In selecting which special measures to apply, the Secretary is  required to consider four factors. Starting in 2006, Treasury  changed its targeting procedures and, with Justice, established an  interagency working group to discuss potential threats to the U.S. financial  system at an earlier stage in the process. However, it is unclear whether  the new procedures improved consultation because Treasury’s current  process has not resulted in any new Section 311 findings since 2005. 2. 3. 5. 8. 10. To date, Treasury has issued findings of primary money laundering  concern against three jurisdictions and eight financial institutions in eight  countries. In all of the cases above, Treasury issued a designation of primary money  laundering concern. If it determined that it had  enough evidence to support a Section 311 finding, it published a proposed  rule in the Federal Register identifying the institution as being of “primary  money laundering concern.”

		Treasury Process for Implementing Section 311 Was Consistent with Legal Requirements

Treasury’s process for implementing Section 311 was consistent with  requirements set forth in the USA PATRIOT Act. Officials of two U.S. agencies expressed concerns about the amount of  time they had for consulting with Treasury on Section 311 cases prior to  issuing proposed rules. Before a proposed rule was issued for public  comment, Treasury provided it to Justice and State for consultation, as  required by the act. Treasury’s Process for Implementing Section 311 Followed Requirements of the Law but Took Years to Finalize Some Proposed Rules

It has sometimes taken Treasury years to finalize or withdraw a proposed  Section 311 rule, though these delays are not inconsistent with  requirements under the law. Treasury then determines whether to finalize or  withdraw a proposed rule. Treasury views Section 311 actions as effective in achieving both  goals because U.S. financial institutions respond immediately to proposed  rules, and several foreign governments have strengthened their laws and  regulations in response to proposed rules. Several U.S. government officials said that Section 311 was effective in  achieving the first goal of isolating targeted financial institutions or  jurisdictions from the U.S. financial system. Treasury officials said that it discussed Section 311 actions with foreign  government representatives when appropriate and provided ample notice  that a Section 311 action was forthcoming in some cases. Countries may be  less likely to cooperate with the U.S. government on other sanctions or  law enforcement matters if they feel that the United States is acting in an  unreasonable or unsubstantiated manner regarding Section 311 or that the  United States cannot articulate the standards used to reach such a  decision. Conclusion

U.S. government officials consider Section 311 to be an effective tool in  restricting access to the U.S. financial markets for financial institutions or  jurisdictions that are of primary money laundering concern and in  encouraging foreign governments to strengthen their anti-money  laundering laws and regulations. Without written operational guidelines to  clarify when to complete the Section 311 actions or clear lines of authority  for which office is responsible for completing the action, Treasury has  taken years to complete the Section 311 process for certain cases. Appendix I: Scope and Methodology

To examine the process U.S. agencies used to implement the USA  PATRIOT Act Section 311 restrictions against targeted financial  institutions and countries, we interviewed knowledgeable officials from  the Treasury offices of Terrorist Financing and Financial Crimes (TFFC)  and the Financial Crimes Enforcement Network (FinCEN), as well as  officials from State, Justice, and the U.S. Federal Reserve System who had  been involved in the Section 311 process. 1. 3.
Why GAO Did This Study

Since September 11, 2001, the United States has established tools to address the threat to the U.S. 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 (Treasury) to prohibit U.S. 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 examines several factors and generally issues a proposed rule announcing its intent to apply Section 311 restrictions. GAO was asked to examine (1) the process used to implement Section 311 restrictions, (2) the process Treasury follows to finalize or withdraw a proposed rule, and (3) how Treasury assesses the impact of Section 311. GAO reviewed financial and investigative U.S. government documents and met with government officials and representatives of affected banks.

What GAO Found

Treasury's informal process to implement Section 311 was consistent with requirements in U.S. 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 U.S. financial system. But it is unclear if the new process addressed the agencies' concerns since Treasury has issued no Section 311 findings since 2005. Treasury determines whether to finalize or withdraw a proposed Section 311 rule by reviewing written comments and sometimes meeting with interested parties. The duration of a proposed rule is significant because U.S. financial institutions act immediately in response to its announcement. However, 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 U.S. 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 U.S. action was unilateral or provided too little information for them to act. Justice officials said that if Section 311's application is viewed as unsubstantiated, some countries may be less likely to cooperate with the U.S. government on other law enforcement matters or sanctions. Treasury officials recognized the concerns, but did not believe they diminished Section 311's effectiveness.