Financial Services: Post-hearing Questions Regarding Recovering
Foreign
Regimes' Assets (27-MAY-04, GAO-04-831R).
GAO testified before Congress's hearing on The Hunt for Saddam's
Money: U.S. and Foreign Efforts to recover Iraq's stolen money.
This letter responds to Congress's request that GAO provide
answers to follow-up questions from the hearing.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-831R
ACCNO: A10326
TITLE: Financial Services: Post-hearing Questions Regarding
Recovering Foreign
Regimes' Assets
DATE: 05/27/2004
SUBJECT: Financial Services
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GAO-04-831R
United States General Accounting Office Washington, DC 20548
May 27, 2004
The Honorable Sue W. Kelly
Chairwoman, Subcommittee on Oversight and Investigations
Committee on Financial Services
House of Representatives
Subject: Financial Services: Post-hearing Questions Regarding Recovering
Foreign Regimes' Assets
Dear Madam Kelly:
On March 18, 2004, we testified before your Subcommittee's hearing on The
Hunt for Saddam's Money: U.S. and Foreign Efforts to Recover Iraq's Stolen
Money. 1 This letter responds to your request that we provide answers to
follow-up questions from the hearing. Your questions, along with our
responses, follow.
1. "The Financial Services Committee heard testimony last year that the
most effective way to recover non-government assets-that is to say
plundered assets converted to personal used but held outside the plundered
country-might be private lawyers, acting on behalf of a country pursuing
civil remedies, and not a government-led criminal effort. Do you have an
opinion on that effort, which was carried out on a trial basis for the UN
to recover plundered Nigerian assets?"
Answer: Private sector firms have played major roles through investigative
efforts, civil litigation, or a combination of both in some foreign regime
asset recovery efforts. Governments have used private sector firms to
locate assets of corrupt leaders and have filed lawsuits to return them to
the country from which they were taken. The targets of such efforts have
included the assets of former dictator Jean-Claude "Baby Doc" Duvalier of
Haiti, the government of Libya, General Sani Abacha of Nigeria, and
President Ferdinand Marcos and his wife in the Philippines. Officials from
firms involved in some of these efforts said that they have developed
considerable expertise that allows them to be effective in asset recovery
efforts. Representatives of private law firms stated that they believe
civil litigation is probably the most effective mechanism for recovering
the stolen assets of corrupt
1See U.S. General Accounting Office: Recovering Iraq's Assets, GAO-04-579T
(Washington, D.C.: Mar. 18, 2004).
government officials. Such proceedings are public, which serves to shame
the individuals involved in stealing and/or concealing the assets.
Private sector officials said efforts of this sort face challenges,
however, which can limit their effectiveness. Locating assets and suing to
have them returned to their country of origin is very expensive. The laws
that apply to such circumstances differ by country. Pursuing assets in
these countries would require expertise in the laws of each country. For
example, some countries strictly separate criminal and civil matters,
while others combine them; such differences have great effect on how legal
cases can proceed. In addition, countries whose assets have been looted
might not be able to afford this type of expertise. A country seeking to
recover assets in other countries is likely to have to do so through a
formal legal process. This process is quite technical, and each country's
requirements for providing assistance can vary.
Civil suits also require a party pursuing the action. This is often the
successor government following the corrupt foreign regime, or a group of
parties wronged by the regime. In the case of Iraq, UNSCR 1483 and the
President's Executive Order shielded assets from claims, thus removing the
incentive for private groups to pursue the assets.
We do not have an opinion on the best approach for pursuing plundered
assets. The best approach is likely to vary, based upon the specific facts
of the case, such as the party pursuing the assets, the location of the
assets, and whether the location is known.
2. "It is now an accepted fact that the Saddam Hussein regime was
demanding kickbacks and deliberately mispricing the oil sales it did not
make through the program to say nothing of the illegal sales. What efforts
if any were made by the UN to ensure that oil-for-food sales contracts
were properly priced and that there were no bribes or kickbacks involved?
Why was it so easy for these underhanded deals to persist for more than a
half of a decade? Should we assume that any other sanctions or trade deals
under the control of the UN are any better enforced? What efforts is State
making to improve the UN's monitoring ability of similar situations in the
future?"
Answer: The Iraq government decided with whom it would contract and
negotiated the prices for goods. The United Nations Security Council
screened contracts for dual-use items and weapons and made the final
determinations on approving contracts. The Office of the Iraq Program was
supposed to review pricing and at times noted to the Security Council when
prices seemed high, but no holds were placed due strictly to pricing. The
United Nations monitored the goods shipped to Iraq by inspecting them at
the border to authenticate deliveries for payment.
The U.N. Secretariat had a fundamental responsibility to provide effective
management and oversight, including appropriate internal controls. The
United Nations received about 3 percent of Iraq's oil revenues. This
amounted to hundreds of millions of dollars each year to run the Oil for
Food program and carry out its obligations under Security Council
resolutions and guidance.
Over the past several months, the Coalition Provisional Authority in Iraq
and the World Food Program have provided assistance to Iraqi government
officials and ministries to establish codes of conduct, appoint inspectors
general, and improve financial management systems. The goal of this
assistance is to provide more effective management of ongoing oil-for-food
contracts and of reconstruction assistance.
3. "Describe the provisions in IEEPA and the Patriot Act that allowed the
US to confiscate and vest Iraqi assets held in the United States."
Answer: The International Emergency Economic Powers Act (IEEPA) authorizes
the President to exercise economic powers to deal with unusual and
extraordinary threats, which have their sources in whole or in part
outside the United States, to the national security, foreign policy, or
economy of the United States (50 U.S.C. S: 1701).
In October 2001, section 106 of the USA PATRIOT Act (P.L. 107-56), amended
section 203 of IEEPA (50 USC 1702) to authorize the President, when the
United States is engaged in armed hostilities or has been attacked by a
foreign country or foreign nationals, to confiscate any property, subject
to the jurisdiction of the United States, of any foreign person, foreign
organization, or foreign country that he determines has planned,
authorized, aided, or engaged in such hostilities or attacks. The
President may vest all right, title, and interest in such confiscated
property in any agency or person the President designates. The property
may be used for purposes that are in the interest of and for the benefit
of the United States.
4. "Of the $3.7 billion in Iraq assets held in other countries, how much
was frozen before and after UNSCR 1483?"
Answer: According to the Department of the Treasury, about $2.3 billion
was declared frozen in 30 other countries in 1991. As of March 17, 2004,
about $1.4 billion has been frozen since U.N. Security Council Resolution
1483 was adopted in March 2003.
5. "What is OFAC's role in locating, freezing, and repatriating Iraqi
assets? Were they fully engaged in the asset recovery effort?"
Answer: OFAC's role in locating, freezing, and repatriating Iraqi assets
is similar to its role for the other economic sanctions programs it
currently administers. As the U.S. government agency charged with
administering and enforcing sanctions against targeted foreign regimes and
other designated groups and individuals-such as conflict diamond traders,
terrorists, and narcotics traffickers-OFAC implemented three Iraqi
asset-related Executive Orders: 12722, 12724, and 13315.
According to OFAC, its role in locating Iraqi assets is to work with the
Departments of State and Justice and intelligence agencies to identify
individuals, groups, and entities associated with the former regime;
develop the evidence necessary to place these individuals, groups, and
entities on its Specially Designated Nationals (SDN) and Blocked Persons
list to initiate an asset freeze; and place them on the SDN list.
Once individuals, groups, and entities are placed on the SDN list, U.S.
financial institutions are required to search for their accounts for the
purpose of freezing them.
In compliance with an August 1990 OFAC order to freeze Iraqi assets, U.S.
financial institutions froze $1.4 billion of such assets located in the
United States. According to OFAC, U.S. financial institutions froze more
than $480 million abroad. These assets also had accumulated interest from
1991 to 2003. Because OFAC does not seize (or take control of) the assets,
it requires U.S. financial institutions to freeze them. These institutions
must maintain control over the frozen assets and report annually to OFAC
on their status, including the amount of interest accumulated.
On March 20, 2003, under the authority in IEEPA, as amended by section 106
of the USA PATRIOT Act, the President issued an Executive Order
confiscating and vesting (taking ownership of) certain Iraqi property. The
order vested in the United States Treasury all funds in the United States
held in the names of the Government of Iraq, the Central Bank of Iraq,
Rasheed Bank, Rafidain Bank, and the State Organization for Marketing Oil.
All U.S. financial institutions holding funds in the names of the five
entities were ordered to transfer those funds to the Federal Reserve Bank
of New York, and 23 banks did so electronically. In accordance with the
March 2003 Executive Order, $1.9 billion was vested and transferred to the
bank. According to Treasury and Federal Reserve officials, Treasury then
instructed the bank to release portions of the funds to DOD upon the
Office of Management and Budget's approval of DOD's spending plans. As we
noted in our March 18, 2004, written statement to the committee, the
Coalition Provisional Authority (CPA) had spent, as of that date, about
$1.67 billion of the $1.9 billion in vested assets for emergency needs,
including salaries for civil servants and pensioners, and for ministry
operations.
OFAC has been actively involved in the Iraqi asset recovery effort,
according to the Treasury Department's Deputy Assistant Secretary for
Terrorist Financing and Financial Crimes, both during our interviews with
him and in his March 18 written statement to the committee. Furthermore,
OFAC officials stated that they have been fully involved in the Iraq case.
6. "Are there any existing U.S. laws that the departments could use to get
more countries to transfer their Iraq assets?"
Answer: We are not aware of any existing U.S. laws that the departments
could use to require more countries to transfer their Iraqi assets. Assets
located in other countries are generally outside the jurisdiction of the
United States. They are subject to the domestic laws of the country in
which they are located. Therefore, the United States generally engages in
diplomatic efforts to encourage countries to transfer assets.
7. "What are the Treasury and State Departments doing to encourage other
countries to quickly return Iraqi assets held in their countries?"
Answer: In March 2003, the Secretary of the Treasury requested that the
international community identify and freeze all assets of the former Iraqi
regime. Additionally, senior officials at Treasury and State have engaged
in diplomatic efforts to encourage countries to report and transfer the
amounts of Iraqi assets frozen within their
countries. For example, since March 2003, the State Department has sent
more than 400 cables to other countries requesting that they transfer
funds to the Development Fund for Iraq (DFI).
According to Treasury officials, they have been trying to devise other
mechanisms to make it easier for countries that do not have the necessary
laws and regulations in place to transfer assets. For example, they have
been trying to devise ways that financial institutions in Iraq can
exchange payment orders directly with financial institutions holding
frozen assets.
8. "What mechanisms are being used to trace informal banking methods of
money transfers, such as bulk cash transfers and black market currency
exchanges? Are they working or do U.S. efforts need additional legal
support from the government?"
Answer: We have not fully assessed U.S. efforts to trace informal banking
methods of money transfers such as bulk cash smuggling and black market
currency exchanges, to include an assessment of whether additional legal
support is needed from the government. We can offer the following:
We recently reviewed U.S. efforts to deter terrorists' use of alternative
financing mechanisms including the use of bulk cash (also the use of
commodities, charities, and hawala systems).2 We found that there were no
systematic collection and analyses of data for terrorism cases to aid in
determining the problem's magnitude. We recommended that the Federal
Bureau of Investigation (FBI), in consultation with relevant U.S.
government agencies, systematically collect and analyze information
involving terrorists' use of alternative financing mechanisms, which
included bulk cash smuggling. According to FBI officials, the FBI began
efforts to collect baseline data on terrorism funding mechanisms from its
field offices to more systematically analyze information on terrorists'
use of alternative financing mechanisms.
In general, in the United States, bulk cash smuggling is a money
laundering and terrorism financing technique that is designed to bypass
tracking mechanisms such as transparency reporting requirements for formal
financial institutions. Financial transparency reporting requires Currency
and Monetary Instrument Reports (CMIR), which obligate the filer to
declare if he or she is transporting across the border $10,000 or more in
cash or monetary instruments. Other financial transparency reporting
requirements include reports to the Department of the Treasury's Financial
Crimes Enforcement Network (FinCEN) of receipts or transfers of U.S.
currency in excess of $10,000 using the Currency Transaction Report (CTR)
and of suspicious activities using the Suspicious Activity Report (SAR).
In response to the events of September 11, 2001, the former U.S. Customs
Service initiated an outbound currency operation, Operation Oasis, to
refocus its efforts to target 23 identified nations involved in money
laundering. According to the
2See Terrorist Financing: U.S. Agencies Should Systematically Assess
Terrorists' Use of Alternative Financing Mechanisms, GAO-04-163
(Washington, D.C.: Nov. 14, 2003) and Combating Terrorism: Federal
Agencies Face Continuing Challenges in Addressing Terrorist Financing and
Money Laundering, GAO-04-501T (Washington, D.C.: Mar. 4, 2004).
Department of Homeland Security's (DHS) Bureau of Immigration and Customs
Enforcement (ICE), Operation Oasis seized more than $28 million in bulk
cash, between October 1, 2001, and August 8, 2003. However, according to
ICE officials, while some of the cases involved were linked to terrorism,
they were unable to determine the number and the extent to which these
cases involved terrorist financing.
9. "Do U.S. efforts follow sales of metals and other commodities that
could be used as money transfer methods and control? Have any been found?"
Answer: In our recent work on U.S. efforts to deter terrorists' use of
alternative financing mechanisms, the Department of Justice (DOJ)
commented that it does not initiate or organize investigations on an
industry-wide basis or as a result of the type of commodity used or
particular means of transfer. U.S. law enforcement agencies- specifically
the FBI, which leads terrorist financing investigations and operations- do
not systematically collect and analyze data on terrorists' use of
alternative
3
financing mechanisms, such as the use of metals and commodities.
The scope of our review focused on U.S. efforts to deter terrorists' use
of alternative financing mechanisms, including the use of commodities
(also bulk cash, charities, and hawala systems). Some commodities included
in our review were diamonds, gold, drugs, weapons, cigarettes, counterfeit
goods, and others. However, some evidence, including examples, were
omitted from our report due to sensitivity concerns, as agreed with the
FBI and cannot be discussed here. Furthermore, much of the information
concerning investigations into the link between diamonds and terrorist
financing is classified, was not included in the report, and cannot be
discussed here. A few closed cases involving commodities used by
terrorists to fund their activities, such as the use of cigarettes and
drugs, were cleared by DOJ as examples that we were able to use in our
reporting.
10. "Is there any control on precious stone sales that yield information
on whether it is used for money transfer? Is this possible? Have the
efforts of the U.S. Government (U.S. Customs Service) found or established
a way to track these? Do we need additional controls here and/or
worldwide?"
Answer: As of April 27, 2004, the Department of the Treasury's FinCEN
anti-money laundering rule for precious stones and metals dealers have not
been finalized. We have not assessed the proposed rule.
o According to FinCEN's Notice of Proposed Rulemaking, section 352(a) of
the USA PATRIOT Act, which became effective on April 24, 2002, Title III
amended section 5318(h)(1) of the Bank Secrecy Act to require financial
institutions to establish anti-money laundering programs, and section
352(c) directs the Department of the Treasury to prescribe regulations for
anti-money laundering programs. Although a dealer "in precious metals,
stones, or jewels" is defined as a financial institution
3See Terrorist Financing: U.S. Agencies Should Systematically Assess
Terrorists' Use of Alternative Financing Mechanisms, GAO-04-163
(Washington, D.C.: Nov. 14, 2003) and Combating Terrorism: Federal
Agencies Face Continuing Challenges in Addressing Terrorist Financing and
Money Laundering, GAO-04-501T (Washington, D.C.: Mar. 4, 2004).
under the Bank Secrecy Act, FinCEN had not previously defined the term or
4
issued regulations regarding dealers.
o On April 29, 2002, FinCEN deferred the anti-money laundering program
requirement to have time to study the industry and apply money laundering
controls.
o On February 21, 2003, the Department of the Treasury posted a Notice
of Proposed Rule Making for Anti-Money Laundering Programs for Dealers in
Precious Metals, Stones, or Jewels. Under the proposed rule, a dealer's
policies, procedures, and internal controls must be reasonably designed to
detect transactions that may involve use of the dealer to facilitate money
laundering or terrorist financing. In addition, a dealer's program must
incorporate procedures for making reasonable inquiries to determine
whether a transaction involves money laundering or terrorist financing,
and the dealer should respond accordingly.
Worldwide, the international community, including the United States, is
attempting to track the origin of diamonds through the Kimberley Process
in an effort to deter the flow of conflict diamonds. Conflict diamonds are
those diamonds used by rebel movements to finance their military
activities, including attempts to undermine or overthrow legitimate
governments. In June 2002, we reported that our assessment of the
Kimberley Process revealed that the certification scheme for tracing
diamonds internationally lacked key aspects of accountability.5 In our
November 2003 report on U.S. efforts to deter terrorists' use of
alternative financing mechanisms, we noted that critical shortcomings
still exist with regard to internal controls and monitoring within the
Kimberley Process and that these weaknesses could be exploited by those
6
financing terrorism.
11. "Have you been able to register super hawaladars effectively? How
many? How effective are your methods of registering smaller hawaladars?
How many have you registered? Are additional federal laws on this money
transfer method necessary?"
Answer: We have not assessed FinCEN's ability to register hawaladars.
However, officials and researchers reported that it is difficult to
enforce both registration and requirements to obtain state licenses (where
required by state law), report suspicious transactions, and maintain
anti-money laundering programs. They also noted that it is likely that
numerous small hawala operations remain unregistered and noncompliant with
one or more of these requirements. Moreover, terrorists may have adapted
to these new regulations by developing and maintaining relationships and
conducting business with the hawala operators that remain underground,
increasing the likelihood that their transactions will not be detected.
4Department of the Treasury, 31 CFR Part 103, RIN 1506-AA28, Financial
Crimes Enforcement Network; "Anti-Money Laundering Programs for Dealers in
Precious Metals, Stones, or Jewels," Federal Register/Vol. 68, No.
35/Friday, Feb. 21, 2003/ Proposed rules.
5International Trade: Critical Issues Remain in Deterring Conflict Diamond
Trade, GAO-02-678
(Washington, D.C.: June 14, 2002).
6See Terrorist Financing: U.S. Agencies Should Systematically Assess
Terrorists' Use of Alternative
Financing Mechanisms, GAO-04-163 (Washington, D.C.: Nov. 14, 2003).
12. "Please list the European countries that have been particularly
helpful in tracing illicit money flows? Are you getting information that
is helpful in tracking money laundering and illicit money?"
Answer: Specific information that we have from the Department of the
Treasury relating to the cooperation of countries in the hunt for Iraqi
assets is classified. However, Treasury and State officials said that some
of the remaining frozen Iraqi assets are located in financial institutions
in Europe. In addition, due to the sensitivity of ongoing negotiations to
recover Iraqi assets, we agreed not to interview foreign officials
potentially involved in the ongoing negotiations. The Departments of the
Treasury and State could more appropriately address this question.
13. "Is the U.S. government getting the cooperation from banks required to
trace illicit money or are we still finding resistance in reporting and
tracking information? Please describe the cooperation and coordination
from foreign institutions, including: BNP; Dubai Islamic Bank; Arab Bank;
Credit Lyonnaise; Al-Taqua Bank; The Al-Rajh Banking and Investment
Company?"
Answer: Treasury officials stated that U.S. banks are cooperating with the
U.S. government in tracing illicit money. Under OFAC regulations, all U.S.
persons, including financial institutions, are required to comply with
orders to freeze assets and block transactions and report to OFAC within
10 business days of doing so. Financial institutions face steep criminal
and civil penalties, which can vary based upon the sanctions program, for
not complying with these regulations. For Iraq, civil penalties can range
up to $325,000 per violation and criminal penalties can reach $1,000,000
and 12 years in prison. In addition, OFAC has recently stated that it
believes the manner and level of U.S. financial institution compliance
with its regulations and its own monitoring of that compliance is
effective. In the Iraq case, OFAC officials stated that they do not
believe additional Iraqi assets have entered the U.S. financial system
since the early 1990s because of the action U.S. financial institutions
took to freeze Iraqi assets.
Internationally, the U.S. government does not have jurisdiction over
foreign banks outside the United States. However, according to OFAC, it
works with other countries' counterpart entities, typically central banks,
to encourage those entities to freeze assets the United States has
targeted. The Treasury and State Departments have also been involved in
diplomatic efforts to encourage foreign governments to transfer assets
frozen in their financial institutions to the Development Fund for Iraq,
as required by U.N. Security Council Resolution 1483. These diplomatic
efforts are currently ongoing and GAO agreed not to obtain access to
information on their progress in this instance. Neither did we obtain
access, in this instance, to information describing cooperation and
coordination of foreign institutions, including those you listed.
14. "Is the U.S. Government getting help in tracking illicit money from
the following countries: Russia; Germany; Lichtenstein; Jordan; Syria;
Saudi Arabia; Lebanon; the Philippines; Indonesia; Malaysia: Qatar;
Kuwait; Palestine; Guyana; Equatorial Guinea; Panama; Columbia; Egypt;
China; UAE; Pakistan; Cuba; the Balkan countries?"
Answer: Department of the Treasury information we have relating to the
cooperation of countries in the hunt for Iraqi assets is classified.
However, Treasury and State officials said that most of the frozen Iraqi
assets that remain are located in financial institutions in Iraq's
neighboring countries and in Europe. In addition, due to the sensitivity
of ongoing negotiations to recover Iraqi assets, we agreed not to
interview foreign officials potentially involved in ongoing negotiations.
The Departments of the Treasury and State could more appropriately address
this question.
15. "A 1999 IMF report estimated that annual global offshore assets
located in offshore financial centers were $4.8 trillion dollars. Is there
any effort being made to register local "nominees" on these accounts? Is
there an effort to track these shell corporations and shell banks that may
exist? Are the international entities involved (the United Nations, World
Bank, the IMF, etc.)? Is the U.S. government getting cooperation from
these entities, or has it been difficult to receive real-time information
that would help dry up illicit money?"
Answer: We have not assessed U.S. or international efforts to register
local nominees of offshore accounts at offshore financial centers.
16. "Is there an effort to monitor cross-border currency movements from
accounts, such as those referred to above? Are there reporting
requirements that show transparency for the World Bank, the IMF, and the
financial branches of the United Nations? Do the officers of the above
organizations carry a fiduciary responsibility for the reports of these
organizations? How extensive are the duties and responsibilities of these
boards regarding the reporting of illicit money?"
Answer: We have not assessed international efforts to monitor cross-border
currency movements from accounts located in offshore financial centers.
However, in November 2003, the International Monetary Fund's (IMF)
Executive Board concluded that regular monitoring of offshore financial
centers should become a standard part of the IMF's surveillance work.
However, offshore financial centers' participation in and publication of
these assessments are voluntary. On March 12, 2004, the IMF issued a
report on its assessment of offshore financial centers.7 This report
assessed transparency and supervision in offshore financial centers in 41
jurisdictions.
IMF assessments of offshore financial centers examined compliance with
international standards in the financial sector, including banking
supervision, the effectiveness of anti-money laundering, and combating the
financing of terrorism
7See Monetary and Financial Systems Department, International Monetary
Fund: Offshore Financial Centers: The Assessment Program-An Update
(Washington, D.C.: International Monetary Fund, 2004).
arrangements. The results of the assessment showed that wealthier offshore
centers had a much higher rate of compliance with the assessed standards,
than did jurisdictions with lower levels of income. The IMF report also
concluded that the supervisory systems of the lower income financial
systems resulted from inadequate skills and the numbers of staff in their
supervisory agencies, reflecting the lack of adequate resources.
As of March 12, 2004, the IMF had completed 28 assessments. Of these, 26
have been published or are expected to be published, while two
jurisdictions have opted not to publish their reports. The report provides
an appendix that lists the offshore financial centers contacted and the
status of the assessments.
17. "Is there any effort to establish laws, both domestic and foreign, as
part of reporting requirements that would identify depositors? Would such
laws be helpful in tracing illicit money? Would they help track money
laundering activity?"
Answer: Domestically, Congress enacted the USA PATRIOT Act of 2001, which
contains a number of provisions to identify depositors and make it easier
to trace money in the U.S. financial system. Treasury officials stated
that several provisions of the USA PATRIOT Act also enhanced the U.S.
government's ability to recover foreign regimes' assets.
Title III of the USA PATRIOT Act, among other things, expanded Treasury's
authority to regulate the activities of U.S. financial institutions,
imposed additional due diligence requirements, established new customer
identification requirements, and required financial institutions to
maintain anti-money laundering programs. The table below lists USA PATRIOT
Act Title III provisions could assist with asset recovery efforts.
USA PATRIOT Act Provisions with Applicability to Tracking Money Laundering
Provision Description
Authorizes Treasury to designate specific foreign financial
institutions, jurisdictions, transactions, or accounts to be
of "primary money laundering concern." Treasury may require
Section 311 that financial institutions with links to such jurisdictions
or institutions engage in specific measures, such as increased
record keeping, or restricting or prohibiting access to the
U.S. market.
Requires U.S. financial institutions to exercise due diligence
and in some cases enhanced due diligence when opening or
operating correspondent accounts for foreign financial
institutions or private banking accounts for wealthy foreign
Section 312 individuals.a This provision also requires U.S. financial
institutions to establish due diligence policies, procedures,
and controls reasonably designed to detect and report money
laundering through such correspondent and private banking
accounts.
Section 313 Prohibits banks and securities firms from maintaining
correspondent accounts for foreign shell banks that have no
affiliation with any financial institution through which
their banking activities are subject to regulatory
supervision. Foreign shell banks are those with no physical
place of business.
Encourages cooperation and the sharing of information
related to money laundering and terrorism among law
enforcement agencies, regulatory authorities, and financial
Section 314 institutions. Upon notice to the Secretary of the Treasury,
permits the sharing among financial institutions of
information related to individuals, entities,
organizations, and countries suspected of possible
terrorist or money laundering activities.
Gives U.S. courts considering money laundering cases
jurisdiction over foreign individuals and financial
institutions that (1) commit a money laundering offense in
the United States; or (2) convert laundered funds that have
Section 317 been forfeited to personal use. U.S. courts also have
jurisdiction over foreign financial institutions with
accounts in the United States. Provides for the appointment
of a federal receiver to take control of all assets of the
defendant to satisfy a civil or forfeiture judgment or a
criminal sentence.
Changes forfeiture procedures so that, if funds used in
Section 319(a) money laundering are deposited in a foreign bank that has
an interbank account in a U.S. bank, funds in the U.S. bank
account can be seized.b
Requires Treasury to jointly prescribe with financial
regulators regulations that require financial institutions
to implement procedures to verify the identity of any
Section 326 person seeking to open an account. Also requires customers
to comply with the procedures. The financial institutions
are required to consult lists of known or suspected
terrorists to determine whether the person seeking to open
an account appears on the list.
Requires Treasury to promulgate regulations under which
Section 356 securities firms, commodities firms, mutual funds, and
insurance companies must file suspicious activity reports.
Requires businesses with cash transactions involving more
Section 365 than $10,000 in one transaction to file Currency
Transaction Reports with the Financial Crimes Enforcement
Network.
aA correspondent account is an account established by a financial
institution for a foreign bank to
receive deposits and make payments or other disbursements on behalf of a
foreign bank, or to handle
other financial transactions related to the foreign bank.
bAn interbank account is an account held by one financial institution at
another institution primarily
for the purpose of facilitating customer transactions.
Source: GAO.
Treasury officials stated that some of these provisions would be more
effective in combating terrorist financing and money laundering than they
may at first appear. For example, financial institutions may stop dealing
with other financial institutions that are located in an area of "primary
money laundering concern" to avoid the increased recordkeeping
requirements of Section 311. Treasury officials stated that Section 312 is
a powerful provision because it requires that U.S. financial institutions
guard against accepting proceeds from corrupt foreign officials or other
sources of fraud.
Internationally, the United States government has worked to provide
technical assistance to governments that requested it in an effort to
improve their capacity to combat money laundering and terrorist financing.
Countries can use this assistance to develop the legal authorities and
investigative abilities to locate assets of targeted foreign regimes and,
in some cases, transfer them to their country of origin. Shortly after
September 11, 2001, the State Department convened an interagency group to
identify those countries most vulnerable to terrorist financing and to
devise a strategy to provide countries with the necessary training and
technical assistance to create comprehensive, effective anti-money
laundering and antiterrorist financing regimes. The assessments were done
to assist in the development of training and technical assistance
implementation plans. The State Department also offers training for other
countries' law enforcement personnel through its International Law
Enforcement Academies. In addition, the State Department contributes funds
to the United Nations Global Program Against Money Laundering and other
anti-money laundering groups.
- - - - -
If you have any questions about this report or need additional
information, please contact Joseph A. Christoff at 202-512-8979 and Davi
D'Agostino at 202-512-8678. We can also be reached by e-mail at
christoffj@gao.gov and dagostinod@gao.gov, respectively.
Zina Merritt, Tetsuo Miyabara, Barbara Keller, Thomas Conahan, Ronald Ito,
Sarah
Lynch, Suzanne Dove, Kathleen Monahan, Tracy Guerrero, Mark Speight,
Rachel
DeMarcus, and Lynn Cothern made contributions to this report.
Sincerely yours,
Joseph A. Christoff
Director, International Affairs and Trade
Davi M. D'Agostino
Director, Financial Markets and Community Investment
(320279)
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