Counterterrorism Blog

Last Spring FATF sent a team to the United States to evaluate American compliance with the FATF40+9 recommendations to combat money laundering and terrorism financing. This was part of a general program adopted by FATF and cooperating countries to undergo a FATF assessment of their AML/Terrorism Financing programs. The report was published at the end of June but it got much less attention in the US press than it deserved. It provides some valuable insights into the strengths and weaknesses of our overall AML/CTF program. Overall, the US got a very favorable report, and the statistics related to US AML/CTF enforcement are impressive. But, there is still room for improvement.

The FATF Evaluation Team found that the US had come a long way since its last assessment in June 1997 in strengthening its AML/CTF program. The most impressive developments stem, in large part, from the enactment and implementation of the Patriot Act and the Bank Secrecy Act. The team was impressed by the "results in the terms of prosecutions, convictions, seizures, asset freezing, confiscation and regulatory enforcement actions.” It also gave the US very high marks with regard to its active assistance to, and cooperation with, other countries with regard to AML/CTF judicial and administrative proceedings.

Nevertheless, the report found that there were still several areas where improvements needed to be made. Several of these related to banking and non banking due diligence and oversight particularly concerning beneficial ownership arrangements and correspondent accounts. Perhaps the most important criticisms related to, what the team describes as continuing ‘fragmention” and “duplication” in the US law enforcement arena dealing with AML/CTF issues. The report found that “at the operational level, there is much overlap between the jurisdictions of the various law enforcement agencies,” which complicates coordination between these agencies. While resources were generally viewed as adequate and well distributed, there was some concern that the IRS Criminal division was too understaffed to carry out its myriad AML/CTF responsibilities.

The FATF report gave the US kudos for its aggressive implementation of UN sanctions under S/RES/1267(1999) and S/RES/1373(2001). According to the FATF report, the U.S. had frozen/blocked, as of August 2005, some USD 281.4 million of which 264.9 million was attributable to the Taliban (However these figures don’t seem to jive with the more modest figures reported by the US government elsewhere) One criticism in the report was that the US had failed to list the specific names of Taliban members designated by the UN, choosing rather to only designate the Taliban as an “entity.”

The report also found shortcomings in the ability of US authorities to handle complex issues associated with the extensive overseas presence of US financial and other corporate institutions. For example, the report notes that while US legislation has effectively criminalized almost all of the 20 FATF designated categories of offenses, only 12 out of these 20 offenses are covered by US law if they occur in another country.

The FATF team felt that Fincen and other US agencies charged with evaluating and investigating suspicious transactions were overwhelmed by the vast amounts of information provided by US financial institutions. FinCEN receives some 14 million reports annually, including over 600,000 suspicious activity reports (SARs). Only about a third of these are filed electronically. The group also felt that US agencies, particularly OFAC, faced a real “challenge” in effecting compliance given “sheer number of persons and entities affected by the (various OFAC designations and other “suspicious persons” lists. Monitoring of compliance by the less or non-regulated sectors and the state-regulated industries of persons on these lists was also problematic, it found

The statistics contained in the report are quite interesting. During fiscal 2005, for example, the report notes some 1,075 defendants were convicted of ”18USC1956/1957 money laundering violations. An additional 54 persons were convicted of terrorist financing with an additional 72 cases reported as pending. The amounts seized and forfeited with regard to these prosecutions and parallel administrative actions amounted to some USD 767.4 million. It also reported that ICE, which investigates financial crime related to cross-border activities made some 1,569 arrests in 2005 for money laundering-related offences, 248 of which were for violation of 18 USC 1956/1957. The Internal Revenue Service Criminal Investigation (IRS-CI) which also has investigative jurisdiction for money laundering crimes and currency reporting violations conducted about 1,600 money laundering investigations.

The Complete "FATF Mutual Evaluation Report" on the United States can be found here.
FATF 'Mutual Evaluation Reports" on other countries are also available by clicking here. .