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Money Laundering: FinCEN Needs to Better Communicate Regulatory Priorities and Time Lines (Letter Report, 02/06/98, GAO/GGD-98-18).


Pursuant to a congressional request, GAO reviewed the regulatory role of
the Financial Crimes Enforcement Network (FinCEN), focusing on the: (1)
process FinCEN followed for developing and issuing Bank Secrecy Act
(BSA) regulations; and (2) status of FinCEN's efforts to develop and
issue BSA regulations.

GAO noted that: (1) FinCEN's process for developing and issuing
regulations generally consisted of determining what regulations were
required or needed, establishing priorities for which regulations it
would promulgate first, and then promulgating the regulations within the
context of applicable statutory and executive branch guidance; (2)
overall, FinCEN's regulatory process was designed to reflect the
Administrative Procedure Act (APA) standardized procedures that federal
agencies are to follow when developing and issuing regulations; (3)
moreover, FinCEN follows a partnership strategy, which emphasizes
frequent consultations with representatives of the law enforcement,
regulatory, and financial services communities; (4) regarding the status
of FinCEN's efforts to develop and issue regulations, as of December
1997, more than 3 years since passage of the Money Laundering
Suppression Act (MLSA), FinCEN had not promulgated final regulations for
five of eight regulatory initiatives related to the 1994 BSA amendments;
(5) FinCEN has issued final regulations for three initiatives, has
proposed regulations for four initiatives, and has not yet taken
regulatory action on one initiative; (6) generally, until final
regulations are promulgated, many of the intended benefits of the MLSA
cannot be fully achieved; (7) FinCEN officials said that they recognized
that the emphasis on issuing quality regulations has the effect of
extending the time needed to develop and issue regulations; (8) thus,
FinCEN followed a regulation-development process that emphasized quality
over timeliness; (9) a majority of the members of the BSA Advisory Group
with whom GAO spoke, generally concurred with this characterization of
FinCEN's regulatory process; (10) GAO believes that FinCEN could better
inform appropriate congressional committees of its rulemaking plans,
especially when those plans will result in FinCEN's failing to meet
statutory completion dates; (11) although GAO found that FinCEN had
presented its fiscal year regulatory priorities in annual plans, which
were published in the Federal Register, these plans did not provide
stakeholders with FinCEN's estimated dates for issuing final rules for
all MLSA-related amendments to the BSA; (12) FinCEN communicated the
agency's regulatory plans to Congress by various means, including
testimony at congressional hearings; and (13) congressional committees
were not in a good position to assess FinCEN's regulatory initiatives,
the time lines for issuing final regulations, and the allocation of
resources necessary for completing these initiatives.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-98-18
     TITLE:  Money Laundering: FinCEN Needs to Better Communicate 
             Regulatory Priorities and Time Lines
      DATE:  02/06/98
   SUBJECT:  Money laundering
             Federal regulations
             Regulatory agencies
             White collar crime
             Executive orders
             Agency proceedings
             Congressional/executive relations
             Banking regulation

             
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Cover
================================================================ COVER


Report to the Subcommittee on General Oversight and Investigations,
Committee on Banking and Financial Services, House of Representatives

February 1998

MONEY LAUNDERING - FINCEN NEEDS TO
BETTER COMMUNICATE REGULATORY
PRIORITIES AND TIME LINES

GAO/GGD-98-18

FinCEN's Regulatory Process and Status

(182032)


Abbreviations
=============================================================== ABBREV

  APA - Administrative Procedure Act
  BSA - Bank Secrecy Act
  CMIR - Report of International Transportation of Currency or
     Monetary Instruments
  CTR - Currency Transaction Report
  FinCEN - Financial Crimes Enforcement Network
  MLSA - Money Laundering Suppression Act of 1994
  MSB - money services business
  OMB - Office of Management and Budget
  SAR - suspicious activity report

Letter
=============================================================== LETTER


B-276891

February 6, 1998

The Honorable Spencer Bachus
Chairman
The Honorable Maxine Waters
Ranking Minority Member
Subcommittee on General Oversight
 and Investigations
Committee on Banking and Financial Services
House of Representatives

This report responds to your March 24, 1997, request that we review
the regulatory role of the Financial Crimes Enforcement Network
(FinCEN), which is a Department of the Treasury organization
established in April 1990 to support law enforcement agencies by
analyzing and coordinating financial intelligence information to
combat money laundering.\1 In a May 1994 delegation memorandum,
Treasury expanded FinCEN's anti-money laundering role to include
responsibility for promulgating regulations under the Bank Secrecy
Act (BSA), which has been amended various times since its enactment
in 1970.\2 Recent amendments were made by the Money Laundering
Suppression Act of 1994 (MLSA).\3 The MLSA, in general, directed
Treasury to take certain actions regarding the use of money
transmitting businesses by criminals involved in money laundering. 
Because you were concerned whether FinCEN had made progress in
addressing this threat and accomplishing other directives of the
MLSA, you asked us to assess FinCEN's efforts to issue regulations
pursuant to the BSA, as amended.  In so doing, this report addresses
the following questions, particularly in reference to the MLSA: 

  -- What process did FinCEN follow for developing and issuing BSA
     regulations? 

  -- What is the current status of FinCEN's efforts to develop and
     issue BSA regulations?  More specifically, what regulations has
     FinCEN developed thus far, and what regulations has the agency
     been authorized or required to develop but has not done so? 

To identify the regulatory or rulemaking process that FinCEN
followed, we interviewed FinCEN officials who are responsible for
preparing BSA regulations and reviewed related agency documents.  We
also interviewed Treasury and Office of Management and Budget (OMB)
officials about their procedures for reviewing drafts of FinCEN's
regulations before publication.  We examined relevant sections of the
Administrative Procedure Act (APA)\4 and Executive Order 12866\5
prescribing procedures that federal agencies are to follow when
developing and issuing regulations.  However, the scope of our work
did not constitute a review of FinCEN's compliance with applicable
statutory and executive order guidance. 

To determine the status of FinCEN's efforts to develop and issue
regulations, as agreed with your offices, we focused on eight
regulatory initiatives\6 that are authorized or required by MLSA
amendments to the BSA: 

  -- designate a single recipient for suspicious activity reports
     (SAR)\7 to help law enforcement agencies make more effective use
     of these reports (by statute, to be completed by Mar.  23,
     1995);

  -- extend BSA currency reporting and recordkeeping requirements to
     certain gaming institutions operated on tribal lands;

  -- extend BSA currency reporting and recordkeeping requirements to
     card clubs;

  -- specify selected entities as being exempt (mandatory exemptions)
     from filing currency transaction reports (CTR)\8

to substantially reduce the number of CTRs filed by depository
institutions\9 and to enhance the usefulness of CTRs to law
enforcement;

  -- define certain types of businesses that can be exempted
     (discretionary exemptions) from filing CTRs to further reduce
     the number of CTRs filed and enhance the usefulness of these
     reports to law enforcement (by statute, to be completed by Sept. 
     23, 1996);

  -- extend BSA reporting requirements to certain negotiable
     instruments drawn by foreign banks to address the potential use
     of "foreign bank drafts" in money laundering schemes;

  -- require certain money transmitting businesses, which FinCEN has
     proposed to redefine as "money services businesses" (MSB),\10 to
     register with Treasury to address concerns that these entities
     are particularly vulnerable to money laundering schemes (by
     statute, to be completed by Mar.  23, 1995); and

  -- delegate authority to assess a civil monetary penalty on
     depository institutions under the BSA to the appropriate federal
     banking regulatory agencies to increase efficiencies by allowing
     these agencies to impose civil penalties directly, rather than
     make referrals to FinCEN. 

In focusing on the eight regulatory initiatives, we reviewed all
notices of proposed and final rulemaking issued by FinCEN since 1994,
as published in the Federal Register.\11 Furthermore, regarding
FinCEN's efforts to develop and issue regulations, we interviewed
FinCEN officials and 6 of the 35 members of the BSA Advisory
Group,\12 which includes representatives from the law enforcement,
regulatory, and financial services communities.  Also, we reviewed
relevant literature and our past reports\13 to identify any potential
best practices for developing and issuing regulations. 

We performed our work from April to December 1997, in accordance with
generally accepted government auditing standards.  Appendix IV
provides further details about our objectives, scope, and
methodology. 

We requested comments on a draft of this report from the Director of
FinCEN.  A reprint of FinCEN's written comments can be found in
appendix VI, and our evaluation of those comments follows our
recommendation. 


--------------------
\1 Money laundering, in general, is the disguising or concealing of
illicit income to make it appear legitimate.  U.S.  criminal
anti-money laundering law encompasses the money generated from
numerous different crimes--e.g., drug trafficking, murder for hire,
racketeering, tax evasion, prostitution, and embezzlement. 

\2 Public Law 91-508, 84 Stat.  1114 (1970).  BSA's implementing
regulations are promulgated by the Department of the Treasury at 31
C.F.R.  Part 103. 

\3 The MLSA is Title IV of the Riegle Community Development and
Regulatory Improvement Act of 1994 (P.L.  103-325, 108 Stat.  2160,
2243 (1994)). 

\4 Public Law 79-404, 60 Stat.  237 (1946) (codified as amended in
scattered sections of 5 U.S.C.). 

\5 Executive Order 12866, "Regulatory Planning and Review" (58 FR
51735, Oct.  4, 1993). 

\6 Appendix I provides further details about the eight regulatory
initiatives. 

\7 SARs, in general, must be filed by financial institutions when
they know, suspect, or have reason to suspect that a crime has
occurred or that a transaction is suspicious.  FinCEN regulations
provide, for example, that a SAR shall be filed for a transaction
that has no business or apparent lawful purpose or that is not the
sort in which the particular customer would normally be expected to
engage, and the bank knows of no reasonable explanation for the
transaction after examining the available facts, including the
background and possible purpose of the transaction. 

\8 Financial institutions and certain types of businesses must file a
CTR with the Internal Revenue Service for each deposit, withdrawal,
exchange, or other payment or transfer by, through, or to such
financial institutions or businesses that involves more than $10,000
in currency. 

\9 FinCEN noted in the Federal Register (61 FR 18205, Apr.  1996)
that approximately 11.2 million CTRs were filed between September 24,
1993, and September 23, 1994.  Thus, FinCEN stated that the statute
contemplated a reduction of approximately 3.3 million filings per
year. 

\10 The proposed definition of MSBs would include money transmitters;
currency dealers, or exchangers; check cashers; issuers of traveler's
checks, money orders, or stored value (under the proposed rule,
stored value is defined as funds or monetary value represented in
digital electronics format, whether or not specifically encrypted,
and stored or capable of storage on electronic media in such a way as
to be retrievable and transferable electronically); sellers or
redeemers of traveler's checks; and the U.S.  Postal Service (except
regarding the sale of postage or philatelic products).  For
additional information, see appendix I, footnote 1. 

\11 Appendix II provides a time line of all of FinCEN's rulemaking
issuances since 1994. 

\12 In March 1994, pursuant to the Annunzio-Wylie Anti-Money
Laundering Act (P.L.  102-550, 106 Stat.  4044 (1992)), the Secretary
of the Treasury announced the establishment of the BSA Advisory
Group, whose purpose is to provide Treasury and FinCEN with advice
and expertise on BSA-related matters, including prospective
regulations.  Appendix III provides additional information about the
BSA Advisory Group.  Appendix IV discusses the criteria we used to
judgmentally select BSA Advisory Group members to interview. 

\13 Clear Air Rulemaking:  Tracking System Would Help Measure
Progress of Streamlining Initiatives (GAO/RCED-95-70, Mar.  2, 1995)
and Regulatory Review:  Information on OMB's Review Process
(GAO/GGD-89-101FS, July 14, 1989). 


   BACKGROUND
------------------------------------------------------------ Letter :1

The U.S.  government's framework for preventing and detecting money
laundering efforts is the BSA, which was enacted in 1970, in part, in
response to concern over the use of financial institutions by
criminals to launder the proceeds of their illicit activity.  Despite
its name, the BSA, among other things, is a disclosure law.  As
originally enacted, the BSA required, for example, the maintenance of
records by financial institutions and the reporting of certain
domestic currency transactions and cross-border transportation of
currency.  One purpose of such records and reports was to create a
paper trail for investigators' use in tracing illicit funds.  The
MLSA amendments to the BSA are, among other things, intended to
improve upon this paper trail.  For example, one benefit intended by
the MLSA is to enhance the usefulness of CTRs to law enforcement
agencies.  Another benefit is to register MSBs, which are entities
reportedly vulnerable to money laundering schemes. 

According to FinCEN, its regulatory program priorities and outlines
of specific regulatory projects can originate from various sources. 
These sources include statutory mandates or authorities; deficiencies
in the present rules identified by enforcement officials; and
suggestions from financial institutions (e.g., withdrawal of the
requirement that would have mandated certain financial institutions
to file CTRs on magnetic media). 

The APA establishes certain procedures that an agency must follow
when promulgating rules.  Informal rulemaking\14 under the APA
generally requires such actions as notification of proposed
rulemaking by publication in the Federal Register, involvement of
interested persons through notice and comment, and publication of a
final rule at least 30 days before it becomes effective. 

FinCEN is a relatively small agency with a fiscal year 1997 budget of
about $23 million and an on-board staffing level of about 160
employees.\15 Created in 1990, FinCEN's original mission centered on
supporting law enforcement agencies' anti-money laundering efforts. 
Investigative case support included, for example, accessing numerous
databases and using advanced technology to identify and analyze
relevant financial transactions.  Over the years, FinCEN's mission
has become more multifaceted, including assumption of a leadership
role in international efforts to combat money laundering.  For
instance, besides heading the U.S.  delegation to the Financial
Action Task Force,\16 FinCEN has assisted other nations to establish
financial intelligence units, which are intended to serve as focal
points for these countries' anti-money laundering efforts. 

In May 1994, Treasury expanded FinCEN's anti-money laundering role to
include responsibility for administration of the BSA.  In this role,
besides promulgating BSA regulations, FinCEN interprets the BSA and
assesses civil monetary penalties for BSA violations.  FinCEN
officials told us that about 10 staff worked on BSA regulations in
recent years.  FinCEN officials noted, however, that none of these 10
staff had worked on regulations on a full-time or exclusive basis;
rather, the staff had also been involved in other mission functions
and responsibilities.  Notices of proposed rulemaking and final rules
are prepared by FinCEN's Office of Legal Counsel, with the
participation of staff from FinCEN's Office of Program Development
and Office of Compliance and Regulatory Enforcement. 


--------------------
\14 Most rulemaking proceedings involve "informal rulemaking," in
contrast to "formal rulemaking," which generally requires that an
agency use trial-type hearing procedures, keep a formal record, and
base its decision on data compiled in that record. 

\15 Appendix V shows FinCEN's organizational structure and its
on-board staffing as of December 1997. 

\16 Comprised of 26 member nations and headquartered in Paris,
France, the Financial Action Task Force is dedicated to promoting the
development of effective anti-money laundering controls and enhanced
cooperation among all countries. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

FinCEN's process for developing and issuing regulations generally
consisted of determining what regulations were required or needed,
establishing priorities for which regulations it would promulgate
first, and then promulgating the regulations within the context of
applicable statutory and executive branch guidance.  FinCEN published
its annual regulatory priorities each fiscal year since 1995.  FinCEN
also published notices of proposed rulemaking and final rules in the
Federal Register.  Overall, FinCEN's regulatory process was designed
to reflect APA standardized procedures that federal agencies are to
follow when developing and issuing regulations.  Moreover, FinCEN
follows a "partnership strategy," which emphasizes frequent
consultations with representatives of the law enforcement,
regulatory, and financial services communities. 

Regarding the status of FinCEN's efforts to develop and issue
regulations, as of December 1997, more than 3 years since passage of
the MLSA, FinCEN had not promulgated final regulations for five of
eight regulatory initiatives related to the 1994 BSA amendments.  As
shown in table 1, FinCEN has issued final regulations for three
initiatives, has proposed regulations for four initiatives, and has
not yet taken regulatory action on one initiative.  The table also
shows that FinCEN missed all three statutory deadlines imposed by the
MLSA. 



                                     Table 1
                     
                     Status of FinCEN's Regulatory Issuances
                     for MLSA-Related Provisions (as of Dec.
                                      1997)

                        Status of regulatory issuances/
                                     rule
                        -------------------------------
                                                                    Most recent
                                                         Statutory  regulatory
Regulatory initiative   Final      Proposed   None       deadlines  action
----------------------  ---------  ---------  ---------  ---------  ------------
Suspicious Activity     x                                03/23/95   02/05/96
Reports: designate a
single recipient

Tribal Casinos: make    x                                none       02/23/96
tribal gaming subject
to the BSA

Mandatory CTR           x                                none       09/08/97\a
Exemptions: specify
selected \entities as
exempted from filing
CTRs

Discretionary CTR                  x                     09/23/96   09/08/97
Exemptions:
define certain types
of businesses as
exempted from filing
CTRs

Card Clubs: make card              x                     none       12/20/96
clubs subject to the
BSA

Foreign Bank Drafts:               x                     none       01/22/97
impose reporting
requirements

Money Services                     x                     03/23/95   05/21/97
Businesses: require
registration of money
services businesses

Civil Penalties:                              x          none       none
delegate to federal
banking regulatory
agencies the authority
to assess civil
penalties

================================================================================
Total                   3          4          1          n/a        n/a
--------------------------------------------------------------------------------
\a On April 24, 1996, FinCEN issued an interim rule with a request
for comments.  A final rule that incorporated comments received on
the interim rule was subsequently issued on September 8, 1997. 

Source:  Developed by GAO on the basis of MLSA provisions and Federal
Register publications. 

Generally, until final regulations are promulgated, many of the
intended benefits of the MLSA cannot be fully achieved.  For example,
until the discretionary CTR exemptions are defined by regulation, the
reduction in the number of CTRs that is intended to enhance their
usefulness to law enforcement agencies cannot be fully realized. 

FinCEN officials concluded that the need to issue quality
regulations--i.e., substantively effective regulations--was
important.  The officials said that they recognized that the emphasis
on issuing quality regulations had the effect of extending the time
needed to develop and issue regulations.  Thus, FinCEN followed a
regulation-development process that emphasized quality over
timeliness.  A majority of the members of the BSA Advisory Group with
whom we spoke generally concurred with this characterization of
FinCEN's regulatory process.  Furthermore, FinCEN officials told us
that as part of its process, the agency prioritized its workload to
work on two or three regulatory issues at a time because of the
complexities of the issues and the number of agency staff with
regulatory expertise.  As previously mentioned, FinCEN officials told
us that the agency had about 10 staff with regulatory expertise who
had worked on BSA regulations in recent years and none of these 10
staff had worked on the regulations exclusively. 

Congress' inclusion of statutory deadlines with respect to the MLSA
provisions shows that it is intended that those initiatives be
completed in a timely manner.  We believe that FinCEN could better
inform appropriate congressional committees of its rulemaking plans
or, where delays would be significant, it could also include a
request for legislation to extend the statutory deadlines, especially
when the agency's plans will result in FinCEN's failing to meet
statutory completion dates. 

Although we found that FinCEN had presented its fiscal year
regulatory priorities in annual plans, which were published in the
Federal Register, these plans did not provide stakeholders with
FinCEN's estimated dates for issuing final rules for all MLSA-related
amendments to the BSA, particularly those with development phases
exceeding 1 year.  In commenting on a draft of this report, FinCEN
said that it communicated the agency's regulatory plans to Congress
by various means, including testimony at congressional hearings.  Our
review of FinCEN's testimonies at hearings over the past calendar
year found, however, that FinCEN did not provide specific target
dates for issuing final rules for MLSA-related directives. 

Thus, congressional committees were not in a good position to assess
FinCEN's regulatory program, including the agency's prioritization of
regulatory initiatives, the time lines for issuing final regulations,
and the allocation of resources necessary for completing these
initiatives.  A case in point is the Subcommittee's request for this
review, which was made because it lacked information about FinCEN's
rulemaking plans.  Therefore, we are recommending that FinCEN prepare
and submit to the appropriate congressional committees target dates
for issuing final regulations (and notices of proposed rulemaking, as
applicable) for all relevant statutory BSA-related directives. 


   FINCEN'S REGULATORY PROCESS WAS
   DESIGNED TO REFLECT
   STANDARDIZED PROCEDURES
------------------------------------------------------------ Letter :3

FinCEN's regulatory process was designed to reflect standardized
procedures that have governmentwide applicability under the APA.  The
APA establishes certain procedures that an agency must follow when
promulgating rules.  Informal rulemaking under the APA generally
requires such actions as notification of proposed rulemaking by
publication in the Federal Register, involvement of interested
persons through notice and comment, and publication of a final rule
at least 30 days before it becomes effective.  Concerning the
involvement of interested persons, the APA generally requires that
agencies give such persons an opportunity to participate in the
rulemaking process through submission of written data, views, or
arguments.  The APA also requires that agencies incorporate into each
rule a concise general statement of its basis and purpose.  Our
review showed that FinCEN published notices of proposed rulemaking
and final rules in the Federal Register. 

Also, as an additional means of enhancing public visibility, FinCEN
presented its fiscal year regulatory priorities in annual plans,
pursuant to Executive Order 12866 requirements.  Under this executive
branch guidance, each fiscal year, federal agencies are to prepare a
regulatory plan presenting, among other things, the respective
agency's regulatory priorities and the most significant regulatory
actions that the agency reasonably expects to issue in proposed or
final form during the year.\17 In its regulatory plan for fiscal year
1996,\18 for example, FinCEN listed three priority regulatory
initiatives related to provisions of the MLSA--mandatory CTR
exemptions, suspicious activity reporting (to designate a single
recipient for these reports), and tribal casinos--and one initiative
to modify two final rules related to wire transfers.  During fiscal
year 1996, FinCEN issued an interim rule and two final rules,
respectively, for the three MLSA-related priorities. 

FinCEN's fiscal year 1997 regulatory plan\19 accorded priority to
issuing notices of proposed rulemaking for five topics:  (1)
registering of MSBs; (2) reporting of the cross-border transportation
of certain monetary instruments (i.e., foreign bank drafts); (3)
extending to securities brokers and dealers and casinos the
requirement to report suspicious transactions; (4) requiring
financial institutions to carry out certain anti-money laundering
programs;\20 and (5) delegating civil penalty authority to bank
regulatory agencies.  FinCEN accomplished the first two priorities
during fiscal year 1997, but not the last three priorities.  Instead,
FinCEN found it necessary to issue additional regulations related to
MSBs and issue regulations related to mandatory (final rule) and
discretionary (notice of proposed rulemaking) CTR exemptions. 

According to FinCEN, the reason a priority was placed on the
exemption regulations was to give the banking industry regulatory
relief before adding additional requirements.  FinCEN officials said
that the proposed MSB regulations were given priority because FinCEN
concluded that Treasury needed to pay more attention to updating the
way the BSA applies to MSBs and to equalize the money laundering
controls to which various types of financial institutions are
subject.  According to FinCEN, the need was identified on the basis
of the success of law enforcement efforts in New York, which used
special reporting requirements that were similar to the proposed
regulations. 

In addition to standardized procedures, a significant aspect of
FinCEN's regulatory process is its partnering strategy.\21 This
strategy emphasized frequent interaction and consultation with
affected public and private sector representatives in the law
enforcement, regulatory, and financial services communities. 

As previously mentioned, one forum that FinCEN used to operationalize
its partnership strategy was the BSA Advisory Group.  Generally, the
members we interviewed were complimentary of FinCEN's participation
in and use of this forum.  A majority of the members commented that
FinCEN's process, rather than focusing on timeliness, was properly
focused on quality--specifically, on developing and issuing
substantively effective regulations.  More specifically, one member
noted that FinCEN's regulations are excellent and are worth the time
invested.  A second member noted that FinCEN has taken some
innovative approaches, such as holding public meetings to discuss
proposed regulations.  A third member noted that, while it would be
nice to have a faster process, FinCEN's partnership approach is good,
even though such an approach may increase the time taken to develop
regulations. 

FinCEN officials also told us that developing quality regulations
takes time.  A FinCEN official said that, to promulgate regulations
that can be effectively implemented, the agency needed to take the
time to develop expertise in particular subject areas and to consult
with various stakeholders during the development process.  FinCEN
officials believe this approach is important to help ensure that
issued regulations have credibility with law enforcement agencies,
federal regulators, and affected industries. 


--------------------
\17 Federal agencies' regulatory plans are compiled into the fall
edition of the Unified Agenda of Federal Regulatory and Deregulatory
Actions, which is published in the Federal Register.  A purpose of
the Unified Agenda is to provide uniform reporting of data on
regulatory activities under development throughout the federal
government. 

\18 60 FR 59653, November 28, 1995. 

\19 61 FR 62132, November 29, 1996. 

\20 FinCEN was authorized in a 1992 amendment to the BSA to require
financial institutions to carry out anti-money laundering programs. 

\21 Building partnerships is one of three goals specified in FinCEN's
multiyear strategic plan (1996-2001), which was developed to meet the
requirements of the Government Performance and Results Act of 1993. 
The plan's other goals focus on increasing international awareness of
the impact of money laundering and applying technology. 


   FINCEN'S PRIORITIZATION OF WORK
   DEFERRED ISSUANCE OF FINAL
   RULES FOR SEVERAL MLSA-RELATED
   REGULATORY INITIATIVES
------------------------------------------------------------ Letter :4

In fiscal year 1995, FinCEN began taking action to develop
regulations addressing MLSA provisions; but, as of December 1997,
final rules were pending for five of the eight regulatory initiatives
we reviewed.  FinCEN officials told us that, given the number of
regulatory initiatives requiring action, the number of staff with the
expertise to develop regulations, and other reasons, the agency had
to prioritize its work.  FinCEN's prioritization of initiatives
resulted in final regulatory actions related to several of the 1994
amendments being deferred into fiscal year 1997 and beyond.  While we
have no basis to criticize FinCEN's regulation-development process or
its resource allocation decisions, we note in this report that FinCEN
missed all three statutory deadlines imposed by the MLSA. 


      FINCEN PRIORITIZED
      REGULATORY NEEDS
---------------------------------------------------------- Letter :4.1

According to FinCEN officials, since being delegated the
responsibility for BSA regulations, the agency has worked on only two
or three regulatory issues at a time because of the complexities of
the issues, the coordination required with the affected parties,
competing mission demands, and the number of agency staff with
regulatory expertise.  As previously mentioned, FinCEN officials told
us that its regulatory program priorities are influenced by various
sources, including statutory mandates or authorities as well as needs
identified by FinCEN or others. 

We requested information from FinCEN on the amount of time that
FinCEN staff devoted to developing and issuing regulations.  FinCEN
officials told us that the agency does not track staff use by
specific functions or strategic goals and objectives.  According to
the officials, 10 staff worked on developing regulations, but none of
the 10 staff worked exclusively on regulatory efforts.  These 10
staff, based upon our rough estimate, represented about 6 percent of
FinCEN's total staff resources.\22


--------------------
\22 The 6-percent figure is our estimate which is based on 10 of
FinCEN's total staff of 162 people working on regulations.  During
fiscal year 1997, FinCEN added three more attorneys to its staff. 
However, during the same year, two other staff who had previously
worked on the development of regulations left the agency.  These two
positions were vacant as of December 1997. 


      FINCEN ISSUED FINAL RULES
      FOR SOME OF THE MLSA-RELATED
      PROVISIONS, BUT ACTIONS ARE
      PENDING FOR OTHERS
---------------------------------------------------------- Letter :4.2

FinCEN produced its first rulemaking actions related to the MLSA late
in fiscal year 1995, when FinCEN issued notices of proposed
rulemaking to extend BSA reporting and recordkeeping requirements to
tribal casinos (Aug.  1995) and to designate a single recipient for
reporting of suspicious activities (Sept.  1995).  FinCEN issued
final rules for these two regulatory initiatives in fiscal year 1996
(Feb.  1996).  Also, during fiscal year 1996, FinCEN issued an
interim rule related to exemption of certain transactions from CTR
requirements.  A final rule that incorporated comments received on
the interim rule was issued in fiscal year 1997 (Sept.  1997). 
During fiscal year 1997, FinCEN issued five notices of proposed
rulemaking that related to BSA amendments made by the MLSA.  No
issuances have been made for one initiative related to the
MLSA--delegation of civil penalty authority to federal banking
regulatory agencies. 

As of December 1997, FinCEN had not issued final rules for five
regulatory initiatives related to the MLSA.  However, as shown in
table 2, FinCEN has issued notices of proposed rulemaking for four of
the five pending regulatory initiatives.  For example, FinCEN issued
a notice of proposed rulemaking related to foreign bank drafts on
January 22, 1997.  According to a FinCEN official, comments were
received, and, as of October 1997, a final rule was being developed. 
As presented in the fiscal year 1997 Unified Agenda, FinCEN had
estimated that a final rule for this initiative would be issued in
August 1997.  However, in September 1997, a FinCEN official told us
that developing final MSB regulations will be given priority over
efforts to develop the final rule related to foreign bank drafts. 
Also, regarding the latter, the FinCEN official noted that senior
Treasury managers will need to be involved.  As a result, the FinCEN
official said that he was uncertain as to when a final rule for
foreign bank drafts would be published. 



                                Table 2
                
                Pending Regulatory Initiatives for MLSA-
                  Related Provisions (as of Dec. 1997)

                        Notice of proposed      Date written comments
Pending rulemaking      rulemaking date         were requested
----------------------  ----------------------  ----------------------
Card clubs              December 20, 1996       March 20, 1997

Foreign bank drafts     January 22, 1997        April 22, 1997

Registration of MSBs    May 21, 1997            September 30, 1997

Discretionary CTR       September 8, 1997       December 8, 1997
exemptions

Delegation of civil     No notice issued        n/a
penalty authority
----------------------------------------------------------------------
Source:  Developed by GAO on the basis of Federal Register
publications and discussions with FinCEN officials. 

Regarding the registration of MSBs and related issues, FinCEN
published a set of three notices of proposed rulemaking on May 21,
1997.\23 Treasury's Under Secretary for Enforcement had asked that
FinCEN try to publish final rules for these three issues by the end
of December 1997.\24 FinCEN officials told us that these regulations,
given their usefulness to law enforcement, have a high priority. 
According to FinCEN officials, adherence to the December 1997
schedule would have meant that the registration of existing MSBs
would have been accomplished about 6 months later (i.e., by the end
of June 1998). 

Another regulatory initiative under development, as table 2 shows,
involves discretionary CTR exemptions.  FinCEN issued a notice of
proposed rulemaking on September 8, 1997, and requested that written
comments be provided by December 8, 1997.  Subsequently, FinCEN
extended the comment period to January 16, 1998. 

Also, table 2 shows that FinCEN has not issued a notice of proposed
rulemaking to delegate to federal banking regulatory agencies the
authority to assess civil monetary penalties for BSA violations. 
Currently, such assessment authority is vested solely in FinCEN.  In
April 1997, in response to questions we asked in initiating our
review, FinCEN officials told us they had been working with the
banking agencies for over a year to devise an appropriate plan for
delegating civil penalty assessment authority, but some issues still
required resolution. 

In our follow-up discussions in July and September, 1997, FinCEN
officials described the unresolved issues largely as establishing a
common frame of reference for evaluating BSA violations and, in turn,
for determining the appropriate penalty amounts.  Additionally,
FinCEN officials noted that, even with the delegation of assessment
authority to the banking agencies, another unresolved issue is
FinCEN's role in monitoring the various agencies' use of that
authority.  FinCEN also indicated that the federal banking regulatory
agencies may be less inclined to assess BSA penalties and will
instead use their present non-BSA authorities under the general
examination powers granted to them (i.e., Title 12 of the U.S. 
Code). 

Accordingly, FinCEN officials told us they believe oversight of the
delegated authority is necessary, and they are considering proposing
that each banking regulatory agency prepare and submit to FinCEN
quarterly reports of its efforts to enforce the BSA.  FinCEN
officials told us that they had not reached a mutual agreement with
the federal banking regulators regarding proposed monitoring
requirements.  According to a FinCEN official, these unresolved
issues are policy-oriented and will require consultation with
Treasury officials.  Also, the FinCEN official noted that the
delegation issue has lower priority than other issues, such as the
development of final MSB rules.  As of December 1997, FinCEN had not
established a projected issuance date for either a notice of proposed
rulemaking or a final rule.  According to FinCEN officials, the
agency's disinclination to move quickly in this area reflects its
sense that more needs to be learned about the implications of various
approaches for cost-effective enforcement of banking regulation
before the ultimate policy choices are made.  FinCEN officials stated
that the issues raised by delegation of civil penalty authority
ultimately go beyond purely enforcement concerns.  According to
FinCEN officials, a briefing paper describing the issues for
senior-level Treasury officials is to be prepared and submitted to
Treasury by the end of February 1998. 

Another open issue for FinCEN, at the time of our review, involved a
requirement that Treasury publish (1) written rulings interpreting
the BSA and (2) annual staff commentaries on the BSA regulations.\25
To assist FinCEN, the BSA Advisory Group formed a working group to
prepare summaries that were provided to FinCEN for its use in meeting
the requirement to publish commentaries.  According to a FinCEN
official, the agency has begun to review its written rulings to
identify information that can and cannot be made public.  This
official estimated that redacted versions of the rulings may be
published during the first quarter of calendar year 1998.  On the
other hand, the FinCEN official said that 2 or 3 years may be needed
to write the commentaries because they involve more complicated
issues. 


--------------------
\23 One notice of proposed rulemaking was in response to the MLSA
requirement to register MSBs.  The other two notices of proposed
rulemaking were not required by the MLSA. 

\24 In January 1998, in response to our inquiry, a FinCEN official
told us that final rules for these initiatives had not been published
because of funding issues involving, among other things, data
collection requirements at the Internal Revenue Service's Detroit
Computing Center.  The official noted that funding issues could
impact the scope and parameters of the final regulations, and the
official said that FinCEN had not established a date for issuing the
final rules. 

\25 These publications were required under Title III of the Riegle
Community Development and Regulatory Improvement Act of 1994 (P.L. 
103-325, 108 Stat.  2160 (1994)).  The Secretary is to (1) publish
all of Treasury's written rulings interpreting BSA requirements and
(2) issue, on an annual basis, a staff commentary on the BSA
regulations.  According to the Conference Report on the act, these
publications are to ease the burden on banking institutions and
promote compliance with the BSA. 


   FINCEN DID NOT FULLY
   COMMUNICATE ITS REGULATORY
   PRIORITIES AND TIME LINES
------------------------------------------------------------ Letter :5

FinCEN prepared annual (fiscal year) plans presenting its priorities
and regulatory agenda for the most significant regulatory actions
that it expected to issue in proposed or final form during the
applicable 12-month period.  However, a limitation of FinCEN's annual
plans is that they do not always present what is not being
accomplished.  For example, FinCEN's fiscal year 1996 regulatory plan
accorded priority to three MLSA-related regulatory initiatives
(mandatory CTR exemptions, suspicious activity reporting, and tribal
casinos), but the plan did not mention that FinCEN would not be
giving priority to other regulatory initiatives (e.g., registration
of MSBs) requiring action under the MLSA. 

A limitation of the regulatory agenda is that it may not always
present estimated dates for issuing final rules, particularly if a
regulatory initiative involves a period beyond 12 months.  For
example, FinCEN's fiscal year 1995 regulatory agenda did not provide
estimated dates for issuing final rules for any of the eight
MLSA-related regulatory initiatives we reviewed.  In fact, 2 years
later, the fiscal year 1997 regulatory agenda represented FinCEN's
first publication of estimated dates for issuing final rules
involving any of these eight initiatives.  The 1997 regulatory agenda
provided estimated final rule issuance dates for three of the eight
regulatory initiatives--mandatory CTR exemptions, card clubs, and
foreign bank drafts. 

Although FinCEN's 1995 plan did not address final rules, it did
present estimated dates for issuing notices of proposed rulemaking
for seven of the eight regulatory initiatives.  In subsequent annual
plans, FinCEN extended some of these dates.  An example is the
regulatory initiative involving the delegation of civil penalty
assessment authority to the federal banking regulatory agencies.  In
the 1995 plan, FinCEN estimated that it would issue a notice of
proposed rulemaking in July 1995.  Later, FinCEN extended the
estimated issuance date several times--that is, to March 1996, then
to September 1996, and then to February 1997.  At the time of our
review, a notice of proposed rulemaking still had not been issued,
and FinCEN had not established a projected issuance date. 

Another mechanism that FinCEN has used to inform Congress of its
regulatory agenda has been congressional hearings.  We reviewed
FinCEN's testimony given at hearings held during 1997 and found that
agency officials generally discussed either final rules that had
already been issued or regulatory initiatives that were currently
under development.  However, the testimonies did not discuss the
MLSA-related directive related to delegating authority to federal
banking agencies to assess civil penalties.  Furthermore, with one
exception--a July 1997 hearing that focused on MSB regulations--none
of the testimonies provided specific target dates for issuing final
rules or discussed why statutory deadlines had not been met. 

In addition to hearings, FinCEN officials believe that their
briefings with congressional Members and staff have kept appropriate
committees informed of the agency's regulatory agenda.  However,
FinCEN officials were unable to provide us with specific information
about whether the implementation of all of its MLSA-related
directives, including specific target dates for issuing final rules,
had been discussed. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

FinCEN's process for developing and issuing BSA regulations was
generally designed to reflect applicable procedures set forth in the
APA and Executive Order 12866.  For example, FinCEN published notices
of proposed rulemaking and final rules.  In addition, FinCEN used a
partnering approach to actively seek input from the law enforcement,
regulatory, and financial services communities. 

Since 1994, when it was delegated responsibility for administering
the BSA, FinCEN has issued a number of proposed and final rules
pursuant to MLSA amendments to the BSA.  At the time of our review,
however, several final regulations related to the MLSA were still
pending, including two regulations (discretionary CTR exemptions and
registration of MSBs) that had statutory deadlines for implementation
of over a year ago.  In recognizing that development of quality
regulations can be time consuming, FinCEN prioritized its regulatory
program initiatives by considering, among other things, the number of
experienced staff available. 

FinCEN did not meet any of the three statutory deadlines imposed by
the MLSA.  Clearly, Congress' inclusion of statutory deadlines with
respect to the MLSA provisions shows that it intended that those
initiatives be completed in a timely manner.  We note in this report
that the intended law enforcement benefits of the MLSA amendments
cannot be fully achieved until all of the regulations are
implemented. 

FinCEN published its annual regulatory plans in the Federal Register. 
However, the annual plans do not (1) cover regulatory initiatives
that are not under development but that need to be addressed; (2)
prioritize among all of the open statutory directives and other
identified needs; (3) set target dates for issuing both notices of
proposed rulemaking and final rules; and (4) provide a means for
obtaining input on long-range priorities from the appropriate
congressional committees.  FinCEN also said that it communicated the
agency's regulatory plans through various other means, including
testimony at congressional hearings.  However, we found that FinCEN's
testimonies during 1997 generally did not provide specific target
dates for issuing final rules or discuss why statutory deadlines had
not been met. 

Thus, congressional committees have not been in a good position to
assess FinCEN's regulatory program, including the agency's
prioritization of regulatory initiatives, the time lines for issuing
final regulations, and the allocation of resources necessary for
completing these initiatives.  An illustration of this point is our
review, which was requested because the Subcommittee lacked
information about FinCEN's rulemaking plans. 


   RECOMMENDATIONS TO THE
   DIRECTOR, FINCEN
------------------------------------------------------------ Letter :7

We recommend that the Director, FinCEN, establish target dates for
implementing all relevant statutory BSA-related regulatory directives
and provide the appropriate congressional committees with information
on the status of FinCEN's implementation efforts.  This information
should include FinCEN's plans, priorities, target dates for issuing
notices of proposed rulemaking and final rules, and accomplishments. 
Where delays would be significant, it could also include a request
for legislation to extend the statutory completion date. 
Furthermore, recognizing that circumstances can change, we recommend
that the Director periodically update this information and transmit
it to the appropriate congressional committees. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :8

In a letter dated January 8, 1998, FinCEN's Director provided written
comments on a draft of this report (see app.  VI).  The Director
noted that the draft report contained a detailed and comprehensive
discussion of the process that FinCEN used to develop and issue
regulations and the status of those regulations.  However, the
Director had two main disagreements with the draft report. 

First, he commented that the draft report did not accurately describe
the level of effort FinCEN devoted to its regulatory initiatives or
reflect the agency's other money laundering missions.  We believe
this report adequately addresses FinCEN's efforts to develop
regulations and carry out its other missions.  We describe FinCEN's
multiple missions; the number of staff the agency had working on
developing regulations; and its coordination efforts with the law
enforcement, regulatory, and financial services communities. 
However, as mentioned in this report, FinCEN does not track the
amount of time staff spend on specific functions or strategic goals
and objectives.  Thus, FinCEN could not provide us with, and we could
not report on, more specific information on the level of effort
FinCEN expended on its regulatory initiatives. 

Second, the Director commented that the draft report did not describe
the extent to which FinCEN informs Congress of its objectives. 
According to the Director, the agency has adequately communicated its
rulemaking agenda to appropriate congressional committees. 
Furthermore, the Director commented that the results of our audit
work did not support the recommendation that FinCEN needed to better
communicate its regulatory priorities as indicated in the report and
the draft report's title.  In his comment letter, the Director
mentioned that FinCEN had informed Congress of its work through
various hearings, briefings, and other communications or interactions
involving congressional committees and subcommittees and/or their
staff. 

We recognize that FinCEN, at various times, has informed certain
committees and subcommittees or their staffs of the progress made on
a number of regulatory initiatives, and we expanded our discussion of
these communications in this report (see pp.  14 and 15).  However,
these communications were neither systematic in providing uniform
information to all interested congressional parties nor done on any
periodic basis.  A consequence of this type of ad hoc communication
is to make it more difficult for Members of Congress and staff who
are not directly involved in congressional testimonies and briefings
to effectively perform their oversight responsibilities.  Moreover,
at the time of our review, FinCEN could not provide us with any
evidence that it had--through the means described by the Director or
through its annual plans--communicated time-specific goals for
implementing all relevant statutory BSA-related directives.  For
example, FinCEN had not communicated to Congress estimated completion
dates for final rules for five of the eight statutory directives that
we reviewed, two of which had statutory deadlines.  Clearly,
Congress' inclusion of statutory deadlines with respect to such MLSA
provisions shows an interest in implementing these initiatives in a
timely manner. 

The Director attached to his January 8, 1998, letter a summary of the
status of the implementation of MLSA initiatives ("Summary of Status
under the MLSA"), which he offered as an example of the kind of
information provided by FinCEN to Congress.  FinCEN added a column
labeled "Proposed Action and Date" to the summary in response to
December 1997 discussions with us on a draft of this report.  This
summary, with the recently added information, represents progress
toward meeting the intent of our recommendation.  Nonetheless, while
the additional information is helpful, the summary still does not
provide expected dates for issuing final rules for three statutory
provisions--the discretionary CTR exemption system (phase II),
delegation to federal banking regulatory agencies the authority to
assess civil penalties, and registration of money services
businesses.  Two of these--the CTR exemption system and registration
of MSBs --are past their statutory deadlines by more than a year. 

In his letter, the Director stated that "it is unprecedented that an
agency should be mandated to provide such a level of detail as to its
regulatory operations in absence of any findings of serious
deficiency." In addressing this comment, we want to emphasize three
points.  First, we did not intend that our recommendation be adopted
as a legislative mandate.  Rather, we consider it to be good
management practice to provide timely and useful information for
congressional oversight when statutorily mandated activities have not
been achieved in the required time frame.  We modified the wording of
the recommendation and the report title to clarify our intention in
this regard. 

Second, including estimated completion dates in the regulatory
program status summary that FinCEN provided with its letter would not
seem to be a document that calls for an unwarranted "level of
detail." FinCEN's ability to update and modify this existing summary
in the short period between our meeting on December 31, 1997, and the
issuance of its letter to us on January 8, 1998, is evidence that the
preparation and maintenance of such a report is not an unreasonable
burden. 

Finally, observers may differ as to whether our finding that FinCEN
did not systematically and periodically inform Congress of when
statutory deadlines, which were not met, and other statutory
requirements would be met describes a "serious deficiency." From our
perspective, however, FinCEN has the key responsibility of keeping
the appropriate congressional committees informed about its plans,
priorities, target dates, and accomplishments concerning these
important statutory directives.  Furthermore, BSA regulations
unquestionably are the core of Treasury's anti-money laundering
efforts, and the intended law enforcement benefits of the MLSA
amendments are being delayed pending the promulgation of final rules. 
For these reasons, we continue to believe that FinCEN should
systematically and periodically communicate its plans, priorities,
target dates, and accomplishments concerning relevant statutory
BSA-related directives to all of the appropriate congressional
committees. 

FinCEN officials also offered several suggestions regarding technical
clarifications, which we incorporated where appropriate in this
report. 


---------------------------------------------------------- Letter :8.1

As agreed with the Subcommittee, we plan no further distribution of
this report until 30 days from its issue date.  At that time, we will
send copies of this report to the Senate Banking, Housing, and Urban
Affairs Committee; the Subcommittee on Treasury, Postal Service,
General Government, and Civil Service (Senate Appropriations
Committee); the Subcommittee on Treasury, Postal Service, and General
Government (House Appropriations Committee); the Assistant Secretary
of the Treasury (Enforcement); the Director, FinCEN; the Director,
OMB; the BSA Advisory Group; and other interested parties.  We will
also make copies available to others on request. 

Major contributors to this report are listed in appendix VII.  If you
have any questions about this report, please contact me on (202)
512-8777. 

Richard M.  Stana
Associate Director
Administration of Justice Issues


REGULATORY INITIATIVES RELATED TO
PROVISIONS OF THE MONEY LAUNDERING
SUPPRESSION ACT OF 1994
=========================================================== Appendix I

This appendix discusses various regulatory initiatives related to
provisions of the Money Laundering Suppression Act of 1994 (MLSA). 
Specifically, the sections below respectively discuss selected
provisions of the MLSA in relation to the following eight regulatory
initiatives:  (1) designation of a single recipient for suspicious
activity reports (SAR), (2) mandatory exemptions from filing currency
transaction reports (CTR), (3) discretionary exemptions from filing
CTRs, (4) registration of money services businesses (MSB),\1 (5)
reporting and recordkeeping requirements for tribal casinos, (6)
reporting and recordkeeping requirements for card clubs, (7)
reporting requirements for certain negotiable instruments drawn by
foreign banks, and (8) delegation of civil penalty authority. 


--------------------
\1 The MLSA used the term "money transmitting business" to name those
businesses subject to registration.  However, the Financial Crimes
Enforcement Network (FinCEN) believes that the statute's use of this
term to refer to all of the types of businesses subject to
registration and the statute's later use of the nearly identical term
"money transmitting service" to refer to a particular type of
business subject to registration may lead to confusion.  Therefore,
FinCEN has proposed that the term "money services business" be used
in reference to businesses subject to registration in place of the
term "money transmitting business."


   SINGLE RECIPIENT FOR SARS
--------------------------------------------------------- Appendix I:1

Section 1517 of the Annunzio-Wylie Anti-Money Laundering Act (1992
Act) authorized the Secretary of the Treasury to require the
reporting of suspicious transactions.  The MLSA, section 403,
subsequently required that the Secretary designate (by Mar.  23,
1995) a single officer or agency of the United States to which SARs
can be filed.  The designated agency is, in turn, responsible for
referring any report of a suspicious transaction to any appropriate
law enforcement or federal banking regulatory agency. 

In discussing the need for a single recipient for reporting
suspicious transactions, the Conference Report accompanying the MLSA
provided that: 

     "Reporting suspicious currency transactions is a key ingredient
     in the anti-money laundering effort .  .  .  .  The Conferees
     believe that Treasury has not capitalized on the potential of
     suspicious transaction reporting .  .  .  .  Currently, many
     financial institutions are asked to file the same report with
     several different law enforcement agencies .  .  .  .  The
     Conferees believe that a single collection point .  .  . 
     [should] .  .  .  be established to improve coordination among
     the law enforcement agencies."\2

On February 5, 1996, the Financial Crimes Enforcement Network
(FinCEN) issued a final rule.  Generally, under the provisions of the
final rule, (1) a suspicious activity shall be reported by completing
a SAR; (2) the SAR shall be filed with FinCEN in a central location,
to be determined by FinCEN, as indicated in the instructions for the
SAR; (3) a bank is required to file a SAR no later than 30 calendar
days after the date of initial detection by the bank of facts that
may constitute a basis for filing a SAR; (4) a bank shall maintain a
copy of any SAR filed and the original or business record equivalent
of any supporting documentation for a period of 5 years from the date
of filing the SAR; and (5) no bank or other financial institution,
and no director, officer, employee, or agent of any bank or other
financial institution, which reports a suspicious transaction may
notify any person involved in the transaction that the transaction
has been reported.\3

The new reporting system went into effect in April 1996.  SARs are to
be sent to the Internal Revenue Service's Detroit Computing Center,
which is to process the forms for FinCEN.  Paper forms are accepted,
but banks are encouraged to file electronically. 


--------------------
\2 H.R.  Conf.  Rep.  No.  103-652, at 187-88 (1994). 

\3 FinCEN and the Securities and Exchange Commission are working
together to develop SAR regulations for broker/dealers, according to
officials from both agencies.  FinCEN has also issued a notice of
proposed rulemaking to require money transmitters to file SARs, and
it plans to issue regulations requiring casinos to file SARs. 


   MANDATORY AND DISCRETIONARY CTR
   EXEMPTIONS
--------------------------------------------------------- Appendix I:2

MLSA section 402 requires the Secretary to issue rules exempting
certain transactions from CTR requirements.  The MLSA also provides
that, in implementing the new mandatory and discretionary CTR
exemption procedures, the Secretary shall seek to reduce, within a
reasonable period, the number of reports filed (in the aggregate) by
depository institutions by at least 30 percent compared with the
number filed during the year preceding the date of enactment of the
act. 


      MANDATORY CTR EXEMPTIONS
------------------------------------------------------- Appendix I:2.1

In general, the Department of the Treasury must exempt a depository
institution from the requirement to report currency transactions
concerning those between the depository institution and the following
categories of entities:  (1) another depository institution; (2) a
department or agency of the United States, any state, or any
political subdivision of any state; (3) any entity established under
the laws of the United States, any state, or any political
subdivision of any state or under an interstate compact between two
or more states, which exercises governmental authority on behalf of
the United States or any such state or political subdivision; and (4)
any business or category of business the reports on which have little
or no value for law enforcement purposes. 

FinCEN issued an interim rule (effective May 1, 1996) and a final
rule on September 8, 1997.  According to FinCEN, the format and
substance of the interim rule and final rule were generally the same. 
The objectives identified in the interim rule were to reduce the
burden upon financial institutions of currency transaction reporting
and to increase the cost-effectiveness of Treasury's counter money
laundering policies by requiring the reporting of information that is
of value to law enforcement and regulatory authorities. 


      DISCRETIONARY CTR EXEMPTIONS
------------------------------------------------------- Appendix I:2.2

In addition to mandatory CTR exemptions, section 402 of the MLSA also
provided for discretionary exemptions.  The Secretary was authorized
to phase in the discretionary exemption process over 2 years. 

In general, the Secretary may exempt a depository institution from
filing CTRs for transactions between the depository institution and
qualified business customers of the institution.  As defined in the
statute, a "qualified business customer" is a business that (1)
maintains a transaction account at the depository institution, (2)
frequently engages in transactions (with the depository institution)
that are subject to the reporting requirements, and (3) meets the
criteria that the Secretary determines are sufficient to ensure that
the CTR exemption is carried out without requiring a report
concerning such transactions. 

FinCEN issued a notice of proposed rulemaking in September 1997.  In
general, under the proposed rule, a bank would not be required to
file a report regarding any currency transaction between the bank and
an exempt person.  The rule would add the following two new classes
of exempt persons:  nonlisted business and payroll customers. 
Generally, the definition of a nonlisted business details certain
commercial enterprises with a recurring need to deal with currency
that are not listed companies, such as those listed on a national
stock exchange.  A payroll customer is generally defined as a person
who (1) withdraws solely for payroll purposes, (2) has been a bank
customer for at least 12 months, (3) operates a firm that regularly
withdraws more than $10,000 to pay its U.S.  employees in currency,
and (4) is a U.S.  resident. 

As proposed, banks would be required to provide an annual report to
Treasury for those customers designated as a nonlisted business or a
payroll customer.  For example, the annual report would require
certain information regarding the exempt person's annual currency
deposits and withdrawals through all transaction accounts.  Any
transaction, whether involving currency or not, must still be
reported if the transaction appears suspicious. 


   REGISTRATION OF MSBS
--------------------------------------------------------- Appendix I:3

MLSA section 408 requires the Secretary to implement regulations
requiring any person who owns or controls a money transmitting
business\4 (whether the business is licensed as a money transmitting
business in any state or not) to register that business with the
Secretary.  By statute, registration was to begin no later than March
23, 1995.  However, final regulations need to be issued before
registration can be implemented.  In May 1995, FinCEN published a
notice (FinCEN Notice 95-1) stating that regulations prescribing the
form and manner of registration would not require initial
registration of MSBs before the 90th day following the effective date
of the implementing regulations. 

In addition, section 408, in general, required the Secretary to issue
regulations requiring money transmitting businesses to maintain lists
containing the names and addresses of their agents and to make those
lists available on request to appropriate law enforcement agencies. 
The MLSA also required the Secretary to issue regulations
establishing a dollar threshold for treating an agent of a money
transmitting business as a registrable money transmitting business. 
Regarding the threshold determinations for agents, the intent of the
conferees was to eliminate the need for all agents of money
transmitting businesses to register with the Secretary, since such a
massive registration of thousands of agents would create a costly
administrative burden. 

Regarding the registration requirement, the conferees intended for
such a requirement to apply only to money transmitting businesses
that are not already regulated by other agencies.  The conferees also
added that this provision of the MLSA does not require the
registration of persons or entities registered with, and regulated or
examined by, the Securities and Exchange Commission or the Commodity
Futures Trading Commission. 

Under FinCEN's proposed rule, issued May 21, 1997, a new category of
regulated entities called "money services businesses"\5 would be
required to register with Treasury and to maintain a current list of
their agents for examination on request by any appropriate law
enforcement agency.  As defined by FinCEN, MSBs, in general, would
include currency dealers or exchangers; check cashers; issuers of
traveler's checks, money orders, or stored value; sellers or
redeemers of traveler's checks, money orders, or stored value; money
transmitters; and the U.S.  Postal Service (except regarding the sale
of postage or philatelic products).  The proposed rule generally
would treat most of these entities as financial institutions only if
they engage in transactions involving more than $500 for any person
on any day. 


--------------------
\4 The law defines "money transmitting business," in general, as any
business that provides check cashing, currency exchange, or money
transmitting or remittance services or issues or redeems money
orders, traveler's checks, and other similar instruments.  However,
depository institutions are to be excluded from the registration
requirement. 

\5 FinCEN has adopted the term "money service business" in place of
the term "money transmitting business." For additional information,
see footnote 1 of this appendix. 


   REPORTING AND RECORDKEEPING
   REQUIREMENTS FOR TRIBAL GAMING
   AND CARD CLUBS
--------------------------------------------------------- Appendix I:4

MLSA section 409, in general, expanded the statutory definition of a
financial institution subject to the Bank Secrecy Act's (BSA)
reporting and recordkeeping requirements to cover Indian gaming
operations and certain other gaming establishments that have an
annual gaming revenue of more than $1 million.  According to the
Conference Report on the MLSA, expanding the definition of financial
institution to tribal gaming was

     " .  .  .  necessary to eliminate confusion about which currency
     reporting system applies to Indian casinos.  The confusion
     originated in 1988, when Congress enacted the Indian Gaming
     Regulatory Act, 25 U.S.C.  2701 et seq.  This act governs gaming
     operations conducted on Indian lands.  Section 20(d)(1) of the
     act provides that certain provisions of the Internal Revenue
     Code, including section 6050I, shall apply to Indian gaming
     operations.  As a result of the act, Indian casinos are
     presently subject only to the limited currency reporting
     requirements under Section 6050I.  In comparison, the BSA
     mandates a comprehensive currency reporting and detailed
     recordkeeping system with numerous anti-money laundering
     safeguards. 

     "IRS .  .  .  [the Internal Revenue Service] .  .  . 
     recommended that Congress adopt a statutory amendment to the BSA
     to specify that Indian Gaming operations are subject to that
     law's requirements .  .  .  .  IRS stated that the comprehensive
     nature of the BSA would provide additional safeguards to the
     tribes, while providing law enforcement the paper trail
     necessary to conduct financial investigations."\6

FinCEN issued a final rule in February 1996 amending the BSA's
implementing regulations to extend the reporting and recordkeeping
requirements and anti-money laundering safeguards of the BSA to
tribal casinos.  The rule, in part, amended the definition of
"casino" to explicitly include casinos operating on Indian lands. 
More specifically, the term "casino" includes any casino duly
licensed or authorized to do business in the United States under the
Indian Gaming Regulatory Act or other federal, state, or tribal law
or arrangement affecting Indian lands.  The notice of proposed
rulemaking for this rule referenced the preamble of a 1985 final rule
bringing casinos within the BSA, which stated that: 

     "[I]n recent years Treasury found that an increasing number of
     persons are using gambling casinos for money laundering and tax
     evasion purposes.  In a number of instances, narcotics
     traffickers have used gambling casinos as substitutes for other
     financial institutions in order to avoid the reporting and
     recordkeeping requirements of the BSA."

Also, in December 1996, under the authority of MLSA section 409,
FinCEN issued a proposed rule that would expand the range of gaming
establishments to which the BSA applies to include "card clubs."\7

As proposed, this term would, in general, include any establishment
referred to as "card room," "gaming club," or "gaming room" or any
similar gaming establishment that is duly licensed or authorized to
do business either under state law; under laws of a particular
political subdivision within a state; under the Indian Gaming
Regulatory Act; or under other federal, state, or tribal law or
arrangement affecting Indian lands.  Generally, under the proposed
rule, card clubs would be subject to the same rules as casinos. 

In the proposed rule, FinCEN noted that card clubs are a fast-growing
segment of the gaming industry.  The rule further noted two primary
reasons for extending BSA reporting and recordkeeping requirements to
card clubs:  (1) many of these entities now offer their customers a
wide range of financial services and (2) card clubs are at least as
vulnerable as other gaming establishments to being used by money
launderers and those seeking to commit tax evasion or other financial
crimes because of the card clubs' size and lack of regulatory
controls. 


--------------------
\6 H.R.  Conf.  Rep.  No.  103-652, at 193 (1994). 

\7 Under the proposed rule, BSA reporting and recordkeeping
requirements would cover all applicable card clubs, not just those on
tribal or Indian lands. 


   REPORTING REQUIREMENTS FOR
   CERTAIN NEGOTIABLE INSTRUMENTS
   DRAWN BY FOREIGN BANKS
--------------------------------------------------------- Appendix I:5

BSA regulations have long required that the transportation--either
into or out of the United States--of currency or certain other
monetary instruments exceeding $10,000 must be reported to Treasury. 
This reporting procedure is generally referred to as the "CMIR"
requirement, which is a reference to the Report of International
Transportation of Currency or Monetary Instruments. 

The CMIR requirement is a component of the BSA's anti-money
laundering structure, which enables law enforcement agencies to
"follow the money trail." For example, a cross-border money
laundering cycle may involve smuggling criminally derived funds from
the United States into another country and then seeking a means for
reentering the funds with an apparently foreign origin.  As reported
by law enforcement officials, one money laundering technique found on
the southwest border is the use of U.S.  currency smuggled into
Mexico to purchase Mexican bank drafts, which then are subsequently
negotiated in U.S.  banks. 

For purposes of the CMIR requirement, MLSA section 405, in general,
expanded the definition of "monetary instrument" to include
instruments drawn by foreign banks on accounts in the United States. 
As explained in the Conference Report on the MLSA: 

     "The Conferees' concern about these instruments stems from
     reports by Treasury that they are frequently used in money
     laundering schemes .  .  .  .  These drafts are U.S. 
     dollar-denominated checks drawn by the foreign bank on its own
     account at a U.S.  bank and sold to customers like cashier's
     checks."\8

FinCEN issued a notice of proposed rulemaking on January 22, 1997. 
Reflecting MLSA section 405, the proposed rule would expand the
definition of monetary instrument to include official bank checks,
cashier's checks, drafts, and similar instruments issued or made out
by a foreign bank on an account in the name of, or maintained on
behalf of, such a foreign bank in the United States. 


--------------------
\8 H.R.  Conf.  Rep.  No., 103-652, at 189 (1994). 


   DELEGATION OF CIVIL PENALTY
   AUTHORITY
--------------------------------------------------------- Appendix I:6

The BSA, as amended, requires financial institutions to maintain
certain records and to file certain reports (e.g., CTRs) that are
useful in criminal, tax, and regulatory investigations, such as money
laundering cases.  Failure to file BSA reports can result in criminal
and/or civil penalties, depending on the nature of the violation. 
Generally, civil penalties can range from $25,000 to $100,000 per
willful violation. 

In May 1994, the Assistant Secretary (Enforcement) of the Treasury
delegated civil penalty authority to the Director of FinCEN.  The
disposition of BSA civil penalty matters is conducted within FinCEN's
Office of Compliance and Regulatory Enforcement.  Among other things,
FinCEN's role includes receiving and assessing referrals\9 of alleged
civil violations of the BSA by banks; casinos; money transmitters;
check cashers; currency exchangers; security brokers and dealers;
issuers or redeemers of money orders, traveler's checks, and other
similar instruments; and individuals who attempt to evade the
reporting requirements of the BSA.  FinCEN's Office of Compliance and
Regulatory Enforcement determines whether civil penalties should be
assessed against individuals or financial institutions and their
officers, employees, and individuals, and if so, the amount of the
penalty. 

Historically, there have been concerns about the timely processing of
BSA civil penalty cases.  For example, according to the Conference
Report on the MLSA: 

     "In the past, OFE .  .  .  [Treasury's Office of Financial
     Enforcement]\10 .  .  .  did not process BSA civil penalty cases
     in a timely manner.  In some instances, OFE was so slow that
     cases had to be closed because the statute of limitations
     expired.  From 1985-1991, case processing times averaged 21
     months, according to GAO.\11 While OFE's record has improved
     substantially in the last few years, the Conferees believe that
     it would be more efficient to allow the Federal banking agencies
     to impose civil penalties directly."\12

MLSA section 406 directed the Secretary to delegate by regulation to
appropriate federal banking regulatory agencies the authority to
assess civil monetary penalties for BSA violations.  The intent of
such delegation, as described in the MLSA's conference report, is to
increase efficiency by allowing the federal banking agencies to
impose civil penalties directly, rather than to make referrals to
FinCEN. 

During our review, FinCEN officials told us that they have been
working with the federal banking regulatory agencies for some time to
devise an appropriate plan for delegating civil penalty assessment
authority.  However, these officials noted that certain policy issues
must be resolved by Treasury before assessment authority can be
delegated. 


--------------------
\9 Referrals are received from the Internal Revenue Service, the
federal banking regulatory agencies, and other entities. 

\10 In May 1994, the Office of Financial Enforcement was merged with
FinCEN. 

\11 See Money Laundering:  Treasury Civil Case Processing of Bank
Secrecy Act Violations (GAO/GGD-92-46, Feb.  6, 1992) and Money
Laundering:  Civil Penalty Referrals for Violations of the Bank
Secrecy Act Have Declined (GAO/T-GGD-92-57, June 30, 1992). 

\12 H.R.  Conf.  Rep.  No.  103-652, at 190 (1994). 


FINCEN'S RULEMAKING ISSUANCES
SINCE 1994
========================================================== Appendix II

Two recent acts amending the Bank Secrecy Act (BSA) are the
Annunzio-Wylie Anti-Money Laundering Act (1992 Act) and the Money
Laundering Suppression Act (MLSA).  Since 1994, the Financial Crimes
Enforcement Network (FinCEN) has promulgated regulations pursuant to
specific provisions in the 1992 Act and MLSA as well as under its
broad BSA authority. 

FinCEN has promulgated 19 regulatory issuances since May 1994, which
is when the agency was delegated responsibility for BSA regulations. 
Figure II.1, which presents a time line of these rulemaking
issuances, shows that FinCEN had eight regulatory issuances in fiscal
year 1995, four in fiscal year 1996, and seven in fiscal year 1997. 

As shown in the figure, several of FinCEN's regulatory issuances in
fiscal year 1995 involved needs that existed before 1994.  For
example, FinCEN's two October issuances in fiscal year 1995 involved
topics dating back to at least 1990, and the December issuance
involved modification of a final rule published in March 1993. 


   Figure II.1:  Time Line of
   Rulemaking Issuances by FinCEN
   Since Being Delegated
   Responsibility for Developing
   BSA Regulations

   (See figure in printed
   edition.)



   (See figure in printed
   edition.)

Legend:

1992 Act = Annunzio-Wylie Anti-Money Laundering Act of 1992
BSA = Bank Secrecy Act (refers to FinCEN's general regulatory
authority under the act)
MLSA =Money Laundering Suppression Act of 1994

\a FinCEN issued an interim rule (with a request for comments),
instead of issuing a notice of proposed rulemaking with a comment
period.  A final rule was issued September 8, 1997. 

Source:  Developed by GAO on the basis of Federal Register
information and discussions with FinCEN officials. 

As figure II.1 further shows, FinCEN's two final rule issuances in
January 1995 and one set of issuances in August 1995 involved
provisions related to 1992 legislation.  Specifically, for the two
January issuances, one final rule required enhanced recordkeeping for
certain wire transfers, and the other final rule related to orders
for transmittals of funds by financial institutions.  The August
issuances amended the two previous rules and extended the effective
date for each of them.  FinCEN's last two issuances in fiscal year
1995 were notices of proposed rulemaking for tribal casinos and
suspicious activity reports (SAR), respectively. 

In fiscal year 1996, three of FinCEN's four regulatory issuances
addressed provisions related to the MLSA.  As figure II.1 shows, the
two issuances in February 1996 represented FinCEN's first issuances
of final rules under the MLSA. 

In fiscal year 1997, six of the seven FinCEN's regulatory issuances
involved provisions related to the MLSA.  Five of these six issuances
were notices of proposed rulemaking rather than final rules.  Under
the MLSA, a final rule was issued in September 1997 related to
exemption of certain transactions from currency transaction reporting
requirements.  Under its general BSA authority, FinCEN had a seventh
issuance in May 1997.  Specifically, a notice of proposed rulemaking
(to require that money transmitters and their agents report and
retain records of certain transactions in currency or monetary
instruments) was developed and issued on the basis of a deficiency
identified by FinCEN. 


PURPOSES AND MEMBERSHIP OF THE
BANK SECRECY ACT ADVISORY GROUP
========================================================= Appendix III

The Annunzio-Wylie Anti-Money Laundering Act (1992 Act) directed that
the Secretary of the Treasury establish (within 90 days after the
date of the act's enactment) a Bank Secrecy Act (BSA) Advisory Group
consisting of representatives from the Department of the Treasury,
the Department of Justice, the Office of National Drug Control
Policy, and other interested persons and financial institutions
subject to the currency reporting requirements of the BSA or section
6050I of the Internal Revenue Code.  The 1992 Act further provided
that the Federal Advisory Committee Act\1 shall not apply to the BSA
Advisory Group. 

The BSA Advisory Group is to serve as a means by which the Secretary

  -- informs private sector representatives, on a regular basis, of
     the ways in which information from currency transaction reports,
     suspicious activity reports, and other reports submitted
     pursuant to BSA requirements have been used and

  -- receives advice on the manner in which the BSA reporting
     requirements should be modified to enhance the ability of law
     enforcement agencies to use the information for law enforcement
     purposes. 

According to FinCEN officials, the BSA Advisory Group also discusses
issues related to domestic and international money laundering and the
programs created to fight financial crimes.  Furthermore, the BSA
Advisory Group is a forum that allows the Secretary to advise the
financial services industries of anticipated changes in Treasury's
anti-money laundering programs, and that, in turn, provides members
the opportunity to share with the Secretary their thoughts and
expertise on BSA matters.  At times, the BSA Advisory Group forms
subgroups to discuss specific issues, such as the (1) impact that the
fight against money laundering may have on the privacy of U.S. 
citizens or (2) revisions needed in reporting forms. 

After the 1992 Act was passed, Treasury held discussions about how
the BSA Advisory Group should be created, the size of the group, and
how to determine membership.  In June 1993, Treasury published a
notice in the Federal Register\2 to solicit applications for
participation in the BSA Advisory Group.  The notice stated that the
BSA Advisory Group was to be convened by the Secretary on a regular
basis in Washington, D.C., and that members were not to be reimbursed
for their time, services, or travel.  Also, the notice stated that
Treasury was seeking broad-based representation from all aspects of
the industries affected by the BSA reporting requirements. 

In March 1994, the Secretary announced the establishment of the BSA
Advisory Group, and its first meeting was held on April 8, 1994.  The
BSA Advisory Group has met about two or three times a year. 

Table III.1 shows that, as of December 1997, the BSA Advisory Group
had 35 members representing federal and state law enforcement and
federal regulatory agencies and the private sector.  Except for the
Chairman and one Co-Vice Chairman (i.e., the Director, FinCEN), the
members are selected on an individual basis rather than on the basis
of being the incumbent in a given organization or position. 



                                   Table III.1
                     
                     Membership of the BSA Advisory Group (as
                                  of Dec. 1997)

Membership                 Organization               Title
-------------------------  -------------------------  --------------------------
Chairman                   Department of the          Under Secretary
                           Treasury                   (Enforcement)

Co-Vice Chairmen           FinCEN, Department of the  Director
                           Treasury                   Executive Vice President
                           Bank of America            Chairman of the Board
                           Wachovia Corporation

Federal law enforcement    Department of the          Deputy Assistant
and regulatory agency      Treasury                   Secretary, Financial
members                                               Institutions Policy
                           Department of the          General Counsel
                           Treasury                   Associate Director,
                           FinCEN, Department of the  Regulatory Policy
                           Treasury                   and Enforcement
                                                      Assistant Commissioner
                           Internal Revenue Service   (Examination)
                           Internal Revenue Service   Assistant Commissioner
                                                      (Criminal
                           Department of the          Investigation)
                           Treasury                   Deputy Chief Counsel,
                                                      Office of the
                           Department of Justice      Comptroller of the
                                                      Currency
                           Department of Justice      Office of the Deputy
                                                      Assistant
                           Federal Deposit Insurance  Attorney General, Criminal
                           Corporation                Division,
                           Board of Governors of the  Chief, Asset Forfeiture-
                           Federal                    Money
                           Reserve System             Laundering Section,
                           Securities and Exchange    Criminal Division Deputy
                           Commission                 General Counsel
                           Office of National Drug    Special Counsel, Special
                           Control Policy             Investigations
                                                      and Examinations Section
                                                      Director, Division of
                                                      Market Regulation
                                                      Money Laundering Analyst

State government members   National Association of    Executive Director and
                           Attorneys                  General Counsel
                           General
                           Florida Department of      Director, Division of
                           Banking and                Financial
                           Finance                    Investigations
                           Florida Department of      Assistant Director,
                           Banking and                Division of
                           Finance                    Banking

Industry and other         American Bankers           Senior Legislative
members                    Association                Counsel
                           America's Community        Program Manager
                           Banks                      President and Chief
                           Atlantic Bank, N.A.        Executive Officer
                           Citibank                   Vice President, Legal
                           Cattaraugus County Bank    Affairs
                           First Union National Bank  President and Chief
                           of Florida                 Executive Officer
                                                      Vice President, Loss
                           Merrill Lynch Co.          Prevention,
                                                      Mortgage Backed
                           GE Capital Services        Securities, Custody
                                                      First Vice President and
                           Thomas Cook, Inc.          Assistant
                                                      General Counsel
                           National Check Cashers     Senior Vice President and
                           Association                Director
                           Coopers and Lybrand        Global Compliance
                           New Jersey Casino          Senior Vice President and
                           Association                General
                           Sutherland, Asbill &       Counsel
                           Brennan                    General Counsel
                           Howrey and Simon           Director
                           Gibson, Dunn & Crutcher    Attorney at Law
                           College of Law,            Attorney at Law
                           University of Kentucky     Attorney at Law
                                                      Attorney at Law
                                                      Professor of Law
--------------------------------------------------------------------------------
Source:  FinCEN. 


--------------------
\1 Passed in 1972, the Federal Advisory Committee Act (P.L.  92-463,
86 Stat.  770), as amended, governs the establishment of advisory
committees and places various procedural requirements on advisory
committee operations.  For example, the act provides, in general,
that meetings are to be open to the public and that detailed minutes
are to be kept.  The act also contains provisions relating to the
termination, renewal, or continuation of advisory committees. 

\2 "Intent to Establish a Treasury Bank Secrecy Act Advisory Group on
Reporting Requirements" (58 FR 31785 (June 4, 1993)). 


OBJECTIVES, SCOPE, AND METHODOLOGY
========================================================== Appendix IV

In a letter dated March 24, 1997, the Chairman and the Ranking
Minority Member of the Subcommittee on General Oversight and
Investigations, House Committee on Banking and Financial Services,
requested that we review the Financial Crimes Enforcement Network's
(FinCEN) progress in promulgating regulations under the Bank Secrecy
Act (BSA).\1 As agreed with the requesters' offices, we focused our
work on the following questions, particularly in reference to the
Money Laundering Suppression Act of 1994 (MLSA)\2

amendments to the BSA: 

  -- What process did FinCEN follow for developing and issuing BSA
     regulations? 

  -- What is the current status of FinCEN's efforts to develop and
     issue BSA regulations?  More specifically, what regulations has
     FinCEN developed thus far, and what regulations has the agency
     been authorized or required to develop but has not done so? 

In addressing these questions, we initially conducted a literature
search of information on FinCEN and BSA regulations (including
Federal Register publications of BSA-related proposed and final
rules).  Also, we reviewed the minutes of all the BSA Advisory
Group\3 meetings since its inception in 1994. 

Moreover, we interviewed six members of the BSA Advisory Group to
obtain their perspectives on FinCEN's regulatory process and its
efforts to develop and issue regulations.  We judgmentally selected
these 6 members from the BSA Advisory Group's 35-person membership
(see app.  III) to ensure that we interviewed at least 1 member from
each of the 3 relevant communities--law enforcement, regulatory, and
financial services.  Specifically, from the law enforcement
community, we interviewed the Chief, Asset Forfeiture-Money
Laundering Section, Criminal Division, U.S.  Department of Justice. 
According to the Criminal Division official, this section of Justice
works closely with FinCEN on money laundering issues.  We interviewed
two members from the regulatory community--(1) the Special Counsel,
Special Investigations and Examinations Section, Board of Governors
of the Federal Reserve System and (2) the Deputy Chief Counsel,
Office of the Comptroller of the Currency, Department of the
Treasury.  These agencies, in general, have primary responsibility
for ensuring that national and certain state banks, respectively,
comply with BSA regulations.  From the financial services community,
we interviewed the Senior Federal Legislative Counsel, American
Bankers Association, and two attorneys with law firms in Washington,
D.C., who represent financial services businesses. 

More details about the scope and methodology of our work regarding
each of our objectives is presented in separate sections as follows. 


--------------------
\1 Public Law 91-508, 84 Stat.  1114 (1970). 

\2 The MLSA is Title IV of the Riegle Community Development and
Regulatory Improvement Act of 1994 (P.L.  103-325, 108 Stat.  2160,
2243 (1994)). 

\3 The BSA Advisory Group--which represents a partnering of industry
and government expertise to help combat financial crime while
reducing regulatory burdens--includes members from the financial
services industry as well as from federal and state law enforcement
and federal regulatory agencies.  The Secretary of the Treasury
announced the establishment of the BSA Advisory Group in March 1994,
pursuant to the Annunzio-Wylie Anti-Money Laundering Act (P.L. 
102-550, 106 Stat.  3672, 4044 (1992)). 


   SCOPE AND METHODOLOGY OF OUR
   WORK REGARDING FINCEN'S
   REGULATORY PROCESS
-------------------------------------------------------- Appendix IV:1

As a preparatory step, we familiarized ourselves with selected
portions of the Administrative Procedure Act\4 and Executive Order
12866\5 that prescribe procedures federal agencies are to follow when
developing and issuing regulations.  To specifically determine the
process that FinCEN followed for developing and issuing BSA
regulations, we interviewed FinCEN officials within the component
offices--primarily the Office of Legal Counsel and the Office of
Program Development (see app.  V)--that are responsible for preparing
and interpreting BSA regulations.  Also, to obtain an understanding
of the "review and clearance" steps involved in developing and
issuing BSA regulations, we interviewed the appropriate Treasury and
Office of Management and Budget (OMB) officials. 

During our interviews with officials at FinCEN, Treasury, and OMB, we
solicited comments on FinCEN's "regulatory performance," including
suggestions for improving the agency's policies and procedures. 
Similarly, we solicited such comments and suggestions from the six
selected BSA Advisory Group members previously listed.  Also, we
reviewed relevant literature and our past reports\6 to identify any
potential best practices for developing and issuing regulations. 


--------------------
\4 P.L.  79-404, 60 Stat.  237 (1946) (codified as amended in
scattered sections of 5 U.S.C.). 

\5 Executive Order 12866, "Regulatory Planning and Review," was
issued on September 30, 1993 (58 FR 51735, Oct.  4, 1993).  This
executive order was intended to improve regulatory planning and
coordination. 

\6 Clear Air Rulemaking:  Tracking System Would Help Measure Progress
of Streamlining Initiatives (GAO/RCED-95-70, Mar.  2, 1995) and
Regulatory Review:  Information on OMB's Review Process
(GAO/GGD-89-101FS, July 14, 1989). 


   SCOPE AND METHODOLOGY OF OUR
   WORK REGARDING THE STATUS OF
   REGULATIONS
-------------------------------------------------------- Appendix IV:2

To identify FinCEN's regulatory initiatives and progress since May
1994, when FinCEN was first delegated the responsibility for BSA
regulations, we reviewed applicable sections of the Regulatory Plan
and the Unified Agenda of Federal Regulatory and Deregulatory
Actions.\7 The Regulatory Plan serves as a statement of the
administration's regulatory and deregulatory policies and priorities. 
The Unified Agenda, which is maintained by the Regulatory Information
Service Center, provides uniform reporting on regulatory activities
under development throughout the federal government.  Although the
Service Center is an organizational component of the General Services
Administration, it is responsible for tracking federal agencies'
rulemaking activities (e.g., by maintaining the Unified Agenda) for
OMB's Office of Information and Regulatory Affairs. 

As agreed with the requesters' offices, our detailed analyses of
FinCEN's efforts focused on eight regulatory initiatives mandated or
authorized by the MLSA.\8 In determining the status of FinCEN's
efforts to develop and issue relevant regulations, we (1) interviewed
appropriate FinCEN officials, (2) reviewed applicable Federal
Register notices of proposed and final rulemaking, and (3) developed
a time line of FinCEN's regulatory issuances.  Also, because several
provisions of the MLSA have statutory completion dates, we reviewed
relevant conference and committee reports in the act's legislative
history to ascertain if there was a stated basis for the respective
dates.  Furthermore, we interviewed FinCEN officials to obtain their
views on the statutory completion dates set out in the MLSA. 

In addition, following FinCEN's issuance of three notices of proposed
rulemaking (in May 1997), we attended the first two of five public
meetings that FinCEN scheduled for obtaining comments on the proposed
rules.  The first public meeting was held on July 22, 1997 (Vienna,
VA), and the second meeting was held on July 28, 1997 (New York, NY). 
Also, we reviewed copies of the transcripts prepared for these two
meetings and for the two meetings held in August 1997. 


--------------------
\7 The Regulatory Flexibility Act (P.L.  96-354, 94 Stat.  1164
(1980)), in general, requires agencies to publish semiannual
regulatory agendas, in October and April, describing regulatory
actions that they are developing.  (Executive Order 12866 directs
that, as part of their submissions to the October edition of the
Unified Agenda, agencies are to prepare a Regulatory Plan of the most
important regulatory actions that the agency reasonably expects to
issue in proposed or final form during the upcoming fiscal year.)

\8 Appendix I provides further details about the eight regulatory
initiatives. 


FINCEN ORGANIZATIONAL STRUCTURE
AND ON-BOARD STAFFING
=========================================================== Appendix V

Figure V.1 depicts FinCEN's organizational structure and on-board
staffing as of December 1997.  As shown in the figure, 13 offices
report directly to the Office of the Director.  Also, the figure
shows the distribution of FinCEN's 162 total staff.  The numbers in
parentheses represent the total number of on-board staff for the
principal office and its components.  For example, the 10 staff shown
for the Office of the Director include the staff in four component
offices--the Executive Assistant, Counselor, Legal Counsel, and
Security.  As another example, the 14 staff shown for the Associate
Director for Management include the Director for Management and the
personnel, budget, logistics, and training offices. 

   Figure V.1:  FinCEN
   Organization Chart and On-Board
   Staffing (as of Dec.  1997)\

   (See figure in printed
   edition.)



   (See figure in printed
   edition.)

Note:  As of December 7, 1997, FinCEN had 162 total staff on board. 

\a About 10 staff in FinCEN's Offices of Legal Counsel, Program
Development, and Compliance and Regulatory Enforcement promulgate
regulations. 

Source:  FinCEN. 




(See figure in printed edition.)Appendix VI
COMMENTS FROM THE FINANCIAL CRIMES
ENFORCEMENT NETWORK
=========================================================== Appendix V



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix VII

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

Danny R.  Burton, Assistant Director
Linda R.  Watson, Evaluator-in-Charge
Patricia J.  Scanlon, Senior Evaluator
David P.  Alexander, Senior Social Science Analyst
Michael H.  Little, Communications Analyst

OFFICE OF THE GENERAL COUNSEL,
WASHINGTON, D.C. 

Geoffrey R.  Hamilton, Senior Attorney


*** End of document. ***