The Criminal Investigation Division Can Take Steps to Ensure Its Seizure Opportunities Are Maximized
June 18, 2010
Reference Number: 2010-30-058
This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document..
Phone Number |
202-622-6500
Email Address | inquiries@tigta.treas.gov
Web Site |
http://www.tigta.gov
HIGHLIGHTS
The
Criminal Investigation Division Can Take Steps to Ensure Its Seizure
Opportunities Are Maximized
Highlights
Final
Report issued on June 18, 2010
Highlights of Reference Number:
2010-30-058 to the Internal Revenue Service Chief, Criminal
Investigation.
IMPACT ON TAXPAYERS
The use of asset forfeiture
has become one of the most important tools that Federal law enforcement can employ
against criminals, such as drug dealers and white-collar criminals. Law enforcement
officers believe that the effective use of forfeiture laws can result in a
decrease in criminal activity. Our
review determined that the Criminal Investigation (CI) Division can take steps
to ensure its seizure opportunities are maximized. The use of seizure and the ultimate
forfeiture of assets deprive individuals, who knowingly violate the nation’s
tax laws, of their ill-gotten gains.
WHY TIGTA DID THE AUDIT
The CI
Division uses its asset seizure and forfeiture authority as a tool for
combating unlawful activities designed to evade taxes. The
overall objective of this review was to evaluate whether the CI Division
adequately considered the seizure of assets during its illegal source and
narcotics investigations.
WHAT
TIGTA FOUND
There
are opportunities for the CI Division to improve its Asset Forfeiture
Program. During Fiscal Year 2009, the CI
Division seized just more than 1,600 assets, which is a 13 percent decline from
the previous year and a 28 percent decline from the 5-year high in Fiscal Year
2007. The decline in the number of
assets seized can be partly attributed to the decrease in the number of illegal
source and narcotics investigations initiated during that period and the loss
of experienced special agents in recent years.
In addition, there was a significant disparity in the number of assets
seized among the field offices.
TIGTA’s
analyses of the CI Division’s management information system data indicated that
the CI Division may have missed some seizure opportunities. TIGTA analyzed a sample of investigations
with money laundering or bank structuring violations and found that requests to
pursue seizure were made in only 34 percent of the investigations with the
percentage of requests varying significantly among field offices.
While the CI Division may have missed some seizure opportunities, its
Asset Forfeiture Program is respected by outside stakeholders and, when
compared to other Federal agencies, its Program appears to be productive.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the Chief, CI Division, require contractor employees
to review the CI Division’s management information system reports to identify
recently initiated narcotics and illegal source investigations where there is
no corresponding seizure investigative activity and proactively engage the
special agents in discussions regarding the identification of forfeitable
assets. TIGTA also recommended that the
Chief, CI Division, require contractor employees to periodically contact
special agents to determine the status of the seizure and offer additional
assistance. In addition, TIGTA
recommended that the Chief, CI Division, conduct an internal study of narcotics
and illegal source investigations, where the seizure of assets was not pursued,
to determine if seizure opportunities were missed.
CI Division
officials agreed with four of the five recommendations and disagreed with
one. The CI Division did not agree with
conducting an internal study but plans to ensure the appropriate management
reviews are being performed. However, because
TIGTA is precluded from reviewing case file information due to grand jury
restrictions, TIGTA believes the CI Division would benefit from conducting this
review because it would determine the extent of the issue and provide ideas for
improvement.
June 18, 2010
MEMORANDUM FOR CHIEF, CRIMINAL INVESTIGATION
FROM: (for) Michael R. Phillips /s/ Michael E. McKenney
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – The Criminal Investigation Division Can Take Steps to Ensure Its Seizure Opportunities Are Maximized
(Audit # 200930026)
This report presents the results of our review to evaluate
whether the Criminal Investigation Division adequately considered the seizure
of assets during its illegal source[1]
and narcotics investigations. This audit
was included in our Fiscal Year 2010 Annual Audit Plan and addresses the major
management challenge area of Tax Compliance Initiatives.
Management’s complete response to the draft report is included as Appendix V.
Copies of this report are also being sent to the IRS
managers affected by the report recommendations. Please contact me at (202) 622-6510 if you
have questions or Margaret E. Begg, Assistant Inspector General for Audit (Compliance
and Enforcement Operations), at (202) 622-8510.
The Number
of Assets Seized Has Declined in Recent Years
Seizure
Opportunities May Have Been Missed
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix
IV – Glossary of Terms
Appendix V
– Management’s Response to the Draft Report
Abbreviations
|
AFC |
Asset Forfeiture Coordinator |
|
AUSA |
Assistant |
|
CI |
Criminal Investigation |
|
CIMIS |
Criminal Investigation Management Information
System |
|
FY |
Fiscal Year |
|
IRS |
Internal Revenue Service |
|
SAR |
Suspicious Activity Report |
|
SIA |
Seizure Investigation Activity |
|
TEOAF |
Treasury Executive Office for Asset Forfeiture |
|
U.S.C. |
|
The use of
asset forfeiture has become one of the most important tools that Federal law
enforcement can employ against criminals.
President Obama recently announced the formation of a Financial Fraud Enforcement Task Force[2] to strengthen efforts to combat financial crime. The objectives of the task force include ensuring just and effective punishment for those who perpetrate financial crimes and recovering proceeds for victims. The use of asset forfeiture is one of the tools available to law enforcement in accomplishing these objectives.
Criminal and civil forfeiture is essential to ensure that crime does not pay. The use of asset forfeiture has become one of the most important tools that Federal law enforcement can employ against criminals, such as drug dealers and white-collar criminals. Law enforcement officers believe that the effective use of forfeiture laws can result in a decrease in criminal activity.
The Criminal Investigation (CI) Division’s primary mission is to serve the American public by investigating potential criminal violations of the Internal Revenue Code[3] and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law. The CI Division is the only Federal agency that can investigate potential criminal violations of the Internal Revenue Code. The CI Division’s special agents’ investigative jurisdiction includes tax, money laundering, and Bank Secrecy Act laws.
The CI Division uses its asset seizure and forfeiture authority as a tool for combating financial crimes and/or unlawful activities designed to evade taxes. Seizure is the confiscating of a person’s property by a legal process; whereas, forfeiture is when the Government assumes ownership of the seized asset. The CI Division’s Fiscal Year (FY) 2009 operational priorities included continuing to actively use its asset forfeiture authority to further its enforcement goals and strengthening Bank Secrecy Act compliance efforts by making every effort to identify assets subject to forfeiture.[4]
Most of the CI Division’s seizures are the result of United States Code (U.S.C.) Titles 18 and 31, which deal with money laundering and currency investigations. The revenue from assets seized that are eventually forfeited is deposited into the Treasury Forfeiture Fund. The CI Division can request to use these funds to finance future law enforcement initiatives (e.g., the hiring of contractor employees to assist with the Asset Forfeiture Program). The CI Division also has the authority to seize and forfeit assets for U.S.C. Title 26 tax violations; however, few seizures are made on these violations. This occurs because only property used, or intended to be used, to violate Internal Revenue laws can be forfeited.[5]
The CI Division’s Warrants and Forfeiture section administers the Asset Forfeiture Program. Some of the section’s responsibilities include 1) tracking assets seized for purposes of evidence and/or forfeiture utilizing the Asset Forfeiture Tracking and Retrieval System, 2) providing training to the Asset Forfeiture Coordinators (AFC) and Asset Forfeiture Specialists on current forfeiture policies and criminal statutes, and 3) consistently and strategically applying forfeiture to combat and put an end to criminal activities. Personnel from the Warrants and Forfeiture section also send periodic reports to the Treasury Executive Office for Asset Forfeiture (TEOAF).
Each of the Special Agents in Charge of the 26 field offices[6] oversees the performance of their office’s Asset Forfeiture Program. The special agent of an investigation coordinates the seizure and forfeiture activity with input from the Supervisory Special Agent and the AFC. Each field office has at least one AFC who is the local expert in the seizure and forfeiture process. The AFC provides the necessary guidance and support to ensure that proper procedures are followed, administrative reporting is completed, and special circumstances are addressed and resolved. The AFC also ensures that proper and timely pre-seizure planning occurs.
The
CI Division is currently hiring contractor employees to directly support work
on asset forfeiture investigations.
During FY 2009, the CI Division added contractor employee positions to
the Washington, D.C.;
We encountered a significant scope limitation that precluded us from fully addressing our audit objective of evaluating whether the CI Division adequately considered the seizure of assets during its illegal source and narcotics investigations. We selected a sample of investigations designated as illegal source and narcotics. The majority of these investigations were classified as grand jury and thus were restricted from our review. As part of the grand jury procedures governing disclosure of information, the CI Division engaged the Criminal Tax Counsel to determine what information, if any, from the cases we requested could be made available to us. We also engaged the Assistant United States Attorneys (AUSA). CI Division management advised that we could obtain only information that had been made publically available by the courts (e.g., indictment, sentencing document, etc.). These documents did not contain information that would help us evaluate whether or not the CI Division considered seizure activity.
The CI Division and the Treasury Inspector General for Tax Administration management cooperated on this matter; however, due to the aforementioned process and circumstances beyond either party’s control, we did not receive access to the investigative case files for those investigations classified as grand jury.
This review was performed at the CI Division’s National
Headquarters in
We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. Detailed information on our audit objective, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.
The Number of Assets Seized Has Declined in Recent Years
In the past 2 fiscal years,
the CI Division has seen a decline in the number of seized assets. Even though there has been a decline, outside
stakeholders view the CI Division’s Asset Forfeiture Program favorably. When compared with other Federal agencies
having more resources, the CI Division’s Asset Forfeiture Program appears to be
productive (as discussed later in the report).
Since the beginning of FY
2005, the CI Division has seized almost $1.5 billion in assets and forfeited
approximately $900 million in assets.
During FY 2009, the CI Division seized just more than 1,600 assets,
which is a 13 percent decline from the previous year and a 28 percent decline
from the 5-year high in FY 2007. The
total dollar amount of the assets seized during FY 2009 increased almost 79
percent from the previous year. However,
the total dollar amount tends to be skewed because one or two seizures could
distort the total. For example, during FY
2009, 1 office had a currency seizure valued at $175 million while another office
had a seizure of gold bars valued at nearly $100 million. In addition, during FY 2009, the CI Division
made 625 reverse asset sharing requests.[7] This volume
is 23 percent lower than the previous year and nearly one-half of the requests
made during FY 2005.
These recent decreases could
be indicative of a declining Asset Forfeiture Program that could result in the
loss of monies deposited into the Treasury Forfeiture Fund that are available
to finance future law enforcement initiatives.
Figure 1 shows the number and dollar amounts of assets seized and
reverse asset sharing requests during FYs 2005 through 2009.
Figure 1: The Number and Dollars of Assets Seized
and Reverse Asset Sharing Requests
|
|
FY 2005 |
FY 2006 |
FY 2007 |
FY 2008 |
FY 2009 |
|
Number
of Assets Seized |
1,978 |
2,156 |
2,268 |
1,872 |
1,624 |
|
Dollar
Amount of Assets Seized |
$241,838,451 |
$225,820,459 |
$315,033,520 |
$242,622,243 |
$434,150,746 |
|
Number
of Reverse Asset Sharing Requests |
1,203 |
1,061 |
993 |
813 |
625 |
|
Dollar
Amount of Reverse Asset Sharing Requests |
$375,638,415 |
$235,667,335 |
$474,109,631 |
$225,016,304 |
$356,523,491 |
Source: CI Division’s Warrants and Forfeiture section.
The recent decline in the number of seized assets
and reverse asset sharing requests can be partly attributed to the decrease in
the number of illegal source and narcotics investigations initiated by the CI
Division since FY 2007. Illegal source
and narcotics investigations are far more likely to contain seizure activity
than legal source tax investigations, which are a larger part of the CI
Division’s workload. Figure 2
illustrates that the total number of illegal source and narcotics investigation
initiations decreased nearly 13 percent from FYs 2007 to 2008 before
rebounding nearly 8 percent in FY 2009.
Figure
2: Numbers of Illegal Source and
Narcotics Investigations Initiated
|
Types of Investigation |
FY 2005 |
FY 2006 |
FY 2007 |
FY 2008 |
FY 2009 |
|
Illegal Source |
1,632 |
1,686 |
1,731 |
1,441 |
1,634 |
|
Narcotics |
944 |
697 |
816 |
777 |
753 |
|
Total |
2,576 |
2,383 |
2,547 |
2,218 |
2,387 |
Source: Internal Revenue Service (IRS) Data Book
(Publication 55B) for FY 2005 and the Criminal Investigation Management
Information
System (CIMIS) Report INV002 (Summary by
Program Area) for FYs 2006 through 2009.
During FY
2009, the number of experienced field agents continued to decline. New agents are less likely to work illegal
source and narcotics investigations which could involve seizure activity.
Another factor that may explain the recent declines
in the CI Division’s Asset Forfeiture Program is the loss of experienced
special agents. As our previous report
on the CI Division’s statistical trends illustrated,[8] the number of field special agents declined almost 7 percent in
FY 2008 from the previous year and was at its lowest level in the past
30 years. This trend continued in
FY 2009 as the number of field special agents declined nearly 2 percent. The new inexperienced agents hired to offset
the loss of the more experienced agents are generally assigned legal source tax
investigations during their first few years of employment with the CI Division
because these investigations fit the core mission of the CI Division.
A small number of field offices seized close to one-half
of the assets during the last 3 fiscal years
Our analysis of documents provided by the Warrants
and Forfeiture section showed there is a disparity in the number of assets
seized between the field offices. While
the CI Division seized more than 5,700 assets during FYs 2007 through 2009,
almost one-half of those asset seizures (2,837) were made by just 7 of the 26
field offices.[9] This includes offices that are
relatively smaller,[10] such as the
Figure 3: Total Numbers of Assets Seized and Reverse
Sharing Request by Field Office
(FYs 2007
through 2009 combined)
Figure 1 was removed due to its size. To see Figure 1, please go to the Adobe PDF
version of the report on the TIGTA Public Web Page.
Through our discussions with CI Division management,
Criminal Tax Counsel, and the Director, TEOAF, we obtained their
perspectives on why there would be disparity in seizure activity among the
field offices. Their explanations
included:
·
The AUSAs in some judicial districts may be reluctant, as
opposed to others who are very aggressive, in their approach to pursuing the
seizure of assets during criminal investigations. The five Asset Forfeiture AUSAs we spoke to
during this audit supported the use of asset forfeiture in criminal
investigations.
·
Some field offices have always placed a higher emphasis on
the importance of the seizure of assets during criminal investigations.
·
Some field offices may work a higher percentage of legal
source tax cases, thus limiting their seizure opportunities.
In addition, some of the field offices have created Suspicious Activity
Report (SAR) Task Forces[11] which have enhanced
their Asset Forfeiture Programs. For
instance, 53 of the 296 assets seized by the
Seizure Opportunities May Have Been Missed
The Internal Revenue Manual defines that when asset
forfeiture is anticipated in a criminal investigation, a special agent must
obtain seizure investigation activity (SIA) authority. An SIA must be approved by the Special Agent
in Charge for any seizure investigation, in which the CI Division participates, even if
they are not the lead seizing agency. The
request and approval process is completed through the CIMIS when seizure activity is anticipated in the primary investigation or the subject
investigation.
We analyzed data from the CIMIS and identified 4,754 illegal source and
narcotics subject investigations with money laundering or bank structuring
violations.[12] Our analysis showed that in 1,635
(34 percent) investigations, the special agent requested approval to
pursue the seizure of assets. As of May
2009, the CI Division had executed a seizure in 230[13] (14 percent) of
the 1,635 investigations. Figure 4
details the number of illegal source and narcotics investigations where the
seizure of assets was pursued and subsequently executed.
Figure 4: Numbers of SIAs and Seizure
Executions on
Illegal Source and Narcotics Subject Investigations
With Money Laundering or Bank Structuring Violations
|
|
Number of Subject Investigations Initiated |
Number of SIAs Requested |
Percentage of SIAs Requested |
Number Where Seizure Was Executed |
|
Illegal Source |
2,834 |
775 |
27% |
157 |
|
Narcotics |
1,920 |
860 |
45% |
73 |
|
Totals |
4,754 |
1,635 |
34% |
230 |
Source: Our analysis of the CIMIS data for FY 2007
through May 31, 2009.
In addition, there were also 2,314 primary investigations initiated
that were still in the primary investigation phase at the time of our
analysis. A total of 856 (37 percent)
contained requests for approval to pursue the seizure of assets. A seizure was executed in 154 of those
investigations.
When distinguished by field office, the disparity in the percentage of
SIAs requested was significant. For
example, 1 field office requested SIAs in just more than 64 percent of the
investigations with a money laundering or structuring violation; whereas,
another field office requested SIAs in just more than 7 percent of the
investigations containing these same violations. There are valid reasons why the seizure of
assets would not be pursued in every investigation with money laundering or
bank structuring violations. For
example, there may not have been any assets to seize or the investigation may
have involved a related party that did not have custody of the assets. However, these disparities suggest that the
CI Division might have missed some opportunities. During our audit, we attempted to review a
sample of narcotics and illegal source investigations that did not have seizure
activity to determine if there was a systemic issue with not pursuing the seizure
of assets in these investigations. Due
to grand jury restrictions, we were unable to review the investigations and
were limited to discussions with CI Division personnel.
The CI Division
contractor employees are expected to provide expertise in monitoring seizure
opportunities and identifying forfeitable assets.
We believe the CI Division can take the
following steps to ensure its seizure opportunities are maximized in the
future:
1)
Implement procedures to identify and monitor
seizure opportunities.
2)
Conduct an internal study to determine if and
why the seizure of assets are not being pursued.
3)
Ensure special agents are adequately trained.
Implement procedures to identify and monitor seizure opportunities
The CI Division should ensure that the seizure of assets is addressed
during its investigations. The Warrants
and Forfeiture section indicated that the AFCs are directed to proactively contact
special agents and look for seizure opportunities. We interviewed four AFCs regarding procedures
utilized at three[14] field offices. All four AFCs indicated that they do not
proactively approach special agents conducting investigations to determine if
there is seizure potential and if their assistance is needed. They often do not get involved until
contacted by the special agent or the Supervisory Special Agent when assets
with seizure potential are identified.
In one field office, management indicated that even though they thought
their AFCs were meeting their expectations, they were not as proactive as
desired. This situation could be because
each of the AFCs we interviewed has additional duties that include working
their own cases, recruiting, or serving in another coordination role which may
limit their ability to be proactive.
The CI Division has plans for each field office to eventually receive a
contractor employee that will directly support work on seizure
investigations. The objective for using
contractor employees is to increase the use of seizures in those cases where
its potential is clearly identified and to maximize the impact of forfeiture in
criminal investigations conducted by CI Division personnel. One of the requirements for this position is
to provide expertise in reviewing financial records to identify forfeitable
assets.
The field offices can utilize contractor employees to help identify and
monitor seizure opportunities. For
example, one CIMIS report lists those criminal investigations in a special
agent’s inventory that do not have a corresponding SIA. This type of information could be used by
contractor employees to identify those investigations that are more likely to
have seizure potential, such as those with money laundering violations, and to
proactively engage the special agents in discussions regarding the
identification of forfeitable assets.
The implementation of these procedures can not only help identify
forfeitable assets but can also be used as a valuable tool for contractor
employees to help educate those agents that are not familiar with asset
forfeiture.
The CI Division can also optimize contractor employee positions by
implementing procedures to monitor those investigations where an SIA has been
approved but where a seizure has not yet been executed. Results showed 1,127 of the 1,633 illegal
source and narcotics subject investigations that we analyzed in the CIMIS had
an approved SIA where there was no associated seizure execution by the CI
Division.[15] These 1,127 investigations had been in that
status for an average of 421 calendar days, ranging from a low of 2 calendar days
to a high of 2,445 calendar days. The
high number of investigations in a pending status could be an indication of
investigations where the seizure of assets had been overlooked. We interviewed the AFCs who indicated they
monitor the status of SIAs, although each AFC uses a different method. For example, one AFC maintains a monthly
spreadsheet that is sent to each of the Supervisory Special Agents to obtain
any changes in the status of the seizure investigations. Two AFCs in another office rely on informal
discussions with the special agents.
We believe the CI Division can take steps to ensure criminal
investigations with seizure activity are periodically monitored. For instance, they can utilize information in
the CIMIS to identify those SIAs where a seizure has not been executed by the
CI Division. This information can be
used by the contractor employees to contact the special agents to determine the
status of the seizure and offer additional assistance.
Conduct an internal study to determine if and why the seizure of assets are not being pursued
The CI Division periodically conducts internal reviews (called a Review
and Program Evaluation) of each of its field offices. These reviews included an evaluation of the
office’s Asset Forfeiture Program. We
reviewed reports from 11 recent internal reviews[16] and determined the CI
Division shared our concerns about seizure opportunities not being maximized in
some offices. The reports included
recommendations designed to ensure that the seizure of assets is addressed and
considered during investigations. Some examples
of the recommendations included ensuring that office management explore the
seizure of assets during case, workload, and operational reviews and ensuring that
special agents are adequately trained in asset forfeiture matters.
Due to grand jury secrecy, those reviews, like this audit, were primarily
based on statistical analyses and discussions with CI Division and AUSA
personnel. The CI Division needs to
determine if seizure opportunities are being missed to ensure that criminals
are deprived of their ill-gotten gains.
An independent review of investigations can be helpful in determining if
seizure opportunities were missed and could help identify specific areas of
improvement.
Ensure special agents are adequately trained
The number of special agents reached a 30-year low during FY 2008. The CI Division has had to hire many new agents in recent years to make up for the attrition of their more experienced agents. Highly trained and experienced special agents are needed to expose large, complex money laundering schemes and to undertake asset forfeiture investigations. A Warrants and Forfeiture section analyst indicated that one of the reasons why some field offices may not have as productive an Asset Forfeiture Program has been the “great loss in manpower” in recent years. In addition, one of the field offices responded in an internal report that its large population of relatively inexperienced agents is one reason that has prevented its Asset Forfeiture Program from flourishing in recent years. This opinion could be attributed to the belief that newer agents do not have the knowledge and experience to identify when a seizure is appropriate.
When hired, special agents are generally provided basic asset
forfeiture training at the
One way the CI Division can help ensure that these agents are better
prepared to undertake asset forfeiture investigations is by requiring that
newer agents attend additional asset forfeiture training to supplement the
training provided at the Federal Law Enforcement Training Center. One of the offices in our review recently
presented additional asset forfeiture training[17] to special agents with
10 years of experience or less. The
feedback provided by the attending special agents was overwhelmingly
positive. For example, one special agent
indicated that the training provided more information than what was presented
at the Federal Law Enforcement Training Center, while another now knows what to
look for and whom to contact with questions.
A third agent wished the training was provided earlier in his career. The Warrants and Forfeiture section indicated
that they have encouraged field offices to provide basic asset forfeiture
training to newer special agents using funding from the Treasury Forfeiture
Fund.
Another method to ensure that special agents, including those that are more
experienced, are adequately trained in asset forfeiture matters is to have periodic
presentations at group meetings. CI
Division management has previously recommended that field office management
have the AFCs make presentations at group meetings. We interviewed 42[18] special agents and 19
of them could not recall if the AFC made a presentation at a group meeting or
that a presentation had not been made in the past 12 months. Asset forfeiture presentations at group
meetings can be beneficial for promoting the use of asset forfeiture and
communicating new developments in the asset forfeiture arena. For instance, changes in case law, such as
the 2008 Supreme Court decision (
Recommendations
Forty-five
percent of special agents interviewed indicated that an asset forfeiture
presentation had not been made within the past 12 months.
The Chief, CI, should:
Recommendation
1: Require contractor employees to
review CIMIS reports to identify recently initiated narcotics and illegal
source investigations where there is no corresponding SIA. Once these investigations are identified, the
contractor employees should proactively engage the special agents in
discussions regarding the identification of forfeitable assets.
Management’s Response: IRS management agreed with this
recommendation. The CI Division
recognized that management and oversight of SIA investigations are imperative
to ensure that seizure opportunities are maximized. The CI Division will examine the creation of
a structured oversight and coordination system with management and Financial
Investigator IV contactor employees to monitor and more effectively maximize seizure
opportunities on illegal source and narcotics investigations.
Recommendation 2: Require contractor employees to periodically
contact special agents to determine the status of the seizure and offer
additional assistance.
Management’s Response: IRS management agreed with this
recommendation. The CI Division will
examine the creation of a structured oversight and coordination system with
management and Financial Investigator IV contractor employees that will
encompass offering additional assistance to special agents with asset
forfeiture cases in an effort to effectively maximize seizure opportunities on
illegal source and narcotics investigations.
Recommendation 3: Conduct an internal study, with the cooperation of the United States Attorneys’ Offices, to determine if seizure opportunities are being missed. This study should incorporate a review of a sample of narcotics and illegal source investigations where the seizure of assets was not pursued to determine if assets with seizure potential were not identified.
Management’s Response: IRS management disagreed with this recommendation. The CI Division indicated that as our findings and recommendations indicate a need for greater participation by the field office personnel in the seizure process, initiating an internal study is unnecessary. The CI Division will look forward and will ensure the appropriate management reviews are being performed and that discussions are being held between management and special agents when initiating narcotics and illegal source investigations to determine if there is asset seizure potential.
Office of Audit Comment: While the CI Division indicated that it will ensure the appropriate management reviews are being performed and that discussions are being held between management and special agents, we still believe that steps should be taken to determine the extent of missed seizure opportunities. Because grand jury restrictions precluded the review of case file information, we could not determine the extent of any missed seizure opportunities. We believe it would be beneficial for the CI Division to conduct this internal study or implement procedures for a periodic independent review of investigations that did not have seizure activity. This evaluation could determine the reasons for cases without a seizure, the extent of the issue, and provide ideas for improving the Asset Forfeiture Program.
Recommendation 4: Require that each special agent receive
additional asset forfeiture training during their first 5 years to supplement
the basic training received at the
Management’s Response: IRS management agreed with the substance of this recommendation; however, they offered an alternative corrective action that we find to be satisfactory. The CI Division agreed that additional asset forfeiture training would be beneficial to the program. During Review and Program Evaluation reviews, the Warrants and Forfeiture section encourages the field office to conduct new agent basic asset forfeiture training.
Currently, as part of the Asset Forfeiture Program, the
Warrants and Forfeiture section, collaborates with the AFCs, Asset Forfeiture
Specialists, and Financial Investigator IV contractor employees to develop
training curricula, conduct the prescribed training courses, and maintain
training records for new agent asset forfeiture training. The CI Division also coordinates training
opportunities with other Federal agencies. The
The CI Division added that making delivery of additional asset forfeiture training to special agents during their first 5 years a requirement would have a significant budget impact. The Director, Operations Policy and Support, will further evaluate the need and the CI Division’s ability to implement this requirement as compared to continuing to provide the current additional training discussed in the prior paragraph.
Recommendation
5: Consider requiring the contractor employees
in each field office make periodic asset forfeiture presentations to each group
of special agents.
Management’s Response: IRS management agreed with this
recommendation. The CI Division
concurred that contractor employees and the
External
Stakeholders Generally Praise the Criminal Investigation Division’s Asset
Forfeiture Program
During the audit, we met with the Director, TEOAF, to gain his
perspective on the CI Division’s Asset Forfeiture Program. The Director stated that the CI Division does
a “remarkably good job” with its Asset Forfeiture Program, especially when
compared to other agencies with more resources (e.g., the Federal Bureau of
Investigation and the United States Immigration and Customs Enforcement). The statistics support the assertion indicating
that, despite fewer resources, the CI Division’s Asset Forfeiture Program
appears to be more productive than some other agencies. Figure 5 shows the net amounts deposited into
the Treasury Forfeiture Fund and the Department of Justice’s Asset Forfeiture
Fund by selected Federal agencies, as well as the approximate total number of
special agents employed by each.
Figure 5: Number of Special Agents and Net Amounts
Deposited
Into the Treasury and Department of Justice Forfeiture Funds
|
Federal Agencies |
Approximate Number of Special Agents[20]9 |
Amount Deposited Into Forfeiture Fund During FY 2009 |
|
IRS CI Division |
2,700 |
$274,738,332 |
|
Immigration and Customs Enforcement |
6,000 – 7,000 |
$168,796,668 |
|
Federal Bureau of Investigation |
13,250 |
$481,815,155 |
|
Drug Enforcement Administration |
5,200 |
$264,902,357 |
Source: CI Division, TEOAF, Department of Justice
Management Division, Drug Enforcement Administration, and Federal Bureau of
Investigation webpages.
According to the TEOAF’s Strategic Plan, Treasury Forfeiture Fund
management measures the performance of each agency’s Asset Forfeiture Program
by the percentage of cash forfeitures that are “high impact”—cash forfeitures
equal to or greater than $100,000. The
goal for all Federal agencies that utilize the Treasury Forfeiture Fund is that
75 percent of all forfeited cash should result from “high impact”
forfeitures. The Director, TEOAF, stated
the CI Division has consistently met this goal.
We also discussed the CI Division’s Asset Forfeiture Program with five
Asset Forfeiture AUSAs to gain their perspective. The United States Attorneys’ Offices are
responsible for the prosecution of both criminal and civil actions against
property used or acquired during illegal activity. The AUSAs were complimentary of the CI
Division’s Asset Forfeiture Program and the quality of the forfeiture actions
that were taken. One of the
complimentary remarks noted in our discussions was the quality of the
forfeiture actions brought by the special agents, especially as compared to
other agencies. Another Asset Forfeiture
AUSA indicated that the CI Division is the premier financial investigative
agency, while another noted how indispensible the agents are in financial
matters.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective was to evaluate whether the CI Division adequately considered the seizure of assets during its illegal source and narcotics investigations. Due to grand jury restrictions to case file information, we could not conduct any testing to determine the accuracy and reliability of the CIMIS data we received from the CI Division. In prior audits, our overall assessment has been that CIMIS data are of undetermined reliability. However, in our opinion, using the data did not weaken our analysis. To accomplish our objective, we:
I. Evaluated the CI Division’s policies and procedures relating to the seizure of assets during its criminal investigations.
A. Reviewed the Internal Revenue Manual and identified the criminal violations where the CI Division has the authority to seize and forfeit assets during criminal investigations.
B. Interviewed CI Division Headquarters’ personnel and determined the role of the Warrants and Forfeiture section, the use of the CIMIS and Asset Forfeiture Tracking and Retrieval System, and the asset forfeiture training provided to new special agents.
C. Interviewed Office of Chief Counsel personnel and determined their role in the asset forfeiture process and identified the criminal violations where the CI Division has the authority to seize and forfeit assets during investigations.
D. Interviewed the Director, TEOAF, and gained his perspective on the CI Division’s Asset Forfeiture Program.
E. Analyzed seizure-related statistics obtained from the CI Division and the TEOAF.
F. Reviewed the asset forfeiture section of the 11 most recent CI Division Review and Program Evaluation[21] reports and identified recommendations related to our objective.
G. Discussed with CI Division personnel the hiring of contractors to assist in the administration of the Asset Forfeiture Program.
II. Evaluated whether the CI Division is fully utilizing its ability to seize assets during illegal source and narcotics investigations.
A. Analyzed CIMIS data for all primary and subject criminal investigations containing a Title 18 or Title 31 statute violation that were initiated during the period October 1, 2006, through May 31, 2009. This included the identification of 7,068 illegal source and narcotics investigations that contained a money laundering violation (18 U.S.C. Sections 1956 and 1957) or a bank structuring violation (31 U.S.C. Section 5324).
B. Using
the CIMIS, Review and Program Evaluation reports, and statistical data provided
by the Warrants and Forfeiture section, we
judgmentally selected 4 of the 26 CI Division field offices for site
visitations. These locations included
the
C. Interviewed field office management and the AFCs in the selected field offices and learned each office’s policies and procedures relating to their Asset Forfeiture Program.
D. Interviewed a total of 30 available special agents in the selected field offices and determined if the field office environment allowed for a strong Asset Forfeiture Program.
E. Interviewed a total of 16 available newer special agents, hired after January 1, 2005, in the selected field offices and determined if they had been adequately trained to pursue the seizure of assets during criminal investigations.
F. Interviewed a total of 11 available Supervisory Special Agents in the selected field offices and determined the procedures utilized to ensure the seizure of assets are adequately considering during criminal investigations.
G.
Interviewed five Asset Forfeiture AUSAs with
jurisdiction for the selected field offices (see Step II.B.) to gain their
perspectives on the CI Division’s Asset Forfeiture Program.
Internal controls
methodology
Internal controls relate to management’s plans, methods, and procedures used to meet their mission, goals, and objectives. Internal controls include the processes and procedures for planning, organizing, directing, and controlling program operations. They include the systems for measuring, reporting, and monitoring program performance. We determined that the following internal controls were relevant to our audit objective: the CI Division’s policies, procedures, and practices relating to the seizure of assets. We evaluated these controls by interviewing CI Division and Department of Justice personnel, analyzing data related to seizures, and reviewing the CI Division’s self assessments contained in its performance reports.
Appendix II
Major Contributors to This Report
Margaret
E. Begg, Assistant Inspector General for Audit (Compliance and Enforcement
Operations)
Marybeth
H. Schumann, Director
Frank
W. Jones, Director
Diana
M. Tengesdal, Audit Manager
Michael
J. Hillenbrand, Acting Audit Manager
Jeff
K. Jones, Lead Auditor
Paul
R. Baker, Senior Auditor
Gwendolyn
M. Green, Senior Auditor
Appendix III
Commissioner C
Office of the Commissioner – Attn: Chief of Staff C
Deputy Commissioner for Services and Enforcement SE
Director, Operations Policy and Support, Criminal Investigation Division SE:CI:OPS
Director, Strategy, Criminal Investigation Division SE:CI:S
Director, Warrants and Forfeiture, Criminal Investigation Division SE:C:OPS
Chief Counsel C
National Taxpayer Advocate TA
Director, Office of Legislative Affairs CL:LA
Director, Office of Program Evaluation and Risk Analysis RAS:O
Office of Internal Control OS:CFO:CPIC:IC
Audit Liaison: Chief, Criminal Investigation Division SE:CI
Appendix IV
Asset Forfeiture Specialist – Contract employees who perform administrative tasks such
as the entry of data into the Asset Forfeiture Tracking and Retrieval System.
Asset Forfeiture Tracking and Retrieval System –
A database that tracks assets
seized by the CI Division during investigations, reports on their status while
in government custody, and reports on the disposition of assets and
distribution of proceeds from asset sales and other disposal methods for
forfeited assets.
Bank Secrecy Act – Legislation that requires certain businesses to submit
reports of large-dollar case transactions for use by law enforcement agencies
in identifying terrorist funding, money laundering, and other illegal activity.
Criminal Investigation Management Information
System – A database used to track
the status and progress of criminal investigations and the time expended by
special agents.
Criminal Tax Counsel – The section within IRS Chief Counsel that provides legal
advice to the CI Division throughout the criminal investigation process.
Department of Justice Asset Forfeiture Fund – A fund into which forfeited cash and the proceeds of the
sale of forfeited property are deposited.
Participating agencies include the Bureau of Alcohol, Tobacco, and
Firearms; the Drug Enforcement Administration; and the Federal Bureau of
Investigation. The fund may be used for
several purposes including supporting criminal investigations.
Field Office – Offices within the four CI Division geographical areas throughout
the country with boundaries that range from a portion of a single State to
inter-State areas. There were 26 CI Division
field offices at the time of our audit.
Illegal Source – Crimes involving illegally earned income including crimes involving
money laundering, 18 U.S.C. Sections (§§) 1956 and 1957; sections of U.S.C. Title 31, Money and Finance;
and U.S.C. Title 26 violations investigated in conjunction with other agencies.
Internal Revenue Code – The codified collection of
Money Laundering – The process of disguising criminal proceeds and may include the
movement of clean money through the
Narcotics Investigation – Crimes involving tax and money laundering related to
narcotics and drug trafficking.
Primary Investigation – An evaluation of an allegation that an individual or
entity is in noncompliance with the Internal Revenue laws and related financial
crimes.
Reverse Asset Sharing – The CI Division and other Department of the Treasury law
enforcement agencies routinely participate in joint investigations where the
Department of Justice law enforcement agency is the lead seizing agency. The lead seizing agency processes the seizure
from forfeiture to disposition. The CI
Division can request an equitable share of any forfeited property from its
participation in the investigation.
Review and Program Evaluation – A report provided by a review team, consisting of CI
Division Office of Strategy and field personnel, that assesses CI Division operations,
managerial effectiveness, and ensures alignment with the CI Division Compliance
Strategy and IRS internal standards.
Special Agent – A law enforcement employee who investigates potential criminal
violations of the Internal Revenue laws and related financial crimes.
Subject Investigation – An investigation of an individual or entity alleged to
be in noncompliance with the laws enforced by the IRS and having prosecution
potential.
Title 18 – U.S.C. Title 18, Crimes and Criminal Procedure. Various sections of Title 18 apply to
violations that are within the jurisdiction of the CI Division. Examples include § 286, Conspiracy to Defraud the Government
with Respect to Claims; § 287, False, Fictitious, or Fraudulent Claims; § 371,
Conspiracy to Commit Offense or to Defraud
Title 31 – U.S.C. Title 31, Money and Finance.
Several sections of Title 31 apply to violations that are within the
jurisdiction of the CI Division.
Examples include § 5322, Criminal Penalties (for willful violations of
Title 31 sections) and § 5324, Structuring Transactions to Evade Reporting
Requirement Prohibited.
Treasury Executive
Office for Asset Forfeiture – The
agency that provides management oversight of the Treasury Forfeiture Fund, which is
the receipt account for the deposit of nontax forfeitures made by member
agencies including the CI Division.
Appendix V
Management’s Response to the Draft Report
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
Criminal
Investigation
May 21, 2010
MEMORANDUM FOR MICHAEL R. PHILLIPS
DEPUTY INSPECTOR GENERAL FOR AUDIT
FROM: for Victor S. O. Song /s/ Rick A. Haven
Chief, Criminal Investigation CI
SUBJECT: Response To Draft Audit Report - The Criminal Investigation Division Can Take Steps to Ensure Its Seizure Opportunities are Maximized (Audit #200930026)
The following is Criminal investigation's (CI) response to the above named report. Please incorporate this memorandum into your response to Treasury Inspector General for Tax Administration (TIGTA).
CI agrees in substance with the recommendations contained in TIGTA's draft report "The Criminal Investigation Division Can Take Steps to Ensure Its Seizure Opportunities Are Maximized." CI’s Warrants and Forfeiture Section (WF) provides program assistance, support, and direction, and will continue to make recommendations to enhance seizure opportunities during the Review Program Evaluation (RPE) of individual CI Field Offices as part of our asset forfeiture compliance strategy.
The recommendations in the draft TIGTA report discuss the role of "contractor employees" in three of the five recommendations. CI is currently focusing efforts on identifying and placing Financial Investigator IV contract employees into field offices in support of the asset forfeiture program. Financial Investigator IV contract employees possess a special skill set, with extensive law enforcement experience in investigations involving financial crimes, money laundering violations and asset forfeiture, as well as a working knowledge of the Internal Revenue Manual Part 9, Criminal Investigation policy and procedures, and the Internal Revenue disclosure policy. CI has already completed the placement of several of these special contractors and the results have been very positive. Additional locations will be staffed as budget permits.
Our comments on the specific recommendations in this report are as follows:
Recommendation #1:
Require contractor employees to review CIMIS reports to identify recently initiated narcotics and illegal investigations where there is no corresponding SIA. Once these investigations are identified, the contractor employees should proactively engage the special agents in discussions regarding the identification of forfeitable assets.
Corrective Action:
CI recognizes that management and oversight of SIA investigations are imperative to ensure that seizure opportunities are maximized. Asset Forfeiture Coordinators (AFC) are directed to review and consult on narcotics and illegal investigations with management officials (Supervisory Special Agent, Assistant Special Agent in Charge, and Special Agent in Charge) with the assistance of Financial Investigators where available. Management officials in the Field Office have direct oversight and responsibility for the review of CI~v1IS reports and follow-up with their agents on seizure opportunities that may be available.
CI will examine the creation of a structured oversight and coordination system with management and Financial Investigator IV contractor employees to monitor and more effectively maximize seizure opportunities on narcotics and illegal investigations.
Implementation Date:
Completed: ______ Proposed: 11/15/2010
Responsible Official: Director, Operations, Policy and Support
Corrective Actions Monitoring Plan: N/A
Recommendation 2:
Require contractor employees to periodically contact special agents to determine the status of the seizure and offer additional assistance.
Corrective Action:
Asset Forfeiture Coordinators (AFC) are directed to review and consult on narcotics and illegal investigations with management officials (Supervisory Special Agent, Assistant Special Agent in Charge, and Special Agent in Charge) with the assistance of Financial Investigators where available.
CI will examine the creation of a structured oversight and coordination system with management and Financial Investigator IV contractor employees that will encompass offering additional assistance/support to agents with asset forfeiture cases in an effort to effectively maximize seizure opportunities on narcotics and illegal investigations.
Implementation Date:
Completed: _______ Proposed: 11/15/2010
Responsible Official: Director, Operations, Policy and Support
Corrective Actions Monitoring Plan: N/A
Recommendation 3:
Conduct an internal study, with the cooperation of the United States Attorney's Offices, to determine if seizure opportunities are being missed. This study should incorporate a review of a sample of narcotics and illegal source investigations where the seizure of assets was not pursued to determine if assets with seizure potential were not identified.
Corrective Action:
As the findings and recommendation by TIGTA indicate a need for greater participation by the Field Office personnel in the seizure process, initiating an internal study is unnecessary. CI will look forward and will ensure the appropriate management reviews are being performed and that discussions are being held between management and special agents when initiating narcotics and illegal source investigations to determine if there is asset seizure potential.
Implementation Date:
Completed: N/A Proposed: N/A
Responsible Official: Director, Operations, Policy and Support
Corrective Actions Monitoring Plan: N/A
Recommendation 4:
Require that each special agent receive additional asset
forfeiture training during their first 5 years to supplement the basic training
received at the
Corrective Action:
CI agrees that additional asset forfeiture training would be beneficial to the program. During RPE reviews, the Warrants & Forfeiture Section encourages the Field Office to conduct new agent basic asset forfeiture training.
Currently, as part of the asset forfeiture program, the Warrants and Forfeiture Section, in collaboration with the Contractor work with the AFC, AFS, and Financial Investigator IV in developing training curricula, conducting the prescribed training courses, and maintaining training records for new agent asset forfeiture training. These efforts are coordinated with training opportunities from the Department of the Treasury, Executive 4 Office for Asset Forfeiture; the Department of Justice, Asset Forfeiture and Money Laundering Section. They also include publishing training opportunities and timely distribute asset forfeiture information. Training materials are updated on a regular basis ensuring policy, regulatory, legal, and system changes are incorporated. This AFC facilitated training provides new agents that have less than five years tenure with enough knowledge to consider seizure and forfeiture potential in their investigations. In addition, the Warrants and Forfeiture Section is available to assist in new agent asset forfeiture training for Field Office special agents.
Making delivery of additional asset forfeiture training to special agents during their first 5 years a requirement would have a significant budget impact. The Director, OPS will further evaluate the need and CI's ability to implement this requirement as compared to continuing to provide the current additional training explained above.
Implementation Date:
Completed: N/A Proposed: 11/15/2010
Responsible Official: Director, Operations, Policy and Support
Corrective Actions Monitoring Plan: N/A
Recommendation 5:
Consider requiring the contractor employees in each field office make periodic asset forfeiture presentations to each group of special agents.
Corrective Action:
CI concurs with the recommendation that contract employees and the AFC make periodic asset forfeiture presentations to each group of special agents in the Field Offices. AFCs will be directed to coordinate these presentations.
Implementation Date:
Completed: N/A Proposed:
11/15/2010
Responsible Official: Director, Operations, Policy and Support
Corrective Actions Monitoring Plan: N/A
[1] See Appendix IV for a glossary of terms.
[2] Led by the Department of Justice, this task force will work with State and local partners to investigate and prosecute significant financial crimes and address, among other things, discrimination in the lending and financial markets.
[3] See Appendix IV for a glossary of terms.
[4] The CI Division’s FY 2010 operational priorities include utilizing asset forfeiture authority to further enforcement goals and take the profit away from criminals.
[5] This is in contrast to seizures made for U.S.C. Titles 18 and 31 violations where property derived traceable to a violation can be seized. For instance, real estate acquired with laundered funds can be seized.
[6]
Offices within the four CI Division geographical
areas throughout the country with boundaries that range from a portion of a
single State to inter-State areas. Each
field office has a Special Agent in Charge to direct, monitor, and coordinate
the criminal investigation activities within that office’s area of
responsibility. Several post-of-duty
cities are located within each field office.
[7] The CI Division routinely participates in joint investigations where a Department of Justice agency, such as the Drug Enforcement Administration, is the lead seizing agency. The lead seizing agency processes the seizure from the forfeiture of funds to disposition. The CI Division can request an equitable share of any forfeited property from its participation in these investigations. This procedure is known as reverse asset sharing. The Department of Justice Asset Forfeiture Fund policy allows a maximum asset sharing amount of 80 percent.
[8] Statistical Portrayal of the Criminal Investigation Division’s Enforcement Activities for Fiscal Years 2000 Through 2008 (Reference Number 2009-30-053, dated March 26, 2009).
[9] Several office consolidations occurred during the 3-year period reviewed. For purposes of our analysis, we compared the 26 field offices as presently composed.
[10] We considered those field offices with one Assistant Special Agent in Charge to be smaller as opposed to those offices with two Assistant Special Agents in Charge. The field offices with one Assistant Special Agent in Charge would have fewer special agents.
[11] The CI Division and the Department of Justice created SAR Task Forces in 2006 to pursue SAR initiated investigations. These Task Forces are typically composed of CI Division Special Agents, State and local law enforcement personnel, and Federal prosecutors who are devoted full time to the review of the SARs. They specifically investigate possible Bank Secrecy Act violations that have the potential for seizures and forfeitures. According to the CI Division’s National SAR Coordinator, there are currently 19 SAR Task Forces in various stages of development.
[12] For our testing, we selected subject investigations that contained money laundering violations (18 U.S.C. Sections 1956 and 1957) or a structuring violation (31 U.S.C. Section 5324) in the “Under Investigation,” “Recommended for Prosecution Violation,” or “Indictment Violation” fields in the CIMIS.
[13] The CI Division coordinates with other Federal and State law enforcement agencies on many investigations. These 1,635 investigations can also include seizures that were executed by other agencies.
[14] We did
not meet with the AFC in the
[15] Some of these investigations could have had seizures executed by other agencies. We could not determine from our analysis if that had occurred.
[16] The internal reviews were conducted by CI Division personnel from May 2008 through August 2009.
[17] The Warrants and Forfeiture section offers additional training designed for special agents with less than 5 years of experience. While not required, that training has been made available to each of the field offices and some have requested the training.
[18] These
results did not include those special agents we interviewed that had less than
1 year of experience.
[19] United States Supreme Court decision docket number 06-1005 issued on February 2, 2008. In the decision, the Supreme Court ruled that a Federal money laundering statute that criminalizes certain uses of the “proceeds” of criminal activities applies to transactions involving criminal profits, not gross receipts, when the criminal conduct at issue is an unlicensed gambling business. This will affect the amounts that are forfeitable in those cases.
19 Please note that all four divisions included in this comparison would have agents working on investigations that would not have seizure potential. The purpose of this chart was to compare each agency’s total agent resources available and the net deposits to their department’s forfeiture fund.
[21] See Appendix IV for a glossary of terms.
[22] We did
not meet with the AFC or conduct Steps II.D., II.E, and II.G. at the