Justice Department must say what it does with SARs, GAO says

WASHINGTON — The Justice Department must provide more feedback on law enforcement's use of Bank Secrecy Act reports to better guide financial institution's anti-money-laundering programs, a government watchdog said Thursday. 

In a report published by the Government Accountability Office this week, the oversight agency argued that the Financial Crimes Enforcement Network — a Treasury Department bureau responsible for overseeing much of the federal government's anti-money-laundering regulations — has been hamstrung by a lack of feedback on how law enforcement uses suspicious activity reports, or SARs. 

That data can and should be collected by the Justice Department, the GAO said, but the nation's top legal enforcement agency has yet to implement changes required in a recent military spending bill that would do just that. 

"Fincen receives limited data from law enforcement agencies on their use of BSA reports or the reports' impact on case outcomes because agencies largely do not collect such data," the GAO report said. "As a result, Fincen cannot provide comprehensive feedback to financial institutions on the usefulness of the BSA reports they file." 

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Banks, for years, have lamented a lack of transparency surrounding the often-complicated and time consuming SARs they submit to Fincen, which are in turn passed along to the Justice Department to be used by the broader law enforcement apparatus. The GAO appeared on Thursday to sympathize with the industry's position. 

Underscoring the need for better data and feedback are new requirements introduced by Congress in the fiscal year 2021 National Defense Authorization Act. Congress directed the Justice Department to share key statistics with Treasury connected to BSA requirements, including arrest and conviction rates tied to SARs. The GAO report found that the department had yet to provide that information. 

The Justice Department "has opportunities to leverage existing initiatives and expertise to improve its annual statistical report on agencies' use of BSA reports," the agency wrote.  

Fincen itself has made "some progress" in providing clearer feedback to the financial institutions filing BSA reports, the GAO wrote. But it emphasized that Fincen's "ability to provide feedback on the impact of BSA reports is limited because it depends on other agencies tracking their use of BSA reports, and agencies face challenges linking BSA reports to outcomes."

Asked for a comment by the GAO on its findings, Justice officials "neither agreed nor disagreed with our recommendations," the watchdog agency wrote. 

In the meantime, Fincen has been working to implement a broader series of reforms created in 2020 by the Corporate Transparency Act — a law that authorized the Treasury bureau to create a database tracking corporate beneficial ownership in an effort to crack down on the use of anonymous shell companies. 

That rulemaking process, which is expected to take years, is being closely watched by the banking industry for signs of whether the reformed framework will reduce their regulatory burden, specifically around customer due diligence rules. Fincen officials have said the agency needs a significant boost to its budget to implement the new database quickly and properly.