EMBARGOED UNTIL 1 P.M. EST
Text as Prepared for Delivery
April 1, 1998
TREASURY ASSISTANT SECRETARY (ENFORCEMENT)
JAMES E. JOHNSON
HOUSE BANKING AND FINANCIAL SERVICES SUBCOMMITTEE ON GENERAL OVERSIGHT AND INVESTIGATIONS
Mr. Chairman, Congressman Sanders, and Members of the Subcommittee, thank you for providing me with the opportunity to appear before you today to present the views of the Treasury Department on the Financial Crimes Enforcement Network, commonly known as FinCEN. My testimony today will address FinCENs role in Treasurys efforts against money laundering and related financial crimes.
As you know, money laundering allows drug traffickers, arms smugglers, tax cheats, and many other criminals to fund and profit from their illicit activities. At a recent Summit of the Americas, Secretary Rubin called for an international commitment to stop those attempting to "wash the blood off the profits" from crime and drugs. Because of the harms that can be caused or facilitated as a result of money laundering, Secretary Rubin and Under Secretary Kelly have worked to ensure that the Treasury Department assigns top priority to combating money laundering and other financial crimes. By deterring or detecting money laundering activities, law enforcement and regulators working in partnership can attack the criminal activities generating the illicit funds.
Over the past few years, money laundering has gained increasing attention as an enforcement problem. Mr. Chairman, your efforts and those of this Subcommittee to focus attention on financial crime have helped us execute a comprehensive strategy against money laundering and other financial crimes. We particularly appreciate your support of Treasurys recent Geographic Targeting Orders focused on preventing illicit funds transfers to Colombia and the Dominican Republic.
FinCENs work to combat money laundering and financial crime reflects Treasurys three-pronged approach to this criminal problem. First, through outreach, partnerships with industry, and regulatory programs, FinCEN helps us prevent money laundering and financial crimes before they occur. Second, FinCENs case support advances, and in some instances, precedes criminal investigations by Customs, the Internal Revenue Services Criminal Investigation Division, and others, and Treasury works with the Department of Justice to prosecute offenders who break through our defenses against money laundering and financial crime. Third, we recognize that money laundering and financial crimes are global problems because of the increasing mobility of capital. As a result, Treasury and FinCEN have enlisted valuable international support and promoted anti-money laundering measures worldwide.
Our strategy is designed to take advantage of the important synergies that emerge from criminal investigation and regulatory enforcement. At the same time, our strategy recognizes the need for flexibility. As law enforcement officials and regulators have responded to the challenge of fighting these crimes, the techniques used by criminals to place dirty money into the financial system and conceal its origins have evolved. In response to these developments, Treasury and FinCEN have continued to innovate and improve upon our efforts.
Treasury and FinCENs Strides to Combat Money Laundering
Since FinCEN was founded in 1990, it has been a key player in broad-based efforts against money laundering and related financial crimes. In 1995, FinCEN merged with Treasurys Office of Financial Enforcement and gained the responsibility for administration of the Bank Secrecy Act. FinCENs mission is to provide law enforcement case support to assist in the investigation of money laundering and related financial crimes; to develop and administer regulations aimed at preventing and detecting money laundering and to pursue civil enforcement against violators of these rules; and to strengthen overall domestic and international efforts against money laundering.
The scope of FinCENs responsibilities has expanded substantially since it was first created; FinCENs resources have remained relatively unchanged. Nevertheless, it has achieved notable successes in its efforts against money laundering. Mr. Baity, Former Director Stanley Morris, and the women and men of FinCEN should be commended for their accomplishments.
FinCENs Information Resources
FinCENs law enforcement case support has always been central to its mission. In order to support law enforcement, FinCEN oversees the collection and dissemination of four significant currency and monetary instrument reports, the Currency Transaction Report (CTR), Currency Transaction Reports for Casinos (CTRC), Currency and Monetary Instrument Reports (CMIR), and Foreign Bank Account Records (FBAR). Data from these reports can be vital to criminal investigations. Data are made available to all major federal law enforcement agencies, and to state and local law enforcement agencies through the Gateway system.
The Suspicious Activity Reporting System (SARS) is another important contribution that FinCEN has helped to provide. The system can rapidly provide law enforcement and regulators with information on suspicious transactions that may merit further investigation. The system represents the culmination of longstanding efforts by members of this Subcommittee, regulators, law enforcement, and the private sector to standardize and simplify the reporting of suspicious financial transactions. Since the system became operational in April 1996, FinCEN has received nearly 150,000 SAR forms.
FinCEN also provides federal, state, and local law enforcement with information from commercial databases including information on property, assets, and other areas. While some of these resources may be available elsewhere, only FinCEN provides law enforcement agencies with comprehensive access to a full range of property and asset records in addition to the proprietary BSA and SAR information. In addition, FinCEN makes available certain key federal law enforcement databases to appropriate requesters.
All of these information sources complement each other. While a single transaction described in a Suspicious Activity Report may not provide enough to justify an investigation, it could prove significant when taken together with information from Currency Transaction Reports, commercial property records, and criminal investigation databases.
Accessing FinCEN Data
FinCEN provides a range of ways to help law enforcement use these resources appropriately, including internal FinCEN platforms, detailees based at FinCEN, the Gateway system for state and local law enforcement agencies, and direct requests.
FinCENs general platform systems provide law enforcement agencies direct access to its databanks, including Bank Secrecy Act Reports, Suspicious Activity Reports, and commercial databases. Federal law enforcement agencies also provide detailees (currently about 40 in number) that leverage and complement FinCENs analytical resources, in addition to facilitating their home agencies ability to use FinCEN information.
The Gateway program provides state and local law enforcement agencies with access to FinCEN database resources (including financial, law enforcement, and commercial databases) to assist in investigations. Through the Gateway program, state and local enforcement agencies receive a direct, secure link to FinCENs information resources. State Gateway coordinators help monitor and support use of the system to help ensure that users benefit from FinCENs capabilities. As the recent GAO study on FinCENs products and services notes, the Gateway system received nearly 60,000 queries during 1997.
In addition, FinCEN is developing the capacity to provide comprehensive strategic analysis capability of money laundering and related financial crimes to federal, state, and local law enforcement agencies. FinCEN also responds to direct queries from law enforcement agencies concerning both tactical and strategic issues involving money laundering, financial crime, and related crimes.
Thus, FinCENs information available to a wide range of appropriate law enforcement and regulatory agencies. Our evaluations indicate that this information can prove invaluable to law enforcement.
Regulatory responsibilities have been a key component of FinCENs mission since its 1995 merger with the Office of Financial Enforcement. For example, FinCEN, working with the SARS Owners Group (consisting of regulatory agencies) and the SARS Users Group (consisting of law enforcement agencies) developed rules for the SAR system that will apply to most financial institutions throughout the nation in the near future.
The list of new mandates under the Annunzio-Wylie Anti-Money Laundering Law and the Money Laundering Suppression Act was prodigious. As a result, FinCEN and Treasury are continuing their efforts to fulfill this mandate. Since FY 1995, FinCEN has issued seven final rules, an interim rule, and ten proposed rules. Some of these undertakings, such as the issuing of a rule covering Money Services Businesses (MSBs), have required FinCEN to carefully study an industry in order to provide a framework for regulation that strikes an effective balance between law enforcement interests and financial efficiency.
FinCENs case support and regulatory activities have been complemented by significant achievements in the international arena. Together, Treasury and FinCEN have helped put money laundering issues on the map. FinCEN has directly played an important role in the Departments pursuit of multilateral agreements and organizations that encourage, evaluate, and provide technical assistance to member nations in combating money laundering. The FATF now encompasses 26 countries, with more members in the process of approval. Among other valuable activities, the FATF has developed 40 recommendations designed to reduce money laundering in member countries, and undertakes a program of mutual evaluations to assess members anti-money laundering programs. FinCEN has played a pivotal role in the development of FATF. Indeed, during the U.S. Presidency of the FATF, FinCEN provided then Under Secretary Noble with support necessary to implement amendments to the 40 recommendations.
FinCEN has also been instrumental in developing regional anti-money laundering international groups in regions such as Asia and the Caribbean. In recent years, Treasury and FinCEN have used regional summits, such as the Summit of the Americas, as a vehicle to raise awareness of the threat posed by money laundering and to promote the development of defenses against money laundering.
In the last few years, FinCEN has taken major steps to provide technical assistance leading to the development of Financial Intelligence Units (FIUs) throughout the world. As they develop, these FIUs have tremendous potential on two fronts. First, they can help participating nations combat money laundering directly, thereby making those nations financial systems a less attractive alternative for money laundering. Second, at a time when financial networks allow rapid funds transfers between countries, FIUs in other nations can provide U.S. law enforcement with valuable information to assist in the investigation of financial criminals. To facilitate this exchange of information, FinCEN has secured memoranda of understanding (MOUs) with thirteen countries and is continuing to develop these agreements with other nations. In addition, FinCEN has worked over the last few years to provide training and technical assistance through the Egmont Group, an international organization of FIUs.
Enhancing FinCENs Effectiveness: Treasury Initiatives and GAO Reports
We recognize, of course, that there is room for improvement in the execution of FinCENs mission. As money laundering has garnered increasing attention throughout the enforcement, regulatory, and financial communities, FinCEN has had to respond in multiple ways, prioritizing scarce resources in order to meet its obligations. In the context of these challenges, we view the recent and ongoing GAO studies as a source of valuable assessment of FinCENs effectiveness and future direction.
As part of our ongoing oversight, management, and policy development responsibilities, Treasury has initiated comprehensive steps to review financial crime enforcement. While not yet complete, the review process has helped us identify key areas where FinCEN could improve in the context of Treasurys overall efforts to combat financial crime. These steps complement existing oversight, including weekly meetings between senior FinCEN management and the Office of Enforcement, and daily briefings on significant developments provided by a FinCEN representative to Under Secretary Kelly or his designee. Treasury was integrally involved in developing the Geographic Targeting Order focused on money transfers to Colombia and the Dominican Republic, and has played an important role in developing regulations.
Although FinCEN effectively serves numerous law enforcement agencies and investigators, we recognize that case support and coordination can always improve. Consistent with the recommendation of the recent GAO study of FinCENs products and services, FinCEN will work to further communicate its capabilities to its potential customers. In recent years, this customer base has grown as the level of attention devoted to money laundering has expanded. Increasingly, law enforcement agencies at all levels have begun to recognize that money laundering is their problem -- and we intend to let them know how FinCEN can help in this fight.
FinCENs participation in the Interagency Coordination Group, or ICG, highlights the value of coordination efforts. The purpose of this group is to share money laundering intelligence in order to promote multi-agency money laundering investigations. The group includes the Internal Revenue Service, the U.S. Customs Service, the U.S. Secret Service, the Drug Enforcement Administration, the Federal Bureau of Investigation, and the United States Postal Service. FinCEN and the Department of Justices Criminal Division serve as advisors to the group. FinCEN provides a central site for the groups operations and the support of analysts who provide research and analysis of the intelligence information generated by the group.
Another useful vehicle for outreach and policy coordination is the Money Laundering Working Group co-chaired by the Departments of Treasury and Justice. This group addresses policy and coordination issues relating to money laundering, and provides an additional means for FinCEN to gather information to improve its products and services to law enforcement.
The GAO study on products and services also highlights the need for FinCEN to continue stringent safeguards against potential misuse of its confidential law enforcement databases. Although we believe that FinCENs current policies in this regard are sound, we understand that sometimes there appears to be a tension between the wide dissemination of information to appropriate agencies and the prevention of information misuse. It is an area that merits continued vigilance.
Even as FinCEN continues to expand its outreach and attempts to further improve the products and services it offers law enforcement, we are encouraged by the survey included in the GAO study on FinCENs products and services. The survey indicates that fully 90% of respondents using FinCENs products and services believe that they provided leads, listed assets not previously known, or were useful in other ways.
The GAOs current study of civil penalty enforcement at FinCEN will likely indicate what our own analysis is telling us -- that civil penalty enforcement through FinCEN could be more effective. While FinCENs work with federal regulators, the Bank Secrecy Act Advisory Group and its approach of industry partnerships can enhance compliance, more can be done.
We understand that the GAO study is underway to evaluate FinCENs international role. Because money laundering knows no borders, international efforts are an important component of a comprehensive strategy to address money laundering and financial crime. Treasury and FinCEN have worked together to coordinate and enhance international efforts to prevent money laundering involving specific countries such as Mexico and Panama, as well as multilateral organizations such as the FATF. Given the volume of requests for FinCEN assistance from around the world, FinCEN and Treasury are committed to prioritizing their bilateral assistance based on the nature of the money laundering threat and the prospects for a nations substantial improvement following FinCEN assistance.
The Department and FinCEN should build on successful efforts by targeting FinCENs participation strategically and developing enhanced assessments of its international work. We look forward to the results of the study to complement our review of this facet of FinCENs mission.
Finally, FinCEN must continually enhance its technological resources to meet both case support and regulatory challenges. While FinCEN has already established its role in using innovative information technologies and artificial intelligence targeting, efforts to improve these tools must continue.
The Treasury Department expects FinCEN to continue to play a central role in Treasurys overall strategy of prevention, vigorous case support, and international cooperation. We look forward to working with this Committee in order to further advance FinCENs mission as we work through this transition period and continue our efforts to improve.
In our role as overseers, Treasury will help FinCEN build on its strengths to better provide dynamic, analytical case support in the fight against money laundering and related financial crimes. Indeed, Treasurys efforts to combat money laundering depend on FinCENs continuing success. We look forward to the completion of the remaining GAO studies on FinCEN to complement our own internal review of financial crime enforcement at Treasury.
Again, thank you, Mr. Chairman, for your continuing support and interest in our program.