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### Purpose, scope, and basis of the TN
- Provides an overview of the U.S. AML/CFT regime based on:
  - the June 2006 mutual evaluation report (MER) by the Financial Action Task Force (FATF);
  - 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.
- Focuses on progress since the 2006 MER in legal, regulatory, and institutional frameworks addressing significant MER deficiencies.
- TN aims:
  - to provide a factual update;
  - does not constitute a reassessment by the Fund nor re-rate levels of 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.

### MER timing and methodology
- Latest mutual evaluation conducted jointly by FATF and the Asia Pacific Group on Money Laundering (APG) during two on-site visits: November 7–18, 2005, and January 9–23, 2006.
- MER adopted by FATF plenary in June 2006 and by APG in July 2006.
- MER reviewed AML/CFT legislation, regulations, institutional framework, and systems covering financial institutions and designated non-financial businesses and professions (DNFBPs).
- MER rated compliance with FATF 40 Recommendations plus 9 Special Recommendations, taking into account effectiveness of implementation.

### FATF progress-reporting and scope of deficiencies
- MER identified partial compliance or non-compliance for Recommendations:
  - 5 (customer due diligence (CDD))
  - 12 (CDD and recordkeeping for DNFBPs)
  - 16 (suspicious transaction reporting and internal controls for DNFBPs)
  - 24 (regulation and supervision of DNFBPs)
  - 33 (transparency of legal persons)
  - 34 (transparency of legal arrangements)
- United States expected to make next progress report to the FATF in June 2010.
- FATF discussions (e.g., on CDD, risk-based approach, transparency of beneficial ownership and control of corporate vehicles and trusts, DNFBPs) may affect future U.S. compliance if Recommendations are revised.

### Money laundering: key observations and data points
- MER conclusion: illicit trafficking in narcotics is a major source of proceeds for ML in the United States; fraud and firearms violations also significant among confiscated assets.
- Prevalent ML methods (from SARs): use of cash, wire transfers, and correspondent accounts by individuals and businesses.
- Estimates and comparative figures cited:
  - 2001–2005 estimates of annual proceeds of illicit trafficking in narcotics in the United States: $60–$65 billion.
  - 2005 UNODC World Drug Report estimate for combined North American retail sales of drugs: 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: around $60 billion.
- Policy-relevant inferences:
  - Fraud and other white-collar crimes could generate proceeds at least equal to, if not significantly greater than, those associated with drug trafficking.
  - Laundering typologies differ: drug-related laundering often cash-based; fraud/white-collar proceeds often already in the formal financial system in non-cash form, bypassing placement and many entry-level CDD measures.
  - Corporate vehicles and opaque beneficial ownership information are important in laundering associated with white-collar crime.
- Aggregate/order-of-magnitude considerations:
  - Adjusting U.S. government-sourced estimates into real 2009 dollars suggests a minimum figure of around $275 billion (excluding tax evasion) as a point of departure for domestic proceeds of crime (POC).
  - Total domestic POC likely among the highest in the world given the size of the U.S. economy.
- Tax evasion and the tax gap:
  - No accurate or credible estimates of U.S. tax evasion; total U.S. tax gap suggested by three sources to be in the region of $500 billion.
  - First report: current value of the net Federal tax gap around $400 billion (or around 15 percent of gross tax receipts) — includes only a fraction of international tax evasion and excludes state and local tax evasion.
  - Second report: international tax gap estimated at $100 billion or more annually in 2009, with unverified material suggesting around half may be evasion.
  - Third set: state-level tax gap estimates could average around $1 billion per state or $50 billion annually.
- International dimensions and implications:
  - U.S. role as an international financial center exposes it to ML from crimes committed in other countries; significant foreign criminal assets may end up in the United States during the “integration” stage of laundering.
  - Examples cited:
    - Approximately $7.5 billion of Russian assets laundered through the Bank of New York in the late 1990s.
    - Riggs Bank held between $4–8 million of General Augusto Pinochet’s illegal deposits.
    - Pavel Lazarenko convicted of laundering $21.7 million of proceeds, including purchase of a $6.7 million mansion.
  - Authorities encouraged to broaden ML criminalization provisions to include laundering of proceeds of significant foreign crimes—including fraud.
  - U.S. expatriation of illicit proceeds creates ML threats for other countries; underscores U.S. responsibility in international cooperation and need to address lack of compliance with FATF Recommendations on transparency of ownership and control of companies and trusts.
- Conceptual clarifications:
  - Total domestic POC is not equivalent to the amount of money laundered domestically due to expatriation of proceeds, importation of foreign proceeds, tax evasion not being an ML predicate, and the difference between proceeds and laundering-related financial transactions.

### Terrorism financing: summary of findings
- TF has been a main U.S. concern 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 identify wire transfers and non-profit organizations (NPOs) as vulnerable to TF.
- Enhanced enforcement of anti-terrorism laws has made NPO use for TF less transparent.
- TF investigations identified use of:
  - front companies and nominees to wire funds;
  - financial institutions (FIs) and money services businesses (MSBs);
  - reverse structuring via large transaction amounts to minimize paper trails.

### Strategic implications and priorities
- TN highlights need for U.S. authorities to:
  - consider whether AML/CFT framework adapted from a historical focus on drug-trafficking-related ML to address broader ML risks, especially fraud and white-collar crime;
  - continue efforts to improve and strengthen AML/CFT measures to meet high levels of domestic and international ML threats;
  - address transparency of beneficial ownership and control of companies and trusts to improve international cooperation and compliance with FATF Recommendations.

### U.S. strategy, priorities, and objectives (MER-era)
- Three main goals at the time of the mutual evaluation:
  - (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 elements 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.

### Key findings from the 2006 MER and quantitative observations
- Overall assessment:
  - United States had implemented an AML/CFT system broadly in line with the international AML/CFT standard.
  - Significant strengthening since June 1997, including enactment of the USA PATRIOT Act (October 2001).
- Criminalization and implementation:
  - United States criminalized ML and TF covering most categories required by the FATF standard.
  - UN conventions and Security Council Resolutions on TF were effectively implemented.
- Law enforcement outcomes:
  - U.S. law enforcement achieved impressive results in investigations and prosecutions, and in asset freezing, seizure, and confiscation.
- Financial intelligence unit:
  - FinCEN substantially met the FATF standard.
- Noted deficiencies:
  - Preventive measures applicable to financial institutions and DNFBPs.
  - Transparency of legal persons and arrangements.
- Quantitative observations on confiscations cited in MER:
  - Annual amount of proceeds of crime confiscated as indicated in the 2006 MER: about $240 million.
  - Authorities suggested current confiscations amount to approximately $2 billion annually (apparently including deferred prosecution agreement settlements but excluding confiscations at the state level—more precise information is difficult to obtain).
  - The $2 billion represents less than one percent of the estimated annual POC (excluding tax crimes).

### Progress reported as of March 2010 and outstanding issues
- As of March 2010, many evaluator recommendations had not been addressed in full or in part.
- Efforts underway to introduce uniform legislation requiring information on beneficial ownership and control of legal persons and arrangements across all the states.
- Fundamental unresolved deficiencies remain regarding availability of beneficial ownership and control information with respect to legal persons and arrangements.

### Legislative and definitional developments since the 2006 MER
- Evaluators recommended expanding domestic and foreign predicate offenses, revising listing procedures for Taliban-related names, enhancing the “equivalent value” confiscation regime, and broadening the definition of “transaction.”
- Legislative proposals drafted to:
  - amend ML statutes to expand list of predicate offenses to include any offense in violation of the laws of the United States punishable by imprisonment for a term exceeding one year;
  - include any act or activity occurring outside of the United States that would constitute an offense if it had occurred within U.S. jurisdiction.
- U.S. Supreme Court decision in June 2008 (United States v. Santos) defined “proceeds” as “net profits” not “gross receipts.”
  - May 2009: Santos was legislatively overruled by adding a new paragraph to the federal AML statute defining “proceeds” to include “gross receipts” of an unlawful activity.

### FinCEN: SARs and analytical outputs — developments and gaps
- MER recommendations: strengthen FinCEN’s analytical outputs and improve SAR quality; adhere to international principles for terrorism-related requests.
- Progress reported:
  - 2006: Began receiving quarterly SAR error reports for various sectors; reports revised yearly and expanded in 2009 to include insurance SARs.
  - March 2007: Implemented improved SAR for MSBs with data more suitable for law enforcement and analysts.
  - October 2007: Published reference on common errors in SAR filings.
  - Provided SAR feedback to insurance and casino sectors; published analytical reports on mortgage loan fraud and ML in November 2006, April 2008, February and March 2009, and February 2010.
  - Focused twice-yearly publications on securities, commodity futures firms, and casinos.
  - Provided guidance on SAR filing and enhanced electronic SAR filing to reduce errors.
- Remaining gaps:
  - No significant progress reported in increasing value added to FinCEN’s analytical outputs for law enforcement or in adherence to principles governing international information exchange on terrorism-related requests.

### Preventive measures — Financial institutions and supervisory framework
- MER findings:
  - Vast majority of deposit-taking institutions subject to full range of AML/CFT requirements: CIP, AML program, record keeping, and reporting.
  - Securities sector: brokers and futures commission merchants subject to similar requirements; some investment advisers and commodity trading advisors were not.
  - 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 CDD requirements in detail, but certain key elements were addressed by “other enforceable means” (OEM), notably the FFIEC examination manual.
  - No general requirement for FIs to look beyond a customer to establish beneficial owners in all cases.
  - Extensive AML/CFT record-keeping for most FIs; BSA-covered insurance products subject to more limited requirements.
  - Wire transfer threshold for ordering institution to obtain/verify/maintain full originator information: US$3,000 (above FATF standard threshold of US$1,000).
- Regulatory framework:
  - FinCEN administers the regulatory regime under the BSA and delegates examination authority to eight federal financial regulatory agencies; in some cases further delegation to self-regulatory authorities.
  - No delegation of BSA compliance supervision responsibilities to state authorities, though close federal-state cooperation exists.
  - Regulators have broad legal authority and adequate powers to supervise, examine, obtain information, and enforce BSA requirements; these powers were used regularly and extensively.
  - Authorities reported significant additional regulatory enforcement actions against FIs for AML non-compliance since 2006.

### Follow-up on FATF Recommendation 5 (rated partially compliant) — eight key deficiencies and updates
- 1) Beneficial ownership identification
  - Issue: No obligation in law or regulation to identify beneficial owners except in very specific circumstances.
  - Recommendation: Introduce a primary obligation to identify beneficial owners of accounts (risk-based approach permitted).
  - 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") to clarify and consolidate “existing regulatory expectations.” Authorities acknowledge unresolved deficiencies.
- 2) Ongoing due diligence
  - Issue: No explicit obligation to conduct ongoing due diligence, except in certain circumstances.
  - Update: No reported progress; authorities maintain ongoing due diligence requirement met through AML program and SAR obligations. Federal banking agencies consider CDD an ongoing process. FINRA issued AML template for small firms. Enforcement actions cited.
- 3) Customer identification for occasional transactions
  - Issue: Limited to cash transactions only.
  - Update: No reported progress. Authorities assert it is inconceivable for non-cash occasional transactions to occur without account opening.
- 4) and 8) Insurance sector measures and customer identity verification
  - Update: Final ruling requiring an AML program for insurance companies that includes a customer identification requirement; requires insurers to obtain “all relevant customer-related information necessary for an effective program.” FinCEN reviewed 641 SAR filings to identify typologies and risks in the insurance sector.
- 5) Investment advisers and commodity trading advisors
  - Issue: No measures applicable.
  - Update: FinCEN issued an NPRM but withdrew it in October 2008; no new NPRM issued. Authorities view investment advisers and commodity trading advisors as not covered.

### Customer Due Diligence (CDD) — Issues 6 and 7
- Issue 6: Verification of identity until after establishment of business relationship not limited to circumstances where essential not to interrupt normal course of business.
- Issue 7: No explicit obligation to terminate business relationship if verification cannot be completed.
- Recommendation:
  - Limit circumstances in which institutions may open an account prior to completing verification.
  - Introduce a presumption that institutions should close an account whenever verification cannot be completed.
- Update:
  - Authorities maintain CIP requirements meet this need, requiring verification “within a reasonable period of time after the account is opened.” CIP should describe terms under which a customer may conduct transactions while identity is verified and when to close an account. Authorities prefer a risk-based approach.

### Developments since the 2006 MER — Financial Institution preventive measures (selected)
- Enhanced BSA Examinations of MSBs:
  - IRS increased number of BSA examiners to 385, an increase of 70 since the 2006 MER.
  - Actions: trained examiners, MOUs with 43 states and Puerto Rico, standardized state reporting forms in testing, draft joint-examination procedures, developed BSA/AML examination manual for MSBs, identified increased number of MSBs via improved information sharing.
- 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 possible application of AML program and SAR regulations to non-bank residential mortgage lenders and originators.

### Preventive Measures — DNFBPs: MER findings and developments
- MER ratings:
  - Recommendation 12: non-compliant.
  - Recommendation 16: non-compliant.
  - Recommendation 24: partially compliant.
- DNFBP coverage:
  - 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 may be subject depending on charter.
  - FinCEN interim final rule (June 2005) required certain dealers in precious metals, stones, or jewels to establish an AML program by January 1, 2006.
  - Casinos subject to BSA requirements; gaming establishments with gross annual revenue of US$1 million or less do not fall within BSA definition of “casino.” Internet gaming is prohibited in the United States.
- Recommendation 12 — three main deficiencies and updates:
  - Casinos: not required to perform enhanced due diligence for higher-risk customers or undertake CDD on suspicion of ML/TF. Update: Authorities interpret guidance to allow risk-based monitoring; FinCEN publishing “suggested best practices” for casinos and card clubs.
  - Accountants, dealers in precious metals and stones, lawyers, and real estate agents: not subject to CDD and record-keeping requirements meeting Recommendations 5 and 10. Update: No substantive progress; ABA Good Practices Guidance being drafted.
  - DNFBPs not subject to obligations relating to Recommendations 6, 8, or 11 (except casinos for Recommendation 11). Update: Authorities did not report progress.
- Recommendation 16 — five main deficiencies and updates:
  - Casinos SAR monetary threshold: Update: No progress reported.
  - Accountants, lawyers, real estate agents, and TCSPs not subject to “tipping off” prohibition/protected from liability when filing SARs: Update: No progress reported.
  - These DNFBPs not required to implement adequate internal controls (AML programs): Update: No substantive progress reported.
  - Dealers in precious metals, stones, or jewels required to implement AML programs but effectiveness unassessed: Update: Beginning in 2010, IRS began nation-wide examinations; FinCEN and IRS delivering examiner training and outreach.
  - No obligations for DNFBPs to give special attention to FinCEN country advisories: Update: No progress reported.
- Recommendation 24 — two main deficiencies and updates:
  - No regulatory oversight of AML/CFT compliance for accountants, lawyers, real estate agents, or TCSPs: Update: No progress reported.
  - Supervisory regime for Nevada casinos not harmonized with BSA: Update: Effective July 1, 2007, Nevada casinos with gross annual gaming revenue exceeding US$1 million became subject to BSA requirements.

### Legal persons, arrangements, and NPOs — developments since the MER
- MER ratings:
  - FATF Recommendations 33 and 34 (transparency of legal persons and arrangements) rated non-compliant.
  - FATF Recommendation SRVIII (NPOs) rated strong.
- Developments on beneficial ownership of companies:
  - Issue: Lack of measures to ensure adequate, accurate and timely information on beneficial ownership and control of legal persons accessible to competent authorities.
  - Updates:
    - U.S. Senate hearings and official reports highlighted ML/TF risks from companies formed without adequate beneficial ownership documentation.
    - Legislation (Bill S.569: “Incorporation Transparency and Law Enforcement Assistance Act”) proposed but not enacted; passage hoped for in 2010.
    - U.S. Treasury, DOJ, and DHS consulting with Congress and private sector; draft Administration Bill sent to Congress in April 2010 to address beneficial ownership definition, documentation requirements, transfer of ownership, and to modify approach to company formation agents.
    - Individual states (Nevada and Wyoming) modified incorporation processes and outlawed bearer shares; Wyoming enhanced requirements for registered agents and legal entities.
    - Uniform Law adopted in 2009 by the National Conference of Commissioners on Uniform State Laws; no states reported steps to enact it.
- Bearer shares:
  - Update: All states are now reported to prohibit the issuance of bearer shares.

### Recommendation 34 (trusts) — issue, recommendation, and update
- Issue: 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 is available to law enforcement concerning beneficial ownership and control of trusts.
- Update:
  - No progress was reported to address the evaluators’ recommendation.
  - Authorities plan to address trust ownership and control after corporate entity issues are resolved.
  - As part of pending legislation to address Recommendation 33, a study on trusts and other legal entities not covered by the legislation will be conducted to assess whether lack of beneficial ownership information raises concerns or has impeded investigations.

### National and international cooperation — findings and developments
- MER findings:
  - Broad and adequate policy and operational mechanisms to facilitate interagency cooperation and coordination.
  - Cooperation mechanisms in law enforcement appeared fragmented; overlap between jurisdictions required more refined coordination.
  - Joint task force model generally effective if appropriately resourced.
- International 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 and multilateral conventions.
  - Most bilateral treaties do not contain dual criminality requirements for non-coercive assistance; where dual criminality exists it mostly relates to compulsory measures.
  - Flexible and efficient system for providing international cooperation in relation to freezing, seizure, and confiscation.
  - FinCEN, law enforcement agencies, and regulators able to provide a wide range of international cooperation including diagonal cooperation.
- Developments since the MER:
  - FinCEN entered into information-sharing MOUs with 42 state MSB regulators; IRS has MOUs with 43 state MSB regulators.
  - Organized Crime Drug Enforcement Task Force (OCDETF) Fusion Center established to improve intelligence and bring unfiltered information into a common database.
  - Case law development: March 2009 adverse decision in 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. — U.S. District Court for D.C. held U.S. statute does not permit pre-trial restraint of property not yet subject to a foreign confiscation judgment; decision appealed.
  - Treaties and MLATs:
    - United States has entered into MLATs, Instruments, or Protocols 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.
    - U.S. 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 providing for dual criminality and covering ML and TF as extraditable offenses.
    - Updated extradition treaties or protocols reported with the United Kingdom and Israel (both in 2007).
    - Older list treaties often supplemented by multilateral conventions (UN Convention for the Suppression of the Financing of Terrorism; Transnational Organized Crime Convention; United Nations Convention Against Corruption).

### Resources and statistics — MER findings and subsequent developments
- MER findings:
  - Evaluators concluded authorities were generally well-equipped, staffed, resourced, and trained.
  - Concerns about adequacy of resources within the IRS to undertake examinations of large numbers of institutions under its responsibility.
  - Approximately 206,081 entities under the IRS’s supervisory jurisdiction.
  - Evaluators highlighted need to significantly increase IRS resources, especially for supervision of MSBs.
- Developments since the MER:
  - Authorities provided information on improved IRS resources to conduct examinations of MSBs (see Financial Institution preventive measures).
  - Department of Justice reported its new Consolidated Assets Tracking System allows tracking statutory basis for seizures/forfeitures to identify terrorism forfeiture law cases as a separate category.
- Evaluators’ recommended actions (selected):
  - Legal: expand list of domestic and foreign predicate offenses; enhance confiscation regime; broaden definition of “transaction.”
  - Preventive measures: introduce senior management approval for opening correspondent accounts; extend PEPs requirements to investment advisers and commodity trading advisors; comply with FATF batch wire transfer requirements including reducing de minimus threshold to US$ 1,000; remove SAR reporting threshold for casinos and extend SAR obligations to additional sectors; extend AML program requirement to exempted institutions and certain investment entities; ensure insurance companies apply AML/CFT measures to foreign branches and subsidiaries; enhance supervision and enforcement in credit union, insurance and securities sectors; enhance IRS supervisory capacity for MSBs.
  - National and international cooperation: improve operational law enforcement coordination; review ML offenses for Vienna and Palermo Conventions compliance; include “participation in an organized criminal group” as foreign predicate offense; transpose UN Security Council Resolution 1267(1999) designations in OFAC list; provide formal legal basis for equivalent value seizure upon foreign request; extend list of predicate offenses to all 20 designated categories; review older extradition treaties.
  - Resources and statistics: ensure adequate IRS resourcing; ensure statistics required under FATF Recommendation 32 are collected and maintained; include confiscation in TF-related statistics; maintain comprehensive statistics for supervisory actions especially in MSB sector.

*Source: IMF technical note derived from FATF June 2006 MER and subsequent U.S. progress reports (May 2008 and June 2009) and the 2009/10 U.S. FSAP report.*

### 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 laundering and combating the financing of terrorism (AML/CFT) regime of the United States

### Purpose, scope, and basis of the TN
- Provides an overview of the U.S. AML/CFT regime based on:
  - the June 2006 mutual evaluation report (MER) by the Financial Action Task Force (FATF);
  - 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.
- Focuses on progress since the 2006 MER in legal, regulatory, and institutional frameworks addressing significant MER deficiencies.
- Indicates areas where no or limited progress has been made.
- States that the TN:
  - aims to provide a factual update;
  - does not constitute a reassessment by the Fund nor re-rate levels of 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.

### MER timing and methodology
- Latest mutual evaluation conducted jointly by FATF and the Asia Pacific Group on Money Laundering (APG) during two on-site visits: November 7–18, 2005, and January 9–23, 2006.
- MER adopted by FATF plenary in June 2006 and by APG in July 2006.
- MER reviewed AML/CFT legislation, regulations, institutional framework, and systems covering financial institutions and designated non-financial businesses and professions (DNFBPs).
- MER rated compliance with FATF 40 Recommendations plus 9 Special Recommendations, taking into account effectiveness of implementation.

### FATF progress-reporting and scope of deficiencies
- Under FATF procedures, evaluated members must report on steps taken to address partially compliant or non-compliant Recommendations.
- In the U.S. case, the MER identified partial compliance or non-compliance for Recommendations:
  - 5 (customer due diligence (CDD))
  - 12 (CDD and recordkeeping for DNFBPs)
  - 16 (suspicious transaction reporting and internal controls for DNFBPs)
  - 24 (regulation and supervision of DNFBPs)
  - 33 (transparency of legal persons)
  - 34 (transparency of legal arrangements)
- United States expected to make next progress report to the FATF in June 2010.

### Interaction with evolving FATF standards
- FATF discussions on issues relevant to MER-identified deficiencies (e.g., CDD, risk-based approach, transparency of beneficial ownership and control of corporate vehicles and trusts, DNFBPs) may affect future U.S. compliance if Recommendations are revised.

### Overview: structure of subsequent sections
- The TN provides:
  - summary background on U.S. ML and TF situation, strategies, and priorities;
  - summary information from the MER and the progress reports.

### Money laundering: key observations and data points
- MER conclusion: illicit trafficking in narcotics is a major source of proceeds for ML in the United States; fraud and firearms violations also significant among confiscated assets.
- MER reported prevalent ML methods (from SARs): use of cash, wire transfers, and correspondent accounts by individuals and businesses.
- Estimates and comparative figures cited:
  - 2001–2005 estimates of annual proceeds of illicit trafficking in narcotics in the United States: $60–$65 billion.
  - 2005 UNODC World Drug Report estimate for combined North American (U.S., Mexican, and Canadian) retail sales of cocaine, opiates, cannabis, amphetamines, and ecstasy: 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: around $60 billion.
- Policy-relevant inference:
  - Fraud and other white-collar crimes could generate proceeds at least equal to, if not significantly greater than, those associated with drug trafficking.
  - Laundering typologies differ: drug-related laundering often cash-based; fraud/white-collar proceeds often already in the formal financial system in non-cash form, bypassing placement and many entry-level CDD measures.
  - Corporate vehicles and opaque beneficial ownership information are emphasized as important in laundering associated with white-collar crime.
- Aggregate and order-of-magnitude considerations:
  - Adjusting U.S. government-sourced estimates for drug trafficking, fraud, and other cited crimes into real 2009 dollars suggests a minimum figure of around $275 billion (excluding tax evasion) as a point of departure for domestic proceeds of crime (POC).
  - The total domestic POC is likely among the highest in the world given the size of the U.S. economy.
- Tax evasion and the tax gap:
  - No accurate or credible estimates of U.S. tax evasion; total U.S. tax gap suggested by three sources to be in the region of $500 billion.
  - First report: current value of the net Federal tax gap around $400 billion (or around 15 percent of gross tax receipts) — note this estimate includes only a fraction of international tax evasion and excludes state and local tax evasion.
  - Second report: international tax gap estimated at $100 billion or more annually in 2009, with unverified material suggesting around half may be evasion.
  - Third set: state-level tax gap estimates could average around $1 billion per state or $50 billion annually.
- International dimensions and implications:
  - U.S. role as an international financial center exposes it to ML from crimes committed in other countries; significant foreign criminal assets may end up in the United States during the “integration” stage of laundering.
  - Examples cited:
    - Approximately $7.5 billion of Russian assets laundered through the Bank of New York in the late 1990s.
    - Riggs Bank held between $4–8 million of General Augusto Pinochet’s illegal deposits.
    - Pavel Lazarenko convicted of laundering $21.7 million of proceeds, including purchase of a $6.7 million mansion.
  - U.S. authorities encouraged to broaden ML criminalization provisions to include laundering of proceeds of significant foreign crimes—including fraud.
  - U.S. expatriation of illicit proceeds creates ML threats for other countries; underscores U.S. responsibility in international cooperation and need to address lack of compliance with FATF Recommendations on transparency of ownership and control of companies and trusts.
- Conceptual clarifications:
  - Total domestic POC is not equivalent to the amount of money laundered domestically due to expatriation of proceeds, importation of foreign proceeds, tax evasion not being an ML predicate, and the difference between proceeds and laundering-related financial transactions.

### Terrorism financing: summary of findings
- TF has been a main U.S. concern 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 identify wire transfers and non-profit organizations (NPOs) as vulnerable to TF.
- Enhanced enforcement of anti-terrorism laws has made NPO use for TF less transparent.
- TF investigations identified use of:
  - front companies and nominees to wire funds;
  - financial institutions (FIs) and money services businesses (MSBs);
  - reverse structuring via large transaction amounts to minimize paper trails.

### Strategic implications and priorities (introductory)
- The TN highlights the need for U.S. authorities to:
  - consider whether the AML/CFT framework has adapted from a historical focus on drug-trafficking-related ML to address the broader range of ML risks, especially fraud and white-collar crime;
  - continue efforts to improve and strengthen AML/CFT measures to meet high levels of domestic and international ML threats;
  - address transparency of beneficial ownership and control of companies and trusts to improve international cooperation and compliance with FATF Recommendations.

*Source: IMF technical note derived from FATF June 2006 MER and subsequent U.S. progress reports (May 2008 and June 2009) and the 2009/10 U.S. FSAP report.*

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

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

### U.S. strategy, priorities, and objectives
- Three main goals at the time of the mutual evaluation:
  - (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 elements included private sector outreach, interagency coordination and information sharing.
- Prioritized objectives:
  - (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.

### National Security Strategy linkage
- The U.S. National Security Strategy (May 2010) includes sections on:
  - deterring threats to the international financial system;
  - strengthening international norms against corruption;
  - transnational criminal threats and threats to governance.
- The Strategy reinforces the continuing relevance of financial integrity to the strength of the U.S. financial system and economy and to national security.

### Key findings from the 2006 FATF mutual evaluation (MER)
- Overall assessment:
  - United States had implemented an AML/CFT system that was broadly in line with the international AML/CFT standard.
  - The United States had significantly strengthened its AML/CFT regime since June 1997, including enactment of the USA PATRIOT Act (October 2001).
- Criminalization and implementation:
  - The United States criminalized ML and TF covering most categories required by the FATF standard.
  - UN conventions and Security Council Resolutions on TF were effectively implemented.
- Law enforcement outcomes:
  - U.S. law enforcement achieved impressive results in investigations and prosecutions, and in asset freezing, seizure, and confiscation.
- Financial intelligence unit:
  - The Financial Crimes Enforcement Network (FinCEN) is the United States’ financial intelligence Unit (FIU), and FinCEN substantially met the FATF standard.
- Noted deficiencies:
  - Preventive measures applicable to financial institutions and DNFBPs.
  - Transparency of legal persons and arrangements.

### Quantitative observations on confiscations cited in MER
- Annual amount of proceeds of crime confiscated as indicated in the 2006 MER: about $240 million.
- Authorities suggested current confiscations amount to approximately $2 billion annually (apparently including deferred prosecution agreement settlements but excluding confiscations at the state level—more precise information is difficult to obtain).
- The $2 billion represents less than one percent of the estimated annual POC (excluding tax crimes).

### Progress reported as of March 2010 and outstanding issues
- As of March 2010, many evaluator recommendations had not been addressed in full or in part.
- Efforts underway to introduce uniform legislation requiring information on beneficial ownership and control of legal persons and arrangements across all the states.
- Fundamental unresolved deficiencies remain regarding availability of beneficial ownership and control information with respect to legal persons and arrangements.

### Developments since the 2006 MER: legislative and definitional changes
- Evaluators had recommended expanding domestic and foreign predicate offenses, revising listing procedures for Taliban-related names, enhancing the “equivalent value” confiscation regime, and broadening the definition of “transaction.”
- Legislative proposals drafted to:
  - amend ML statutes to expand list of predicate offenses to include any offense in violation of the laws of the United States punishable by imprisonment for a term exceeding one year;
  - include any act or activity occurring outside of the United States that would constitute an offense if it had occurred within U.S. jurisdiction.
- U.S. Supreme Court decision in June 2008 (United States v. Santos) defined “proceeds” as “net profits” not “gross receipts.”  
  - May 2009: Santos was legislatively overruled by adding a new paragraph to the federal AML statute defining “proceeds” to include “gross receipts” of an unlawful activity.

### FinCEN: recommendations and developments on SARs and analytical outputs
- MER recommendations included strengthening FinCEN’s analytical outputs and improving SAR quality; adherence to international principles for terrorism-related requests.
- Progress reported (FinCEN measures):
  - 2006: Began receiving quarterly SAR error reports for various sectors to identify financial institutions with systemic errors; reports revised yearly and expanded in 2009 to include a separate report on insurance industry SARs.
  - March 2007: Implemented an improved SAR for MSBs with data in a format more suitable for law enforcement and analysts.
  - October 2007: Published a new reference on common errors in SAR filings with tips and suggestions for AML programs.
  - 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 industry on how to file SARs and enhanced electronic SAR filing to reduce errors.
- No significant progress reported in increasing value added to FinCEN’s analytical outputs for law enforcement or in adherence to principles governing international information exchange on terrorism-related requests.

### Preventive measures—financial institutions: MER findings and subsequent developments
- MER findings (at time of mutual evaluation):
  - Vast majority of deposit-taking institutions subject to full range of AML/CFT requirements: CIP, AML program, record keeping, and reporting.
  - Securities sector: brokers and futures commission merchants subject to similar requirements; some investment advisers and commodity trading advisors (in their capacity as asset managers) were not.
  - 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 CDD requirements in detail, but certain key elements were addressed by “other enforceable means” (OEM), notably the FFIEC examination manual.
  - No general requirement for FIs to look beyond a customer to establish beneficial owners in all cases.
  - Extensive AML/CFT record-keeping for most FIs; BSA-covered insurance products subject to more limited requirements.
  - Wire transfer threshold for ordering institution to obtain/verify/maintain full originator information: US$3,000 (above FATF standard threshold of US$1,000).
- Regulatory framework:
  - FinCEN administers the regulatory regime under the BSA and delegates examination authority to eight federal financial regulatory agencies; in some cases further delegation to self-regulatory authorities.
  - No delegation of BSA compliance supervision responsibilities to state authorities, though close federal-state cooperation exists.
  - Most states use the 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; these powers were used regularly and extensively.
  - Authorities reported significant additional regulatory enforcement actions against FIs for AML non-compliance since 2006.

### Follow-up on FATF Recommendation 5 (rated partially compliant) — eight key deficiencies and updates
- 1) Beneficial ownership identification
  - Issue: No obligation in law or 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 permitted).
  - Update: Limited progress. Issued guidance and a strategic action plan to enhance access to beneficial ownership information. No primary legal obligation introduced. March 2010: multi-agency guidance ("Guidance on Obtaining and Retaining Beneficial Ownership Information") to clarify and consolidate “existing regulatory expectations” for obtaining beneficial ownership information for “certain accounts and customer relationships.” Authorities acknowledge unresolved deficiencies regarding availability of beneficial ownership and control information for legal persons and arrangements.
- 2) Ongoing due diligence
  - Issue: No explicit obligation to conduct ongoing due diligence, except in certain defined circumstances.
  - Recommendation: Introduce explicit obligation for FIs to conduct ongoing due diligence.
  - Update: No reported progress. Authorities maintain ongoing due diligence requirement is met through the AML program and SAR legal obligations. Federal banking agencies consider CDD an ongoing process and expect FIs to apply it on a risk-sensitive basis in examinations. FINRA issued an AML template for small firms to assist broker-dealers. Authorities cite enforcement actions for deficient CDD and enhanced due diligence practices.
- 3) Customer identification for occasional transactions
  - Issue: Customer identification for occasional transactions limited to cash transactions only.
  - Recommendation: Extend customer identification obligation to non-cash occasional transactions.
  - Update: No reported progress. Authorities assert it is inconceivable that an FI would conduct an occasional transaction using non-cash instruments without requiring account opening or conversion to cash; no examples identified during assessment where such non-cash occasional transactions had occurred.
- 4) and 8) Insurance sector measures and customer identity verification
  - Issue 4): No requirement for life insurers issuing covered insurance products to verify and establish the true identity of the customer (except where product is a “security”).
  - Issue 8): Effectiveness of measures in the insurance sector (came into force on May 2, 2006) could not be assessed.
  - Recommendation: Implement a CIP requirement for the insurance sector.
  - Update: United States issued a final ruling requiring an AML program for insurance companies that includes a customer identification requirement. Ruling requires insurers to obtain “all relevant customer-related information necessary for an effective program” either from agents and brokers or other sources. Authorities claim this information assists insurers to assess ML risks and identify red flags. Failure to adequately identify customers could result in non-compliance with regulatory obligations. 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 the SAR analysis shows insurers identify and report suspicious activities including information on policyholders, beneficiaries and other parties associated with policies.
- 5) Measures applicable to investment advisers and commodity trading advisors
  - Issue: No measures applicable to investment advisers and commodity trading advisors.
  - Recommendation: Extend AML/CFT measures to investment advisers and commodity trading advisors, and the limited number of depository institutions not covered; extend AML/CFT obligations including PEP requirements to investment advisers and commodity trading advisors.
  - Update: FinCEN issued a Notice of Proposed Rulemaking (NPRM) for AML programs for investment advisors and commodity trading advisors but withdrew it in October 2008 because too much time had elapsed; no new NPRM has been issued. Authorities view investment advisors and commodity trading advisors as not covered (no further detail provided in the excerpt).

*Source: Excerpt from IMF staff report (March 2010) summarizing FATF 2006 mutual evaluation and subsequent developments*

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

### _cr10253pdf - conclusions were corroborated by the findings of on-site AML examinations. In addition, basing CDD

### Customer Due Diligence (CDD) — Issues 6 and 7
- 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:
  - Authorities maintain the United States has met this requirement under the CIP requirements, stating the CIP requirement stipulates programs “...must contain procedures for verifying the identity of a customer ... within a reasonable period of time after the account is opened.”25
  - 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.”
  - Authorities state their risk-based approach to customer identification would result in the termination of a business relationship where verification cannot be completed; authorities prefer the risk-based approach over a rigid requirement to close an account.26

### Developments since the 2006 MER — Financial Institution Preventive Measures
- Enhanced BSA Examinations of MSBs:
  - IRS 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 information exchange and reporting on licensed and chartered MSBs; standardized forms are being tested for state reporting to the IRS.
    - Prepared draft procedures for conducting joint examinations of MSBs and commenced concurrent examinations with select states.
    - Developed a BSA/AML examination manual for MSBs with risk-based elements; IRS, FinCEN, and state representatives provided training on its use.
    - Identified an increased number of MSBs 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 possible application of AML program and SAR regulations to non-bank residential mortgage lenders and originators.

### Preventive Measures — Designated Non-Financial Businesses and Professions (DNFBPs)
- Main findings of the 2006 MER:
  - Non-compliant: Recommendation 12 (CDD and recordkeeping for DNFBPs) and Recommendation 16 (suspicious transaction reporting and internal controls).
  - Partially compliant: Recommendation 24 (regulation and supervision of DNFBPs).
  - 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 may be subject depending on charter.
  - FinCEN interim final rule (June 2005) required certain dealers in precious metals, stones, or jewels to establish an AML program by January 1, 2006; no explicit obligations for CDD, record-keeping, and suspicious transaction reporting beyond establishing an AML program 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.” Internet gaming is prohibited in the United States.
- Developments and specific issues:
  1) Recommendation 12 — three main deficiencies:
     - Issue: Casinos not required to perform enhanced due diligence for higher-risk customers, nor required to undertake CDD when there is suspicion of ML or TF.
       - Recommendation: Explicitly require casinos to perform enhanced due diligence and undertake CDD on suspicion of ML/TF.
       - Update: Authorities interpret FinCEN’s Guidance Question 14 to allow risk-based monitoring factoring product type, locations, and nature of customers; FinCEN in process of publishing “suggested best practices” for casinos and card clubs to provide risk-based guidance.
     - Issue: Accountants, dealers in precious metals and stones, lawyers, and real estate agents not subject to CDD and record-keeping requirements meeting 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 and is intended to provide practical risk-based approach guidance; ABA Guidance not yet adopted or published but anticipated to be adopted during the summer of 2010.30
     - Issue: None of the DNFBP sectors subject to obligations relating to Recommendations 6, 8, or 11 (except casinos for Recommendation 11).
       - Recommendation: Extend obligations relating to Recommendations 6, 8 and 11 to all DNFBPs; issue proposed final rule to expedite AML obligations for “persons involved in real estate closings and settlements”; prepare an advance notice of proposed rulemaking for TCSPs.
       - Update: Authorities did not report progress.
  2) Recommendation 16 — five main deficiencies:
     - Issue: Casinos required to report suspicious transactions but there is a monetary threshold.
       - Recommendation: Remove monetary threshold for SAR reporting in casinos and extend SAR obligation to other DNFBPs.
       - Update: No progress reported.
     - Issue: Accountants, lawyers, real estate agents, and TCSPs not subject to “tipping off” prohibition or protected from liability when filing a SAR.
       - Recommendation: Make these DNFBPs subject to “tipping off” prohibition and protect them from liability when filing SARs.
       - Update: No progress reported.
     - Issue: Accountants, lawyers, real estate agents, and TCSPs 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.
     - Issue: Dealers in precious metals, stones, or jewels required to implement AML programs but effectiveness of implementation cannot yet be assessed.
       - Recommendation: Ensure dealers are aware of obligations and implement AML programs effectively.
       - 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; guidance provided to IRS examiners; IRS and FinCEN hold quarterly collaborative discussions with field examiners.
     - Issue: No specific obligations on accountants, lawyers, real estate agents, or TCSPs to give special attention to FinCEN country advisories urging enhanced scrutiny.
       - Recommendation: Require these DNFBPs to give special attention to FinCEN country advisories.
       - Update: No progress reported.
  3) Recommendation 24 — two main deficiencies:
     - Issue: No regulatory oversight of AML/CFT compliance for accountants, lawyers, real estate agents, or TCSPs.
       - Recommendation: Make these sectors subject to AML/CFT obligations and appropriate regulatory oversight; for TCSPs introduce a registration process for agents engaged in company formation (perhaps with de minimis threshold).
       - Update: No progress reported.
     - 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.

### Legal Persons and Arrangements; Non-Profit Organizations
- Main findings of the 2006 MER:
  - FATF Recommendations 33 and 34 (transparency of legal persons and arrangements) rated non-compliant.
  - FATF Recommendation SRVIII (NPOs) rated strong.
- Developments since the 2006 MER:
  - Issue 1: Lack of measures to ensure adequate, accurate and timely information on beneficial ownership and control of legal persons accessible to competent authorities.
    - Recommendation: Undertake comprehensive review to make beneficial ownership information available on a timely basis for companies not offering securities to the public; work with states to devise uniform procedures; bring company formation agents within BSA framework and require AML Programs and CIP procedures.
    - Update:
      - No substantive results reported, but authorities cite several developments:
        - U.S. Senate hearings and official reports highlighting ML/TF risks from companies formed without adequate beneficial ownership documentation.33
        - Legislation (Bill S.569: “Incorporation Transparency and Law Enforcement Assistance Act”) proposed but not enacted; passage hoped for in 2010.
        - U.S. Treasury, DOJ, and DHS consulting with Congress and private sector to amend Bill S.569; draft Administration Bill sent to Congress in April 2010 to address issues including:
          - Clarify and limit beneficial ownership definition and 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 transfer of ownership of legal entities.
        - Individual states have begun addressing beneficial ownership. Nevada and Wyoming modified State incorporation processes, outlawed 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 adopted in 2009 by the National Conference of Commissioners on Uniform State Laws, but no states reported steps to enact it.
  - Issue 2: Jurisdictions permitting bearer shares lacked measures to prevent misuse for money laundering.
    - Recommendation: None made.
    - Update: All states are now reported to prohibit the issuance of bearer shares.

*Source: https://www.imf.org/-/media/websites/imf/imported/external/pubs/ft/scr/2010/_cr10253pdf.pdf*

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

### _cr10253pdf - 39. Recommendation 34 was rated as non-compliant with one main deficiency

### Recommendation 34 — Issue, Recommendation, and Update
- 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.
- Recommendations: 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.

### National and International Cooperation — Main findings of the 2006 MER
- Overall findings:
  - The United States has broad and adequate policy and operational level mechanisms to facilitate interagency cooperation and coordination.
  - Cooperation mechanisms in the law enforcement area appeared to be fragmented.
  - At the operational level, there was overlap between the jurisdictions of the various law enforcement agencies, requiring more refined coordination.
  - The joint task force model seemed generally effective, provided that it is appropriately resourced and developed.
  - Authorities have undertaken initiatives including significant reorganization efforts; evaluators noted it was too early to assess the effectiveness of these measures.
- International cooperation findings:
  - The 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.
  - Most bilateral treaties entered into by the United States do not contain dual criminality requirements; where they exist, they mostly relate to requests requiring compulsory or coercive measures, in line with the standard.
  - The United States had implemented a flexible and efficient system for providing international cooperation in relation to freezing, seizure, and confiscation.
  - 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.
  - The U.S. extradition regime was based on a solid and flexible legal framework that largely relied on bilateral agreements subject to dual criminality; the system was efficient and effective and allowed the United States to extradite its own nationals.
  - FinCEN, law enforcement agencies, and regulators were allowed to provide their foreign counterparts with a wide range of international cooperation, including diagonal cooperation (e.g., from Financial Intelligence Unit (FIU) to law enforcement, or from law enforcement to regulators).

### National and International Cooperation — Other developments since the 2006 MER
- Domestic cooperation and information-sharing:
  - 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.
  - 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.”
- Operational developments:
  - 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.
  - The Fusion Center 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.
- Case law development:
  - In March 2009, the United States received an adverse decision 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. According to the authorities, although this case is a legally binding precedent for only one of the U.S. federal district courts, it is nevertheless a noteworthy development.
- Treaties, MLATs, and extradition:
  - The United States has entered into Mutual Legal Assistance Treaties (MLATs), Instruments, or Protocols with 80 countries or multilateral organizations, up from 50 in July 2005.
  - The United States and the European Union completed 27 new MLATs, Instruments, or Protocols which 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.
  - The United States informs that it has bilateral extradition treaties with 133 countries, and that many of them were recently updated to provide for dual criminality for extradition purposes.
  - 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.
  - Since the 2006 MER, updated extradition treaties or protocol are reported to have come into effect with the United Kingdom and Israel, both in 2007 that inter alia, allow for less cumbersome documentation requirements.
  - Where older list treaties are in effect, they are often supplemented by various 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.
  - With regards to “ad hoc and unilateral” extradition according to the principles of the Terrorist Financing Convention, the United States presumes that it refers to extradition in the absence of a bilateral extradition treaty. It notes that under Article 11(2) of the Convention, a State Party “may, at its option” allow for extradition under the Convention, if its domestic law allows for such extraditions. In most cases it is stated that the law requires that there be a bilateral treaty to effect extradition, but the United States maintains that under Article 11(1) the offenses covered under the Terrorist Financing Convention are additional extraditable offenses under the older, list-based extradition treaties.

### Resources and Statistics — Main findings of the 2006 MER
- Overall findings:
  - The evaluators concluded that, overall, the authorities were well-equipped, staffed, resourced, and trained.
  - Concerns were noted about the 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.
  - The 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:
  - The 2006 MER made additional recommendations to strengthen resources and statistics with respect to those FATF Recommendations that were not rated as non-compliant or partially compliant. In response, the authorities have provided information on, inter alia, 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’ recommendations summarized in Table 1 for other FATF Recommended Action Plan Items (selected):
  - Legal System and Related Institutional Measures: expand the list of domestic and foreign predicate offenses for money laundering; revise the system used to list Taliban-related names; enhance the “equivalent value” confiscation regime; broaden the definition of “transaction” to cover all conduct consistent with the Vienna and Palermo Conventions.
  - Preventive Measures—Financial Institutions: introduce explicit requirement that the opening of individual correspondent accounts should involve senior management approval; extend the PEPs requirements to investment advisers and commodity trading advisors; introduce requirement that the relying financial institution should obtain immediately from the introducing institution customer identification details; comply with FATF batch wire transfer requirements including reducing the de minimus threshold to US$ 1,000; extend full recordkeeping requirements to the insurance sector; remove the SAR reporting threshold and extend the SAR obligations to investment advisers, commodity trading advisors and insurance intermediaries; extend the AML program requirement to exempted non-federally regulated depository institutions and to unregistered investment companies, investment advisers and commodity trading advisors; ensure insurance companies apply AML/CFT measures to their foreign branches and subsidiaries; require all financial institutions to screen prospective employees for high standards; enhance supervision and enforcement for AML/CFT compliance in the credit union, insurance and securities sectors; 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: close the remaining gap between the policy level and the operational law enforcement work; implement more refined law enforcement coordination at the operational level; review the money-laundering (ML) offenses to ensure all conduct required to be criminalized by the Vienna and Palermo Conventions is covered; include “participation in an organized criminal group” as a foreign predicate offense as required by Article 6(2)(c) of the Palermo Convention; transpose all United Nations (UN) Security Council Resolution 1267(1999) designations in the Office of Foreign Assets Control (OFAC) list; provide a formal legal basis to allow for equivalent value seizure upon a foreign request; extend the list of domestic and foreign predicate offenses to all 20 designated categories; review older list-based extradition treaties to ensure that they do not pose an obstacle to extradition; and allow extradition according to the principles of the UN Terrorism Finance (TF) Convention on an ad hoc and unilateral basis.
  - Resources and Statistics: ensure that the IRS is adequately resourced to effectively supervise all of the entities for which it is responsible; ensure that all of the statistics required under FATF Recommendation 32 are collected and maintained; include confiscation as part of the terrorism- and FT-related statistics to be held; and maintain more comprehensive statistics for supervisory actions especially in the MSB sector.

*Source: _cr10253pdf - 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/external/pubs/ft/scr/2010/_cr10253pdf.pdf_