusual patterns of transactions that have no
apparent economic or visible, lawful purpose;
16. permit or require financial institutions to report suspicious
transactions. Protect the institutions from criminal and civil
liability for disclosing information on their clients when they
suspect the client is engaging in a criminal activity;
17. do not permit financial institutions to warn customers about
transaction reporting;
18. comply with instructions from competent authorities on steps to
take when reporting suspicious transactions;
19. when no requirement to report suspicious transactions exists,
deny assistance to customers possibly executing suspicious
transactions, and close their accounts;
20. develop programs against money laundering; and
21. pay special attention to business from countries that have not
adopted or have insufficiently adopted the 40 recommendations;
FATF recommended that individual countries take the following
actions:
22. apply FATF recommendations to financial institutions' branches
and subsidiaries located abroad;
23. study the feasibility of detecting large international movements
of cash at borders;
24. consider the feasibility of reporting to a national agency all
domestic and international transactions above a fixed amount; and
25. encourage countries to develop modern and secure money-
management methods, such as checks or direct deposits, to possibly
isolate money launderers, who tend to use cash.
FATF recommended that regulatory and administrative authorities take
the following actions:
26. ensure that supervised institutions have adequate money
laundering programs;
27. designate authorities in other professions dealing with cash to
also be held accountable to the recommendations;
28. establish guidelines to assist financial institutions in
detecting suspicious transactions that could relate to money
laundering; and
29. guard against control of financial institutions by criminals or
their confederates.
FATF recommended that national administrations, including law
enforcement agencies, financial institutions, and financial
institution regulators and supervisors, take the following actions:
30. consider recording in the aggregate international flows of cash
and
31. designate international authorities to gather and disseminate
information on money-laundering developments.
FATF recommended that countries take the following actions:
32. cooperate to exchange information on suspicious transactions,
persons, and corporations;
33. ensure, on a bilateral or multilateral basis, that variances in
standards do not affect mutual legal assistance;
34. support international cooperation with a network of agreements
based on generally shared legal concepts to effect mutual assistance;
35. encourage international conventions in such areas as the
confiscation of proceeds from criminal activity;
36. encourage cooperation between countries' law enforcement and
bank regulatory agencies in money-laundering investigations;
37. establish procedures for mutual assistance in money- laundering
investigations and prosecutions;
38. ensure means to respond expeditiously to foreign requests to
identify, seize, freeze, and confiscate proceeds or other property of
money-laundering activities;
39. consider mechanisms to facilitate prosecution of defendants
charged with money laundering in more than one jurisdiction; and
40. establish procedures to extradite individuals charged with money
laundering.
SOME U.S. AND INTERNATIONAL
INITIATIVES TO DETECT MONEY
LAUNDERING THROUGH WIRE TRANSFERS
========================================================== Appendix IV
Various U.S. agencies, such as the Office of Technology
Assessment\26 (OTA), the Federal Reserve Board (FRB), and the
Financial Crimes Enforcement Network (FinCEN), and international
organizations such as FATF, are working on or have developed
initiatives to prevent money laundering through wire transfers.
These initiatives have been developed as money launderers have
continued to exploit wire transfers to move their illicit funds.
--------------------
\26 This office was abolished by Congress and closed on September 30,
1995.
MONEY LAUNDERERS' USE OF WIRE
TRANSFERS
-------------------------------------------------------- Appendix IV:1
According to FinCEN, money launderers have found that wire transfers
are an integral means by which to move their funds around the world
because wire transfers are a quick, easy, efficient, and reliable
method of transferring funds. Wire transfers take on various forms.
In their simplest form, wire transfers can involve individuals
calling, faxing, or sending a wire message to a friend instructing
payment to another party. More complex wire transfers involve using
remittance corporations (money transmitters), such as Western Union,
to wire money to another party.
The most complex and largest wire transfer systems, in terms of U.S.
dollars moved, are the Clearing House Interbank Payments System
(CHIPS),\27 the Society for Worldwide Interbank Financial
Telecommunication (SWIFT),\28 and Fedwire.\29 These are the systems
for which regulators in the United States and other countries, and
FATF, are developing initiatives to detect and analyze money
laundering.
--------------------
\27 CHIPS is the main U.S. wire transfer system for processing
international U.S. dollar transfers. CHIPS is operated by the New
York Clearing House Association and serves 132 foreign and domestic
banks representing 33 countries.
\28 SWIFT is the principal international service for wire transfer
message traffic that initiates funds transfers. Besides banks, SWIFT
provides services to (1) securities brokers and dealers, (2) clearing
institutions, and (3) recognized securities exchanges. SWIFT is a
cooperative society located in Belgium; it has more than 2,600 member
institutions in 65 countries.
\29 Fedwire is the primary U.S. domestic wire transfer system. This
system handles both the message initiating the transfer and the
actual movement of funds. Fedwire is operated by the Federal Reserve
System and connects Federal Reserve banks with thousands of domestic
banks.
THE OTA WIRE TRANSFER
INITIATIVE
-------------------------------------------------------- Appendix IV:2
At the request of the Permanent Subcommittee on Investigations, the
Senate Committee on Governmental Affairs, OTA studied\30 the
feasibility of developing a computer model to monitor wire transfers
as they take place--referred to as a "real time" model--for money
laundering. However, according to OTA officials, various factors
made it infeasible to develop such a "real time" model.
-- The sheer volume of wire transfers makes it difficult to monitor
accounts. For example, in 1994, the daily dollar volume through
Fedwire and CHIPS was $800 billion and $1 trillion,
respectively.
-- The information contained on wire transfer records is
insufficient for law enforcement agencies to build a case.
Regulators from the United States, other countries, and FATF are
currently working on initiatives to improve the type of
information contained on wire transfer records.
-- Government agencies do not have sufficient knowledge of how
money launderers use wire transfers.
-- Bankers, regulators, and law enforcement agents find it
extremely difficult to distinguish legitimate wire transfers
from illegitimate transfers. Money launderers continue to
develop ingenious schemes to use wire transfers to make their
funds appear legitimate.\31 OTA officials indicated that law
enforcement agents would need to supplement wire transfer
information with other information on an account to determine
whether the wire transfer transaction could be illegitimate.
According to OTA, while the "real time" computer model was
infeasible, a modified model could be implemented. This model would
require FinCEN to extract wire transfer records from financial
institutions and combine this information with a FinCEN database.
This model would not be in real time, but it would use additional
information from FinCEN that could help law enforcement agents
distinguish legitimate from illegitimate wire transfers. The major
problem with implementing this modified model, according to OTA, is
that Congress might have to change legislation to allow greater
access to wire transfer records.
--------------------
\30 See Information Technologies for the Control of Money Laundering,
U.S. Congress, Office of Technology Assessment (Washington, D.C.:
U.S. Government Printing Office, Sept. 1995).
\31 See An Assessment of Narcotics Related Money-Laundering (Redacted
Version) FinCEN Reference Series (Vienna, VA: July 1992).
FRB WIRE TRANSFER INITIATIVE
-------------------------------------------------------- Appendix IV:3
FRB has developed the capability to electronically scan the most
recent 180 days of wire transfers over Fedwire for customers
identified by law enforcement as potentially engaging in money
laundering. According to FRB officials, due to the computing
resources required and the daily volume over Fedwire, they cannot
retrieve the information from Fedwire on a "real-time" basis, but
rather must conduct searches after the close of the regular business
day. Another step FRB must take is to ensure that requests from law
enforcement agencies to scan Fedwire do not violate a customer's
right to financial privacy. Access by law enforcement to information
from Fedwire is controlled by title II of the Electronic
Communications Privacy Act (P.L. 99-508, Oct. 21, 1986). According
to an FRB official, FRB has rarely used this scanning capability
because of the difficulty in obtaining a search warrant to scan
Fedwire for customer transactions.
FRB is also undertaking an initiative to increase the amount of
information contained in Fedwire's record format. According to FRB
officials, the initiative will include, among other things,
additional information on the originator and beneficiary of the wire
transfer. This new format is to be implemented by the end of 1997
and may be useful to law enforcement agencies in money-laundering
investigations, according to FRB officials.
FINCEN WIRE TRANSFER
INITIATIVES
-------------------------------------------------------- Appendix IV:4
FinCEN is involved in a variety of wire transfer initiatives,
including making presentations to U.S. banking regulators, financial
institutions, law enforcement agencies, state agencies, and others on
the fundamentals of wire transfers\32 and schemes that money
launderers use to move their funds through the wire transfer systems.
For example, FinCEN has developed a report on the use of remittance
corporations for money laundering.\33 FinCEN also assists other U.S.
agencies that are working on wire transfer initiatives. In addition,
FinCEN played a large role in obtaining feedback from financial
institutions to arrive at the final version of the new wire transfer
regulations. These new regulations, which the Treasury jointly
published with the bank regulatory agencies, go into effect on May
28, 1996, and will require financial institutions to maintain records
for 5 years on certain wire transfers of $3,000 or more.
--------------------
\32 See Key Electronic Funds Transfer Systems: Fedwire, CHIPS,
SWIFT, FinCEN Reference Series (Arlington, VA: Sept. 1992).
\33 See Remittance Corporations, FinCEN Reference Series (Vienna, VA:
Jan. 1994).
MULTILATERAL WIRE TRANSFER
INITIATIVES THROUGH SWIFT AND
CHIPS
-------------------------------------------------------- Appendix IV:5
FATF and some of its member countries have requested that CHIPS and
SWIFT ask their member financial institutions to record sufficient
information on wire transfers to identify the originator of these
transfers. These activities are part of an ongoing FATF effort to
control money laundering through wire transfers. According to FinCEN
officials, SWIFT users have sometimes identified the originator as
"our good customer" instead of providing the name of the originator.
FATF and others have encouraged SWIFT users to be as specific as
possible on identifying who originated the wire transfer. U.S. and
British regulators have also worked with CHIPS to identify
money-laundering schemes and improve information contained in the
wire transfer record. The Bank of England encouraged CHIPS to create
a new data-entry point in the wire transfer record that would
identify the depositor in the transaction.
THE DEPARTMENT OF STATE CONCERNS
REGARDING FINANCIAL CRIMES AND
MONEY LAUNDERING, IN 1995
=========================================================== Appendix V
The Department of State's International Narcotics Control and
Strategy Report of March 1995 included a list of international
money-laundering concerns for 1995 and beyond. A summary of some of
these concerns follows:
-- Over 100 governments have ratified the 1988 Vienna Convention.
However, these countries do not enforce the Vienna Convention's
anti-money-laundering provisions in the same manner, thus
contributing to the continued high level of global financial
crime.
-- Too many governments place limitations on money-laundering
countermeasures, particularly the requirement that the offense
of money laundering must be predicated upon conviction for a
drug-trafficking offense.
-- Too many governments still refuse to share information about
financial transactions with other governments to facilitate
international money-laundering investigations.
-- Governments and multilateral organizations need to improve
communication on money-laundering schemes.
-- Criminals have developed techniques beyond wire transfers to
hide the source of their funds. Some techniques involve using a
seemingly endless variety of licit and illicit financial
instruments, including letters of credit, bonds and other
securities, prime bank notes, and guarantees.
-- Governments have developed few anti-money-laundering controls on
wire transfers. This problem is compounded by the fact that
these transfers are coming increasingly from banks in countries
with inadequate money-laundering controls.
-- Direct access banking (favored customers are given the bank's
software and allowed to process transactions directly through
their accounts) and pass-through banking\34 limit the bank's
ability to monitor account activity.
-- Countries with financial systems that need capital may place
less emphasis on prudent banking practices and safeguards.
These countries may also be vulnerable to overt and covert
takeovers of financial institutions by criminal groups.
-- Nonbank financial systems (exchange houses, brokerage houses,
check-cashing services, etc.) are still unevenly regulated in
most parts of the world. These institutions in the United
States will be subject to federal regulation when new U.S.
regulations are issued.
-- An increasing number of countries outlaw money laundering and
allow the forfeiture of assets, but many remain obliged to
inform account holders that the government is investigating them
and may take action against their accounts--giving criminals
time to move assets and leave town.
-- There is an urgent need to impose corporate as well as
individual sanctions against financial institutions that
repeatedly fail to take prudent measures to prevent their
institutions from being used to launder money.
-- Financial institutions' branches, subsidiaries, and other
foreign operations continue to figure prominently in money-
laundering and financial crimes. Bank management needs to
ensure that the governments and regulatory agencies in all
countries/territories they serve are enforcing the same high
standards as their charter governments.
-- Countries that cooperate on money-laundering investigations and
prosecutions need to share forfeited proceeds so as to equitably
reflect their respective contributions.
(See figure in printed edition.)Appendix VI
--------------------
\34 Pass-through, or payable through, accounts are those checking
accounts that a U.S. bank opens up for a foreign bank. The foreign
bank solicits customers who reside outside of the United States and,
for a fee, offers a means by which these customers can conduct
banking transactions in the United States.
COMMENTS FROM THE DEPARTMENT OF
THE TREASURY
=========================================================== Appendix V
See comment 1.
(See figure in printed edition.)
See comment 2.
See comment 2.
See comment 3.
The following are GAO's comments on the Department of the Treasury's
letter dated March 25, 1996.
GAO'S COMMENTS
--------------------------------------------------------- Appendix V:1
1. The Department of the Treasury indicated that money laundering
prevention and detection involves a two-pronged approach consisting
of civil regulation and criminal enforcement. We have revised this
report to include the Treasury's description of the U.S. approach.
2. The Department of the Treasury noted that federal statutes
mandating currency reporting requirements and criminalizing money
laundering have been in existence since the 1970s. Our report noted
that the 1970 Bank Secrecy Act mandated, among other things, the
currency transaction report (CTR), however, we have revised this
report to include a description of other reports beyond the CTR. We
have also revised this report to include a description of the 1986
Money Laundering Control Act, which made the act of money laundering
a crime.
3. The Department of the Treasury indicated that money- laundering
investigations are complex and international in scope, requiring the
cooperation and coordination of federal, state, and local law
enforcement agencies. We note in this report that numerous law
enforcement agencies are involved in criminal investigations
involving money laundering. We focus on federal agencies in this
report because they are the primary agencies involved in overseas
money-laundering cases. The Department of the Treasury also pointed
out that federal agencies have established executive agreements to
ensure that domestic and international money-laundering
investigations are coordinated. We acknowledge these agreements;
however, we also discuss concerns expressed to us about U.S. law
enforcement coordination on criminal investigations involving money
laundering.
4. The Department of the Treasury indicated that our list of FATF
outreach efforts was incomplete. We have revised this report to
include FATF's additional outreach efforts.
(See figure in printed edition.)Appendix VII
COMMENTS FROM THE DEPARTMENT OF
JUSTICE
=========================================================== Appendix V
(See figure in printed edition.)
See comment 1.
See comment 2.
See comment 1.
See comment 3.
(See figure in printed edition.)
See comment 4.
(See figure in printed edition.)
(See figure in printed edition.)
The following are GAO's comments on the Department of Justice's
letter dated February 20, 1996.
GAO'S COMMENTS
--------------------------------------------------------- Appendix V:2
1. The Department of Justice stated that there are other cash
reporting requirements under the Bank Secrecy Act (BSA) in addition
to the currency transaction report (CTR). It also stated that BSA
requirements go well beyond cash transaction reporting to include
requirements that financial institutions maintain BSA compliance
programs. We have revised the text to include a description of these
other cash reporting requirements and of BSA compliance programs that
regulators require financial institutions to maintain.
2. The Department of Justice pointed out that law enforcement
investigation of crimes associated with money laundering and law
enforcement intelligence sharing identify the majority of the
money-laundering offenses and are among the most productive ways to
detect money-laundering offenses. This report points out that law
enforcement investigations of crimes associated with money laundering
and intelligence sharing are among the methods used to combat money
laundering. However, the scope of our work did not include a review
of the effectiveness of various tools and methods U.S. law
enforcement agencies use to detect domestic and international money
laundering.
3. The Department of Justice stated that BSA now requires nonbank
financial institutions to report suspicious financial transactions
and to institute anti-money-laundering programs. Under the
Annunzio-Wylie Anti-Money-Laundering Act of 1992, the Secretary of
the Treasury was authorized to require financial institutions to
report suspicious transactions and adopt anti-money-laundering
programs. We have not assessed the extent to which nonbank financial
institutions have adopted anti-money-laundering programs. However,
it is important to note that while recent regulations require banks
and other depository institutions to report suspicious transactions,
similar regulations for nonbank financial institutions have not been
finalized.
4. The Department of Justice agreed with our assessment that FATF is
the preeminent international body specializing in the fight against
money laundering. However, Justice pointed out that the United
States is involved in several other international initiatives to
combat money laundering. These initiatives include the Organization
of American States, the Annual Asian Money-Laundering Symposium, and
the Summit of the Americas. We have revised the draft to include
descriptions of some international initiatives beyond FATF, including
a description of the Summit of the Americas.
(See figure in printed edition.)Appendix VIII
COMMENTS FROM THE DEPARTMENT OF
STATE
=========================================================== Appendix V
(See figure in printed edition.)
See comment 1.
See comments 2 and 7.
Now on p. 1.
See comment 1.
(See figure in printed edition.)
Now on p. 2.
See comment 3.
See comment 4.
See comment 5.
See comment 6.
See comment 7.
(See figure in printed edition.)
Now on p. 4.
See comment 8.
Now on p. 4.
See comment 9.
Now on p. 5.
(See figure in printed edition.)
See comment 3.
See comments 5 and 10.
See comment 11.
(See figure in printed edition.)
See comment 7.
See comment 12.
See comment 9.
The following are GAO's comments on the Department of State's letter
dated March 11, 1996.
GAO'S COMMENTS
--------------------------------------------------------- Appendix V:3
1. The Department of State pointed out that our focus on money-
laundering issues in the seven European countries we visited is not
representative of money-laundering issues in different parts of the
world, such as the Caribbean, Asia, and Africa. We recognize that
the money-laundering issues in the European countries we visited may
be different from those in other parts of the world. As we note in
this report, our scope was limited to these seven countries in order
to also conduct our concurrent work on counterfeit currency. On the
basis of our discussions with banking regulators and Treasury and
Justice officials, certain issues we discuss are relevant to other
parts of the world. For example, the issues related to U.S. banking
regulators' oversight of U.S. overseas branches' anti-
money-laundering controls would also be applicable to other countries
besides the seven European countries we visited. Likewise, our
discussion on FATF efforts expands beyond those of the European
countries we visited. Nevertheless, we revised the report to include
more recent U.S. international initiatives that focus on different
parts of the world, such as the Summit of the Americas.
2. The Department of State commented that in certain sections of
this report, we suggest problems in U.S. efforts to combat money
laundering overseas and that we do not substantiate instances where
these problems have prevented the enforcement of U.S. laws. As an
example, they pointed out that we suggest that U.S. regulators are
routinely denied opportunities to examine U.S. overseas branches for
compliance with U.S. anti-money-laundering laws, but that we do not
substantiate instances where these problems have interfered with or
prevented the enforcement of U.S. laws. We did not intend to
suggest that regulators are routinely denied opportunities to examine
overseas branches, and we have revised the text to ensure that there
is no such inference. Also, we have revised the text to more clearly
state that in some countries, U.S. regulators are prevented from
conducting on-site examinations of U.S. bank branches. The
Department of State further noted that even in countries in which
U.S. regulators conduct on-site examinations of U.S. banks, they do
not examine these banks to determine if they comply with U.S.
anti-money-laundering laws. We agree with the Department of State
and have revised this report to clarify this point. We also noted
that in countries in which U.S. regulators can conduct on-site
examinations of U.S. banks' anti-money-laundering controls, these
examinations are not as thorough as those in the United States.
3. The Department of State commented that our discussion on U.S.
approaches to combat money laundering through financial institutions
appears to imply that the Federal Reserve Board (FRB) and the Office
of the Comptroller of the Currency (OCC) have lead agency
responsibility for money laundering. We did not intend to imply that
these two regulators are solely responsible or have lead
responsibility for all U.S. anti- money-laundering efforts. We have
revised our discussion on U.S. approaches to combating
money-laundering through financial institutions to more clearly
specify that under the Bank Secrecy Act of 1970, as amended, the
regulators require that financial institutions maintain and file
certain records as well as develop money-laundering compliance
programs, including "know your customer" policies. As we note in
this report, U.S. law enforcement agencies play a key role in
investigating crimes involving money laundering. However, we did not
review the effectiveness of various tools and methods they use to
detect domestic and international money laundering such as undercover
operations, "stings," informants, and wiretaps.
4. The Department of State pointed out that both law enforcement
agencies and regulators have begun to rely more on "know your
customer" policies and the reporting of suspicious transactions. We
have revised the text to acknowledge that both law enforcement
agencies and regulators, under BSA, are expected to rely more on the
reporting of suspicious transactions.
5. The Department of State commented that our description of the
European Union (EU) Directive could be read to suggest that the EU
countries followed the U.S.' lead in drafting the directive. We have
revised our discussion to specify that the EU Directive was patterned
after anti-money- laundering recommendations adopted by FATF.
6. The Department of State indicated that the draft gave the
erroneous impression of European CTR reporting in several instances.
The Department of State further commented that only two countries
(the United States and Australia) require routine reporting of
currency transactions. We revised the text to clarify that West
European countries we visited require recording large currency
transactions and that Italy also requires routine reporting of
currency transactions.
7. The Department of State commented that our discussion on U.S.
regulators' oversight of overseas branches of U.S. banks can be read
to suggest that cooperation with Switzerland is a problem. We have
revised the text to more explicitly state that U.S. regulators
cannot conduct on-site examinations of U.S. banks in countries with
strict bank secrecy laws such as Switzerland. We discuss several
other measures, such as exchanges of bank examinations among
regulators, that U.S. regulators can use to assess U.S. branches'
anti-money- laundering controls in countries such as Switzerland.
However, we did not assess the effectiveness of such measures.
8. The Department of State commented that we may be unduly negative
about FATF because we mention two members who expressed concerns
about the direction of FATF. We did not intend to be unduly negative
of FATF and have revised the text. To add balance, we revised the
text to add information on more recent FATF initiatives that focus on
the identification and dissemination of current and emerging
money-laundering schemes.
9. The Department of State noted that our discussion on the U.S.
presidency of FATF could suggest that the United States initiated (1)
FATF's monitoring of members' new laws, (2) FATF's efforts to
identify new money-laundering schemes, and (3) FATF's external
relations. We have revised the text to better reflect the role that
the United States has played during its tenure as president, which is
to build upon those efforts that FATF initiated over the past few
years.
10. The Department of State pointed out that we do not explain the
underlying reason why the United States has one approach to combat
money laundering through financial institutions while other countries
have a different approach. We focused our efforts on becoming
familiar with and describing the U.S. and European approaches rather
than focusing on determining the underlying reasons why the United
States and Europe adopted their respective approaches.
11. The Department of State noted that our footnote on Switzerland's
role in adopting the EU Directive was potentially misleading. We
have revised the footnote to more accurately describe Switzerland's
role.
12. The Department of State indicated that our statement that U.S.
regulators cannot exchange information requested for law enforcement
purposes may be incorrect. We have revised this report to focus only
on the procedures for the exchange of supervisory and examination
information between U.S. regulators and foreign counterparts, as
described in OCC document PPM-5500-1, dated May 25, 1993. We did not
review policies and procedures U.S. banking regulators and their
foreign counterparts follow for the exchange of information for law
enforcement purposes.
(See figure in printed edition.)Appendix IX
COMMENTS FROM THE OFFICE OF THE
COMPTROLLER OF THE CURRENCY
=========================================================== Appendix V
(See figure in printed edition.)Appendix X
COMMENTS FROM THE FEDERAL RESERVE
BOARD
=========================================================== Appendix V
See comment 1.
Now on pp. 36-37.
(See figure in printed edition.)
See comment 2.
See comment 1.
See comment 1.
The following are GAO's comments on the Federal Reserve Board's
letter dated January 31, 1996.
GAO'S COMMENTS
--------------------------------------------------------- Appendix V:4
1. FRB provided us with information on several of its more recent
anti-money-laundering initiatives that were not covered in our draft.
These initiatives include new examination procedures for overseas
branches of U.S. banks, new wire transfer regulations, and new
efforts to expand the information contained in Fedwire records. We
have revised this report to include a description of these efforts.
2. FRB said that our statement, in the draft of this report, that it
was forced to stop the scanning initiative of Fedwire is erroneous.
In a subsequent discussion, an FRB official clarified FRB's position
on this matter. He told us that for all practical purposes the
scanning program is not used because of the difficulty in obtaining a
search warrant required to get individual records from Fedwire. We
have revised this report to reflect the clarified FRB position on the
use of the scanning initiative.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix XI
HEADQUARTERS, WASHINGTON, D.C.
John P. Hutton, Assistant Director
Shirley A. Brothwell, Senior Evaluator
Rona H. Mendelsohn, Senior Evaluator (Communications Analyst)
Donna M. Rogers, Evaluator
OFFICE OF THE GENERAL COUNSEL,
WASHINGTON, D.C.
Geoffrey R. Hamilton, Attorney
SAN FRANCISCO/SEATTLE FIELD
OFFICES
Kane A. Wong, Assistant Director
Josâ R. PeÛa, Evaluator-in-Charge
Kathleen M. Monahan, Senior Evaluator
Gerhard C. Brostrom, Communications Analyst
*** End of document. ***
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