Frank, Bachus and Lynch Call on GAO to Study FinCEN and BSA Reporting

Jul 19, 2007
Washington, DC- Financial Services Committee Chairman Barney Frank (D-MA), Ranking Member Spencer Bachus (R-AL), and Congressman Stephen Lynch (D-MA) sent a letter today to the Government Accountability Office (GAO), calling for a report on the mission and operational capacity of the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), and on the increasing volume of Bank Secrecy Act (BSA) filings—including Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs). The GAO report requested today was prompted by issues raised at a May 10, 2007 hearing held in the Subcommittee on Oversight and Investigations—the first of a series of hearings on the subject of balancing law enforcement utility and regulatory requirements of BSA reporting. 

The full text of the letter follows:

July 19, 2007


The Honorable David M. Walker

Comptroller General of the United States

U.S. Government Accountability Office

441 G Street NW

Washington, D.C.  20548


Dear Mr. Walker:


The Subcommittee on Oversight and Investigations recently held a hearing on the actions being taken by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), federal law enforcement agencies, and depository institutions pursuant to the Bank Secrecy Act (BSA).  This hearing and other events have raised questions about the efficiency and effectiveness of BSA administration and enforcement.  As you know, GAO is currently reviewing one aspect of this process—the filing and use of Currency Transaction Reports, or CTRs—in response to a mandate in the Financial Services Regulatory Relief Act of 2006 (Public Law 109-351).  We are asking for your assistance in looking more comprehensively at the current framework for achieving the goals of the BSA.


One area of concern is the mission and operational capacity of FinCEN, which was established in 1990 as a government-wide, service-oriented, financial information-sharing agency.  FinCEN’s general mission is to help safeguard the U.S. financial system from financial crimes, including money laundering and the financing of terrorist activities, but its specific roles and responsibilities have grown and evolved over time.  FinCEN is responsible for collecting, maintaining, analyzing, and disseminating financial information reported by financial institutions, as required by the BSA, but relies heavily on support from the Internal Revenue Service (IRS) for data collection, processing, and storage.  FinCEN conducts its own analyses of BSA data and also responds to requests from law enforcement agencies for BSA data or information pertaining to specific investigations or activities.  Several federal law enforcement agencies—including the Federal Bureau of Investigation; the Department of Homeland Security’s Immigration and Customs Enforcement; the Drug Enforcement Administration; and the Bureau of Alcohol, Tobacco, Firearms, and Explosives—have recently acquired the capability and authority to download BSA data in bulk form, in order to make more effective use of the data.  While potentially providing benefits, this situation also raises the possibility of duplication of effort.


Specific questions warranting GAO’s review in this area include the following:


1.      How has FinCEN’s mission evolved in response to statutory, technological, or other changes?  Have the agency’s management, staffing, and operations kept pace with changes in role/mission?


2.      In what ways does FinCEN currently serve law enforcement agencies?  How should it be serving them, in terms of both "proactive" efforts (analysis of BSA data) and "reactive" efforts (responding to requests for data on specific cases)?


3.      What constraints, if any, on FinCEN’s ability to achieve its mission arise from the cooperative arrangements with IRS in maintaining BSA data?


4.      Are the BSA data systems secure?  Are the systems for filing and aggregating BSA data sufficiently timely to meet the goal of assisting law enforcement efforts?


A second area of concern is the Suspicious Activity Report (SAR) process.  According to FinCEN, over one million SARs were filed in 2006, and depository institutions and firms in the securities and futures industries accounted for over half of them.  At the May hearing, a number of banking industry witnesses commented that they lacked clear guidance on what law enforcement is looking for and finds useful in these reports, and noted that the industry engages in “defensive” SAR filings, or erring on the side of filing a SAR even if there is doubt about its usefulness, in order to avoid the possibility of being penalized by federal financial institution regulators.  This, in turn, raises questions about the process by which federal regulators—the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the National Credit Union Administration—examine financial institutions for BSA compliance.  As a result of a joint effort by the federal banking regulators and FinCEN under the auspices of the Federal Financial Institutions Examination Council, in June 2005, the regulators adopted a new examination manual to provide guidance to examiners for carrying out Bank Secrecy Act/Anti-Money Laundering (BSA/AML) examinations. One of the primary purposes of the manual was to bring consistency to the examinations; yet, at the recent hearing, bank representatives commented that the rules still lacked clarity and examiners were not uniformly interpreting the requirements.


Specific questions warranting GAO’s review in this area include the following:


1.      What factors have contributed to the rise in the number of SARs filed in recent years?  To what extent are SARs filed "defensively" to avoid potential questions or sanctions from federal banking regulatory examiners?


2.      To what extent are current SAR forms appropriate for law enforcement needs?  What factors, if any, inhibit making changes that could make the forms more useful?


3.      To what extent do financial institutions use "back channels" (in lieu of, or in addition to, SARs) to report suspicious financial activities to law enforcement agencies?  What are the reasons for this practice? 


4.      What impact has the BSA/AML Examination Manual had on the examination process? How many examinations have been conducted by each of the federal banking regulators since the manual was issued and what have been the results in terms of violations identified and addressed and enforcement actions taken?


5.      To what extent are actions—for example, developing additional guidance or providing additional training—necessary to ensure consistency in BSA/AML examinations?


Finally, there is concern about the cumulative impact of the current BSA reporting requirements.  The growing volume of both SARs and CTRs (over 15 million CTRs were filed in 2006 alone), coupled with other BSA reporting requirements—such as biweekly requests pursuant to section 314(a) of the USA PATRIOT Act—have raised questions about whether they represent the most efficient and effective way of conveying useful financial information to law enforcement agencies.  


1.                  Does the growing volume of SARs and CTRs, biweekly 314(a) requests, and other requests for information, impair or threaten to impair law enforcement’s capacity to use the information to investigate or prevent financial crime or terrorism?  Is there potential for reducing the volume of data without impairing law enforcement, or for streamlining the methods used to provide the information to FinCEN?


2.                  Is there a more effective or efficient way to provide law enforcement with useful financial data and otherwise meet the goals of the Bank Secrecy Act, or if not, to significantly reduce the burden of providing the information?


The Committee recognizes that there is a host of complex issues regarding the BSA framework and that bringing about any meaningful resolution of these issues will likely be a long-term process.  We are asking your assistance in helping to address the questions posed in this letter, in a series of reports, briefings, or testimonies over the next two years. 


Thank you for your prompt attention to this request.



BARNEY FRANK                                          SPENCER BACHUS 

Chairman                                                          Ranking Member

Financial Services Committee                            Financial Services Committee




Member of Congress