GAO Publishes Report on Trafficking and Money Laundering Required by Corporate Transparency Act
On December 23, 2021, the General Accountability Office (GAO) published Report on Trafficking and Money Laundering Strategies Used by Criminal Groups and Terrorists and Federal Efforts to Combat Them (GAO-22-104807 53 pp.).
The GAO reviewed how transnational criminal organizations and terrorist groups traffic goods such as illegal drugs, engage in human trafficking, and launder money.
Reasons for and Goals of the Report
Congress included a provision in the Money Laundering Act of 2020, which was part of the National Defense Authorization Act for Fiscal Year 2021, for the GAO to review trafficking and related money laundering and create federal efforts to combat them.
The goals of the report are to describe what is known about the money laundering strategies of transnational criminal organizations and terrorists and information-sharing efforts among federal agencies to combat trafficking.
Findings- Money Laundering Techniques
Federal agencies, international organizations, and other commentators, such as non-governmental organizations, have reported that money laundering strategies used by transnational criminal organizations and terrorist groups include sophisticated techniques such as phony trade transactions or purchase and resale of real estate or art.
The techniques can involve the services of professional money laundering networks or service providers in legitimate professions, such as law and accounting. For example, lawyers or accountants can create shell companies (entities with no business operations) to help criminals launder illicit proceeds. Transnational criminal organizations and terrorist groups also continue to smuggle cash in bulk or transmit money electronically across borders. The report also mentions the role of real estate agents, company service providers, and art and antiquities dealers.
Federal Efforts to Combat Trafficking and Money Laundering
Federal efforts to combat trafficking and money laundering incorporate multiple collaborative and information-sharing mechanisms and include the private sector.
- Law enforcement agencies cooperate through task forces in which they share information and analytical resources to aid in the investigation and prosecution of drug and other trafficking-related crimes.
- Federal agencies share intelligence with foreign counterparts. In particular, the Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury, shares information with more than 160 international financial intelligence agencies.
- FinCEN collaborates with law enforcement agencies to share information with financial institutions on “red flags” for trafficking, which institutions can use to identify and report suspicious transactions.
- Under Sec. 314(b) of the USAPATRIOT Act, FinCEN also coordinates a voluntary program that allows financial institutions to share information with one another to better identify and report suspicious activities that may be related to money laundering or other illicit financing.
Efforts of the Federal Government to Improve Institution Reporting and Enhance Data Analysis
The report discusses efforts by federal agencies to undertake initiatives to make information from financial institutions more available or more useful for trafficking-related investigations, and to enhance agencies’ ability to analyze such information.
FinCEN Advisories – FinCEN attempts to improve the quality of the SAR data it receives from financial institutions by issuing advisories, which include descriptions of trafficking strategies, “red flag” indicators, and other guidance developed in collaboration with law enforcement agencies. The advisories are designed to help institutions better understand what transactions or customer activities to report to law enforcement.
Information sharing between federal agencies and financial institutions.
FinCEN and law enforcement agencies have programs to share details about how financial institutions could better identify and report data for disrupting money laundering, terrorist financing, and other financial crimes. However, the information generally is shared among limited audiences. For example, in 2017, FinCEN created the FinCEN Exchange. This is a public-private program to enhance information sharing with financial institutions so that FinCEN and law enforcement agencies can receive information that will help them disrupt money laundering and other financial crimes.
Information sharing among financial institutions.
FinCEN coordinates a voluntary program for financial institutions to share information with each other. The goal of the sharing is to help financial institutions better identify and report activities they suspect may involve money laundering or terrorist activities. The program, which is authorized by Section 314(b) of the USA PATRIOT Act, allows financial institutions to share normally private information about customers or transactions when the institutions suspect money laundering or terrorist financing.
The GAO Report does not provide analysis or recommendations, but furnishes an opportunity to reflect on the recently enacted Corporate Transparency Act. While it proffers a positive way forward to start catching up with international standards, it obviously falls below in several ways.
The collection of data is limited to those entities which must file with the Secretary of State. As a result, it will miss private trusts and other entities that do not need to file with the Secretary of State.
It remains to be seen whether the way in which FinCEN obtains and maintains the information will be in a standard format internationally so that it can be easily shared with other law enforcement and regulators.
The proposed beneficial ownership regulations under the CTA does not require verification of the information. In addition, contrary to the EU and other systems, the information is not accessible to the public. The lack of verification requirement and the inability of watch-dog non-government organizations and investigating journalists to access the information will deprive the data of a high degree of accuracy. Law of accuracy will diminish its utility.
Even without the analysis and recommendations, the GAO is especially useful in showing how U.S. law enforcement collaborates to scrutinize Suspicious Activity Reports and other data of a beneficial ownership nature to develop criminal investigations and prosecutions.
 For a useful survey of the beneficial ownership best practices of six countries and their implications, see Kathy Nicolaou-Manias and Yuchen Wu, Beneficial Ownership and Transparency: Learning from Best Practices, 2021 TNTI 248-11, Dec. 29, 2021.