Investigating Money Laundering And Terrorist Financing: Federal  
Law Enforcement Agencies Face Continuing Coordination Challenges 
(11-MAY-04, GAO-04-710T).					 
                                                                 
Money laundering provides the fuel for terrorists, drug dealers, 
arms traffickers, and other criminals to operate and expand their
activities. GAO focused on two issues. The first is whether the  
nation's annual National Money Laundering Strategy has served as 
a useful mechanism for guiding federal law enforcement efforts to
combat money laundering and terrorist financing. Unless 	 
reauthorized by the Congress, the annual requirement ended with  
the 2003 strategy. The second issue is the implementation status 
of a May 2003 Memorandum of Agreement, signed by the Attorney	 
General and the Secretary of Homeland Security, that was designed
to enhance the coordination of terrorist financing investigations
conducted by the Federal Bureau of Investigation (FBI) and the	 
U.S. Immigration and Customs Enforcement (ICE). 		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-710T					        
    ACCNO:   A09999						        
  TITLE:     Investigating Money Laundering And Terrorist Financing:  
Federal Law Enforcement Agencies Face Continuing Coordination	 
Challenges							 
     DATE:   05/11/2004 
  SUBJECT:   Counterterrorism					 
	     Crime prevention					 
	     Criminals						 
	     Law enforcement					 
	     Law enforcement agencies				 
	     Money laundering					 
	     Strategic planning 				 
	     Terrorism						 
	     White collar crime 				 

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GAO-04-710T

United States General Accounting Office

GAO Testimony

Before the Subcommittee on Criminal Justice, Drug Policy, and Human
Resources, Committee on Government Reform, House of Representatives

For Release on Delivery

Expected at 10:00 a.m. EDT INVESTIGATING MONEY

Tuesday, May 11, 2004

LAUNDERING AND TERRORIST FINANCING

    Federal Law Enforcement Agencies Face Continuing Coordination Challenges

Statement of Richard M. Stana, Director Homeland Security and Justice Issues

GAO-04-710T

Highlights of GAO-04-710T, a testimony before the Subcommittee on Criminal
Justice, Drug Policy, and Human Resources, Committee on Government Reform,
House of Representative

Money laundering provides the fuel for terrorists, drug dealers, arms
traffickers, and other criminals to operate and expand their activities.
GAO focused on two issues. The first is whether the nation's annual
National Money Laundering Strategy has served as a useful mechanism for
guiding federal law enforcement efforts to combat money laundering and
terrorist financing. Unless reauthorized by the Congress, the annual
requirement ended with the 2003 strategy. The second issue is the
implementation status of a May 2003 Memorandum of Agreement, signed by the
Attorney General and the Secretary of Homeland Security, that was designed
to enhance the coordination of terrorist financing investigations
conducted by the Federal Bureau of Investigation (FBI) and the U.S.
Immigration and Customs Enforcement (ICE).

GAO's September 2003 report recommended that, if the requirement for a
national strategy is reauthorized, the Secretaries of the Treasury and
Homeland Security and the Attorney General strengthen the leadership
structure for strategy development and implementation, require processes
to ensure key priorities are identified, and establish accountability
mechanisms. The departments generally concurred with GAO's report.

May 11, 2004

INVESTING MONEY LAUNDERING AND TERRORIST FINANCING

Federal Law Enforcement Agencies Face Continuing Coordination Challenges

GAO's September 2003 report noted that the annual strategy generally has
not served as a useful mechanism for guiding the coordination of federal
law enforcement agencies' efforts to combat money laundering and terrorist
financing. For example, although expected to have a central role in
coordinating law enforcement efforts, interagency task forces created
specifically to address money laundering and related financial crimes
generally had not yet been structured and operating as intended and had
not reached their expectations for leveraging investigative resources or
creating investigative synergies. Also, while the Departments of the
Treasury and Justice had made progress on some strategy initiatives
designed to enhance interagency coordination of money laundering
investigations, most initiatives had not met expectations. Moreover, even
though adjusted in 2002 to reflect a new federal priority-combating
terrorist financing-the strategy did not address agency and task force
roles and interagency coordination procedures for investigating terrorist
financing, which contributed to duplication of efforts and disagreements
over which agency should lead investigations.

GAO's February 2004 report noted that the FBI and ICE had implemented or
taken concrete steps to implement most of the key provisions in the May
2003 Memorandum of Agreement on terrorist financing investigations. For
instance, the agencies had developed collaborative procedures to determine
whether applicable ICE investigations or financial crimes leads may be
related to terrorism or terrorist financing-and, if so, determine whether
these investigations or leads should thereafter be pursued under the
auspices of the FBI. However, as of May 2, 2004, the FBI and ICE had not
yet issued a joint report on the implementation status of the Agreement,
which was required 4 months from its effective date. Also, GAO noted that
the FBI and ICE have confronted and will continue to confront a number of
operational and organizational challenges, such as ensuring that the
financial crimes expertise and other investigative competencies of both
agencies are appropriately and effectively utilized.

www.gao.gov/cgi-bin/getrpt?GAO-04-710T.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Richard M. Stana at (202)
512-8777 or [email protected].

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss federal law enforcement agencies'
efforts to cooperatively investigate money laundering and terrorist
financing. Money laundering-the process of disguising or concealing
illicit funds to make them appear legitimate-is a serious crime, with an
estimated $500 billion to $1 trillion laundered worldwide annually,
according to the United Nations Office of Drug Control and Prevention.
Money laundering provides the fuel for terrorists, drug dealers, arms
traffickers, and other criminals to operate and expand their activities,
which can have devastating social and economic consequences. Terrorist
financing is generally characterized by different motives than money
laundering, and the funds often originate from legitimate sources.
However, investigations of money laundering and investigations of
terrorist financing often involve similar approaches or techniques because
the methods used for hiding the movement of funds also involve
similarities.

As requested, my testimony will focus on recent strategic plans and
organizational changes designed to improve the interagency coordination of
money laundering and terrorist financing investigations. Specifically, I
will discuss two important issues:

o  	The first issue is whether the nation's annual National Money
Laundering Strategy (NMLS), required by 1998 federal legislation, has
served as a useful mechanism for guiding the coordination of federal law
enforcement agencies' efforts to combat money laundering and terrorist
financing. Unless reauthorized by the Congress, the requirement for an
annual NMLS ended with the 2003 strategy, which was issued on November 18,
2003.1

o  	The second issue is the implementation status of a May 2003 Memorandum
of Agreement on terrorist financing investigations. The Agreement, signed
by the Attorney General and the Secretary of Homeland Security, contained
various provisions designed to enhance interagency coordination of
terrorist financing investigations conducted by two of the nation's law
enforcement agencies-the Federal Bureau of Investigation (FBI) and the
U.S. Immigration and

1In November 2003, Senator Charles Grassley introduced a bill (S. 1837,
the "Combating Money Laundering and Terrorist Financing Act of 2003")
that, among other purposes, would extend the requirement for an annual
NMLS to 2006.

Customs Enforcement (ICE), a component of the Department of Homeland
Security.

My statement today is based on two reports we have provided to the
Congress on these issues-that is, our September 2003 report on
implementation of the annual NMLS2 and our February 2004 report on
implementation of the Memorandum of Agreement.3

Summary 	Our September 2003 report noted that the annual NMLS generally
has not served as a useful mechanism for guiding the coordination of
federal law enforcement agencies' efforts to combat money laundering and
terrorist financing. For example, although expected to have a central role
in coordinating law enforcement efforts, interagency task forces created
specifically to address money laundering and related financial crimes
generally had not yet been structured and operating as intended and had
not reached their expectations for leveraging investigative resources or
creating investigative synergies. Also, while the Departments of the
Treasury and Justice had made progress on some strategy initiatives
designed to enhance interagency coordination of money laundering
investigations, most initiatives had not achieved the expectations called
for in the annual strategies. Moreover, even though adjusted in 2002 to
reflect a new federal priority-combating terrorist financing-the NMLS did
not address agency and task force roles and interagency coordination
procedures for investigating terrorist financing. Law enforcement
officials told us that the lack of clearly defined roles and coordination
procedures contributed to duplication of efforts and disagreements over
which agency should lead investigations.

Our February 2004 report noted that the FBI and ICE had implemented or
taken concrete steps to implement most of the key provisions in the May
2003 Memorandum of Agreement on terrorist financing investigations. For
instance, the agencies had developed collaborative procedures to determine
whether applicable ICE investigations or financial crimes leads may be
related to terrorism or terrorist financing-and, if so, determine

2U.S. General Accounting Office, Combating Money Laundering: Opportunities
Exist to Improve the National Strategy, GAO-03-813 (Washington, D.C.:
Sept. 26, 2003).

3U.S. General Accounting Office, Investigations of Terrorist Financing,
Money Laundering, and Other Financial Crimes, GAO-04-464R (Washington,
D.C.: Feb. 20, 2004).

whether these investigations or leads should be pursued under the auspices
of the FBI. However, as of May 2, 2004, the FBI and ICE had not yet issued
a joint report on the implementation status of the Agreement, which was
required 4 months from its effective date. Also, we noted that the FBI and
ICE have confronted and will continue to confront a number of operational
and organizational challenges, such as establishing and maintaining
effective interagency relationships and ensuring that the financial crimes
expertise and other investigative competencies of both agencies are
appropriately and effectively utilized.

To enhance strategic planning, our September 2003 report recommended that,
if the requirement for a national strategy is reauthorized, the
Secretaries of the Treasury and Homeland Security and the Attorney General
(1) strengthen the leadership structure for strategy development and
implementation, (2) require processes to ensure key priorities are
identified, and (3) establish accountability mechanisms. In commenting on
a draft of the September 2003 report, Treasury said that our
recommendations are important, should the Congress reauthorize the
legislation requiring future strategies; Justice said that our
observations and conclusions will be helpful in assessing the role that
the strategy process has played in the federal government's efforts to
combat money laundering; and Homeland Security said that it agreed with
our recommendations.

The Money Laundering and Financial Crimes Strategy Act of 1998 (Strategy
Act) required the President-acting through the Secretary of the Treasury
and in consultation with the Attorney General and other relevant federal,
state, and local law enforcement and regulatory officials-to develop and
submit an annual NMLS to the Congress by February 1 of each year from 1999
through 2003.4 The goal of the Strategy Act was to increase coordination
and cooperation among the various law enforcement and regulatory agencies
and to effectively distribute resources to combat money laundering and
related financial crimes. The 1998 Strategy Act required that each NMLS
define comprehensive, research-based goals, objectives, and priorities for
reducing money laundering and related financial crimes in the United
States. The annual

Background

4Pub. L. No. 105-310, 112 Stat. 2941 codified as 31 U.S.C. S:S: 5340-42,
5351-55 (1998).

NMLS generally has included multiple priorities to combat money laundering
to guide federal agencies' activities.5

Another provision of the Strategy Act authorized the Secretary of the
Treasury to designate High Intensity Money Laundering and Related
Financial Crime Areas (HIFCA), in which federal, state, and local law
enforcement would work cooperatively to develop a focused and
comprehensive approach to targeting money-laundering activity.6 As
envisioned by the Strategy Act, HIFCAs were to represent a major NMLS
initiative and were expected to have a flagship role in the U.S.
government's efforts to disrupt and dismantle large-scale money laundering
operations. They were intended to improve the coordination and quality of
federal money laundering investigations by concentrating the investigative
expertise of federal, state, and local agencies in unified task forces,
thereby leveraging resources and creating investigative synergies.

The former U.S. Customs Service, which is now part of ICE, and the FBI
both have a long history of investigating money laundering and other
financial crimes. In response to the terrorist attacks of September 11,
Treasury and Justice both established multiagency task forces dedicated to
combating terrorist financing. Treasury established Operation Green Quest,
led by Customs, to augment existing counterterrorist efforts by targeting
current terrorist funding sources and identifying possible future sources.
In addition to targeting individuals and organizations, Operation Green
Quest was designed to attack the financial systems that may be used by
terrorists to raise and move funds, such as fraudulent charities and the
shipment of bulk currency. In January 2003, Customs expanded Operation
Green Quest by doubling the personnel commitment to a total of
approximately 300 agents and analysts nationwide to work solely on
terrorist financing matters. In March 2003, Operation Green Quest was
transferred to ICE, within the Department of Homeland Security.

On September 13, 2001, the FBI formed a multiagency task force-which is
now known as the Terrorist Financing Operations Section (TFOS)-to combat
terrorist financing. The mission of TFOS has evolved into a broad

5Also, in the aftermath of the September 11 attacks, the NMLS was adjusted
in 2002 to reflect a new federal priority-combating terrorist financing.

6Such an "area" could be a geographic area, financial system, industry
sector, or financial institution.

role to identify, investigate, prosecute, disrupt, and dismantle all
terroristrelated financial and fundraising activities. The FBI also took
action to expand the antiterrorist financing focus of its Joint Terrorism
Task Forces (JTTF)-teams of local and state law enforcement officials, FBI
agents, and other federal agents and personnel whose mission is to
investigate and prevent acts of terrorism.7 In 2002, the FBI created a
national JTTF in Washington, D.C., to collect terrorism information and
intelligence and funnel it to the field JTTFs, various terrorism units
within the FBI, and partner agencies.

The attacks of September 11 emphasized the need for federal agencies to
wage a coordinated campaign against sources of terrorist financing.
Following September 11, representatives of the FBI and Operation Green
Quest met on several occasions to attempt to delineate antiterrorist
financing roles and responsibilities. However, such efforts were largely
unsuccessful until May 2003, when the Attorney General and the Secretary
of Homeland Security signed a Memorandum of Agreement that contained a
number of provisions designed to resolve jurisdictional issues and enhance
interagency coordination of terrorist financing investigations. According
to the Agreement, the FBI is to lead terrorist financing investigations
and operations, using the intergovernmental and intraagency national JTTF
at FBI headquarters and the JTTFs in the field. The Agreement also
specified that, through TFOS, the FBI is to provide overall operational
command to the national JTTF and the field JTTFs. Further, to increase
information sharing and coordination of terrorist financing
investigations, the Agreement required the FBI and ICE to (1) detail
appropriate personnel to each other's agency and (2) develop specific
collaborative procedures to determine whether applicable ICE
investigations or financial crimes leads may be related to terrorism or
terrorist financing. Also, the Agreement required the FBI and ICE to
produce a joint written report on the status of the implementation of the
Agreement 4 months from its effective date.

7According to the FBI, the first JTTF came into being in 1980, and the
total number of task forces has nearly doubled since September 11, 2001.
Today, there is a JTTF in each of the FBI's 56 main field offices, and
additional task forces are located in smaller FBI offices.

  Opportunities Exist to Improve the National Money Laundering Strategy

In September 2003, we reported that, as a mechanism for guiding the
coordination of federal law enforcement agencies' efforts to combat money
laundering and related financial crimes, the NMLS has had mixed results
but generally has not been as useful as envisioned by the Strategy Act.
For example, we reported that HIFCA task forces were expected to have a
central role in coordinating law enforcement agencies' efforts to combat
money laundering but generally had not yet been structured and operating
as intended and had not reached their expectations for leveraging
investigative resources or creating investigative synergies. The NMLS
called for each HIFCA to include participation from all relevant federal,
state, and local agencies. However, in some cases, federal law enforcement
agencies had not provided the levels of commitment and staffing to the
task forces called for by the strategy. We found, for instance, that most
of the HIFCAs did not have FBI or Drug Enforcement Administration (DEA)
agents assigned full time to the task forces. FBI officials cited resource
constraints as the primary reason why the bureau did not fully
participate. A DEA official told us that, because of differences in
agencies' guidelines for conducting undercover money laundering
investigations, DEA would not dedicate staff to HIFCA task force
investigative units but would support intelligence-related activities.
Also, we noted that four of the five operating HIFCAs had little or no
participation from state and local law enforcement agencies. Various task
force officials mentioned lack of funding to compensate or reimburse
participating state and local law enforcement agencies as a barrier to
their participation in HIFCA operations. While recognizing that law
enforcement agencies have resource constraints and competing priorities,
we noted that HIFCA task forces were expected to make more effective use
of existing resources or of such additional resources as may be available.
As called for in the 2002 NMLS, Treasury and Justice are in the process of
reviewing the HIFCA task forces to enhance their potential and remove
obstacles to their effective operation. The results of this review could
provide useful input for an evaluation report on the HIFCA program, which
the Strategy Act requires Treasury to submit to the Congress in 2004.

We further reported that, while Treasury and Justice had made progress on
some NMLS initiatives designed to enhance interagency coordination of
money laundering investigations, most had not achieved the expectations
called for in the annual strategies, including plans to (1) use a
centralized system to coordinate investigations and (2) develop uniform
guidelines for undercover investigations. Headquarters officials cited
differences in the various agencies' anti-money laundering priorities as a
primary reason why initiatives had not achieved their expectations.

In our September 2003 report, we noted that our work in reviewing national
strategies for various crosscutting issues has identified several critical
components needed for their development and implementation, including
effective leadership, clear priorities, and accountability mechanisms. For
a variety of reasons, these critical components generally have not been
fully reflected in the development and implementation of the annual NMLS.
For example, the joint Treasury-Justice leadership structure that was
established to oversee NMLS-related activities generally has not resulted
in (1) reaching agreement on the appropriate scope of the strategy; (2)
ensuring that target dates for completing strategy initiatives were met;
and (3) issuing the annual NMLS by February 1 of each year, as required by
the Strategy Act.

Also, although Treasury generally took the lead role in strategy-related
activities, it had no incentives or authority to get other departments and
agencies to provide necessary resources or compel their participation.
And, the annual strategies have not identified and prioritized issues that
required the most immediate attention. Each strategy contained more
priorities than could be realistically achieved, the priorities have not
been ranked in order of importance, and no priority has been explicitly
linked to a threat and risk assessment. Further, although the 2001 and
2002 strategies contained initiatives to measure program performance, none
had been used to ensure accountability for results. Officials attributed
this to the difficulty in establishing such measures for combating money
laundering. In addition, we noted that Treasury had not provided annual
reports to the Congress on the effectiveness of policies to combat money
laundering and related financial crimes, as required by the Strategy Act.

As mentioned previously, unless reauthorized by the Congress, the
requirement for an annual NMLS ended with the issuance of the 2003
strategy. To assist in congressional deliberations on whether there is a
continuing need for an annual NMLS, we reviewed the development and
implementation of the 1999 through 2002 strategies. Our September 2003
report recommended that-if the Congress reauthorizes the requirement for
an annual NMLS-the Secretary of the Treasury, working with the Attorney
General and the Secretary of Homeland Security, should take appropriate
steps to

o  	strengthen the leadership structure responsible for strategy
development and implementation by establishing a mechanism that would have
the ability to marshal resources to ensure that the strategy's vision is
achieved, resolve disputes between agencies, and ensure accountability for
strategy implementation;

o  	link the strategy to periodic assessments of threats and risks, which
would provide a basis for ensuring that clear priorities are established
and focused on the areas of greatest need; and

o  	establish accountability mechanisms, such as (1) requiring the
principal agencies to develop outcome oriented performance measures that
must be linked to the NMLS's goals and objectives and that also must be
reflected in the agencies' annual performance plans and (2) providing the
Congress with periodic reports on the strategy's results.

In commenting on a draft of the September 2003 report, Treasury said that
our recommendations are important, should the Congress reauthorize the
legislation requiring future strategies; Justice said that our
observations and conclusions will be helpful in assessing the role that
the strategy process has played in the federal government's efforts to
combat money laundering; and Homeland Security said that it agreed with
our recommendations.

Our review of the development and implementation of the annual strategies
did not cover the 2003 NMLS, which was issued in November 2003, about 2
months after our September 2003 report. While we have not assessed the
2003 NMLS in detail, we note that it emphasized that "the broad fight
against money laundering is integral to the war against terrorism" and
that money laundering and terrorist financing "share many of the same
methods to hide and move proceeds." In this regard, one of the major goals
of the 2003 strategy is to "cut off access to the international financial
system by money launderers and terrorist financiers more effectively."
Under this goal, the strategy stated that the United States will continue
to focus on specific financing mechanisms-including charities, bulk cash
smuggling, trade-based schemes, and alternative remittance systems-that
are particularly vulnerable or attractive to money launderers and
terrorist financiers.

  Most Key Memorandum of Agreement Provisions Have Been Implemented, but
  Terrorist Financing Investigations Still Present Operational and
  Organizational Challenges

As mentioned previously, the NMLS was adjusted in 2002 to reflect new
federal priorities in the aftermath of the September 11 attacks, including
a goal to combat terrorist financing. However, due to difficulties in
reaching agreement over which agency should lead investigations, the 2002
NMLS did not address agency and task force roles and interagency
coordination procedures for investigating terrorist financing. Law
enforcement officials told us that the lack of clearly defined roles and
coordination procedures contributed to duplication of efforts and
disagreements over which agency should lead investigations. To help
resolve these long-standing jurisdictional issues, in May 2003, the
Attorney General and the Secretary of Homeland Security signed a
Memorandum of Agreement regarding roles and responsibilities in
investigating terrorist financing.

In our February 2004 report, we noted that most of the key Memorandum of
Agreement provisions had been implemented or were in the process of being
implemented. For example, in accordance with the Agreement, the FBI and
ICE have cross detailed key management personnel at the headquarters
level, with an ICE manager serving as Deputy Section Chief of TFOS and an
FBI manager detailed to ICE's financial crimes division. Also, the FBI and
ICE have developed collaborative procedures to determine whether
appropriate ICE money laundering investigations or financial crime leads
may be related to terrorism or terrorist financing.

Further, as an integral aspect of the collaborative procedures, ICE
created a joint vetting unit, in which ICE and FBI personnel-who have full
access to ICE and FBI databases-are to conduct reviews to determine
whether a potential nexus to terrorism or terrorist financing exists in
applicable ICE investigations or financial crimes leads. If so, the matter
is to be referred to TFOS, where the FBI Section Chief is to provide the
ICE Deputy Section Chief with information demonstrating the terrorism
nexus, as well as the stage and development of the corresponding FBI
investigation. Then, the Section Chief and the ICE Deputy Section Chief
are to discuss the elements of the terrorism nexus, ICE's equity or
commitment of resources to date in the investigation, violations being
pursued by ICE before the Memorandum of Agreement, and the direction of
the investigation. After this collaborative consultation, the FBI and ICE
are to decide (1) whether the ICE investigation will be conducted under
the auspices of a JTTF and (2) agency roles in pursuing related
investigations. Specific investigative strategies generally are to be
developed at the field level by FBI, ICE, and U.S. Attorneys Office
personnel. The Terrorist Financing Unit of the Counterterrorism Section in
Justice's Criminal Division is involved in coordinating and prosecuting
matters and cases involving terrorist financing, which are investigated by
both the FBI and ICE.

Another Agreement provision-requiring ICE to detail a significant number
of appropriate personnel to the national JTTF and JTTFs in the field-is
being handled on a location-specific, case-by-case basis. In response to
our inquiries, FBI and ICE officials said that this provision was not
intended to refer to a specific number of personnel and certainly was not
intended to imply that all former Operation Green Quest agents were to be
detailed to JTTFs. According to ICE officials, as of February 2004, a
total of 277 ICE personnel (from various legacy agencies) were assigned
full time to JTTFs-a total that consisted of 161 former Immigration and
Naturalization Service agents, 59 Federal Air Marshals, 32 former Customs
Service agents, and 25 Federal Protective Service agents. ICE officials
said that this total does not include ICE agents who will be assigned to
JTTFs in consonance with vetted cases being transitioned to JTTFs, nor
does it include ICE investigators who participate part time on JTTFs.

Another provision in the May 2003 Memorandum of Agreement required that
the FBI and ICE jointly report to the Attorney General, the Secretary of
Homeland Security, and the Assistant to the President for Homeland
Security on the implementation status of the Agreement 4 months from its
effective date. As of May 2, 2004, the FBI and ICE had not yet produced
the required joint report on the implementation status.

The Memorandum of Agreement, by granting the FBI the lead role in
investigating terrorist financing, altered ICE's role in investigating
terrorism-related financial crimes. However, while the Agreement specified
that the FBI has primary investigative jurisdiction over confirmed
terrorism-related financial crimes, the Agreement does not preclude ICE
from investigating suspicious financial activities that have a potential
(unconfirmed) nexus to terrorism-which was the primary role of the former
Operation Green Quest. Moreover, the Agreement generally has not affected
ICE's mission or role in investigating other financial crimes.
Specifically, the Agreement did not affect ICE's statutory authorities to
conduct investigations of money laundering and other traditional financial
crimes. ICE investigations can still cover the wide range of financial
systems-including banking systems, money services businesses, bulk cash
smuggling, trade-based money laundering systems, illicit insurance
schemes, and illicit charity schemes-that could be exploited by money
launderers and other criminals. According to ICE headquarters officials,
ICE is investigating the same types of financial systems as before the
Memorandum of Agreement.

Further, our February 2004 report noted that-while the Memorandum of
Agreement represents a partnering commitment by the FBI and ICE-

continued progress in implementing the Agreement will depend largely on
the ability of these law enforcement agencies to meet various operational
and organizational challenges. For instance, the FBI and ICE face
challenges in ensuring that the implementation of the Agreement does not
create a disincentive for ICE agents to initiate or support terrorist
financing investigations. That is, ICE agents may perceive the Agreement
as minimizing their role in terrorist financing investigations. Additional
challenges involve ensuring that the financial crimes expertise and other
investigative competencies of the FBI and ICE are effectively utilized and
that the full range of the agencies' collective authorities-intelligence
gathering and analysis as well as law enforcement actions, such as
executing search warrants and seizing cash and other assets-are
effectively coordinated. Inherently, efforts to meet these challenges will
be an ongoing process. Our interviews with FBI and ICE officials at
headquarters and three field locations indicated that long-standing
jurisdictional and operational disputes regarding terrorist financing
investigations may have strained interagency relationships to some degree
and could pose an obstacle in fully integrating investigative efforts.

Concluding	From a strategic perspective, the annual NMLS has had mixed
results in guiding the efforts of law enforcement in the fight against
money

Observations 	laundering and, more recently, terrorist financing. Although
expected to have a flagship role in the U.S. government's efforts to
disrupt and dismantle large-scale money laundering operations, HIFCA task
forces generally are not yet structured and operating as intended.
Treasury and Justice are in the process of reviewing the HIFCA task
forces, which ultimately could result in program improvements. Also, most
of the NMLS initiatives designed to enhance interagency coordination of
money laundering investigations have not yet achieved their expectations.
While the annual NMLS has fallen short of expectations, federal law
enforcement agencies recognize that they must continue to develop and use
interagency coordination mechanisms to leverage existing resources to
investigate money laundering and terrorist financing.

Through our work in reviewing national strategies, we identified critical
components needed for successful strategy development and implementation,
but, to date, these components have not been well reflected in the annual
NMLS. The requirement for an annual NMLS ended with the issuance of the
2003 strategy. If the Congress reauthorizes the requirement for an annual
NMLS, we continue to believe that incorporating these critical components
into the strategy-a strengthened leadership structure, the identification
of key priorities, and the

establishment of accountability mechanisms-could help resolve or mitigate
the deficiencies we identified.

Also, regarding investigative efforts against sources of terrorist
financing, the May 2003 Memorandum of Agreement signed by the Attorney
General and the Secretary of Homeland Security represents a partnering
commitment by two of the nation's law enforcement agencies, the FBI and
ICE. In the 12 months since the Agreement was signed, progress has been
made in waging a coordinated campaign against sources of terrorist
financing. Continued progress will depend largely on the agencies' ability
to establish and maintain effective interagency relationships and meet
various other operational and organizational challenges.

Mr. Chairman, this concludes my prepared statement. I would be happy to
respond to any questions that you or Members of the Subcommittee may have.

Appendix I: GAO Contacts and Staff Acknowledgments

GAO Contacts 	For further information about this testimony, please contact
Richard M. Stana at (202) 512-8777. Other key contributors to this
statement were Danny R. Burton and R. Eric Erdman.

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