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GAO-19-582, BANK SECRECY ACT: Agencies and Financial Institutions

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GAO-19-582, BANK SECRECY ACT: Agencies and Financial Institutions United States Government Accountability Office Report to the Ranking Member, Subcommittee on Consumer Protection and Financial Institutions, Committee on Financial Services, House of Representatives August 2019 BANK SECRECY ACT Agencies and Financial Institutions Share Information but Metrics and Feedback Not Regularly Provided GAO-19-582 August 2019 BANK SECRECY ACT Agencies and Financial Institutions Share Information but Metrics and Feedback Not Regularly Provided Highlights of GAO-19-582, a report to the Ranking Member, Subcommittee on Consumer Protection and Financial Institutions, Committee on Financial Services, House of Representatives. Why GAO Did This Study What GAO Found Illicit finance activity, such as terrorist The Financial Crimes Enforcement Network (FinCEN)—within the Department of financing and money laundering, can Treasury—supervisory agencies (such as banking, securities, and futures pose threats to national security and regulators), and law enforcement agencies collaborate on implementing Bank the integrity of the U.S. financial Secrecy Act/anti-money laundering (BSA/AML) regulations, primarily through system. FinCEN is responsible for cross-agency working groups, data-sharing agreements, and liaison positions. administering BSA and has delegated examination responsibility to Key Bank Secrecy Act/Anti-Money Laundering Collaboration Mechanisms supervisory agencies. FinCEN also is to collect and disseminate BSA data. BSA requires that financial institutions submit reports, which may be used to assist law enforcement investigations. Industry perspectives on BSA reporting have included questions about its usefulness. This report examines, among other objectives, how FinCEN and supervisory and law enforcement agencies (1) collaborate and (2) provide metrics and feedback on the usefulness of BSA reporting. GAO reviewed related laws and regulations; agency documentation; examination and enforcement action data; and FinCEN and law enforcement agencies provided some metrics and institution- interviewed FinCEN, supervisory specific feedback on the usefulness of BSA reporting (such as suspicious activity agencies, and a nongeneralizable reports) to the financial industry but not regularly or broadly. selection of six law enforcement • agencies and seven industry FinCEN and some agencies have metrics on the usefulness of BSA reports. associations. One law enforcement agency annually publishes aggregate metrics on BSA reports that led to investigations and indictments. But FinCEN did not What GAO Recommends consistently communicate available metrics; it generally did so on an ad-hoc basis such as through published speeches. In 2019, FinCEN began a study GAO makes four recommendations, to identify measures on the value and usefulness of BSA reporting—to be including that FinCEN review options to consistently communicate summary completed by the end of 2019. By consistently communicating currently data and regularly provide institution- available metrics (summary data), and any later identified by the study, specific feedback on its BSA reporting. FinCEN may assist financial institutions in more fully understanding the FinCEN concurred with the importance of their efforts. recommendation on summary data and • Industry associations GAO interviewed noted financial institutions would like agreed with the spirit of the to receive more institution-specific feedback on the usefulness of their BSA recommendation on feedback. FinCEN reporting; they also identified suspicious activity reports as labor-intensive. In raised concerns with the need for the two other recommendations. GAO 2017, FinCEN began providing such feedback and some law enforcement continues to believe the agencies have ongoing efforts to provide institution-specific briefings. But recommendations have merit, as these efforts have not been regularly made and involved relatively few discussed in the report. institutions. Additional and more regular feedback, designed to cover different types of financial institutions and those with significant financial View GAO-19-582. For more information, activity, may enhance the ability of the U.S. financial industry to effectively contact Michael E. Clements at (202) 512- 8678 or [email protected]. target efforts to identify suspicious activity and provide quality BSA reporting. United States Government Accountability Office Contents Letter 1 Background 6 FinCEN and Supervisory Agencies Consider Risk, Among Other Factors, in Examination and Enforcement Approaches 16 FinCEN, Supervisory Agencies and Law Enforcement Established Collaborative Mechanisms, but the Futures Industry Has Been Less Represented 37 Metrics and Feedback to Industry on the Usefulness of BSA Reporting Were Not Consistently or Widely Provided 47 Conclusions 62 Recommendations for Executive Action 63 Agency Comments and Our Evaluation 64 Appendix I Objectives, Scope, and Methodology 67 Appendix II Bank Secrecy Act/Anti-Money Laundering Violation, Examination, and Enforcement Action Data 72 Appendix III Selected Criminal Cases Involving Bank Secrecy Act/Anti-Money Laundering Violations by Financial Institutions 78 Appendix IV Comments from the Financial Crimes Enforcement Network 83 Appendix V Comments from the Commodity Futures Trading Commission 85 Appendix VI Comments from the National Credit Union Administration 87 Page i GAO-19-582 Bank Secrecy Act Appendix VII GAO Contact and Staff Acknowledgments 88 Tables Table 1: Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Responsibilities of Federal Supervisory Agencies, by Number of Institutions and Type 9 Table 2: Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Frequency and Use of BSA Reports by Supervisory Agency 17 Table 3: Source and Number of Referrals of Significant Potential Bank Secrecy Act Violations Received by FinCEN and Average Processing Time, Calendar Years 2015 – 2018 (as of September 25, 2018) 30 Table 4: Key Interagency Mechanisms for Bank Secrecy Act/Anti- Money Laundering (BSA/AML) Collaboration 40 Table 5: Metrics on Investigations Involving BSA Reporting, Internal Revenue Service Criminal Investigation (IRS-CI), Fiscal Years 2016–2018 49 Table 6: Data on Results from Suspicious Activity Report Review Teams, Fiscal Years (FY) 2015–2018 (third quarter – Q3) 49 Table 7: Number of BSA Examinations, Violations, and Enforcement Actions Taken by Federal Banking Regulators, FY 2015–2018 (Q1+Q2) 73 Table 8: Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examinations of Broker-Dealers by Securities Regulators, Fiscal Years 2015–2018 (Q1+Q2) 75 Table 9: BSA/AML Examinations by Futures Regulators, Fiscal Years 2015–2018 (Q1+Q2) 76 Table 10: Bank Secrecy Act (BSA) Examinations and Actions by the Internal Revenue Service (IRS), Fiscal Years 2015– 2018 (Quarter 1 + Quarter 2) 77 Figure Figure 1: Key Federal Supervisory Agencies and Self-Regulatory Organizations Involved in Bank Secrecy Act/Anti-Money Laundering Framework 8 Page ii GAO-19-582 Bank Secrecy Act Abbreviations BSAAG Bank Secrecy Act Advisory Group BSA/AML Bank Secrecy Act/anti-money laundering CFPB Consumer Financial Protection Bureau CFTC Commodity Futures Trading Commission CTR currency transaction report DHS Department of Homeland Security DOJ Department of Justice FATF Financial Action Task Force FBI Federal Bureau of Investigation FDIC Federal Deposit Insurance Corporation Federal Reserve Board of Governors of the Federal Reserve System FFIEC Federal Financial Institutions Examination Council FinCEN Financial Crimes Enforcement Network FINRA Financial Industry Regulatory Authority ICE-HSI Immigration and Customs Enforcement - Homeland Security Investigations IRS Internal Revenue Service IRS-CI IRS Criminal Investigation MOU memorandum of understanding NFA National Futures Association NCUA National Credit Union Administration OCC Office of the Comptroller of the Currency SAR suspicious activity report SEC Securities and Exchange Commission SRO self-regulatory organization Treasury Department of the Treasury This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. Page iii GAO-19-582 Bank Secrecy Act Letter 441 G St. N.W. Washington, DC 20548 August 27, 2019 The Honorable Blaine Luetkemeyer Ranking Member Subcommittee on Consumer Protection and Financial Institutions Committee on Financial Services House of Representatives Dear Mr. Luetkemeyer: Illicit finance activity, such as fundraising by terrorist groups and money laundering by drug-trafficking organizations, can pose threats to national security, the well-being of citizens, and the integrity of the U.S. financial system.1 The Bank Secrecy Act and related anti-money laundering authorities and requirements (collectively, BSA/AML) are important tools for regulators and law enforcement to detect and deter the use of financial institutions for illicit finance activity.2 BSA and its implementing regulations generally require financial institutions—such as banks, securities broker-dealers, futures and commodities brokers, and money transmitters—to collect and retain various records of customer transactions, verify customers’ identities, maintain AML programs, and report suspicious transactions. The Financial Crimes Enforcement Network
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