U.S. budget cut seen threatening state, local financial crime-fighting

March 11, 2011

By Brett Wolf

ST. LOUIS, March 11 (Complinet) – A looming cut to the federal financial crime agency’s budget could cripple state and local investigations that depend on transactions monitored via the anti-money laundering Bank Secrecy Act, worried authorities said.

In a surprise move, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has decided to save nearly $1.4 million by doing away with positions that facilitate state and local law enforcers’ access to the coveted data, often used in fighting drug trafficking, fraud and terrorism finance.

“For very, very small savings, we’re looking at having a very major negative impact on investigations,” Cameron Holmes, the senior litigation counsel for the Arizona Attorney General’s Office, told Complinet. “It is far, far, far out of proportion to the savings.”

BSA data includes reports that financial institutions such as banks, broker-dealers and money services businesses have filed on transactions deemed suspicious, or those involving large amounts of cash. Millions of such reports are filed with the Treasury Department each year and are stored electronically in FinCEN databases.

Financial investigators and others rely on these documents to help them track suspicious money flows. In recent years, investigators with federal, state and local law enforcement agencies have been able to access Bank Secrecy Act data instantly online at their workstations. FinCEN is poised, however, to abolish direct access for state and local authorities, and force them to access the data via a gatekeeper, to try to save money.

The Obama administration’s fiscal 2012 budget request for the Treasury Department seeks direct appropriation of $84 million for FinCEN, a reduction of roughly 25 percent from the $111m FY 2010 appropriation. While the impact of the lesser appropriation is meant to be blunted by transferring $30 million from Treasury’s forfeiture fund and $3 million from elsewhere, the total allocation of $117 million would be too little to prevent FinCEN from slashing certain programs.

FinCEN spokesman Steve Hudak told Complinet that as a result of deficit concerns, all federal agencies have been asked to “prioritize their capabilities”. He did not elaborate. The cuts would take effect from October. He also pointed out that federal BSA data users would be unaffected.

The most controversial of these planned cuts would eliminate nine full-time FinCEN employees through attrition or reassignment. The employees on the chopping block train state and local law enforcers who access BSA data online via FinCEN’s so-called Project Gateway system and audit their usage. Without these specialists, FinCEN could not oversee the law enforcers’ access and ensure that the highly sensitive data is used appropriately, Hudak said.

The Obama administration budget document said the cut “will limit direct access to BSA data to only state coordinators,” which are government entities — typically state-police agencies — that serve as points of contact for FinCEN.

“The state coordinators and FinCEN analysts would then be asked to provide access to the BSA by fulfilling query requests from those customers that previously had direct access,” the budget document states.


FinCEN has frequently touted Project Gateway over the years because of its efficiency in distributing BSA data to state and local users. As FinCEN’s web site puts it: “Gateway’s cutting edge technology gives each state electronic access directly to financial information which they use with great success.”

Now, however, with FinCEN prepared to abolish such access, some state and local law enforcement officials complain that the decision will cripple their work.

Holmes’ chief concern was that if investigators are forced to access BSA data through their state coordinators, it could take days or even weeks of “back and forth, back and forth” communication to refine a BSA document search. In contrast, a trained investigator could have accomplished the same task in half an hour with direct access, he said.

For instance, Holmes said that he does not always know the name of the suspect he is tracking, so he has to conduct a BSA document search for all suspicious activity reports (SARs) that name a certain suspected crime, such as mortgage fraud. To narrow the search, he will then add qualifiers, such as the location where the activity took place and a dollar threshold. In some cases, his searches will reveal that investigators in other jurisdictions are after the same culprit and he can cooperate with them. All of this can be done quickly because he has direct access to the data, Holmes said.

“The state coordinator will be playing ‘pin the tail on the donkey’ trying to find what the investigator really wants,” he said. “There is a very high likelihood that many of these investigations are not going to happen out of frustration.”

Holmes was also concerned that even if the state coordinators were eager to help, they would lack the staff to handle the massive numbers of inquiries they are apt to receive. According to the FinCEN spokesman, in 2010, state and local law enforcement and regulatory agencies made roughly 173,000 queries to FinCEN’s BSA database. He added that they ranged from queries about individual subjects to queries about all BSA data available within a zip code or county.

“Of these requests, approximately 53 percent were made through state coordinators. As the budget request states, we expect that state and local needs can be met by channeling requests through state coordinators, or by direct request to FinCEN,” Hudak told Complinet.

Holmes also said he feared that information gleaned from the BSA data would be “garbled” as it was passed around, and that investigators would no longer know that parallel investigations targeting the same people or entities were underway in other jurisdictions. “I still find it very, very difficult to believe that this could happen. This should never happen,” he said.


Richard Weber, the chief of the New York County District Attorney’s Office’s major economic crimes bureau who formerly headed the US Justice Department’s Asset Forfeiture and Money Laundering Section, agreed with Holmes’ concerns. He told Complinet that the DA’s office has had online access to FinCEN’s BSA data for 15 years and added that during the past year it created a team dedicated to reviewing financial institutions’ SARs in search of financial crimes.

“Right now, we have a team of financial analysts who spend hours per week looking through the FinCEN database to find cases in the securities area, international money movement, terror finance, unlicensed money remitting, Ponzi schemes, mortgage fraud and other financially related cases and trends,” Weber said.

Weber revealed that the DA’s office has entered roughly 50,000 queries into the BSA database over the past five years and as a result has opened “well over 100 cases.” He added, however, that with the new SAR review team up and running, the DA’s office has come to rely even more heavily on direct access to the data.

“[FinCEN’s planned cut] would hurt us now more than ever due to the dedicated efforts we have in place now,” he said. “This really would just change dramatically the way we investigate, prosecute and approach financial cases.”


FinCEN’s decision could also have repercussions for the Treasury bureau, limiting its access to financial intelligence collected by state and local law enforcers.

Holmes doubles as the staff director of the Southwest Border Anti-Money Laundering Alliance, a network of people, agencies, and task forces in the region that cooperate to combat money laundering. He said that the alliance shares “a massive amount” of data with FinCEN for analytical purposes.

“That is going to stop if we have to put all of our analytical resources into getting these [BSA document] queries done,” he said.

The proposed budget cut comes less than 16 months after President Barack Obama established the Financial Fraud Enforcement Task Force. This inter-agency body was to bolster cooperation between federal, state and local authorities and ensure that all relevant parties had access to the resources they required to better thwart mortgage fraudsters and other financial criminals to help prevent another financial meltdown.

In addition to punishing such individuals, the goal was to more effectively trace and recover crime proceeds on behalf of victims. FinCEN and its BSA database were key players in this initiative from the start.


Peter Djinis, who formerly served as both a federal prosecutor and a regulatory policy official at FinCEN, told Complinet that he was surprised by the cuts. He said that until now, FinCEN has led something of a “charmed” existence, receiving budget increases regularly.

FinCEN was created in 1990 and assigned responsibility for administering the BSA in 1994. Since then, it has never experienced budget cuts. It would have seen a slight reduction in its FY 2011 appropriations, but since that budget has not been finalized, it is still operating on its FY 2010 budget. In essence, the proposed FY 2012 budget appropriation figure represents two years of budget cuts lumped into one.

Djinis also noted that some have speculated that FinCEN chose to propose this high-profile program cut knowing it would outrage state and local law enforcement agencies and raise pressure to restore the budget.

Djinis added, however, that he has some doubts about this theory because FinCEN does not have a history of employing such tactics.

Djinis added that “the lifeblood of FinCEN is to get the BSA information out there and make it available in as easy a manner as possible [to all law enforcement agencies].”

Weber added that at a time when FinCEN is spending tens of millions of dollars to upgrade its IT infrastructure, it seems “disingenuous to take it away from so many users” to save less than $1.4 million.

“There must be a better way for FinCEN to achieve what it wants to achieve,” he said.

(This article was first published in Complinet (www.complinet.com).Complinet, part of ThomsonReuters, is a leading provider of connected risk and compliance information and on-line solutions to the global financial services community.)

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