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---

### Purpose and scope
- Provides an overview of the anti-money laundering and combating the financing of terrorism (AML/CFT) regime of the United States.
- Based on:
  - the June 2006 mutual evaluation report (MER) prepared by the Financial Action Task Force (FATF) (with respect to U.S. compliance with the FATF 40 Recommendations plus 9 Special Recommendations),
  - two U.S. progress reports to the FATF (May 2008 and June 2009),
  - one report to the Fund in the context of the 2009/10 U.S. FSAP assessment.
- Focus: progress made since the 2006 FATF evaluation by U.S. authorities to legal, regulatory, and institutional frameworks addressing the most significant deficiencies identified in the MER; indicates areas with no or limited progress.
- Clarification: this TN provides a factual update; it does not constitute a reassessment by the Fund of the U.S. AML/CFT regime and does not re-rate compliance with the FATF standard.
- Includes estimates of proceeds generated by criminal activity since the MER to inform U.S. evaluation of the ML situation.

### Evaluation background and reporting
- MER on-site visits: November 7–18, 2005, and January 9–23, 2006.
- MER adopted: plenary meetings in June 2006 (FATF) and July 2006 (APG).
- MER scope: legislation, regulations, institutional framework, systems to deter ML and TF through financial institutions (FIs) and designated non-financial businesses and professions (DNFBPs); rated compliance with the FATF 40+9 Recommendations.
- Recommendations rated partially compliant or non-compliant included:
  - Recommendation 5 (customer due diligence (CDD)),
  - Recommendation 12 (CDD and recordkeeping for DNFBPs),
  - Recommendation 16 (suspicious transaction reporting and internal controls for DNFBPs),
  - Recommendation 24 (regulation and supervision of DNFBPs),
  - Recommendation 33 (transparency of legal persons),
  - Recommendation 34 (transparency of legal arrangements).
- In line with FATF procedures, the United States was expected to make its next progress report to the FATF in June 2010.

### Money laundering (ML) situation — key findings and estimates
- MER concluded illicit trafficking in narcotics is a major source of proceeds for ML in the United States; fraud and firearms violations also significant sources of confiscated assets.
- Prevalent ML methods reported in SARs: use of cash, wire transfers, and correspondent accounts by individuals and businesses.
- Selected numerical estimates and comparisons (verbatim):
  - 2001–2005 estimates of the annual proceeds of illicit trafficking in narcotics in the United States are in the $60–$65 billion range.
  - The 2005 United Nations Office on Drugs and Crime (UNODC) World Drug Report suggests combined North American retail sales of cocaine, opiates, cannabis, amphetamines, and ecstasy are close to $140 billion.
  - Estimates for various forms of fraud—securities, insurance, mortgage—of some $125 billion.
  - U.S. Department of Health and Human Services estimate for health care fraud of around $60 billion.
  - Three sources suggest the total U.S. tax gap is in the region of $500 billion; one report indicates the current value of the net Federal tax gap is around $400 billion (or around 15 percent of gross tax receipts); another indicates the international tax gap was estimated at $100 billion or more annually in 2009; state level tax gaps could average around $1 billion per state or $50 billion annually.
  - Adjusting U.S. government-sourced estimates for drug trafficking, fraud, and other crimes into real 2009 dollars suggests a minimum figure of around $275 billion (excluding tax evasion) as a point of departure.
  - According to 2008 CPIS data, over 20 percent of the pool of all portfolio investments invested outside of the country of origin are held in U.S. equities and long- and short-term debt.
- Observations and implications:
  - Fraud and other white-collar crimes could generate proceeds at least equal to, if not significantly greater than, those associated with drug trafficking.
  - Proceeds from fraud and white-collar crimes are often already in the formal financial system in non-cash form, potentially obviating placement steps and bypassing many entry-level CDD measures.
  - Corporate vehicles and opaque beneficial ownership information are important factors in laundering linked to fraud and white-collar crime.
  - Precision in aggregating POC estimates is limited; understanding orders of magnitude is actionable for strategic policymaking.
  - United States’ position as a major international financial center attracts foreign criminal assets; U.S. financial and real estate assets are probable destinations for expatriated foreign criminal assets, especially in the integration stage of laundering.
  - Noted cases illustrate significant foreign-origin proceeds laundered through U.S. institutions and assets.
  - Recommendation: broaden ML criminalization to fully include laundering of proceeds of some significant foreign crimes—including fraud—and address transparency of ownership and control of companies and trusts.

### Terrorism financing (TF) — summary
- TF has been a main concern for U.S. authorities since September 11, 2001.
- At the time of the MER, no clear trend in the volume of SARs related to TF had been discerned.
- Authorities consider wire transfers and non-profit organizations (NPOs) vulnerable to TF.
- Enhanced enforcement of anti-terrorism laws has made the use of NPOs for TF purposes less transparent.
- Investigations identified use of front companies and nominees to wire funds, FIs and money servicing businesses (MSBs); reverse structuring using large transaction amounts to minimize paper trails has been observed.

### AML/CFT strategy, priorities and policy implications highlighted in the TN
- Encourage U.S. authorities to examine whether the AML/CFT regime has adapted from an historical focus on drug trafficking-related ML to address the full range of ML risks, including fraud and white-collar crimes.
- Consideration that a greater strategic and tactical re-evaluation could be warranted should the United States make tax evasion a predicate offense for ML.
- Continue efforts to broaden ML criminalization provisions to fully include laundering of proceeds of significant foreign crimes (including fraud).
- Address deficiencies in compliance with FATF Recommendations on transparency of ownership and control of companies and trusts.
- Improve empirical basis for assessing ML risk and developing AML policy; improving statistics and methodologies for estimating proceeds of crime should be a priority.
- Maintain and strengthen international cooperation given U.S. exposure to foreign-origin criminal proceeds and cross-border implications of laundering via the U.S. financial system.

### U.S. strategy and priorities (at time of mutual evaluation)
- Strategy based on three goals:
  - (1) cut off more effectively access by criminals to the international financial system;
  - (2) enhance the ability to target major ML and TF organizations and systems;
  - (3) strengthen and refine the AML/CFT regime for financial services providers.
- Highest priority: safeguarding stability of core financial system, in particular depository institutions.
- Strategy components: private sector outreach, interagency coordination and information sharing.
- Prioritized objectives included:
  - (a) prevent the misuse of charities to aid terrorists;
  - (b) develop measures to deal with the risk posed by cash;
  - (c) examine the feasibility of regulating new payment/non-face-to-face systems;
  - (d) enhance supervision and enforcement of Bank Secrecy Act (BSA) requirements;
  - (e) enhance private sector consultation;
  - (f) provide more and better guidance to financial institutions;
  - (h) improve consistency in the implementation of AML/CFT regulation at all levels of government;
  - (j) launch Bank Secrecy Act (BSA) Direct to establish and maintain a government-wide data access service for information collected under the BSA and other sources.
- The U.S. National Security Strategy (May 2010) reinforces financial integrity as relevant to national security.

### Key findings from the 2006 FATF mutual evaluation report (MER)
- United States implemented an AML/CFT system broadly in line with the international standard and had significantly strengthened its regime since June 1997.
- USA PATRIOT Act (October 2001) was a major development.
- U.S. law criminalized ML and TF covering most categories required by the FATF standard; UN conventions and Security Council Resolutions on TF effectively implemented.
- U.S. law enforcement achieved results in investigations, prosecutions, and asset freezing, seizure, and confiscation.
- FinCEN identified as the United States’ financial intelligence unit (FIU) and substantially met the FATF standard.
- Remaining deficiencies notably in preventive measures applicable to financial institutions and DNFBPs; transparency of legal persons and arrangements.
- Confiscation data noted:
  - annual amount of proceeds of crime confiscated indicated as about $240 million (possibly understated).
  - authorities suggested current confiscations amount to approximately $2 billion annually (apparently including deferred prosecution agreement settlements but excluding confiscations at the state level).
  - the $2 billion represents less than one percent of the estimated annual POC (excluding tax crimes).
  - recommendation to improve systems for collecting, collating, and publishing information about the amount of proceeds of crime confiscated.

### Developments since the 2006 MER — legal and institutional changes
- Evaluators recommended: expand domestic and foreign predicate offenses for ML, revise Taliban-related listing system, enhance “equivalent value” confiscation regime, broaden definition of “transaction.”
- Legislative proposals drafted to amend ML statutes to:
  - expand predicate offenses to include any offense in violation of U.S. laws punishable by imprisonment for a term exceeding one year;
  - include acts occurring outside the United States that would constitute an offense if occurring within U.S. jurisdiction.
- Supreme Court decision and legislative response:
  - June 2008 U.S. Supreme Court (United States v. Santos) defined “proceeds” as “net profits” not “gross receipts.”
  - May 2009 legislative amendment overruled Santos by adding a new paragraph to the federal AML statute defining “proceeds” to include “gross receipts” of an unlawful activity.
- FinCEN analytical outputs and SAR quality improvements (selected measures and dates):
  - 2006: began receiving quarterly SAR error reports.
  - March 2007: implemented an improved SAR for MSBs.
  - October 2007: published a new reference on common errors seen in SAR filings.
  - Published analytical reports focused on mortgage loan fraud and ML in November 2006, April 2008, February and March 2009, and February 2010.
  - Twice-yearly publications: The SAR Activity Review–By the Numbers; The SAR Activity Review–Trends, Tips, and Issues.
  - Provided SAR feedback to the insurance and casino sectors; enhanced electronic SAR filing process.
- No significant progress reported on increasing the value added to FinCEN’s analytical outputs for law enforcement or on adherence to principles governing international information exchange in terrorism-related requests by foreign FIs.

### Preventive measures — financial institutions (findings from 2006 MER)
- Majority of deposit-taking institutions subject to full range of AML/CFT requirements: customer identification program (CIP), AML program/internal controls, record keeping, and SAR reporting.
- Securities sector: brokers and futures commission merchants subject to similar requirements; some investment advisers and commodity trading advisors (as asset managers) were not covered.
- Life insurers (since May 2006) and MSBs required to establish AML programs and file SARs, but not subject to CIP rules except when conducting funds transfers above $3,000.
- U.S. legislation addressed many FATF requirements on CDD, but certain key elements addressed by “other enforceable means” (OEM) rather than law/regulation—e.g., examination manual used by Federal Banking Agencies.
- No requirement for financial institutions to look beyond a customer to establish beneficial owners in all cases.
- Record-keeping requirements extensive for most FIs; BSA-covered products in insurance sector more limited.
- Wire transfer requirements not in line with the standard because ordering institution threshold to obtain, verify, and maintain full originator information was US$3,000 vs. standard US$1,000.
- Regulatory/supervisory framework: FinCEN administers BSA regime and delegates examination authority to eight federal financial regulatory agencies; in some cases further delegated to self-regulatory authorities. No delegation of BSA compliance supervision responsibilities to state authorities.
- Regulators have broad legal authority and adequate powers to supervise, examine, obtain information, and enforce BSA requirements; significant additional regulatory enforcement actions since 2006 reported.

### Follow-up on FATF Recommendation 5 — eight key deficiencies and updates (selected)
1) Beneficial ownership identification
  - Issue: No obligation in law/regulation to identify beneficial owners except in very specific circumstances.
  - Recommendation: Introduce a primary obligation to identify beneficial owners of accounts (risk-based approach permissible).
  - Update: Limited progress. Issued guidance and a strategic action plan. No primary legal obligation introduced. March 2010 multi-agency guidance: "Guidance on Obtaining and Retaining Beneficial Ownership Information" clarifies and consolidates “existing regulatory expectations” for certain accounts and customer relationships.
  - Authorities acknowledge unresolved deficiencies on beneficial ownership and control information for legal persons and arrangements (see FATF Recommendations 33 and 34).
2) Ongoing due diligence
  - Issue: No explicit obligation to conduct ongoing due diligence except in certain circumstances.
  - Recommendation: Introduce explicit legal/regulatory obligation for ongoing due diligence.
  - Update: No progress reported. U.S. position: ongoing due diligence requirement met through AML program and SAR legal obligations; BSA AML program requires covered FIs to ensure and monitor compliance, including internal controls for “ongoing compliance.”
3) Occasional non-cash transactions
  - Issue: Customer identification for occasional transactions limited to cash transactions only.
  - Recommendation: Extend customer identification obligation to non-cash occasional transactions.
  - Update: No progress reported. Authorities maintain it's inconceivable an FI would conduct an occasional non-cash transaction without an account.
4) & 8) Insurance sector CIP
  - Issue 4: No requirement for life insurers issuing covered insurance products to verify and establish true identity except when product defined as a “security.”
  - Recommendation: Implement CIP requirement for insurance sector.
  - Update: Final ruling requiring an AML program for insurance companies including a customer identification requirement; insurers must obtain “all relevant customer-related information necessary for an effective program.” FinCEN reviewed 641 SAR filings during a one-year period to identify sector typologies and vulnerabilities.
5) Investment advisers and commodity trading advisors
  - Issue: No measures applicable.
  - Recommendation: Extend AML/CFT measures to investment advisers and commodity trading advisors.
  - Update: FinCEN issued a Notice of Proposed Rulemaking (NPRM) but it was withdrawn in October 2008; no new NPRM issued; no further progress reported.

### Issues 6 and 7 — CDD timing and termination
- Issue 6: Verification of identity after establishment of business relationship not limited to essential circumstances.
- Issue 7: No explicit obligation to terminate the business relationship if verification cannot be completed.
- Recommendation:
  - Limit circumstances to open an account prior to completing verification (other than non-face-to-face business, securities transactions, life insurance).
  - Presume institutions should close accounts when verification cannot be completed.
  - If necessary, provide indemnification against conflicting statutes.
- Update:
  - Authorities maintain the CIP requirement meets this; CIP requires procedures for verifying identity "within a reasonable period of time after the account is opened" and provisions regarding terms under which customers may conduct transactions while verification is pending and when the institution should close an account.
  - Authorities prefer a risk-based approach that results in termination where verification cannot be completed.

### Developments since the 2006 MER — Financial institutions and MSBs
- Enhanced BSA Examinations of MSBs:
  - IRS increased number of BSA examiners to 385, an increase of 70 since the 2006 MER.
  - Actions:
    - Trained BSA examiners for MSB examinations; increased number of MSB examinations.
    - Entered into MOUs with 43 states and Puerto Rico for exchange of information on licensed and chartered MSBs.
    - Standardized forms being tested for state reporting to the IRS.
    - Prepared draft procedures for joint examinations of MSBs; commenced concurrent examinations with select states.
    - Developed a BSA/AML examination manual for MSBs; provided training on the manual.
    - Identified an increased number of MSBs via improved information sharing.
- Proposed AML program rule for non-bank residential mortgage lenders and originators:
  - July 15, 2009: FinCEN issued an Advance NPRM to solicit public comment on applying AML program and SAR regulations to non-bank residential mortgage lenders and originators.

### Preventive Measures — DNFBPs (main findings)
- 2006 MER ratings:
  - Recommendation 12: non-compliant.
  - Recommendation 16: non-compliant.
  - Recommendation 24: partially compliant.
- Accountants, lawyers, other legal professionals, real estate agents, and company service providers were not subject to AML/CFT requirements.
- Trust companies defined as financial institutions and, depending on charter, subject to BSA requirements.
- June 2005: FinCEN interim final rule required certain dealers in precious metals, stones, or jewels to establish an AML program; no explicit CDD, record-keeping, or SAR obligations at that time.
- Casinos subject to BSA requirements; gaming establishments with gross annual revenue of US$1 million or less not subject to BSA definition of “casino.”
- Internet gaming is prohibited in the United States.

### Recommendation 12 — Deficiencies and updates (selected)
- Deficiency 1 (casinos): No required enhanced due diligence for higher-risk customers or CDD on suspicion.
  - Update: Authorities interpret guidance to require monitoring factoring product type, locations, customer nature. FinCEN publishing “suggested best practices.”
- Deficiency 2 (accountants, dealers, lawyers, real estate agents): Not subject to CDD and record-keeping as per Recommendations 5 and 10.
  - Update: No substantive progress. Draft American Bar Association Good Practices Guidance largely follows FATF Guidance; anticipated adoption summer 2010.
- Deficiency 3: DNFBP sectors not subject to obligations related to Recommendations 6, 8, or 11.
  - Update: Authorities did not report progress.

### Recommendation 16 — Deficiencies and updates (selected)
- Deficiency 1: Casinos only DNFBP required to report suspicious transactions; monetary threshold exists.
  - Update: No progress reported.
- Deficiency 2: Accountants, lawyers, real estate agents, and TCSPs not subject to prohibition on “tipping off” or protected from liability when filing SARs.
  - Update: No progress reported.
- Deficiency 3: These DNFBPs not required to implement internal controls (AML programs).
  - Update: No substantive progress reported; authorities note many DNFBP activities conducted through financial institutions.
- Deficiency 4 (dealers in precious metals, stones, jewels): Required to implement AML programs; effectiveness not yet assessed.
  - Update: Beginning in 2010, IRS began nation-wide examinations of dealers in precious metals, stones, and jewels; FinCEN and IRS delivering examiner training and outreach.
- Deficiency 5: No obligations for DNFBPs to give special attention to FinCEN country advisories.
  - Update: No progress reported.

### Recommendation 24 — Deficiencies and updates
- Deficiency 1: No regulatory oversight of AML/CFT compliance for accountants, lawyers, real estate agents, or TCSPs.
  - Recommendation: Subject these DNFBPs to AML/CFT obligations and appropriate regulatory oversight; for TCSPs, introduce registration for company formation agents.
  - Update: No progress reported.
- Deficiency 2: Supervisory regime for Nevada casinos not harmonized with BSA requirements.
  - Update: Effective July 1, 2007, Nevada casinos with gross annual gaming revenue exceeding US$1 million became subject to the BSA requirements in the same manner as all other casinos.

### Legal persons and arrangements — main findings
- 2006 MER ratings:
  - FATF Recommendations 33 and 34: non-compliant.
  - FATF Recommendation SRVIII (non-profit organizations): compliance rated as strong.
- Observations: Senate testimonies (June 2009) pointed to lack of transparency and availability of corporate formation information inhibiting law enforcement; lack of information on true ownership and control of shell companies cited.

### Recommendation 33 — Deficiencies, recommendations, and updates
- Deficiency 1: No measures to ensure adequate, accurate and timely information on beneficial ownership/control of legal persons available to competent authorities.
  - Recommendation: Comprehensive review to make beneficial ownership information available for companies not offering securities to the public; work with states for uniform procedures; bring company formation agents within the BSA framework; require AML Programs and CIP procedures.
  - Update: No substantive results reported, but significant efforts cited:
    - U.S. Senate hearings and reports stressing ML/TF risks associated with companies formed without adequate beneficial ownership documentation.
    - Legislation (Bill S.569: “Incorporation Transparency and Law Enforcement Assistance Act”) proposed but not enacted; hoped for passage in 2010.
    - Draft Administration Bill sent to Congress in April 2010 to clarify beneficial ownership definition, eliminate expansion of AML obligations to company formation agents in favor of civil and federal criminal liability, establish documentation requirements, and address transfer of ownership provisions.
    - Individual states (Nevada, Wyoming) modified incorporation processes; both passed legislation outlawing bearer shares. Wyoming enhanced registered agent and legal entity information requirements.
    - A Uniform Law adopted in 2009 by the National Conference of Commissioners on Uniform State Laws; none of the states reported to have enacted it.
- Deficiency 2 (bearer shares): All states now reported to prohibit issuance of bearer shares.

### Recommendation 34 — trusts (finding, recommendation, update)
- Finding: Recommendation 34 rated non-compliant; minimal information concerning beneficial owners of trusts accessible to competent authorities in a timely fashion.
- Recommendation: Implement measures to ensure adequate, accurate, and timely information on beneficial ownership and control of trusts is available to law enforcement.
- Update:
  - No progress reported to address the evaluators’ recommendation.
  - Authorities state underlying issues related to Recommendation 33 for legal persons; plan to address trust ownership and control after corporate entity issues are resolved.
  - Authorities indicated pending legislation to address Recommendation 33 would include a study on trusts and other legal entities not covered by the legislation to identify whether lack of beneficial ownership information raises concerns or impedes investigations.

### National and international cooperation — findings and developments
- 2006 MER main findings:
  - United States has broad and adequate policy and operational mechanisms for interagency cooperation; concern that law enforcement cooperation appeared fragmented with overlapping jurisdictions.
  - Joint task force model generally effective when resourced.
  - United States routinely engaged in cross-border cooperation and could provide mutual legal assistance via treaties, multilateral conventions, and rogatory letters.
  - Freezing, seizure, and confiscation: flexible and efficient; less formal mechanisms (police-to-police) could be used for tracing assets.
  - Extradition: regime based on solid and flexible legal framework relying on bilateral agreements subject to dual criminality.
- Developments:
  - FinCEN entered into information-sharing MOUs with 42 state MSB regulators; IRS has MOUs with 43 state MSB regulators.
  - OCDETF Fusion Center established to improve intelligence on international drug trafficking and ML organizations; entered partnership with International Organized Crime Intelligence and Operations Center.
  - Litigation development: March 2009 adverse decision in In re any and all funds or other assets in Brown Brothers Harriman & Co. Account #8870792...; decision held U.S. international confiscation assistance statute does not permit pre-trial restraint of property not yet subject to a foreign confiscation judgment; decision appealed.
  - MLATs, Instruments, or Protocols: entered into with 80 countries or multilateral organizations, up from 50 in July 2005.
    - United States and the European Union completed 27 new MLATs, Instruments, or Protocols disallowing bank secrecy as basis for denial of MLA requests.
  - Extradition treaties:
    - United States informs it has bilateral extradition treaties with 133 countries.
    - As of February 1, 2010, 27 new Extradition Treaties, Instruments, or Protocols reported to have come into effect between the United States and European Union countries covering ML and TF.
    - Updated extradition treaties or protocols with the United Kingdom and Israel reported in 2007.
  - Multilateral conventions (e.g., Terrorism Financing Convention, Transnational Organized Crime Convention, United Nations Convention Against Corruption) expand extraditable offenses in older bilateral treaties.

### Resources and statistics — findings and developments
- 2006 MER main findings:
  - Authorities generally well-equipped, staffed, resourced, and trained.
  - Concern: adequacy of resources within the IRS to examine the large number of institutions under its responsibility.
  - Approximately 206,081 entities under the IRS’s supervisory jurisdiction.
  - Evaluators recommended significantly increasing IRS resources for oversight responsibilities, particularly for MSBs.
- Developments since 2006 MER:
  - Improved resources for the IRS to conduct MSB examinations noted (see Financial institutions and MSBs).
  - Department of Justice: new Consolidated Assets Tracking System allows tracking of statutory basis for seizures and/or forfeitures to identify terrorism forfeiture law seizures separately.
- Evaluators’ additional recommended actions (selected):
  - Legal and institutional: expand predicate offenses, revise Taliban listing system, enhance confiscation regimes, broaden transaction definition, strengthen FinCEN analytical outputs and SAR quality, adhere to principles governing international info exchange in terrorism-related assistance.
  - Preventive measures (selected): require senior management approval for opening correspondent accounts; extend PEPs requirements to investment advisers and commodity trading advisors; require immediate obtaining of originator details from introducing institutions; reduce wire transfer de minimus threshold to US$ 1,000; extend recordkeeping to insurance sector; remove SAR thresholds and extend SAR obligations to investment advisers, commodity trading advisors and insurance intermediaries; extend AML program requirement to exempted non-federally regulated depository institutions and unregistered investment companies; ensure insurance companies apply AML/CFT measures to foreign branches; require employee screening; enhance supervision in credit union, insurance and securities sectors; enhance IRS supervisory capacity for MSBs.
  - National and international cooperation (selected): close policy-operational gap in law enforcement, refine operational law enforcement coordination, review ML offenses to cover Vienna and Palermo Conventions, include “participation in an organized criminal group” as a foreign predicate offense, transpose UN Security Council Resolution 1267(1999) designations in OFAC list, provide legal basis for equivalent value seizure on foreign request, extend list of predicate offenses to all 20 designated categories, review older extradition treaties, allow extradition per UN TF Convention principles.
  - Resources and statistics (selected): ensure IRS adequately resourced; ensure FATF Recommendation 32 statistics collected and maintained; include confiscation in terrorism- and FT-related statistics; maintain comprehensive statistics for supervisory actions especially in MSB sector.

*Source: IMF staff technical note summarizing the U.S. AML/CFT regime based on the June 2006 FATF/APG MER and subsequent progress reports (May 2008, June 2009) and the 2009/10 U.S. FSAP assessment.*

### 1. This technical note (TN) is intended to provide an overview of the anti-money

### 1. This technical note (TN) is intended to provide an overview of the anti-money

### Purpose and scope
- Provides an overview of the anti-money laundering and combating the financing of terrorism (AML/CFT) regime of the United States.
- Based on:
  - the June 2006 mutual evaluation report (MER) prepared by the Financial Action Task Force (FATF) (with respect to U.S. compliance with the FATF 40 Recommendations plus 9 Special Recommendations),
  - two U.S. progress reports to the FATF (May 2008 and June 2009),
  - one report to the Fund in the context of the 2009/10 U.S. FSAP assessment.
- Focus: progress made since the 2006 FATF evaluation by U.S. authorities to legal, regulatory, and institutional frameworks addressing the most significant deficiencies identified in the MER; indicates areas with no or limited progress.
- Clarification: this TN provides a factual update; it does not constitute a reassessment by the Fund of the U.S. AML/CFT regime and does not re-rate compliance with the FATF standard.
- Includes estimates of proceeds generated by criminal activity since the MER to inform U.S. evaluation of the ML situation.

### Evaluation background and reporting
- The latest mutual evaluation was conducted jointly by the FATF and the Asia Pacific Group on Money Laundering (APG) during two on-site visits: November 7–18, 2005, and January 9–23, 2006.
- The MER was adopted by plenary meetings in June 2006 (FATF) and July 2006 (APG).
- The MER reviewed legislation, regulations, institutional framework, and systems in place to deter ML and TF through financial institutions (FIs) and designated non-financial businesses and professions (DNFBPs), and rated compliance with the FATF 40+9 Recommendations.
- Progress reports to the FATF were made pursuant to FATF procedures requiring evaluated members to report on steps taken to address deficiencies rated partially compliant or non-compliant.
- Recommendations rated partially compliant or non-compliant for the United States included:
  - Recommendation 5 (customer due diligence (CDD)),
  - Recommendation 12 (CDD and recordkeeping for DNFBPs),
  - Recommendation 16 (suspicious transaction reporting and internal controls for DNFBPs),
  - Recommendation 24 (regulation and supervision of DNFBPs),
  - Recommendation 33 (transparency of legal persons),
  - Recommendation 34 (transparency of legal arrangements).
- In line with FATF procedures, the United States was expected to make its next progress report to the FATF in June 2010.

### Money laundering (ML) situation — key findings and estimates
- The MER concluded illicit trafficking in narcotics is a major source of proceeds for ML in the United States and that fraud and firearms violations are also significant sources of confiscated assets; prevalent ML methods reported in SARs involved the use of cash, wire transfers, and correspondent accounts by individuals and businesses.
- Selected numerical estimates and comparisons (preserved verbatim):
  - 2001–2005 estimates of the annual proceeds of illicit trafficking in narcotics in the United States are in the $60–$65 billion range.
  - The 2005 United Nations Office on Drugs and Crime (UNODC) World Drug Report suggests combined North American retail sales of cocaine, opiates, cannabis, amphetamines, and ecstasy are close to $140 billion.
  - Estimates for various forms of fraud—securities, insurance, mortgage—of some $125 billion.
  - U.S. Department of Health and Human Services estimate for health care fraud of around $60 billion.
  - Three sources suggest the total U.S. tax gap is in the region of $500 billion; one report indicates the current value of the net Federal tax gap is around $400 billion (or around 15 percent of gross tax receipts); another indicates the international tax gap was estimated at $100 billion or more annually in 2009; state level tax gaps could average around $1 billion per state or $50 billion annually.
  - Adjusting U.S. government-sourced estimates for drug trafficking, fraud, and other crimes into real 2009 dollars suggests a minimum figure of around $275 billion (excluding tax evasion) as a point of departure.
  - According to 2008 CPIS data, over 20 percent of the pool of all portfolio investments invested outside of the country of origin are held in U.S. equities and long- and short-term debt.
- Observations and implications:
  - Fraud and other white-collar crimes could generate proceeds at least equal to, if not significantly greater than, those associated with drug trafficking.
  - Proceeds from fraud and white-collar crimes are often already in the formal financial system in non-cash form, which can obviate placement steps and bypass many entry-level CDD measures.
  - Corporate vehicles and opaque beneficial ownership information are important factors in laundering linked to fraud and white-collar crime.
  - Precision in aggregating POC estimates is limited; however, understanding orders of magnitude is actionable for strategic policymaking.
  - The United States’ position as a major international financial center attracts foreign criminal assets; U.S. financial and real estate assets are probable destinations for expatriated foreign criminal assets, especially in the integration stage of laundering.
  - Noted cases illustrate significant foreign-origin proceeds laundered through U.S. institutions and assets.
  - U.S. authorities are encouraged to broaden ML criminalization to fully include laundering of proceeds of some significant foreign crimes—including fraud—and to address transparency of ownership and control of companies and trusts.

### Terrorism financing (TF) — summary
- TF has been a main concern for U.S. authorities since September 11, 2001.
- At the time of the MER, no clear trend in the volume of SARs related to TF had been discerned.
- Authorities consider wire transfers and non-profit organizations (NPOs) vulnerable to TF.
- Enhanced enforcement of anti-terrorism laws has made the use of NPOs for TF purposes less transparent.
- Investigations identified the use of front companies and nominees to wire funds, as well as FIs and money servicing businesses (MSBs); reverse structuring using large transaction amounts to minimize paper trails has been observed.

### AML/CFT strategy, priorities and policy implications highlighted in the TN
- Encourage U.S. authorities to examine the extent to which the AML/CFT regime has adapted from an historical focus on drug trafficking-related ML to address the full range of ML risks, including fraud and white-collar crimes.
- Consideration that an even greater strategic and tactical re-evaluation could be warranted should the United States make tax evasion a predicate offense for ML.
- Continue efforts to broaden ML criminalization provisions to fully include laundering of proceeds of significant foreign crimes (including fraud).
- Address deficiencies in compliance with FATF Recommendations on transparency of ownership and control of companies and trusts.
- Improve empirical basis for assessing ML risk and developing AML policy; improving statistics and methodologies for estimating proceeds of crime should be a priority.
- Maintain and strengthen international cooperation given U.S. exposure to foreign-origin criminal proceeds and the cross-border implications of laundering via the U.S. financial system.

*Source: IMF staff technical note summarizing the U.S. AML/CFT regime based on the June 2006 FATF/APG MER and subsequent progress reports (May 2008, June 2009) and the 2009/10 U.S. FSAP assessment.*

### 14. The United States has been committed to combating ML and TF on several

### _cr10253 - 14. The United States has been committed to combating ML and TF on several

### U.S. strategy and priorities (at time of mutual evaluation)
- U.S. strategy based on three main goals:
  - (1) cut off more effectively access by criminals to the international financial system;
  - (2) enhance the ability to target major ML and TF organizations and systems;
  - (3) strengthen and refine the AML/CFT regime for financial services providers.
- Highest priority given to safeguarding the stability of its core financial system, in particular depository institutions.
- Strategy components included private sector outreach, interagency coordination and information sharing.
- Prioritized objectives included:
  - (a) prevent the misuse of charities to aid terrorists;
  - (b) develop measures to deal with the risk posed by cash;
  - (c) examine the feasibility of regulating new payment/non-face-to-face systems;
  - (d) enhance supervision and enforcement of Bank Secrecy Act (BSA) requirements;
  - (e) enhance private sector consultation;
  - (f) provide more and better guidance to financial institutions;
  - (h) improve consistency in the implementation of AML/CFT regulation at all levels of government;
  - (j) launch Bank Secrecy Act (BSA) Direct to establish and maintain a government-wide data access service for information collected under the BSA and other sources.
- The U.S. National Security Strategy (May 2010) reinforces financial integrity as relevant to national security, including deterring threats to the international financial system, strengthening international norms against corruption, and addressing transnational criminal threats.

### Key findings from the 2006 FATF mutual evaluation report (MER)
- The United States implemented an AML/CFT system broadly in line with the international standard and had significantly strengthened its regime since June 1997, including enhanced legislation and aggressive law enforcement action.
- The USA PATRIOT Act (October 2001) was a major development as both an anti-terrorism and anti-money laundering statute.
- U.S. law criminalized ML and TF covering most categories required by the FATF standard; UN conventions and Security Council Resolutions on TF were effectively implemented.
- U.S. law enforcement achieved impressive results in investigations, prosecutions, and asset freezing, seizure, and confiscation.
- FinCEN identified as the United States’ financial intelligence unit (FIU) and substantially met the FATF standard.
- Evaluators identified remaining deficiencies notably in:
  - preventive measures applicable to financial institutions and DNFBPs;
  - transparency of legal persons and arrangements.

- Confiscation data noted in the 2006 MER (footnote):
  - annual amount of proceeds of crime confiscated indicated as about $240 million (possibly understated).
  - authorities suggested current confiscations amount to approximately $2 billion annually (apparently including deferred prosecution agreement settlements but excluding confiscations at the state level).
  - the $2 billion represents less than one percent of the estimated annual POC (excluding tax crimes).
  - recommendation that authorities consider improving systems for collecting, collating, and publishing information about the amount of proceeds of crime confiscated.

### Developments since the 2006 MER — legal and institutional changes
- Evaluators in 2006 recommended expansion of domestic and foreign predicate offenses for ML, revision of Taliban-related listing system, enhancement of “equivalent value” confiscation regime, and broadening the definition of “transaction” to align with Vienna and Palermo Conventions.
- Legislative proposals drafted to amend ML statutes to:
  - expand predicate offenses to include any offense in violation of U.S. laws punishable by imprisonment for a term exceeding one year;
  - include acts occurring outside the United States that would constitute an offense if occurring within U.S. jurisdiction.

- Supreme Court decision and legislative response:
  - June 2008 U.S. Supreme Court (United States v. Santos) defined “proceeds” as “net profits” not “gross receipts.”
  - May 2009 legislative amendment overruled Santos by adding a new paragraph to the federal AML statute defining “proceeds” to include “gross receipts” of an unlawful activity.

- FinCEN analytical outputs and SAR quality:
  - Evaluators recommended strengthening FinCEN’s analytical outputs and improving SAR quality.
  - Reported measures taken by FinCEN:
    - 2006: began receiving quarterly SAR error reports to identify financial institutions with systemic errors; reports revised yearly and expanded in 2009 to include a separate report on the insurance industry SARs.
    - March 2007: implemented an improved SAR for MSBs providing data in a format more suitable for law enforcement and analysts.
    - October 2007: published a new reference on common errors seen in SAR filings with tips and suggestions.
    - Provided SAR feedback to the insurance and casino sectors with intention to do so for other sectors.
    - Published analytical reports based on BSA/SAR filings focused on mortgage loan fraud and ML in November 2006, April 2008, February and March 2009, and February 2010.
    - Focused twice-yearly publications (The SAR Activity Review–By the Numbers; The SAR Activity Review–Trends, Tips, and Issues) on particular industries (securities, commodity futures firms, and casinos).
    - Provided guidance to the industry on how to file SARs and enhanced the electronic SAR filing process to reduce filing errors.
- No significant progress reported on increasing the value added to FinCEN’s analytical outputs for law enforcement or on adherence to principles governing international information exchange in terrorism-related requests by foreign FIs.

### Preventive measures — financial institutions (findings from 2006 MER)
- Majority of deposit-taking institutions subject to full range of AML/CFT requirements: customer identification (customer identification program (CIP)), internal controls and procedures (AML program), record keeping, and reporting of suspicious activities.
- Securities sector: brokers and futures commission merchants subject to similar requirements; some investment advisers and commodity trading advisors (as asset managers) were not covered.
- Life insurers (since May 2006) and MSBs required to establish AML programs and file SARs, but not subject to CIP rules except when conducting funds transfers above $3,000.
- U.S. legislation addressed a substantial number of FATF requirements on CDD, but certain key elements were addressed by “other enforceable means” (OEM) rather than law/regulation—e.g., examination manual used by Federal Banking Agencies.
- No requirement for financial institutions to look beyond a customer to establish beneficial owners in all cases.
- Record-keeping requirements extensive for most FIs; BSA-covered products in insurance sector more limited.
- Wire transfer requirements not in line with the standard because ordering institution threshold to obtain, verify, and maintain full originator information was US$3,000 vs. standard US$1,000.
- Regulatory/supervisory framework: FinCEN administers BSA regime and delegates examination authority to eight federal financial regulatory agencies; in some cases further delegated to self-regulatory authorities. No delegation of BSA compliance supervision responsibilities to state authorities, though close federal-state cooperation exists. Most states use FFIEC BSA/AML Examination Manual as a resource.
- Regulators have broad legal authority and adequate powers to supervise, examine, obtain information, and enforce BSA requirements; authorities reported significant additional regulatory enforcement actions since 2006.

### Follow-up on FATF Recommendation 5 — eight key deficiencies and updates
- Recommendation 5 initially rated partially compliant; eight key deficiencies identified. Selected issues and updates:

1) No obligation in law/regulation to identify beneficial owners except in very specific circumstances (correspondent banking and private banking for non-U.S. clients).
   - Recommendation: Introduce a primary obligation to identify beneficial owners of accounts (risk-based approach permissible).
   - Update: Limited progress reported. Issued guidance on obtaining customer beneficial ownership information and developed a comprehensive strategic action plan. No primary legal obligation introduced. March 2010 multi-agency guidance (Guidance on Obtaining and Retaining Beneficial Ownership Information) issued to clarify and consolidate “existing regulatory expectations” for obtaining beneficial ownership information for “certain accounts and customer relationships.”
   - Authorities acknowledge unresolved deficiencies on availability of beneficial ownership and control information for legal persons and arrangements (see FATF Recommendations 33 and 34).

2) No explicit obligation to conduct ongoing due diligence, except in certain defined circumstances.
   - Recommendation: Introduce explicit legal/regulatory obligation for ongoing due diligence.
   - Update: No progress reported. U.S. position: ongoing due diligence requirement met through AML program and SAR legal obligations; BSA AML program requirement requires covered FIs to ensure and monitor compliance, including through internal controls for “ongoing compliance.”
   - FINRA issued an AML template for small firms to assist broker-dealers; federal banking agencies consider CDD an ongoing process enforced through examinations. Authorities cite enforcement actions for deficient CDD and enhanced due diligence practices.

3) Customer identification for occasional transactions limited to cash transactions only.
   - Recommendation: Extend customer identification obligation to non-cash occasional transactions.
   - Update: No progress reported. Authorities maintain it is inconceivable an FI would conduct an occasional non-cash transaction without an account; no examples identified where such non-cash occasional transactions occurred. FATF Recommendation 5 requires the obligation be set out in law or regulation.

4) & 8) Insurance sector issues (addressed together):
   - Issue 4: No requirement for life insurers issuing covered insurance products to verify and establish true identity of the customer (except those products defined as a “security”).
   - Issue 8: Effectiveness of measures in the insurance sector (effective May 2, 2006) could not be assessed.
   - Recommendation: Implement a CIP requirement for the insurance sector.
   - Update: Final ruling issued requiring an AML program for insurance companies that includes a customer identification requirement; insurers must obtain “all relevant customer-related information necessary for an effective program” from agents/brokers or other sources. Authorities claim such information should assist insurers to assess ML risks and identify red flags.
   - FinCEN reviewed 641 SAR filings during a one-year period to identify typologies, patterns, trends, vulnerabilities, and ML risks in the insurance sector. Authorities maintain SAR analysis shows insurers are identifying and reporting suspicious activities including information on policyholders, beneficiaries and other parties associated with policies, hence CIP program requirement being implemented. (Authorities did not indicate whether the 641 SAR sample provides a reasonable basis for broad-based implementation.)

5) No measures applicable to investment advisers and commodity trading advisors.
   - Recommendation: Extend AML/CFT measures to investment advisers and commodity trading advisors and remaining depository institutions; extend AML/CFT obligations including PEP requirements to these advisers in line with the securities industry.
   - Update: FinCEN issued a Notice of Proposed Rulemaking (NPRM) for AML programs for investment advisers and commodity trading advisors, but it was withdrawn in October 2008 because too much time had elapsed and a new NPRM needed to be re-issued. No new NPRM has been issued. Authorities view that investment advisors and commodity trading advisors are not covered (no further progress reported in the provided text).

*Source: IMF staff summary of the United States’ mutual evaluation and subsequent progress reports as presented in the provided chapter.*

### conclusions were corroborated by the findings of on-site AML examinations. In addition, basing CDD

### _cr10253 - conclusions were corroborated by the findings of on-site AML examinations. In addition, basing CDD

### Issues 6 and 7 — Customer Due Diligence (CDD) timing and termination
- Issue 6: Verification of identity until after the establishment of the business relationship is not limited to circumstances where it is essential not to interrupt the normal course of business.
- Issue 7: No explicit obligation to terminate the business relationship if the verification process cannot be completed.
- Recommendation:
  - Other than with respect to non-face-to-face business, securities transactions, and life insurance business, limit the circumstances in which institutions may open an account prior to completing the verification process.
  - Introduce a presumption that institutions should close an account whenever the verification cannot be completed, for whatever reason.
  - If necessary, accompany this with some form of indemnification against other conflicting statutes.
- Update:
  - The authorities maintain that the United States has met this requirement under the CIP requirements.
  - They state that the CIP requirement stipulates that programs “...must contain procedures for verifying the identity of a customer ... within a reasonable period of time after the account is opened.”25
  - The CIP should also include provisions that describe “...the terms under which a customer may conduct transactions while the [financial institution] attempts to verify the customer’s identity” and  “[w]hen the [financial institution] should close an account, after attempts to verify a customer’s identity fail.”
  - The authorities state their risk-based approach to customer identification would result in the termination of a business relationship where verification of identity of customers cannot be completed, and they prefer this risk-based approach over a rigid requirement to close an account.26

### Developments since the 2006 MER — Financial institutions and MSBs
- 2006 MER made additional recommendations to improve preventive measures; limited progress reported except for the measures below.
- Enhanced BSA Examinations of MSBs:
  - The Internal Revenue Service (IRS) reported that it has increased the number of BSA examiners to 385, an increase of 70 since the 2006 MER.
  - Actions taken:
    - Trained BSA examiners to conduct MSB examinations and increased the number of examinations of MSB principals.
    - Entered into Memoranda of Understanding (MOUs) with 43 states and Puerto Rico for comprehensive exchange of information and reporting on licensed and chartered MSBs, including information related to examinations and BSA violations.
    - Standardized forms are being tested for state reporting to the IRS.
    - Prepared draft procedures for conducting joint examinations of MSBs and has commenced concurrent examinations with select states to allow more efficient cost effective examinations.
    - In concert with FinCEN and state regulators, developed a BSA/AML examination manual for MSBs containing risk-based elements; IRS, FinCEN, and state representatives provided training on the manual.
    - Identified an increased number of MSBs including through improved information sharing with FinCEN and state financial regulators.
- Proposed AML program rule for non-bank residential mortgage lenders and originators:
  - On July 15, 2009, FinCEN issued an Advance NPRM to solicit public comment on applying AML program and SAR regulations to non-bank residential mortgage lenders and originators.

### C. Preventive Measures — Designated Non-Financial Businesses and Professions (DNFBPs) — main findings
- 2006 MER ratings and observations:
  - Recommendation 12 (CDD and recordkeeping for DNFBPs): non-compliant.
  - Recommendation 16 (suspicious transaction reporting and internal controls): non-compliant.
  - Recommendation 24 (regulation and supervision of DNFBPs): partially compliant.
  - Accountants, lawyers, other legal professionals, real estate agents, and company service providers were not subject to the AML/CFT requirements.
  - Trust companies are defined as financial institutions and, depending on charter, are subject to all or most BSA requirements.
- Prior actions:
  - June 2005: FinCEN issued an interim final rule requiring certain dealers in precious metals, stones, or jewels to establish an AML program; no explicit obligations for CDD, record-keeping, and suspicious transaction reporting were set out at that time.
  - Casinos were subject to a range of BSA requirements; gaming establishments with gross annual revenue of US$1 million or less do not fall within the BSA definition of “casino” and are therefore not subject to these requirements.
  - Internet gaming is prohibited in the United States.

### Recommendation 12 — Deficiencies, recommendations, and updates
- Deficiency 1:
  - Issue: Casinos are not required to perform enhanced due diligence for higher-risk categories of customers, nor required to undertake CDD when there is a suspicion of ML or TF.
  - Recommendation: Explicitly require casinos to perform enhanced due diligence for higher-risk categories and to undertake CDD when there is suspicion of money laundering or terrorist financing.
  - Update: Authorities interpret Question 14 of FinCEN’s Guidance to casinos to require monitoring that factors in type of products and services, locations, and nature of customers. FinCEN is publishing “suggested best practices” for casinos and card clubs to provide guidance on risk-based approaches.
- Deficiency 2:
  - Issue: Accountants, dealers in precious metals and stones, lawyers, and real estate agents are not subject to customer identification and record-keeping requirements that meet Recommendations 5 and 10.
  - Recommendation: Extend customer identification, record-keeping, and account monitoring obligations consistent with FATF Recommendations to these sectors as soon as possible.
  - Update: No substantive progress reported. Drafting of American Bar Association Good Practices Guidance (ABA Guidance) largely follows FATF Guidance; intended to provide practical guidance on implementing a risk-based approach and anticipated adoption during the summer of 2010.30
- Deficiency 3:
  - Issue: None of the DNFBP sectors is subject to obligations that relate to Recommendations 6, 8, or 11 (except for casinos in relation to Recommendation 11).
  - Recommendation: Extend obligations that relate to Recommendations 6, 8 and 11 to all DNFBPs. Issue a proposed final rule to expedite AML obligations for “persons involved in real estate closings and settlements.” Prepare an advance notice of proposed rulemaking for trust and company services providers (TCSPs) to extend AML Program and CIP requirements.
  - Update: Authorities did not report progress.

### Recommendation 16 — Deficiencies, recommendations, and updates
- Deficiency 1:
  - Issue: Casinos are the only DNFBPs required to report suspicious transactions; there is a monetary threshold on this obligation.
  - Recommendation: Remove the monetary threshold on SAR reporting for casinos and extend the obligation to other DNFBPs.
  - Update: No progress reported.
- Deficiency 2:
  - Issue: Accountants, lawyers, real estate agents, and TCSPs are not subject to a prohibition on “tipping off” or protected from liability when they file a suspicious transaction report.
  - Recommendation: Make these DNFBPs subject to the “tipping off” prohibition and protect them from liability when filing SARs.
  - Update: No progress reported.
- Deficiency 3:
  - Issue: Accountants, lawyers, real estate agents, and TCSPs are not required to implement adequate internal controls (AML programs).
  - Recommendation: Require these DNFBPs to implement adequate internal controls (AML programs).
  - Update: No substantive progress reported. Authorities state these DNFBPs conduct activities through financial institutions and thus are not entirely outside the AML regime. Consideration given to extending coverage to mortgage lenders and originators.
- Deficiency 4:
  - Issue: Dealers in precious metals, precious stones, or jewels are required to implement AML programs; effectiveness of implementation cannot yet be assessed.
  - Recommendation: Ensure dealers are aware of obligations and are implementing AML programs effectively.
  - Update: Beginning in 2010, the IRS began nation-wide examinations of dealers in precious metals, stones, and jewels. FinCEN and the IRS are delivering examiner training and outreach; guidance provided to IRS examiners on BSA regulations, industry products and practices, conducting examinations, and assessing risk. IRS and FinCEN hold quarterly collaborative discussions with field examiners to discuss examination issues.
- Deficiency 5:
  - Issue: No specific obligations on accountants, lawyers, real estate agents, or TCSPs to give special attention to FinCEN country advisories urging enhanced scrutiny of transactions with countries with deficient AML controls.
  - Recommendation: Require these DNFBPs to give special attention to FinCEN country advisories.
  - Update: No progress reported.

### Recommendation 24 — Deficiencies, recommendations, and updates
- Deficiency 1:
  - Issue: No regulatory oversight of AML/CFT compliance for accountants, lawyers, real estate agents, or TCSPs.
  - Recommendation: Subject these DNFBPs to AML/CFT obligations and appropriate regulatory oversight. For TCSPs, introduce a registration process for agents engaged in company formation and related services (possibly with a de minimis threshold).
  - Update: No progress reported.
- Deficiency 2:
  - Issue: Supervisory regime for Nevada casinos not harmonized with BSA requirements.
  - Recommendation: Continue work to harmonize Nevada’s regulatory requirements with the BSA rapidly.
  - Update: Effective July 1, 2007, Nevada casinos with gross annual gaming revenue exceeding US$1 million became subject to the BSA requirements in the same manner as all other casinos.

### D. Legal Persons and Arrangements and Non-Profit Organizations — main findings
- 2006 MER ratings:
  - FATF Recommendations 33 and 34 (transparency of legal persons and arrangements): non-compliant.
  - FATF Recommendation SRVIII (non-profit organizations): compliance rated as strong.
- Observations:
  - March 2010 updates included Senate testimonies pointing to lack of transparency and availability of corporate formation information as inhibiting law enforcement. Example testimony (June 2009): lack of information on true ownership and control of shell companies “... limits our abilities to work jointly with our international law enforcement partners and can inhibit our ability to take quick action where it may be required.”

### FATF Recommendation 33 — Deficiencies, recommendations, and updates
- Deficiency 1:
  - Issue: No measures to ensure adequate, accurate and timely information on beneficial ownership/control of legal persons is available to competent authorities in a timely fashion.
  - Recommendation: Undertake comprehensive review to determine ways to make adequate and accurate beneficial ownership information available on a timely basis for companies not offering securities to the public or not listed on a recognized U.S. stock exchange. Work with states to devise uniform procedures across states to avoid arbitrage. Take forward proposal to bring company formation agents within the BSA framework and require AML Programs and CIP procedures.
  - Update: No substantive results reported, but authorities cite significant efforts:
    - U.S. Senate hearings and official reports stressing ML/TF risks associated with companies formed without adequate beneficial ownership documentation.33
    - Legislation (Bill S.569: “Incorporation Transparency and Law Enforcement Assistance Act”) has been proposed but not yet enacted; passage of a final draft is hoped for in 2010.
    - U.S. Treasury, DOJ, and DHS continue to consult with Congress and private sector to amend draft Bill S.569. A draft Administration Bill was sent to Congress in April 2010 to, inter alia:
      - Clarify and limit the beneficial ownership definition and information disclosure requirement.
      - Eliminate expansion of AML obligations to company formation agents in favor of broader civil and federal criminal liability for non-compliance.34
      - Establish documentation requirements.
      - Establish provisions to address the transfer of ownership of legal entities.
    - Individual states are reported to have begun to seek ways to address lack of beneficial ownership/control information. Nevada and Wyoming have modified State incorporation processes; both passed new legislation outlawing bearer shares. Wyoming enhanced information requirements for registered agents and legal entities.
    - Ongoing efforts to enact uniform corporate laws in all states. A Uniform Law was adopted in 2009 by the National Conference of Commissioners on Uniform State Laws, but none of the states are reported to have taken steps to enact this law.
- Deficiency 2:
  - Issue: Jurisdictions permitting bearer shares did not have measures to ensure bearer shares are not misused for money laundering.
  - Recommendation: None made for this issue.
  - Update: All states are now reported to prohibit the issuance of bearer shares.

*IMF staff summary based on the provided chapter/section content.*

### 39. Recommendation 34 was rated as non-compliant with one main deficiency

### _cr10253 - 39. Recommendation 34 was rated as non-compliant with one main deficiency

### Recommendation 34 — evaluators’ finding, recommendation, and update
- Finding:
  - Recommendation 34 was rated as non-compliant with one main deficiency identified by the evaluators.
  - Issue: While the investigative powers are generally sound and widely used, there is minimal information concerning the beneficial owners of trusts that can be obtained or accessed by the competent authorities in a timely fashion.
- Recommendation:
  - Implement measures to ensure that adequate, accurate, and timely information is available to law enforcement authorities concerning the beneficial ownership and control of trusts.
- Update:
  - No progress was reported to address the evaluators’ recommendation.
  - The authorities state that the underlying issues are closely related to those of Recommendation 33 for legal persons; hence, they plan to address the issue of trust ownership and control after the corporate entity issues are resolved.
  - The authorities indicated that as part of the pending legislation to address Recommendation 33, they will conduct a study on trusts and other legal entities not covered by the legislation to identify whether the lack of available beneficial ownership information (for partnerships, trusts, or other legal entities) raises concerns about the involvement of such entities in terrorism, ML, tax evasion, securities fraud, or other misconduct; and whether it has impeded investigations into entities suspected of such misconduct.

### E. National and International Cooperation — main findings (2006 MER) and subsequent developments
- Main findings of the 2006 MER:
  - Overall conclusion: the United States has broad and adequate policy and operational level mechanisms to facilitate interagency cooperation and coordination.
  - Concern: cooperation mechanisms in the law enforcement area appeared to be fragmented; overlap between jurisdictions of various law enforcement agencies required more refined coordination.
  - Joint task force model: generally effective provided it is appropriately resourced and developed.
  - Cross-border cooperation: United States routinely engaged in cross-border cooperation on AML/CFT issues and could provide extensive mutual legal assistance on the basis of treaties, multilateral conventions, and in response to rogatory letters and requests from ministries of justice.
  - Bilateral treaties: most do not contain dual criminality requirements; where they exist they mostly relate to requests for assistance requiring compulsory or coercive measures, in line with the standard.
  - Freezing, seizure, and confiscation: flexible and efficient system; requests for assistance in tracing and identifying assets did not always require formal proceedings and could be satisfied using less formal mechanisms such as direct police-to-police communication.
  - Extradition: regime based on a solid and flexible legal framework that largely relied on bilateral agreements subject to dual criminality; system was efficient and effective and allowed the United States to extradite its own nationals.
  - International cooperation mechanisms: FinCEN, law enforcement agencies, and regulators were allowed to provide their foreign counterparts with a wide range of international cooperation; similar mechanisms existed to facilitate diagonal cooperation (e.g., FIU to law enforcement, or law enforcement to regulators).
- Other developments since the 2006 MER:
  - FinCEN has entered into information-sharing MOUs with 42 state MSB regulators. Included in quarterly MOU reports are enforcement actions taken against MSBs.
  - FinCEN is reported to be in contact with states, notably Florida, regarding the referral of MSBs with significant BSA violations.
  - At the federal level, the IRS provides FinCEN with information including with respect to violations and enforcement action. According to FinCEN, the IRS also has information-sharing MOUs with 43 state MSB regulators.
  - FinCEN has an information sharing MOU with the Puerto Rico Office of the Commissioner of Financial Institutions that regulates Puerto Rican MSBs.
  - The IRS-State MOUs provide that the states will furnish the IRS with their MSB BSA reports of examination and that the “IRS may provide FinCEN with access to information received from the State under the terms of this MOU.”
  - The Organized Crime Drug Enforcement Task Force (OCDETF) Fusion Center was recently established to improve intelligence to help target and combat sophisticated international drug trafficking and ML organizations; the Fusion Center brings together into a common database, unfiltered information for investigation and prosecutorial purposes, and recently entered into a partnership with the International Organized Crime Intelligence and Operations Center which provides a new data source for U.S. law enforcement.
  - Litigation development: In March 2009, an adverse decision was received in the United States District Court for the District of Columbia case In re any and all funds or other assets in Brown Brothers Harriman & Co. Account #8870792 in the name of Tiger Eye Investments Ltd., et al.; the court held that the U.S. international confiscation assistance statute does not permit a U.S. court to issue an order for the pre-trial restraint of property that is not yet subject to a foreign confiscation judgment, and that a U.S. court can only restrain property already ordered confiscated by the foreign country. The court decision has been appealed.
  - Mutual Legal Assistance Treaties (MLATs), Instruments, or Protocols: entered into with 80 countries or multilateral organizations, up from 50 in July 2005.
    - Recently, the United States and the European Union completed 27 new MLATs, Instruments, or Protocols which substantially assist the authorities in addressing TF and ML matters. These agreements disallow bank secrecy as the basis for the denial of mutual legal assistance (MLA) requests and allow easier access to bank and other financial information to assist designated law enforcement agencies in TF and ML cases.
    - Currently, only a few U.S. MLATs require dual criminality and most allow for broad cooperation on offenses that are criminalized in the requesting country.
  - Extradition treaties:
    - The United States informs that it has bilateral extradition treaties with 133 countries.
    - As of February 1, 2010, the 27 new Extradition Treaties, Instruments, or Protocols are reported to have come into effect between the United States and European Union countries that provide for dual criminality and cover ML and TF as extraditable offenses.
    - Updated extradition treaties or protocol reported to have come into effect with the United Kingdom and Israel, both in 2007, that inter alia allow for less cumbersome documentation requirements.
  - Older list treaties: often supplemented by multilateral conventions such as the United Nations Convention for the Suppression of the Financing of Terrorism, the Transnational Organized Crime Convention (which came into effect in July 2005), and the United Nations Convention Against Corruption (of which the United States became a party in 2006). Such conventions expand the list of extraditable offenses existing in the older bilateral treaties to cover all of the offenses set forth in the multilateral conventions.
  - Ad hoc and unilateral extradition: regarding the Terrorist Financing Convention, the United States notes that under Article 11(2) a State Party “may, at its option” allow for extradition under the Convention if its domestic law allows for such extraditions; in most cases law requires a bilateral treaty, but the United States maintains that under Article 11(1) the offenses covered under the Terrorist Financing Convention are additional extraditable offenses under older, list-based extradition treaties.

### F. Resources and Statistics — main findings (2006 MER) and developments
- Main findings of the 2006 MER:
  - Overall, authorities were well-equipped, staffed, resourced, and trained.
  - Concern: adequacy of resources within the IRS to undertake examinations of the very large number of institutions for which it is responsible, namely: MSBs; insurance companies; non-federally regulated credit unions; credit card operators; casinos and card clubs; and dealers in precious metals and stones.
  - There are approximately 206,081 entities under the IRS’s supervisory jurisdiction.
  - Evaluators highlighted the need to significantly increase the resources of the IRS to enable it to properly discharge its oversight responsibilities for these sectors, particularly for the supervision of MSBs.
- Developments since the 2006 MER:
  - Authorities have provided information on improved resources for the IRS to conduct examinations of MSBs (See Section B: Preventive Measures—Financial Institutions).
  - The Department of Justice has informed that its new Consolidated Assets Tracking System now allows authorities to track the statutory basis for any seizures and/or forfeitures, so that any seizure or forfeiture under the terrorism forfeiture law can be identified as a separate category.
- Evaluators’ additional recommended actions (selected items from Table 1 for Recommendations NOT rated as PC or NC):
  - Legal System and Related Institutional Measures:
    - (i) expand the list of domestic and foreign predicate offenses for money laundering;
    - (ii) revise the system used to list Taliban-related names;
    - (iii) enhance the “equivalent value” confiscation regime;
    - (iv) broaden the definition of “transaction” to cover all conduct consistent with the Vienna and Palermo Conventions; and
    - (v) strengthen Financial Crimes Enforcement Network’s (FinCEN) analytical outputs and continue efforts to increase the quality of suspicious activity reports (SARs) received from all sectors; adhere to the principles governing international information exchange in terrorism-related requests for assistance from foreign financial institutions (FIs).
  - Preventive Measures—Financial Institutions (selected):
    - (i) introduce an explicit requirement that the opening of individual correspondent accounts should involve senior management approval;
    - (ii) extend the PEPs requirements to investment advisers and commodity trading advisors;
    - (iii) introduce a requirement that the relying financial institution should obtain immediately from the introducing institution customer identification details;
    - (iv) comply with the FATF batch wire transfer requirements including reducing the de minimus threshold to US$ 1,000;
    - (v) extend full recordkeeping requirements to the insurance sector;
    - (vi) require/extend recording requirements to the insurance and securities sectors with respect to transactions with persons from/in countries that do not or insufficiently apply the FATF Recommendations;
    - (vii) remove the SAR reporting threshold and extend the SAR obligations to investment advisers, commodity trading advisors and insurance intermediaries;
    - (viii) extend the AML program requirement to the limited number of exempted non-federally regulated depository institutions and to unregistered investment companies, investment advisers and commodity trading advisors;
    - (ix) ensure that insurance companies apply AML/CFT measures to their foreign branches and subsidiaries;
    - (x) require all financial institutions to screen prospective employees for high standards;
    - (xi) enhance supervision and enforcement for AML/CFT compliance in the credit union, insurance and securities sectors; and
    - (xii) enhance supervisory capacity for the Internal Revenue Service (IRS) with respect to the large number of institutions for which it is responsible including and especially the money services businesses (MSB) sector.
  - National and International Cooperation (selected):
    - (i) close the remaining gap between the policy level and the operational law enforcement work;
    - (ii) implement more refined law enforcement coordination at the operational level;
    - (iii) review the money-laundering (ML) offenses to ensure all conduct required to be criminalized by the Vienna and Palermo Conventions is covered;
    - (iv) include “participation in an organized criminal group” as a foreign predicate offense as required by Article 6(2)(c) of the Palermo Convention;
    - (v) transpose all United Nations (UN) Security Council Resolution 1267(1999) designations in the Office of Foreign Assets Control (OFAC) list;
    - (vi) provide a formal legal basis to allow for equivalent value seizure upon a foreign request;
    - (vii) extend the list of domestic and foreign predicate offenses to all 20 designated categories;
    - (viii) review older list-based extradition treaties to ensure that they do not pose an obstacle to extradition; and
    - (ix) allow extradition according to the principles of the UN Terrorism Finance (TF) Convention on an ad hoc and unilateral basis.
  - Resources and Statistics (selected):
    - (i) ensure that the IRS is adequately resourced to effectively supervise all of the entities for which it is responsible;
    - (ii) ensure that all of the statistics required under FATF Recommendation 32 are collected and maintained;
    - (iii) include confiscation as part of the terrorism- and FT-related statistics to be held; and
    - (iv) maintain more comprehensive statistics for supervisory actions especially in the MSB sector.

*Italic: IMF staff summary of _cr10253 - 39. Recommendation 34 was rated as non-compliant with one main deficiency*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10253.pdf_