Anti-money laundering efforts improving

November 7, 9:41 AMLaw Enforcement ExaminerJim Kouri

Since September 11, 2001, the United States has established tools to address the threat to the US financial system of money laundering and terrorist financing.

One such tool is Section 311 of the USA PATRIOT Act of 2001, which authorizes the Secretary of the Treasury to prohibit US financial institutions from maintaining certain accounts for foreign banks if they involve foreign jurisdictions or institutions found to be of primary money laundering concern.

To make this finding, Treasury officials examine several factors and generally issue proposed rules announcing its intent to apply Section 311 restrictions. At the request of the US Congress, Government Accountability Office analysts reviewed financial and investigative US government documents and met with government officials and representatives of affected banks.

Treasury's informal process to implement Section 311 was consistent with requirements in US law. From 2002 to 2005, Treasury identified 11 cases -- 3 jurisdictions and 8 institutions -- as being of primary money laundering concern and issued proposed rules for 10 of these cases.

As required, Treasury consulted with the Departments of Justice and State prior to issuing the proposed rules. However, Justice and State officials said that it was difficult for them to effectively assess the evidence on some Section 311 cases because Treasury provided them limited time.

In 2006, Treasury changed its process by forming an interagency working group to discuss potential threats to the US financial system. Treasury has taken years to complete this process in some cases.

In April 2008, Treasury withdrew two of three notices -- all open for between 3 and 5 years --after GAO discussed the cases with Treasury officials. Contributing to this lag was the absence of required timeframes for completing the action and of written guidance specifying a Treasury office to finalize the actions. Treasury views Section 311 as effective because it isolates target institutions from the US financial system and encourages some foreign governments to strengthen their anti-money laundering authorities.

However, some foreign government officials said that Section 311's implementation precluded their own enforcement or regulatory actions against targeted institutions as US action was unilateral or provided too little information for them to act.

Justice Department officials said that if Section 311's application is viewed as unsubstantiated, some countries may be less likely to cooperate with the US government on other law enforcement matters or sanctions. Treasury officials recognized the concerns, but did not believe they diminished Section 311's effectiveness.