Stopping terrorists at the bank

Statement of FinCEN director William Fox before House Subcommittee on Oversight and Investigations

In June, the Treasury Department's acting inspector general delivered a report to Congress on the government's efforts to block terrorist financing and money laundering. His report was no whitewash.

Dennis Schindel, the acting inspector general, criticized federal regulatory agencies for failing to provide sufficient oversight to ensure that bank officials are reporting all suspicious financial transactions. He also criticized the quality of data in Treasury's database of suspicious-activity reports. In his audit, he found many instances of duplicate, missing, incomplete, inconsistent or erroneous information.

Treasury's database is used by regulatory and law enforcement authorities who need accurate and timely data to prevent and prosecute financial crimes. The Financial Crimes Enforcement Network (FinCEN) is responsible for the database's quality and completeness. "We believe the department can do a better job," Schindel told members of the House Financial Services Committee's Oversight and Investigations Subcommittee.

Officials in FinCEN, a Treasury bureau, say they agree with Schindel's findings. During the next five years, they expect to spend about $18.5 million on a new database system, BSA Direct. BSA stands for the Bank Secrecy Act. They also hope to improve the quality and completeness of data on financial crimes and suspicious transactions.

More than 200,000 financial institutions file about 13 million reports annually for the FinCEN database, as they are required to do under the Bank Secrecy Act. Only 5 percent are filed electronically.

Despite documented weaknesses in procedures for tracking illicit financial transactions, department officials insist they have made substantial progress in what Treasury Secretary John Snow calls the war on terrorist financing.

"Working in cooperation with the international community, we have frozen more than $140 million in terrorist-related assets, designated 383 individuals and entities as terrorist supporters, apprehended or disrupted key terrorist facilitators, and deterred donors from supporting al Qaeda and other like-minded terrorist groups," Snow said.

Officials in the banking industry acknowledge their sometimes inconsistent compliance with the act's reporting requirements. Compliance could be improved if more institutions would file their suspicious-activity reports electronically, said John Byrne, director of the Center for Regulatory Compliance at the American Bankers Association.

Byrne has been urging bank officials to use electronic filing. "We're trying to help make the case to members that filing electronically makes sense," he said.

Bank officials also could do a better job of completing reports' narrative portions, he added. "We certainly factor in how to complete the narratives when we train our bankers," Byrne said.

But because most suspicious-activity reports are submitted on paper, FinCEN officials continue to wrestle with data quality problems. They worry that the problem will persist even after they replace a cumbersome mainframe data-access system with an $18.5 million data warehouse.

FinCEN officials say typing errors and incomplete forms could be minimized if bank officials submit their reports online. An online submission system would also eliminate the need for bureau officials to retype reports, and it would reject incomplete forms. "Part of the challenge of building the warehouse will be data cleansing," said a FinCEN official authorized to speak on behalf of the bureau but who asked not to be identified.

FinCEN officials have awarded a contract for building the data warehouse to EDS. EDS officials have selected NCR Corp.'s Teradata software for building the warehouse and TeraMiner tools for analyzing the data.

Officials have set October 2005 as the date for having the warehouse ready for use. "It is somewhat ambitious," the FinCEN official said. "But given the need to do this, we think we can."