Treasury watchdog dings FinCEN for inability to track penalty cases about to expire, inaccurate data

By Brian Monroe
bmonroe@acfcs.org
November 22, 2016

The U.S. Treasury’s top watchdog criticized the financial intelligence unit of the United States for extensive failures tied to its ability to track, prioritize and keep accurate data on financial crime compliance penalty cases, chiefly due to a faulty and at times nearly unworkable case management system.

The Treasury Office of Inspector General (TOIG) highlighted the issues around the case management system, or financial intelligence repository (FIR), used by the Financial Crimes Enforcement Network (FinCEN) in a 29-page report issued last week, noting that in some instances, penalty investigations had to be dropped due to the bureau not realizing the statute of limitations (SOL) had lapsed.

At its heart, the report reveals that FinCEN’s final penalty figures for the period at hand – the scope of the review covered civil monetary penalty (CMP) cases referred to FinCEN from January 1, 2008, through May 31, 2014, and covered a major enforcement reorganization in 2013 – could have been radically different, potentially nearly double what they were.  

In the review of case files, auditors noted that the total CMP amounts associated with five cases where CMP amounts were “missing or not correct in FIR were understated in FIR by approximately $1 billion.” Through the same time period, 2008 through 2014, FinCEN assessed 32 CMPs totaling $1.19 billion. FinCEN was unable to tabulate lost fine money due to eclipsed SOL dates.

The report also brings to the fore the inherent, but also unexpected, challenges that can come when an agency drastically shifts its enforcement philosophies, but doesn’t have the systems in place, or staff available, to make those laudable bureau goals a reality.

That is an issue FinCEN knows all too well with a failed past update to its bank filings database in the early 2000s that had to be scrapped after spending millions of dollars. The agency did later complete a successful overhaul of its filing system.

“FinCEN could not rely on FIR to identify or track backlogged CMP cases,” according to the report. “FinCEN officials told us that after FinCEN’s reorganization in June 2013, they became aware of the CMP case backlog. However, they could not categorize cases as backlogged or otherwise age them in FIR.”

Knowing the status of all cases ”is important because of FinCEN’s increasing case workload,” the report said, noting that since FinCEN’s reorganization, the “number of open CMP cases increased.”

Between July 2013 and May 2014, the number of open cases as reported in FIR had increased from 343 to 444, the report stated, with FinCEN officials chalking that up to “the creation of the Enforcement Division,” with a new mission focused on higher priority targets and more intricate cases.

At that time, FinCEN retooled its enforcement goals to focus “complex investigations that included enforcement of a wider range of financial entities, issuing injunctions barring individuals from working in the financial industry, and assessing CMPs against high-level executives.”

Corrective measures needed

The TOIG report laid out several issues FinCEN had to address, problems the bureau said in a response have largely been corrected, including:

  1. Ensure FIR performance deficiencies are identified and resolved.
  2. Review open FIR case records to ensure the accuracy and completeness of the data recorded.
  3. Require key relevant case information to be entered into FIR so that FinCEN can monitor areas such as the CMP case backlog and CMP cases approaching the SOL.
  4. Continue to refine the interim draft enforcement procedures currently used by FinCEN. They should, among other things, provide (1) guidance for the consideration of aggravating and mitigating factors considered in CMP assessments; (2) documentation requirements for CMP assessments, including the rationale for assessments; and (3) provisions for proper segregation of duties and for higher-level management review when supervisors must directly work cases.
  5. Develop and implement a process to periodically notify Federal and State regulators of the status of and actions taken on referred cases.

New system, but with new problems too

The report notes that FinCEN staffers attempted to weave the new system into their daily lives, but were blocked in being productive at nearly every turn.

In January 2014, the enforcement division began using FIR “despite known performance problems,” TOIG auditors stated. “FIR only had core functionality for case exchange and storage and the system was experiencing performance issues with its responsiveness, including the inability to open case documents within the system.”

As part of this audit, FinCEN personnel informed inspector general staffers that users had difficulty working in FIR “due to system slowness and technical issues that prevented data and documents from saving,” according to the report, adding that the bureau couldn’t devote additional resources to fix the problems due to staffing shortages. 

“Staff could not track case workload using FIR because the system did not generate reports,” according to the report, noting that staffers attempted to print out Excel files and post them in a bid to prioritize certain investigations.

FinCEN managers and staff also “could not perform key case management functions in FIR, such as monitoring cases that were backlogged or approaching the SOL,” according to auditors, leading to seven cases being closed because the SOL had expired.

In another 13 cases, FinCEN notated in FIR that the “age of the cases was the reason for closing them.”

Tally of lost fine money impossible to calculate

Those issues, along with missing case information, made it difficult for auditors to even determine the total number of cases lost or closed due to a lapsed SOL, or tabulate how much penalty money FinCEN could have potentially collected, but didn’t.

“We could not determine how many cases were closed due to the SOL expiring because FIR did not have a field to track the SOL date, and FinCEN did not always document its reasons for closing cases in FIR,” according to auditors.  

During January 2008 through May 2014, FinCEN closed 184 cases without documenting the reasons in FIR.

FIR also “could not produce reports necessary to effectively monitor cases approaching the SOL,” according to the report.

As a result, the “dollar amount of potential CMPs forgone because of expired SOLs could not be estimated because FinCEN did not calculate the potential penalties on cases they closed without action.”

In a response, FinCEN officials told auditors that “they did not document the statutory maximum penalty unless they pursued an enforcement action, and many cases may not have been severe enough to consider for an enforcement action.”