CTR Requirements Are Useful to Law Enforcement Efforts in a Variety of Ways, but Measuring Their Impact Is Difficult

Federal, state, and local law enforcement officials we interviewed and  surveyed said that information in CTRs provided unique and reliable  information essential to a variety of efforts and that recent advances in  technology, along with FinCEN’s distribution of BSA data in bulk, have  enhanced their ability to use and analyze CTR information. Linking  law enforcement’s use of CTRs to specific outcomes is difficult, however,  because agencies do not track their use of CTRs, which are typically one of  many sources of information used to support investigations. FinCEN does not routinely publish any information on law  enforcement’s use of CTR data as it does for other information that  financial institutions provide under the BSA. This is because institutions must have processes and trained staff in  place to identify when and if a CTR is required, including the ability to  aggregate same-day cash transactions made by or on behalf of the same  person, and to file CTRs correctly. While automation has made these tasks  less difficult, many institutions reported that their processes still include  “manual” steps. Institutions we contacted were generally unable to quantify  their costs for meeting CTR requirements, in large part because they use  the same processes and staff for meeting other BSA requirements or for  other purposes. While Most Depository Institutions File CTRs, a Small Number of the Largest Institutions Account for the Majority

Our analysis of FinCEN’s data on the numbers of CTRs filed annually  shows that, from 2004 to 2006, a relatively small number of the nation’s  approximately 17,000 depository institutions accounted for the large  majority of CTRs filed. Among the  reasons cited by institutions was uncertainty about the documentation  required to demonstrate that some customers are in fact eligible,  accompanied by some concern that examiners from the federal banking  regulators would deem the documentation insufficient and cite them for  BSA noncompliance. Other factors discouraging use of exemptions were the cost  and effort involved in meeting FinCEN’s regulatory requirements to (1) file  an exemption form, and annually review and update the information,  particularly for certain customers that are specifically exempted by statute,  as appropriate; and (2) biennially file a form to document the continued  eligibility of customers that have been exempted under the Phase II  regulations—which as a practical matter duplicates the required annual  review process for those customers. Further, in addition to supporting  specific investigations, CTR requirements aid law enforcement by forcing  criminals—who attempt to avoid reportable transactions—to act in ways  that increase chances of detection through other methods. Increasing use of exemptions would help depository institutions avoid  filing unnecessary CTRs, as well as reduce the government’s costs to  process them. To encourage greater use of CTR exemption provisions and avoid the  burden of filing CTRs that are likely to be of little or no value to law  enforcement efforts, we recommend that the Secretary of the Treasury  direct FinCEN to take the following five actions:  Provide guidance for depository institutions and federal banking  regulators on the documentation needed to demonstrate the portion of a  business’s gross revenue that is derived from activities ineligible for the  exemption. Provide Web-based material to help train and guide staff of depository  institutions in determining eligibility for exemptions. Specifically, our objectives were to determine: (1) the usefulness of CTR  requirements to federal, state, and local law enforcement agencies; (2) the  costs to depository institutions of meeting CTR requirements; and (3)  factors that affect depository institutions’ decisions to exempt or not  exempt eligible customers, including opportunities for encouraging use of  exemptions while maintaining the usefulness of CTR data to law  enforcement agencies. However, on many occasions the persons deposited more  than $10,000, and the depository institution filed CTRs.
Why GAO Did This Study

To aid law enforcement efforts against financial crimes, under the Bank Secrecy Act (BSA) depository institutions must file the Treasury Department's Financial Crimes Enforcement Network's (FinCEN) currency transaction report (CTR) form on their customers' cash transactions of more than $10,000. While FinCEN's regulations allow institutions to exempt certain customers, over 15 million CTRs were filed in 2006. Public Law 109-351 directed GAO to report on (1) the usefulness of CTRs to law enforcement; (2) depository institutions' costs of meeting CTR requirements; and (3) ways to encourage use of exemptions to avoid unnecessary CTRs. Among other things, GAO obtained data from FinCEN on CTRs and exemptions from 2004 to 2006, surveyed 115 state and local law enforcement agencies and 680 depository institutions, held structured interviews with officials of federal agencies and depository institutions, and reviewed relevant laws and regulations.

What GAO Found

According to federal, state, and local law enforcement officials, CTRs provide unique and reliable information essential to a variety of efforts, and recent advances in technology have enhanced law enforcement agencies' ability to use CTR data by integrating it with other information. In addition to supporting specific investigations, CTR requirements aid law enforcement by forcing criminals attempting to avoid reportable transactions to act in ways that increase chances of detection through other methods. Linking law enforcement's use of CTRs to specific outcomes is difficult, however, because agencies do not track their use of CTRs, which are typically one of many information sources used in investigations. FinCEN does not routinely publish summary information on law enforcement uses of CTR data--as it does for other data required under the BSA--that could help depository institutions understand the value of CTRs. While fewer than 30 of the largest U.S. depository institutions accounted for over half of new CTRs filed during the period GAO examined, all of the nation's approximately 17,000 institutions incur some costs to meet CTR requirements. Institutions must have processes and staff in place to identify when and if a CTR is required, as well as the ability to aggregate same-day cash transactions by or on behalf of the same person; file CTRs correctly; and, if desired, establish and maintain exemptions for certain customers. Institutions GAO contacted were generally unable to quantify these costs, in large part because they use the same processes and staff for other purposes. While automation has made CTR tasks less difficult, almost all institutions reported that they have not completely automated all steps, such as reviews of CTRs by institution officials. GAO's work identified a number of factors that deter use of exemptions, as well as opportunities for increasing their use, thereby reducing the number of CTRs that are likely of little or no value to law enforcement efforts. As reasons for not exempting eligible customers, institutions cited uncertainty about the documentation required to demonstrate that some customers are in fact eligible, along with concern that federal banking regulators (who examine institutions for compliance with CTR requirements) would find fault. Institutions also cited as deterrents the need to meet FinCEN's regulatory requirements to (1) file an exemption form, and annually review the supporting data, particularly for hundreds of customers that are specifically exempted by statute; and (2) biennially renew eligibility for some customers--a process that as a practical matter duplicates the required annual reviews for those customers. Institution officials indicated that additional guidance from FinCEN, as well as Web-based material to help train their staff in making exemption determinations, could increase the use of exemptions. Removing regulatory deterrents and providing additional guidance and Web-based material could help depository institutions avoid filing unnecessary CTRs without harming law enforcement efforts.