The Securities Industry Is Viewed as a Potential Target, but the Extent of Actual Money Laundering Is Unknown

Although the extent to which broker-dealers and mutual funds are being  used to launder money is not known, law enforcement officials were  concerned that the securities industry would increasingly be a target for  potential money launderers. Broker-Dealer and Mutual Fund Firms Are Not Subject to All Anti- Money Laundering Regulatory Requirements

Broker-dealers and the firms that receive and process customer payments  on behalf of mutual fund groups (hereinafter referred to as mutual fund  service providers) can be held criminally liable if they are found to be  involved in money laundering. In 1996,  Treasury issued a rule requiring banks to report suspicious activities  involving possible money laundering to FinCEN using a SAR form. Efforts to Develop a Securities SAR Rule Renewed

Treasury is engaged in renewed efforts to develop a SAR rule for the  securities industry and anticipates that a proposed rule will be issued for  public comment before the end of 2001. These standards call for  participating countries to require their financial institutions, including  securities firms, to take steps to prevent money laundering. In general, however, FATF reports  that few members have applied such sanctions. Table 9 provides a list of criminal cases in which proceeds from illegal  activities were laundered through brokerage or mutual fund accounts. Eight of  these members have enacted legislation requiring their securities firms to  report suspicious transactions to relevant authorities (fig. Suspicious Banking Activities: Possible Money Laundering by U.S.
What GAO Found

To disguise illegally obtained funds, money launderers have traditionally targeted banks, which accept cash and arrange domestic and international fund transfers. However, criminals seeking to hide illicit funds may also be targeting the U.S. securities markets. Although few documented cases exist of broker-dealer or mutual fund accounts being used to launder money, law enforcement agencies are concerned that criminals may increasingly try to use the securities industry for that purpose. Most broker-dealers or firms that process customer payments for mutual funds are subject to U.S. anti-money laundering requirements. However, unlike banks, most of these firms are not required to report suspicious activities. The Treasury Department is now developing a rule requiring broker-dealers to report suspicious activities. Treasury expects that the rule will be issued for public comment by the end of this year. Various intergovernmental groups, such as the Financial Action Task Force, have been working on recommendations that call for member nations to take various steps to combat money laundering through their financial institutions, including requiring securities firms to report suspicious activities. Although many members countries report that they have issued all or many of these recommendations and have applied them to their securities firms, it is difficult to determine how well the measures are being implemented and enforced.