oversight

Summary

Published by the Department of Justice, Office of Inspector General on 2016-09-07.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

 

          
                   Office of the Inspector General
                   U.S. Department of Justice




        Audit of the National Security 

         Division’s Enforcement and 

     Administration of the Foreign Agents 

               Registration Act 





                                        
    Audit Division 16-24                             September 2016
        AUDIT OF THE NATIONAL SECURITY DIVISION’S 

     ENFORCEMENT AND ADMINISTRATION OF THE FOREIGN 

                AGENTS REGISTRATION ACT 


                            EXECUTIVE SUMMARY


       The Foreign Agents Registration Act of 1938 (FARA), 22 U.S.C § 611 et seq.,
as amended, is a disclosure statute that requires persons acting as agents of
foreign principals in a political or quasi-political capacity to make periodic public
disclosure of their relationship with the foreign principal, as well as activities,
receipts, and disbursements in support of those activities. According to the
Department of Justice (Department), this disclosure facilitates evaluation by the
government and the American people of the statements and activities of such
persons in light of their function as foreign agents. The FARA Registration Unit
(FARA Unit) of the Counterintelligence and Export Control Section (CES) within the
Department’s National Security Division (NSD) is responsible for the administration
and enforcement of the Act. A willful failure to register as an agent of a foreign
principal may result in criminal prosecution and a sentence of a fine and up to 5
years in prison. There also is a civil enforcement provision that permits the
Department to seek to enjoin a party from acting as an agent of a foreign principal
in violation of FARA.

      This review was initiated in response to a requirement by the U.S. House of
Representatives Committee on Appropriations that the OIG review the
Department's enforcement of FARA. Based on this direction, our audit objectives
were to review and evaluate the monitoring and enforcement actions taken by the
Department to ensure appropriate registration, and to identify areas for the
Department to consider seeking legislative or administrative improvements.

       During our audit, we found that the number of active FARA registrations
peaked in the 1980s, with a high of 916 active registrations in 1987, and began to
fall sharply in the mid-1990s. The Department has not performed an analysis on
the decline, but NSD officials speculated that the imposition of FARA registration
fees in 1993 and the passage of the Lobbying Disclosure Act (LDA), which carved
out a significant exemption to FARA in 1995, were likely factors. In addition to the
declining trend in registrations, we also found that there historically have been very
few FARA prosecutions. Between 1966 and 2015 the Department only brought
seven criminal FARA cases – one resulted in a conviction at trial for conspiracy to
violate FARA and other statutes, two pleaded guilty to violating FARA, two others
pleaded guilty to non-FARA charges, and the remaining two cases were dismissed.
We were also told by NSD that the Department has not sought civil injunctive relief
under FARA since 1991.

      In discussions with several Federal Bureau of Investigation (FBI)
counterintelligence agents and Assistant United States Attorneys (AUSA), as well as
NSD officials, we found differing understandings between field agents and
prosecutors and NSD officials about the intent of FARA as well as what constitutes a


                                          i 
“FARA case.” The primary difference stemmed from the belief of investigators that
investigations conducted pursuant to a separate criminal provision, 18 U.S.C. § 951
(Section 951), were FARA cases. However, NSD officials stated that unlike FARA
and the LDA, Section 951 can be aimed at political or non-political activities of
agents under the control of foreign governments. Although registration under FARA
can serve as the required notification to the Attorney General under Section 951,
the criminal activity targeted is different. According to NSD officials, who must
approve both FARA and Section 951 cases, a true FARA case can only be brought
pursuant to 22 U.S.C. § 611, et seq., and these officials stated that NSD currently
is engaged in ongoing outreach activities that will help better educate investigators
about FARA. We believe these differing understandings are indicative of the lack of
a comprehensive Department enforcement strategy on FARA, which the
Department should develop and integrate with its overall national security efforts.

       Further, the majority of those agents interviewed believed that NSD’s review
of what they believed to be FARA cases was generally slow and that NSD is
reluctant to approve these charges. Some investigators believed that NSD has a
clear preference toward pursuing registration for alleged FARA violators rather than
seeking prosecution, which in their opinion, leaves an important counterintelligence
tool underutilized. NSD officials told us that they believed that even though
criminal penalties are available under FARA, the primary goal of FARA is in fact to
ensure appropriate registration and public disclosure. These NSD officials also
disputed that there is any reluctance on their part to approve either true FARA or
Section 951 cases, and stated that they approve charges when the evidence
presented leads them to judge that a provable willful violation exists.

        Timely submission of required documentation is essential for full and
complete public disclosure. However, we found in our testing that 62 percent of
initial registrations were untimely, and that 50 percent of registrants filed at least
one supplemental statement late. We also found that NSD needs to improve its
controls and oversight of FARA registrations, particularly involving its inspections of
registered foreign agents and enforcing the complete and timely submission of
required documentation. Agents of foreign principals are required to maintain
records of activities on behalf of their principal for the duration of the agreement
and 3 years thereafter. These records are subject to inspection by the NSD’s FARA
Unit. If an inspection identifies deficiencies in an agent’s disclosures, the FARA Unit
advises the registrant of the deficiencies and actions required for resolution. We
noted, however, that several inspection recommendations issued by the FARA unit
still remained unresolved and believe that NSD can further improve its monitoring
efforts by developing a policy to ensure appropriate resolution of recommendations
identified in its inspection reports. NSD stressed to us that because the FARA Unit
has limited staff and considerable responsibilities follow-up can be difficult. We
understand this challenge but believe improvements can still be made.

       With regard to potential legislative improvements, NSD officials stated that a
major difficulty is a lack of authority to compel the production of information from
persons who may be agents. As a result, NSD is currently pursuing civil
investigative demand (CID) authority from Congress in order to enhance its ability


                                           ii 
to assess the need for potential agents to register. While we concur that CID could
be a useful tool for NSD, there are important competing considerations at stake,
and we believe that any expansion of such authority must also include appropriate
controls and oversight to ensure it is used appropriately. Another difficulty NSD
cited relates to the breadth and scope of existing exemptions to the FARA
registration requirement and determining whether activities performed by certain
groups, such as think tanks, non-governmental organizations, university and
college campus groups, foreign media entities, and grassroots organizations that
may receive funding and direction from foreign governments fall within or outside
those exemptions. According to the FARA Unit, these types of organizations
generally claim that they act independently of foreign control or are not serving a
foreign interest and are not required to register.

       NSD officials also told us that the enactment of the LDA in 1995 may have
contributed to the recent decline in FARA registrations. The LDA focuses on those
engaged in lobbying activities on behalf of domestic and foreign interests and those
agents of foreign principals who engage in lobbying activities and who register
under the LDA, and, as a result, are exempt from registration under FARA.
However, NSD believes that because FARA disclosure requirements are more
rigorous than those of the LDA, those lobbying on behalf of foreign commercial
interests should not be exempt from FARA registration. We believe that the
development of an enforcement strategy for FARA cases should include an
assessment of the LDA exemption and its impact to determine if legislative changes
should be sought.

       In this report we make 14 recommendations to help improve NSD’s
enforcement and administration of FARA. We found that several of these
recommendations were similar to those made over the years in reports by the
Government Accountability Office, and its predecessor the General Accounting
Office, and by public interest organizations, and that these recommendations
should be seriously considered if the purposes of FARA are to be fully realized.




                                          iii 
         AUDIT OF THE NATIONAL SECURITY DIVISION’S 

      ENFORCEMENT AND ADMINISTRATION OF THE FOREIGN 

                 AGENTS REGISTRATION ACT 


                                     TABLE OF CONTENTS 



INTRODUCTION ............................................................................................ 1 


        History of FARA ................................................................................... 2 


        NSD’s Administration and Enforcement of FARA ....................................... 3 


        FARA Registration Trends ...................................................................... 5 


        OIG Audit Approach ............................................................................. 6 


        Prior Reports ....................................................................................... 7 


FINDINGS AND RECOMMENDATIONS ............................................................... 8 


        Efforts to Enforce FARA......................................................................... 8 


        Administration and Monitoring of FARA Registrations .............................. 13 


        Other Possible Legislative Improvements that the Department Might Seek 17 


        Conclusion ........................................................................................ 21 


        Recommendations ............................................................................. 21 


STATEMENT ON INTERNAL CONTROLS........................................................... 23 


STATEMENT ON COMPLIANCE WITH LAWS AND REGULATIONS ......................... 24 


APPENDIX 1: OBJECTIVES, SCOPE, AND METHODOLOGY................................. 25 


APPENDIX 2: PRIOR REPORTS INVOLVING FARA ............................................ 27 


APPENDIX 3: NATIONAL SECURITY DIVISION'S RESPONSE TO

            THE DRAFT REPORT ................................................................ 29 


APPENDIX 4: OFFICE OF THE INSPECTOR GENERAL ANALYSIS AND SUMMARY

            OF ACTIONS NECESSARY TO CLOSE THE REPORT ....................... 37 



 
 

         AUDIT OF THE NATIONAL SECURITY DIVISION’S 

      ENFORCEMENT AND ADMINISTRATION OF THE FOREIGN 

                 AGENTS REGISTRATION ACT 


                                      INTRODUCTION 


       The Foreign Agents Registration Act (FARA) of 1938, as amended, requires
persons acting as agents of foreign principals in a political or quasi-political capacity
to make periodic public disclosure of their relationship with the foreign principal, as
well as their activities, receipts and disbursements in support of those activities.1
According to the Department of Justice (Department or DOJ), such disclosure
enables the American people to evaluate the statements and activities of such
persons in light of their function as foreign agents.

       Individuals or entities may act as agents or employees of foreign
governments or interests on a variety of matters, including for instance lobbying a
member or committee within Congress. FARA requires an agent, upon entering into
an agreement with a foreign principal, to submit an initial registration to the
Department. This registration must describe the agent registering, the foreign
principal, the nature of work to be performed, and include a copy of the agreement
between the agent and the associated foreign principal. These registrations must
be filed within 10 days of an agreement to become an agent of a foreign principal,
and the foreign agent must pay a filing fee of $305.2

      Every 6 months after the initial filing, the agent is required to submit a
supplemental statement to the FARA Unit describing activities performed during
that period and the amounts paid for that work. Each supplemental statement also
requires the agent to pay an additional $305 fee for each foreign principal
represented during the period.

       The agent also is required to submit to the FARA Unit any informational
materials produced on behalf of the principal and transmitted to two or more
persons within 48 hours of transmittal. These informational materials must contain
a conspicuous statement that the materials were distributed by an agent on behalf
of a foreign principal, and that further information is on file with DOJ.

               As discussed in detail below, there are multiple exemptions to FARA
registration requirements, including persons whose activities are of a purely
commercial nature or solely of a religious, scholastic, academic, scientific or fine
arts nature, as well as attorneys engaged in legal representation of foreign
principals so long as they do not try to influence policy at the behest of their client.
In addition, any agent who is engaged in lobbying activities and is registered under
                                                            
       1
           22 U.S.C. § 611, et seq.
       2
         Specific requirements for the registration and its submission are contained in a regulation
promulgated by the Department, 28 C.F.R. § 5.1, et seq. 

                                                    

                                                  1

 
the Lobbying Disclosure Act (LDA) is exempt from registration under FARA if the
representation is on behalf of a foreign commercial interest rather than a foreign
government or foreign political party.3 As we discuss later in the report, there are
different requirements for registrants under the LDA that may impact the
Department’s efforts under FARA. LDA is administered by Congress rather than the
Department. FARA Unit staff told us they review LDA filings, typically once a
month, looking for potential FARA registrants. The unit looks for direction, control,
and tasking from a foreign government. When a potential FARA obligation is found,
the unit sends the potential registrant a letter of inquiry.

History of FARA
 
        FARA was enacted in 1938 in response to recommendations of a special
congressional committee investigating anti-American activities in the United States.
The committee studied the rise of propaganda activity by European fascist and
communist governments to determine whether the United States needed a new
means to protect its citizens from political propaganda from foreign sources. A
significant finding of the committee’s study was that the Nazi German government
had established an extensive underground propaganda apparatus using American
firms and citizens.

       From its passage in 1938 until amendments made in 1966, FARA primarily
focused on propagandists. The 1966 amendments, which still form the core of the
current Act, shifted its focus to protecting the integrity of the government’s
decision-making process and to the identity of the sources of political propaganda.
The 1966 amendments also narrowed the reach of FARA so that the government
has to prove that a foreign agent is acting at the order, request, or under the
direction and control of a foreign principal. The amendments led DOJ to allow
persons who believe they may be subject to FARA requirements, or their attorneys,
to request an advisory opinion from the Department regarding their obligation to
register.4 According to FARA Unit staff, the 1966 amendments reduced the
incidence of criminal FARA prosecutions in favor of increased civil and
administrative resolution of FARA violations.

       The next significant legislative change affecting FARA resulted from the 1995
passage of the LDA. Under the LDA, any agent who is engaged in lobbying activities
and is registered under the LDA is exempt from FARA registration if the
representation is on behalf of a foreign commercial interest rather than a foreign
government or foreign political party. The term “political propaganda” was also
removed from FARA and replaced with the term “informational materials,” which is
not defined. According to FARA Unit staff, Congress believed the term
“propaganda” to be an unnecessary remnant of the original law and believed the


                                                            
              3
                  2 U.S.C § 613(h).
              4
                  28 C.F.R. § 5.2

                                                                

                                                               2

 
change to “informational materials” reflected the shift in focus to the public
disclosure of agents engaged in the U.S. political process.

NSD’s Administration and Enforcement of FARA

       The National Security Division’s (NSD) Counterintelligence and Export Control
Section (CES), and its FARA Registration Unit are primarily responsible for the
enforcement and administration of FARA. CES and the FARA Unit have been part of
NSD since the Division’s creation in 2006. Prior to 2006, CES and the FARA Unit
were part of the Department’s Criminal Division. The NSD maintains a publicly
available page on the Department’s website at www.fara.gov, which contains
information on the statute and filing requirements and contact information for the
FARA Unit. The fara.gov webpage also contains an e-filing capability for
registrations, a document search page that allows for public access to initial and
supplemental registration statements and their Exhibits, and the semiannual
reports from the Department to Congress that are required by the Act and list
registered agents of foreign interests and their activities. FARA cases are primarily
investigated by Federal Bureau of Investigation (FBI) counterintelligence agents
and prosecuted by United States Attorney’s Offices (USAO) after receiving NSD
approval as required by Section 9-90.710 of the United States Attorneys’ Manual.
A willful violation of FARA, including false statements or omission of material facts,
carries a penalty of a fine or imprisonment for up to 5 years, or both.

        During our audit the FARA Unit was comprised of one Unit Chief, who is also
an attorney; two staff attorneys; one Supervisory Program Manager; one
Intelligence Research Specialist; one Program Specialist; and two Case
Management Specialists.5 NSD staff emphasized that this is a limited staff, which is
responsible for a considerable range of activities. The unit is responsible for
processing and monitoring new and existing FARA registrations on an ongoing
basis. This includes receiving, reviewing and processing documentation and
payments, and addressing late or inaccurate submissions. The unit also performs
periodic formal inspections to assess the adequacy of registrant reporting and
disclosure, and conducts open source searches to identify individuals that may be
obligated to register. It also provides, upon request, advisory opinions to
individuals who are unsure whether FARA registration is required of them and
maintains foreign agent submissions in electronic and hard copy form for public
consumption. The unit has received 14 requests for advisory opinions since the
beginning of 2013. We inquired whether advisory opinions were made publicly
available as an informational resource. Unit staff responded that advisory opinions
are not made public, adding that each request is unique, opinions rely on the
information provided by the requestor, and that advisory requests involve proposed
activity. However we note that the Office of the Inspector General (OIG) posts
investigative findings on its public website, and that the DOJ Criminal Division posts

                                                            
              5
          One of these two staff attorneys joined the FARA Unit during our audit. At the conclusion of
our audit we were informed that the FARA Unit was back to one staff attorney, however the unit
planned to hire a replacement.

                                                                

                                                               3

 
Foreign Corrupt Practices Act opinions as well, both in anonymized form.6 We
believe the FARA advisory opinions may be a worthwhile informational resource,
and recommend NSD consider whether there is value in making them publicly
available. The FARA Unit also assists CES, FBI and USAOs with FARA-related
investigations as needed.

       The FARA Unit Chief reports to the Section Chief of CES. As noted above, the
U.S. Attorneys’ Manual requires NSD approval before a USAO can charge a FARA
violation. CES reviews and approves or declines FARA charges in consultation with
the FARA Unit.




                                                            
              6
          See https://oig.justice.gov/reports/inv-findings.htm and https://www.justice.gov/criminal-
fraud/opinion-procedure-releases.

                                                                

                                                               4

 
FARA Registration Trends

       We compiled data on foreign agent registrations under FARA from 1966 to
the present. The following charts show the number of annual active and new
registered agents and foreign principals as of the end of each calendar year.

                                     Figure 1 

               Active Registrants and Foreign Principals per Year 





Source: www.fara.gov

                                     Figure 2
                 New Registrant and Foreign Principals per Year




Source: www.fara.gov

       As reflected in Figures 1 and 2 above, the number of active registrations for
foreign agents under FARA peaked at 916 in 1987. However, in the mid-1990s
active FARA registrations began falling sharply after the imposition of fees in 1993
and the passage of the LDA in 1995, leaving a total of 360 as of the end of 2014.
Consequently, the number of active foreign principals also fell sharply in the mid-
1990s from a high of 2079 in 1991, and was at 561 as of the end of 2014. New
registrations have followed a similar trend, peaking at 157 in 1986 to a total of 66
new registrations in 2014. Since the abrupt decline in the mid-1990s, registrations
have continued to trend down, albeit at a more gradual pace.
                                           

                                         5

 
       While no formal analysis on the decline has been performed by the
Department, FARA Unit staff speculated that the imposition of FARA registration
fees in 1993 and the passage of the LDA in 1995 were likely factors. While the OIG
does not dispute that these factors played some role in declining number of FARA
registrations, we could not definitively correlate specific causation for the declining
trend.7

OIG Audit Approach

       The Department of Justice Office of the Inspector General (OIG) initiated this
audit at the request of the U.S. House of Representatives Committee on
Appropriations, which required the OIG to review the Department’s enforcement of
FARA. The Committee requirement specifically directed the OIG to review the
Department’s enforcement of FARA, specifying:

              The report should take into account FARA filing trends and foreign
              government tactics to engage in public advocacy in the United States
              while avoiding FARA registration. The report shall recommend
              administrative or legislative options for the improvement of FARA
              enforcement.8

      Based on this request, the objectives of our audit were to review and
evaluate the monitoring and enforcement actions taken by the Department to
ensure appropriate registration, and to identify areas for the Department to
consider seeking legislative or administrative improvements.

       We also inquired about tactics to avoid FARA registration and learned from
the Assistant United States Attorneys (AUSA) and FBI case agents with whom we
spoke that the impetus for FARA avoidance often appears to come not from the
foreign principal, but from the agent, who is conscious of the need to preserve
credibility by concealing the support of the foreign principal. FBI staff told us the
foreign principal typically is indifferent to FARA requirements. The FARA Unit
disagreed with the FBI staff assessment and told us that in its experience foreign
principals are not indifferent to FARA requirements.

        To accomplish our objectives, we interviewed staff from the National Security
Division, including its Counterintelligence and Export Control Section and its FARA
Unit. We also interviewed AUSAs and FBI counterintelligence agents from district
and field offices involved with FARA investigations. We also spoke with staff from
the FBI’s Counterintelligence Division and National Security Law Branch, and with
staff from the Department of Justice’s Office of Legislative Affairs. Lastly, we

                                                            
       7
          Direct staff knowledge of the FARA Unit’s history extends back to 1984. The Unit Chief has
been with the FARA Unit since that time.
              8
                  House Report 113-448- Commerce, Justice, Science, and Related Agencies Appropriations
Bill, 2015.

                                                                

                                                               6

 
reviewed FARA registered agent documentation and FARA Unit records and
communications.   

       The results of our audit are detailed in the Findings and Recommendations
section of this report. Appendix 1 contains more information about our objectives,
scope, and methodology, and Appendix 2 provides information on prior reports
conducted by both government and private organizations that have reviewed the
Department’s administration and enforcement of FARA.

Prior Reports

       Our research identified three prior reports prepared by the General
Accounting Office (now known as the Government Accountability Office) that dealt
with the administration and enforcement of the Foreign Agents Registration Act.9
Although these reports date back to 1974, 1980, and 1990, they identified some of
the same issues identified in this report, including timeliness and the use of
available enforcement tools. We believe that these recommendations should be
seriously considered if the purposes of FARA are to be fully realized. Additional
details on these reports, as well as more recent reports produced by public interest
organizations, can be found in Appendix 2.
 




                                                            
              9
                    There also was a 2008 GAO report that referenced certain FARA authorities as discussed
below. 

                                                                

                                                               7

 

                                        FINDINGS AND RECOMMENDATIONS

              We found that field level agents and prosecutors expressed frustration
              as they attempted to develop FARA investigations due to the
              perception that NSD, which must concur before charges can proceed,
              is reluctant to approve FARA charges. NSD officials denied that they
              are reluctant to approve FARA charges and told us that in the few
              instances where FARA charges were proposed but not pursued it was
              due to insufficient evidence of willful conduct necessary to bring a
              FARA case. Nevertheless, NSD officials acknowledged that
              communication about why cases might not be approved can be
              improved. NSD officials also acknowledged that even though criminal
              penalties are available under FARA, it primarily views FARA as
              disclosure statute, and this could also be communicated better to field
              agents and prosecutors. We believe this is indicative of the lack of a
              comprehensive FARA enforcement strategy, which the Department
              should develop and integrate with its overall national security efforts.
              In addition, we found that FARA registrants often submitted required
              documentation late, and were not always responsive to FARA Unit
              requests and recommendations to update information and correct
              deficiencies. We also learned about several proposals developed by
              NSD for legislative improvements to FARA that could improve its
              enforcement efforts if enacted.

Efforts to Enforce FARA
 
       During our audit we found that historically there have been hardly any FARA
prosecutions. Over the past 50 years, between 1966 and 2015, the Department
reported to us that it brought, in total, only seven criminal FARA cases – one
resulted in a conviction at trial for conspiracy to violate FARA and other statutes,
two pleaded guilty to violating FARA, two others pleaded guilty to non-FARA
charges, and the remaining two cases were dismissed.10 Another was approved for
prosecution by NSD in November 2015.11 We also found that the NSD does not
track the number of FARA cases declined for prosecution, or the reasons for such
declinations. Therefore, the OIG cannot determine quantitatively whether foreign
governments employ any specific tactics to avoid FARA registration. We did,
however, review the cases that have been filed alleging FARA violations and spoke
to the FARA Unit Chief about this topic. The FARA Unit Chief noted that foreign
government lobbying in the United States is not itself inappropriate or unlawful, and
that foreign agents who are not otherwise exempt must register under FARA. While
                                                            
              10
            According to the Department, the two dismissed FARA cases resulted from a statute of
limitations issue, and the resignation of the principal prosecutor handling the case, respectively.
              11
           In addition to criminal penalties, FARA allows the Department to seek civil injunctive relief
when it identifies a foreign agent it believes to be in violation of the statute. The last civil
enforcement action by NSD occurred in 1991. As explained in further detail in this report, NSD has
been reluctant to pursue civil injunctive relief since that time.

                                                                

                                                               8

 
foreign governments may be creative in their attempt to influence U.S. policy and
sway public opinion, if it is done in a way that does not create a statutory agency
relationship on the part of the agent acting within the United States at the direction
or control of the foreign government, then there is no agent of a foreign principal
with an obligation under FARA.

FARA Criminal Investigations and Prosecutions

       We learned that the focus of the FARA Registration Unit’s enforcement efforts
is encouraging voluntary compliance, rather than pursuing criminal or civil charges.
Conversely, we found that FBI and USAO staff members with whom we spoke are
actively pursuing FARA criminal charges. FBI staff told us they believe this to be an
effective tool carrying sufficient penalties to deter foreign principals from exerting
undisclosed influence, or to compel the development of cooperating sources.
Although NSD officials disagreed with the assessment offered by these FBI staff
members, we believe this disagreement reflects the lack of a comprehensive
Department enforcement strategy, and a lack of mutual understanding and clarity
in enforcement goals as discussed in greater detail below.

               This was confirmed when we spoke about the process for pursuing FARA
prosecutions with NSD officials, as well as FBI counterintelligence agents and
AUSAs with experience investigating FARA cases. During these discussions we
found differing understandings between field agents and prosecutors and NSD
officials about the intent of FARA as well as what constitutes a prosecutable FARA
case. Most notably, when we discussed FARA with FBI personnel, we found that
they considered a “FARA case” to be a case investigated pursuant to either the
FARA, 22 U.S.C. § 611, et seq., or 18 U.S.C. § 951 (Section 951), which is the
federal statute that provides criminal penalties for certain agents of foreign
governments who act in the United States without first notifying the Attorney
General.12 Unlike Section 951, FARA requires agents of foreign principals engaged
in legal political or quasi-political activities such as lobbying, government and public
relations, tourism promotion, and foreign economic development activities in the
United States to register and make detailed disclosures of their activities in the
United States conducted on behalf of their foreign principals.13
                
               By contrast, Section 951 was described to us by the NSD as “espionage lite”
because a Section 951 case generally involves espionage-like or clandestine
behavior or an otherwise provable connection to an intelligence service, or
information gathering or procurement-type activity on behalf of a foreign
                                                            
        12
           According to NSD, notification under Section 951 may be made by registration under FARA
in circumstances where the activity requiring notice is disclosed on the FARA registration form.
        13
            Political activities are defined by the statute as “any activity that the person engaging in
believes will, or that the person intends to, in any way influence any agency or official of the
Government of the United States or any section of the public within the United States with reference
to formulating, adopting, or changing the domestic or foreign policies of the United States or with
reference to the political or public interests, policies, or relations of a government of a foreign country
or a foreign political party.”

                                                       

                                                     9

 
government. Although FARA registration can serve as the required notification to
the Attorney General under Section 951, NSD officials told us FARA and Section 951
involve different sets of elements and different types of issues. According to NSD
officials, only 22 U.S.C. 611 et seq. constitutes a FARA case. Nevertheless, NSD
officials acknowledged the differing views on what constitutes a FARA charge and
are currently engaged in an ongoing effort to better educate field investigators and
prosecutors on the difference. However, in reviewing the training developed by
NSD we noted that it did not appear to include specifics on how FARA cases would
gain approval to proceed from NSD or what is included in case reviews to give
agents and prosecutors an understanding of the length of time needed for such
reviews. We therefore recommend that NSD update its current training for
investigators and prosecutors to include information about the time it takes and the
process used by NSD to approve or deny these cases for prosecution.

        We asked the FBI for data about FARA cases presented and not prosecuted,
but we were told by the FBI that their case coding commingles both FARA and
Section 951 cases. Therefore, we were unable to isolate cases presented under
FARA alone. We believe segregating these two types of cases in the FBI’s
classification codes may help advance NSD’s efforts to clarify the distinction for
case agents, and we recommend NSD discuss the feasibility of this with the FBI.

       In addition, the majority of FBI field personnel we interviewed believed that
NSD’s review of FARA cases was generally slow and that NSD is reluctant to
approve FARA charges, although these individuals generally speculated as to why
NSD might be reluctant. We found that the NSD does not track the timeliness of its
handling of FARA referrals, with the general view that the matters will take as long
as they take. One person from the FBI with whom we spoke told us that, as a
result, what could be an extraordinarily effective tool has instead become a point of
contention and frustration, and found not just a lack of support from NSD, but
“negative support.” Some FBI personnel we spoke with told us that CES generally
appeared to lack confidence in FARA because it was too seldom used or too difficult
to prosecute. Most personnel from the FBI however told us that they came away
from their interactions frustrated with CES because they were not given any
explanation from CES as to why what they believed to be solid evidence of a FARA
violation was declined for prosecution.14 Some of these agents noted that NSD has
a clear preference toward pursuing registration for alleged FARA violators rather
than seeking prosecution, in keeping with its voluntary compliance approach. FBI
and USAO staff we spoke with told us that they have been asked, repeatedly in
some instances, to solicit voluntary registration from targets of investigations
despite the fact that it is evident to the investigators that the target has no
intention of complying. NSD officials denied this and stated that the FARA Unit is
unaware of any instance in which it requested the FBI or any USAO to ask the
target of an ongoing criminal investigation to register.


                                                            
              14
          Cf. USAM 9-27.270(A), providing that attorneys from the government should ensure that
the reasons for declinations are communicated to the investigative agency and documented in the file.

                                                                 

                                                               10

 
       Further, FBI personnel with whom we spoke believed that FARA carries a
penalty sufficient enough to serve as a deterrent to both the agent and his foreign
principal or to induce the target of an investigation to become a cooperating source.
These agents felt that the Department’s reluctance to bring charges in FARA cases
resulted in missed opportunities to deter agents of foreign principals from criminal
or other misconduct or to obtain valuable cooperation. Some staff with whom we
spoke expressed concern about case agent morale and discouragement toward
pursuing future FARA investigations as a result of this reluctance.

       We also heard frustration expressed from FBI and AUSAs with respect to the
parameters of CES’ approval authority. For example, in one instance, we were told
that CES cited jury appeal as a factor in declining a FARA prosecution. The AUSAs
and FBI staff we spoke to about this expressed doubt whether it was appropriate
for CES to overrule local prosecutors, who were in a much better position to assess
the jury appeal of a case in their local jurisdiction, on this basis. NSD disagreed
with this view, and told us that in any circumstance where NSD has approval
authority, it must reach a conclusion by assessing prosecution risk as per the
U.S. Attorney’s Manual to obtain and sustain a conviction. Among the matrix of
factors it considers are how a case is presented, and the risk of jury nullification.

       We also noted that some of the AUSAs and FBI personnel with whom we
spoke recognized the value of CES’ role in the process and, in particular, stated CES
can provide sound judgment, experience, and expertise when evaluating FARA
investigations. Some also praised the new leadership at CES for its willingness to
be more candid and communicative with the FBI and the USAOs.

       CES officials acknowledged to us that even though criminal penalties are
available under FARA, the primary goal of FARA is in fact to ensure appropriate
registration and public disclosure. These NSD officials also disputed that there is
any reluctance on their part to approve FARA criminal charges (or Section
951 charges), and stated that criminal charges are approved when the evidence
presented leads them to judge that a provable criminal violation has occurred. NSD
also stated that criminal FARA cases are difficult to prove because prosecutors
under FARA must demonstrate both willfulness on the part of the accused to avoid
registration or to make a false statement or omission in their filings, and that the
agent was directed and controlled by a foreign principal. Though we do not dispute
these difficulties, we found that there was not a coordinated strategy on FARA
enforcement at the Department and, in particular, there was no strategy addressing
how FARA fits into the Department’s overall national security efforts. We therefore
recommend that the Department develop a comprehensive strategy for the
enforcement and administration of FARA that includes the agencies that perform
FARA investigations and prosecutions and integrates with the Department’s overall
national security efforts. We also recommend that the NSD ensure that it informs
investigators and prosecutors in a timely fashion of the reasons for which FARA
cases are not approved.

      In addition, because NSD does not track the number of cases it receives for
enforcement consideration, we recommend that it maintain information on the
                                         

                                         11

 
number of cases submitted for review, the amount of time such review takes, and
the final determination made on the case. We believe this will enable the
Department to assess and improve its handling of FARA cases. In particular, trends
could be determined regarding what case information has been used to move
forward with prosecutions, or whether NSD is making determinations on a timely
basis.

Civil Enforcement of FARA

       In addition to criminal penalties, FARA allows the Department to seek civil
injunctive relief when it identifies a foreign agent it believes to be in violation of the
statute. In order to seek injunctive relief, the Attorney General may petition the
appropriate U.S. District Court for an order temporarily or permanently disallowing
the alleged foreign agent from acting as an agent of a foreign principal. This type
of remedy could be sought in instances where an alleged agent failed to register or
was delinquent in filing their supplemental statements. It could also be used in
instances where a registered foreign agent fails to address recommendations
stemming from an inspection by the FARA Unit.

       When we inquired about the Department’s use of injunctive relief, we were
told that it has not made use of the remedy since 1991, for several reasons. First,
according to FARA Unit staff, in order to pursue a petition seeking to enforce
registration, the Department must have specific evidence of foreign direction and
control to be successful. According to these staff members, it is rare that such
evidence exists. In addition, we were told that, as a matter of practice, before the
unit would seek injunctive relief that will require registration or remedying
delinquent filings, it would have to have sought voluntary registration and received
a direct refusal. According to the FARA Unit, they do not typically encounter such
scenarios.

       FARA Unit staff also told us that the unit sought authority to impose civil
fines for delinquencies twice in the 1990s, without success. However, current staff
added that they would be reluctant to seek civil fines at present because it would
be counterproductive in that it could serve as a deterrent to disclosure to seek fines
for lateness against a registrant who is otherwise in compliance with FARA, and it
would add administrative costs to the unit’s work.

       Nevertheless, based on the widespread delinquencies we found, we believe
that there may be circumstances in which an injunctive remedy or other penalty is
merited. For instance, as discussed later in this report, when we reviewed FARA
Unit inspection reports from 2008 to 2014, we found instances where the unit
issued recommendations to the registrant requesting submission of late
supplemental statements; however, the requested supplemental statements do not
appear in the FARA database, and appear to remain delinquent despite the
inspection and notification of the deficiencies. Although we are not questioning that
NSD needs to have the ability to use its discretion when deciding whether to pursue
criminal penalties or an injunctive remedy against an alleged violator of FARA, we

                                              

                                           12

 
believe NSD should ensure that it appropriately utilizes all of the enforcement tools
available to it.

Administration and Monitoring of FARA Registrations

       The FARA Unit is responsible for the monitoring of new and existing FARA
registrations on an ongoing basis. This includes receiving, reviewing and
processing documentation and payments, and addressing late or inaccurate
submissions. As of the end of calendar year 2014, the FARA Unit was responsible
for a foreign agent registrant pool of 360 agents representing 561 foreign
principals. We tested documentation dating back to 2013 from a judgmentally
selected risk-based sample of 78 FARA registrants, representing approximately
22 percent of the total, to evaluate the effectiveness of the FARA Unit’s monitoring
efforts. Generally, we found that the required documents were complete.
However, we also found that documents were routinely submitted late, and in some
instances registrants had ceased submitting required documentation entirely.
These findings are further detailed in the sections below.

Identifying Potential Registrants

       The FARA Unit attempts to identify and make contact with individuals or
entities that may have an obligation to register under FARA. Identification is made
primarily through review of a range of publications, web sites, and LDA filings for
indications of a connection between a potential agent and a foreign principal.
Potential registrants may also be identified through review of existing registrant
information, or through referral from other government offices or agencies, or from
the public.

        When a potential obligation to register is found, the unit issues a letter of
inquiry to the potential registrant advising of FARA requirements, and requests
additional information relevant to registration status. The FARA Unit has found that
most of the recipients of such letters responded within what it has considered to be
a reasonable amount of time and either register or offer what the unit finds to be
sufficient explanation that FARA requirements do not apply to them. If there is no
response to the letter, a seemingly false response, or another reason to believe a
significant FARA offense has been committed, FARA personnel will refer the matter
to the FBI.

       The FARA Unit stated it has issued approximately 130 letters of inquiry over
the past ten years. Thirty-eight of the recipients were found to have an obligation
to register under FARA, and subsequently did so. The remaining recipients were
found to either have no obligation to register, or the FARA Unit is continuing to seek
additional information to make a determination.

New Registrations

       Thirteen of the 78 agent files from 2013 to 2015 that we reviewed had
registrations that were initiated after January 1, 2013. We considered these to be
                                             

                                         13

 
“new” registrations for testing purposes, and they were filed as such. However, we
found that only 3 of these 13 registrations, or 23 percent, were submitted within 10
days of the underlying contract’s execution as required by FARA. Eight of the 13
registrations, or 62 percent, were submitted late; with the lateness ranging from 7
to 343 days. The remaining two agent files involved verbal agreements with no
contract execution date provided to the FARA Unit.15 Without the contract
execution dates, which NSD does not require, we could not assess the timeliness of
these two registrations.16

      Timely submission of initial registration documentation is essential for full
and complete public disclosure of foreign agents engaged in the U.S. political
process on behalf of foreign principals. However, we understand that it is difficult
for NSD to ensure the timely registration of a foreign agent when it has no easy
independent way to know of the foreign agent’s obligation to register.

Supplemental Statements

       Every 6 months after their initial registration, a foreign registered agent must
submit a supplemental statement describing activities performed and sums
transacted during that period. We found that 34 of 78 (44 percent) foreign agents
we reviewed submitted supplemental statements in a timely manner - however
half, 39 of 78, did not.17 Of these 39, 8 (10 percent of the total) had not submitted
any supplemental statements since January 1, 2013. FARA Unit staff believed that
the registered agents who ceased filing supplemental documentation likely
concluded their work for the foreign principal, but either neglected to formally
inform the FARA Unit of the termination or were unaware of their obligation to do
so, although 28 C.F.R. 5.205 includes a requirement to notify the FARA Unit of such
termination. However, the possibility remains that these registrants may still be
active.

               In addition to the 8 agents who had not filed at all since January 2013, we
found that 4 other agents in our sample had filed previously during that period, but
were more than 6 months delinquent as of the end of 2014. In total, 12 of the 78
(15 percent) of active agents we reviewed had ceased filing altogether or were over
six months delinquent. For these delinquent agents, we found that the FARA Unit
sent delinquency notices periodically, but the notices did not appear to be sent
                                                            
        15
            FARA Unit personnel told us that they typically do not seek to impose any penalties such as
late fees in such instances because they would rather see a complete submission sent in late than an
incomplete one sent in on time.
        16
            During discussions with the FARA Unit about enhancements to its electronic filing system,
we suggested adding a field requiring registrants to enter a date for verbal agreements, in order that
adherence to the ten day requirement for such agreements may be assessed going forward. FARA
Unit staff agreed to consider this.
       17
           Five of the foreign agents we reviewed had terminated their contracts as of January 1,
2013, and were not required to submit supplemental statements during our testing period. These five
contained anomalies – duplicate registrations, terminated registration with active short forms, etc., –
that caused us to include them in the sample.

                                                    

                                                  14

 
consistently or on a regular schedule. FARA Unit staff told us they are working on a
standardized system for batching and sending delinquency notices at regular
intervals. This effort was still in development at the time of our audit and we
recommend that the FARA Unit ensure the system is completed and implemented.

        In addition to ensuring consistency when sending delinquency notices, we
recommend that NSD develop a policy and procedures that ensure that registration
files are timely closed and that it fully investigates when agents cease meeting their
supplemental filing obligations for an extended period of time. We believe that
enhancing the sources of information available to the Unit as discussed above will
facilitate such efforts.

Registration of New Contracts

       Registered agents under contract with a particular foreign principal may
periodically enter into additional contracts with different foreign principals. In the
78 foreign agent files we reviewed, we found a total of 86 ‘new business’ contracts.
We found that 34 of the 86 new contracts were registered timely, but 49 of the 86
(57 percent) were not.18 Further, we found that the late contract registrations were
submitted an average of 57 days past the ten day requirement specified in FARA,
ranging from 4 to 251 days late, even though these agents would have been
familiar with the requirements and process from prior registrations. We
recommend that the FARA Unit should consider expanding the sources of
information beyond those it currently uses to locate potential or delinquent foreign
agents, currently limited to open source internet and LexisNexis searches.

Filing of Informational Materials

       FARA does not limit the lobbying activity or the nature of the materials
distributed by agents of foreign principals, but it does require that such agents file
with the Department any informational materials produced on behalf of their
principal, and transmitted to two or more persons, to the FARA Unit within 48 hours
of the beginning of transmittal. These informational materials must contain a
conspicuous statement that the materials are distributed by an agent on behalf of a
foreign principal, and that further information is on file at the Department of
Justice.

       We tested informational materials submitted by the 78 agents of foreign
principals we reviewed to determine if the documentation was submitted within the
48 hour requirement and included the required disclosure statement. We identified
a total of 1,278 pieces of informational material, 780 pieces of which were
submitted by one agent, and 498 of which were submitted by the other 77 agents.
It appears that many of the one agent’s submissions were late because they were
batched and mailed monthly without apparent regard to the date and time of
                                                            
              18
         We could not determine the timeliness of three of the contracts because they were verbal
agreements and no date of execution was provided to the FARA Unit.

                                                                 

                                                               15

 
transmission to the recipients, although each contained the requisite disclosure
statement. As for the 498 pieces of information submitted by the other 77 agents,
we found that only 457 included a date and time of transmittal to the recipients.
The remaining 41 did not, which made determining timeliness for them impossible.
Of the 457 pieces of informational materials with an identifiable transmittal date
and time, we found that 179 (39 percent) were submitted timely within 48 hours of
transmittal, but 278 (61 percent) were not. We also found that almost half or
234 of the 498 items of information materials (47 percent) did not include the
required disclosure statement. We believe that these compliance rates are
unacceptable, and that the FARA Unit and the Department need to either take steps
to improve them to achieve the purposes of the Act or, if the Unit considers the
standard unreasonable, pursue appropriate modifications. We discuss potential
modifications to informational materials requirements below.

FARA Inspections of Existing Registrants

        Registered foreign agents are required by FARA and its implementing
regulation to maintain accounts and records of their activities on behalf of their
principals and make the records available for inspection by NSD for the duration of
the agreement and for 3 years thereafter. The FARA Unit conducts these formal
inspections of FARA registrants and told us that it selects files to review based on
multiple factors, such as deficiencies identified during the initial review, delinquent
filings, suspected undisclosed activities, and information drawn from news or law
enforcement sources. An inspection involves review of all the registrant’s activity
files, correspondence, accounting records, invoices, and receipts related to the
agent’s representation of the foreign principal. If the FARA Unit finds deficiencies in
an agent’s disclosures, it will summarize its findings and advise the registrant of the
deficiencies and provide recommendations for correcting them.

       We inquired about the number of inspections conducted since 2000 and
found that the FARA Unit conducted a total of eight inspections from 2000 through
2007. From 2008 through 2014, the Unit completed 87 inspections, and the
current target is to perform 14 inspections per year. We believe the higher rate of
inspections performed since 2008 is a positive development and, having reviewed
recent inspection reports and the worthwhile recommendations they have
produced, we encourage the FARA Unit to continue to maximize its inspection
efforts.

       However, we noted during our review of the 87 inspections conducted since
2008 that insufficient follow-up was performed on several recommendations made
by the FARA Unit, and that the deficiencies identified and communicated to
registrants in these recommendations remained unresolved as of the time of our
audit work. Specifically, we found 11 inspection reports (12.6 percent) which
recommended submission of documentation such as amendments or delinquent
supplemental statements; however we found the requested documentation was not
posted to the FARA web site as of January 2016. We found an additional two
inspection reports for which requested documentation was not submitted until well
over a year after the inspection date. NSD stressed to us that because the FARA
                                            

                                           16

 
Unit has limited staff and considerable responsibilities follow-up on inspection
reports can be difficult. We understand this challenge but believe improvements
can still be made. We recommend that NSD further improve its overall monitoring
efforts by developing a policy and practices that ensure appropriate and timely
follow-up and resolution of findings identified in its inspection reports.

Other Possible Legislative Improvements that the Department Might Seek

      Throughout this audit we discussed with NSD and FBI officials whether there
were any legislative improvements that the Department might seek to FARA that
would help in its efforts to administer and enforce the law. The FBI did not have
any suggestions but the NSD officials indicated that in recent years they have
pursued some key legislative changes to FARA, but these efforts have largely been
unsuccessful.

       One area that was identified as a possible subject for such amendments is
the statutory exemptions to FARA’s registration requirement. There are a number
of statutory exemptions to FARA registration requirements, which were summarized
on the NSD website as of January 2016 as follows:

    	 Diplomats and officials of foreign governments, and their staffs, if properly
       recognized by the U.S. State Department.
    	 Persons whose activities are of a purely commercial nature or solely of a
       religious, scholastic, academic, scientific or fine arts nature.
    	 Certain soliciting or collecting of funds to be used for medical aid, or for food
       and clothing to relieve human suffering.
    	 Lawyers engaged in legal representation of foreign principals in the courts or
       similar type proceedings, so long as the attorney does not try to influence
       policy at the behest of their client.
    	 Any agent who is engaged in lobbying activities and is registered under the
       Lobbying Disclosure Act if the representation is on behalf of a foreign
       commercial interest rather than a foreign government or foreign political
       party.

        NSD officials indicated to us that broadly worded exemptions make criminal
or civil enforcement difficult, though they did not propose any specific changes to
these categories. We believe that this is an area that the Department should
examine to determine if additional refinement of these categories is warranted.

The Lobbying Disclosure Act and FARA

       FARA Unit staff believed that the passage of the Lobbying Disclosure Act
(LDA) in 1995 contributed to the steep decline in FARA registrations in the years
that followed. We were told that because the LDA allowed agents representing
foreign commercial interests to register as lobbyists under LDA, rather than as

                                             

                                           17

 
foreign agents under FARA, FARA is now largely limited to those who represent
foreign governmental and political party interests.

       In the FARA Unit’s judgment, registration and disclosure requirements under
the LDA are less stringent and result in less transparency than FARA, specifically
with respect to funds transacted and activities performed. In addition, unlike FARA,
lobbyists with income or expenses below certain thresholds are not required to
register under LDA. If a lobbyist representing a foreign commercial interest does
not meet LDA thresholds, that lobbyist may have no obligation to register under
either statute, because the activity serves a commercial rather than foreign
governmental or political interest. Moreover, the LDA is administered by the
Congress and, according to the FARA Unit, the LDA staffs who reside in the U.S.
Senate and U.S. House of Representatives do not perform inspections of
registrants, as the FARA Unit does for FARA registrants. FARA Unit staff also
expressed concern that because of the LDA amendments to FARA, foreign
governmental and commercial interests, which are not always as distinct from one
another as in the United States, could use LDA as a loophole to avoid FARA
registration and disclosure, even though they are acting under the direction and
control of a foreign government.

      NSD officials believe that Congress should act and once again require those
who lobby for foreign commercial interests to register under FARA. We agree with
the concern that foreign governmental and commercial interests overseas may not
always be distinct and we recommend that NSD perform a formal assessment of
the LDA exemption, along with the other current FARA exemptions and determine
whether a formal effort to seek legislative change is warranted.

Civil Investigative Demand Authority

        As discussed above, one of the tasks for the FARA Unit is to locate foreign
agents who may have an obligation under FARA but either knowingly or
unknowingly fail to register. The FARA Unit told us that, when it successfully
identifies a potential agent, it can sometimes be difficult to obtain the necessary
information the FARA Unit needs to determine whether registration is required.
Civil investigative demand authority (CID) allows the Department to compel the
production of records, or response to written interrogatories or oral testimony
concerning such records. The Department submitted legislative proposals seeking
CID authority for the FARA Unit in 1991, and again in 1999. A GAO report in 2008
also recommended CID authority for the FARA Unit.19 However, the Department’s
attempts to obtain this authority in 1991 and 1999 were unsuccessful. Neither NSD
officials nor the Department’s Office of Legislative Affairs could offer an opinion as
to why these efforts were unsuccessful; however, FARA Unit staff did provide some
insight as to how this authority could help it better determine when FARA violations
are occurring, specifically identifying think tanks, non-governmental and grass roots
                                                            
              19
          U.S. Government Accountability Office, Post-Government Employment Restrictions and
Foreign Agent Registration, GAO-08-855 (July 30, 2008).

                                                                 

                                                               18

 
organizations, organizations operating on college or university campuses, and
foreign media outlets operating in the United States as potential registrants as to
which it can be difficult to obtain information for a variety of reasons. Such
organizations may receive funding from foreign governments and subsequently
take public political positions that are favorable to those governments. According
to the FARA Unit, these types of organizations generally claim that they act
independently of foreign control or are not serving a predominantly foreign interest
and are not required to register.

       The FARA Unit has identified the above as its primary enforcement challenge,
and believes CID is vital in determining whether FARA violations are occurring. We
do not dispute that CID authority would provide FARA Unit staff with a very useful
additional tool in in its efforts to administer and enforce FARA. However, we
believe CID authority is a powerful authority that can be subject to overreach and
abuse if left unchecked, and which cannot be allowed to be used to overcome
legitimate and important legal protections and interests. Therefore, we believe that
any such expansion of CID authority would have to include rigorous controls and
oversight to ensure that it is being used appropriately.

Process for Filing Informational Materials

        As discussed earlier in this report, FARA requires registrants who transmit
informational materials on behalf of their foreign principal to appropriately mark
that material and file it with the Department of Justice within 48 hours of the
beginning of transmittal. The FARA Unit told us that the term “informational
materials,” which replaced the term “propaganda” in 1995, is not formally defined
in the Act or its implementing regulation. As a result, the FARA Unit has developed
its own working definition of what constitutes informational materials in order to
fairly advise registrants of the requirements. However, without a statutory
definition of the term “informational materials,” the FARA Unit cannot be certain it
is satisfying Congressional intent for FARA.

       Additionally, the FARA Unit believes that advances in information technology
have made the 48-hour rule outdated. Registered foreign agents now send out
informational materials via Twitter and other social media on a near-continuous
basis. Trying to enforce the requirement for them to submit all of these materials
in hard copy within 48 hours of dissemination creates a constant and unrealistic
burden on registrants to submit materials, and on FARA personnel to police their
submissions. Allocating resources to enforcing the 48 hour rule also would
consume a disproportionate amount of time on the part of FARA unit, often to the
detriment of other crucial aspects of their work. FARA Unit staff also told us that
informational materials mailed via the U.S. Postal Service in hard copy must pass
through screening prior to delivery. This often results in submissions being delayed
for weeks or longer before arriving at the FARA Unit’s office. The FARA Unit
believes that the statute should be amended to allow registrants to compile
informational materials and submit them semi-annually with each supplemental
statement.

                                               

                                             19

 
       Lastly, the FARA Unit believes that the labeling requirement needs to be
updated to address the internet and social media as means of conveying
informational materials. Twitter, for instance, allows a limited number of characters
per message, and the FARA Unit told us that registrants find it impractical to
include the disclaimer within these types of messages.

       We believe the Department should continue to consider whether to seek
legislative changes to address these and other issues as identified in this report
consistent with the requirements of FARA and other laws.

Resources

        FARA Unit staff told us that budget and staffing have improved since moving
from the Criminal Division to NSD in 2006, and that these additional resources have
allowed the unit to develop new technologies. The FARA Unit staff spends a
significant amount of the time on the collection and processing of FARA filing fees.
FARA fees were first imposed on FARA registrants in 1993. As noted above, the
FARA Unit believed that this imposition of fees contributed, at least in part, to the
substantial decline in registrations that began in the mid-1990s. In addition, we
learned that a proposal to increase FARA fees in 2010 was declined by NSD due to
concerns that it would deter registrations. Fee collections have also been declining
along with registrations since their imposition, and in 2014 totaled only $283,441
according to FARA Congressional reporting. Because of limited staffing, other
priorities, and the possibility that fees may serve as a deterrent to registration, we
believe it is possible that the overall cost of the time spent collecting and processing
fees may not be justifiable. We therefore recommend that NSD conduct a formal
cost-benefit analysis to determine whether the current FARA fee structure is
appropriate or whether it should seek modifications in the future.

Tools and Technologies

       Since joining NSD in 2006, there have been significant improvements to the
tools and technologies used to ensure foreign agents comply with FARA. In 2007,
the FARA Unit established a searchable online database of disclosure documents.
In 2011, an e-file application was established that allowed registrants to register
and file documentation online. We were told that the application is currently being
updated to implement other improvements that will standardize and eliminate
redundant entry of information, improve search capability, and ensure
completeness of submissions. It will provide a more user-friendly, interactive
guided interview process for entering forms, and the improved application will mask
from public view personally identifiable information required on certain forms.
Previously, registrants had to formally request removal of this information from the
publically available forms.

       We believe the e-file application improvements are a positive development.
As discussed above, we also believe the application presents opportunities to allow
the FARA Unit to better manage and improve the timeliness of registrant
submissions, and that it should be developed with this in mind in addition to the
                                            

                                          20

 
other opportunities it presents. We therefore recommend that NSD include
improvement of timeliness as an objective in the development of the e-file system,
to include requiring execution dates for all contracts.
        
Conclusion

        We found that FARA registrants are frequently late in submitting required
documentation and are often unresponsive to FARA Unit requests to update their
information. Because timely and complete disclosure of foreign agent political and
quasi-political activities are central to the act, we believe the FARA Unit should be
more proactive and assess whether additional tools may be available to assist it in
its efforts to identify and monitor these foreign agents. With regard to proposed
criminal FARA charges, investigators and prosecutors believe that a greater effort
should be made by NSD officials to improve communication, transparency, and
responsiveness regarding approval decisions. We believe that there may well be
room for the Department to make use of the civil injunctive provision in FARA in
appropriate cases. To help address this we believe that the Department should
develop a comprehensive enforcement strategy for FARA that fits within its overall
national security effort. There also are a number of areas where the Department
should consider whether to seek administrative or legislative changes to enhance its
efforts to enforce FARA and achieve the purposes for which it was enacted into law.

Recommendations

We recommend that the National Security Division:

    1.	   Consider the value of making FARA advisory opinions publicly available
          as an informational resource.

    2.	   Update its current training for investigators and prosecutors to include
          information about the time it takes and the process used by NSD to
          approve or deny these types of cases for prosecution.

    3.	   Explore with the FBI the feasibility of distinct classification codes for
          FARA and Section 951 in its record keeping system.

    4.	   Develop a comprehensive strategy for the enforcement and
          administration of FARA that includes the agencies that perform FARA
          investigations and prosecutions and that is integrated with the
          Department’s overall national security efforts.

    5.	   Ensure that it timely informs investigators and prosecutors regarding
          the reasons for decisions not to approve FARA prosecutions.

    6.	   Establish a comprehensive system for tracking the FARA cases
          received for review, including whether cases are approved for further
          criminal or civil action, and the timeline for approval or denial.

                                             

                                           21

 
    7.	   Complete its effort to standardize a system for batching and sending
          registration delinquency notices at regular intervals, and develop
          policy and procedures that ensure appropriate follow up on them.

    8.	   Develop a policy and tracking system that ensures that registration
          files are timely closed and that when agents cease meeting their
          supplemental filing obligations for an extended period of time an
          appropriate investigation is conducted.

    9.	   Consider expanding the sources of information beyond those currently
          used by the FARA Unit to help identify potential or delinquent foreign
          agents, currently limited to open source internet and LexisNexis
          searches.

    10.	 Either take steps to improve the compliance rates for the filing of
         informational materials to achieve the purposes of the Act or, if the
         Unit considers the current 48-hour standard unreasonable, pursue
         appropriate modifications.

    11.	 Ensure appropriate and timely follow-up and resolution of findings
         identified in its inspection reports.

    12.	 Perform a formal assessment of the LDA exemption, along with the
         other current FARA exemptions and determine whether a formal effort
         to seek legislative change on any of these exemptions is warranted.

    13.	 Conduct a formal cost-benefit analysis to determine whether the
         current FARA fee structure is appropriate.

    14.	 Include improvement of timeliness as an objective in the development
         of the e-file system, to include requiring execution dates for all
         contracts.




                                           

                                         22

 

                  STATEMENT ON INTERNAL CONTROLS

       As required by the Government Auditing Standards, we tested, as
appropriate, internal controls significant within the context of our audit
objectives. A deficiency in an internal control exists when the design or operation
of a control does not allow management or employees, in the normal course of
performing their assigned functions, to timely prevent or detect: (1) impairments
to the effectiveness and efficiency of operations, (2) misstatements in financial or
performance information, or (3) violations of laws and regulations. Our evaluation
of internal controls was not made for the purpose of providing assurance on the
Department’s internal control structure as a whole. The Department and the
individual components discussed in this report are responsible for the establishment
and maintenance of internal controls.

       Through our audit testing, we did not identify any deficiencies in the National
Security Division’s internal controls that are significant within the context of the
audit objectives and based upon the audit work performed that we believe would
affect the National Security Division’s ability to effectively and efficiently operate, to
correctly state financial and performance information, and to ensure compliance
with laws and regulations.
        
       Because we are not expressing an opinion on the Department’s internal
control structure as a whole, this statement is intended solely for the information
and use of the Department and the individual components discussed in this report.
This restriction is not intended to limit the distribution of this report, which is a
matter of public record.




                                              

                                           23

 
        STATEMENT ON COMPLIANCE WITH LAWS AND REGULATIONS

       As required by the Government Auditing Standards we tested, as appropriate
given our audit scope and objectives, selected statistics, procedures, and practices
to obtain reasonable assurance that NSD complied with federal laws and regulations
for which noncompliance, in our judgment, could have a material effect on the
results of our audit. NSD is responsible for ensuring compliance with applicable
federal laws and regulations. In planning our audit, we identified the following laws
and regulations that were significant within the context of the audit objectives:

        22 U.S.C. § 611, et seq. (Foreign Agents Registration Act)
        18 U.S.C. § 951
        2 U.S.C. § 1601, et seq. (the Lobbying Disclosure Act of 1995)
        28 C.F.R. § 5.1, et seq.

        Nothing came to our attention that caused us to believe that the Department
or its components discussed in this report were not in compliance with the
aforementioned laws and regulations.




                                             

                                           24

                                                                            APPENDIX 1 



                                 OBJECTIVES, SCOPE, AND METHODOLOGY

Objectives
 
       The U.S. House of Representative Committee on Appropriations requested
that the OIG review the Department of Justice’s enforcement of the Foreign Agents
Registration Act.20 The Committee requested that the report should take into
account FARA filing trends and foreign government tactics to engage in the public
advocacy of the United States while avoiding FARA registration, and that the report
should recommend administrative or legislative options for the improvement of
FARA enforcement.

      The objectives of our audit were to review and evaluate the monitoring and
enforcement actions taken by the Department to ensure appropriate registration,
and to identify areas for the Department to consider seeking legislative or
administrative improvements.

Scope and Methodology

       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 objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.

       To accomplish our objectives, we interviewed staff from National Security
Division, including the Counterintelligence and Export Control Section and its FARA
Unit. We also interviewed Assistant U.S. Attorneys and FBI counterintelligence
agents from all of the district and field offices involved with each FARA investigation
we learned of. We spoke with staff from the FBI’s Counterintelligence Division and
National Security Law Branch and with staff from the Department’s Office of
Legislative Affairs. We also reviewed FARA registered foreign agent documentation,
as well as FARA Unit records and communications.

       We attempted to meet with the Clerk of the House and Secretary of the
Senate staffs to obtain their views on the Lobbying Disclosure Act issue identified in
this report and to learn about any best practices for registrant management and
oversight. They instead offered to review and try to answer specific questions in
writing, but given time constraints we were not able to pursue that option further.




                                                            
              20
                    U.S. House Committee Report Committee Report 113-448.


                                                               25

 
 
FBI and USAO Interviews

       Because CES does not maintain a record of FARA charges brought to it for
review, we began by interviewing AUSAs and FBI agents involved in those FARA
charges we learned of through our discussions with CES staff or our review of CES
documents. We also interviewed staff at FBI Counterintelligence Division
headquarters in Washington, D.C. During these discussions, we learned about
additional FARA charges, involving both FARA, 22 U.S.C. 611 et seq., and a related
statute, 18 U.S.C. § 951 (Section 951). Section 951 provides criminal penalties for
certain agents of foreign governments who act in the United States without first
notifying the Attorney General. Registration under FARA can serve as the requisite
notification. We learned that the FARA Unit is called upon by CES to advise on
Section 951 cases. Given this, we considered the information we received about
Section 951 cases during our interviews.

FARA Document Review

      To review FARA Unit monitoring of existing registrants, we selected a
judgmental, risk based sample of 22 percent of the total registered agents as of
May 2015. Factors in selecting our sample included payment amounts, weighted
toward the more active registrants; and anomalies such as duplicate registrations
and apparent discrepancies between long and short form registrations. We did not
intend this sample to be projected to the universe of registered agents.

       After we selected the sample, we reviewed documentation submitted by
selected agents during calendar years 2013, 2014, and 2015. We reviewed all
documents submitted including initial registration and accompanying exhibits,
supplemental statements, amendments, and informational materials. We elected
not to include short form registrations, which include information about the
registrant’s individual employees engaged in activities in furtherance of the foreign
principal’s interests, in our testing because these forms included personally
identifiable information.




                                            

                                         26

                                                                       APPENDIX 2 



                    PRIOR REPORTS INVOLVING FARA

       Our research and interviews with FARA Unit personnel has identified four
reports prepared by the General Accounting Office (now known as the Government
Accountability Office), one report from the Project on Government Oversight
(POGO), and one report from the Sunlight Foundation all which dealt with the
execution and administration of the Foreign Agents Registration Act (FARA).
Although some of these reports are over 10 years in age, they have identified some
of the same issues discussed in this report. These issues include timeliness and
adequacy of information submitted on behalf of registrants, not making full use of
its authority to enforce the act and related regulations, efforts to have civil
investigative demand authority (CID) passed denied, and the lack of tools required
and necessary to enforce the statue properly.

        In 1974, the General Accounting Office, now known as the Government
Accountability Office, issued a report titled, Effectiveness of the Foreign Agents
Registration Act of 1938, As Amended, and Its Administration by the Department of
Justice. At the time of the report, the General Accounting Office reported that
many agents’ statements to the Department of Justice were not filed on a timely
basis or lacked sufficient detail to adequately describe the registered agents’
activities on behalf of their foreign principals. The report also stated that the
Department of Justice was not making full use of its authority to enforce the act
and related regulations.

        In 1980, the General Accounting Office, now known as the Government
Accountability Office, issued a follow-up report to their 1974 report titled,
Improvements Needed in the Administration of Foreign Agents Registration. The
General Accounting Office reported that despite the Department of Justice’s efforts
to improve the administration of the act, people were acting as foreign agents
without registering, registered agents were not fully disclosing their activities, and
officials in the executive branch were often unaware of the act’s requirements.
Thus, the act’s goal of providing the public with sufficient information on foreign
agents and their activities was not completely fulfilled.

        In 1990, the General Accounting Office, now known as the Government
Accountability Office, issued an update to its 1980 report titled, Foreign Agent
Registration: Justice Needs to Improve Program Administration. The report was
issued to provide the United States Senate an update of the prior 1980 report. The
purpose of the report was to apprise on whether the recommendations made in the
1980 report have been implemented and if foreign agents are complying with the
law by registering with the Department of Justice, by fully disclosing their activities,
and by filing required reports on time. The report noted deficiencies; including
lateness and inadequately disclosing forms from foreign principals. The General
Accounting Office explained that both foreign agents and the Department of Justice
officials who review the agents’ registration forms lack specific written guidance on
what should be reported.


                                          27

 
 


       In 2008, the Government Accountability Office issued a report titled, Post-
Government Employment Restrictions and Foreign Agent Registration. The
Government Accountability Office reported that in order for the Department of
Justice to enhance their ability to ensure that the American people know the
identity of persons trying to influence the United States government policy on
behalf of foreign entities, Congress may wish to consider granting the Department
of Justice civil investigative demand authority (CID). This recommendation was
essentially closed and not implemented as Congress did not take any action in
response to this matter.

       In 2014, the Sunlight Foundation, issued a report titled, Sunlight Foundation
Recommendations to the Department of Justice Regarding the Foreign Agents
Registration Act. The Sunlight Foundation reported that the current method of
recording the disseminated material submitted by foreign agents is outdated and is
not fully transparent. Sunlight explained that an implementation of a new,
modernized FARA collection and disclosure system that collects and releases
detailed structured data would promote greater transparency.
 
       Finally in 2014, the Project on Government Oversight (POGO), issued a
report titled, Loopholes, Filing Failures, and Lax Enforcement: How the Foreign
Agents Registration Act Falls Short. POGO reported that countless documents in
the FARA database do not conform to the requirements of the FARA statue.
Furthermore, POGO reports, that it is next to impossible to determine if the 573
U.S. firms, corporations, and individuals registered with FARA, between their scope
of 2009 and 2012, filed every document they disseminated. POGO concluded that
the Department of Justice must use the enforcement power it has to ensure that
registrants, and those who do not register, comply with all aspects of the law.
Merely relying on “voluntary compliance” allows for rampant rule breaking in the
timely filing and labeling of informational materials.




                                           

                                         28

                                                                                               APPENDIX 3 


          NATIONAL SECURITY DIVISION’S RESPONSE 

                     TO DRAFT REPORT


                                                          U.S. Department of Justice

                                                          National Security Division


    No/iona'Security Divilion                             Washington, D.C. 20530




                                                                                   August 12, 2016

    Jason R. Malmstrom
    Assistant Inspector General for Audit
    Office of the Inspector General


    RE:       OlG's Draft Audit Report - The National Security Division' s Enforcement and
              Administration of the Foreign Agents Registration Act


    Dear Mr. Malmstrom:

           The National Security Division (NSD) appreciates the opportunity to review and provide
    comments to the Office oflnspector General' s Draft Audit Report (Report) concerning NSD's
    Enforcement and Administration of the Foreign Agents Registration Act (FARA or the Act),
    which you provided to NSD on July 22, 2016. NSD provides below general comments on the
    Report, followed by specific comments on the 14 recommendations contained in the Report.

    General Comments

            The enforcement and administration ofFARA is an important responsibility ofNSD, and
    NSD appreciates the time and effort taken by the Office of the Inspector General (OlG) to
    conduct this audit. In addition to providing overall perspective in assessing the administration
    and enforcement ofFARA, the audit was helpful in reviewing some trends in registrations, the
    timeliness and sufficiency ofFARA registration filings, and some areas for administrative or
    legislative improvements to achieve FARA' s primary goal: greater transparency offoreign
    influence in the United States. NSD was pleased to have the opportunity to inform OlG of the
    complexities ofFARA and the challenges NSD faces in appl ying FARA 's criminal and civil
    enforcement provisions. The audit prompted a productive dialogue about the criminal
    enforcement of FARA and the key role administrative authorities play in promoting visibility
    into the identities, activities, and information provided by persons acting as agents offoreign
    principals. NSD anticipates that the audit will lead to improved efforts to help others better
    understand FARA's role, as well as increase the Act's effectiveness.

           As noted in the report, the OlG interviewed AUSAs and FBI personnel who
    complimented NSD's Counterintelligence and Export Control Section' s (CES) evaluation of
    FARA cases and specifically noted the sound judgment, experience, and expertise of CES in
    handling FARA investigations. The AUSAs and FBI personnel also praised the new leadership




                                                    29

 
 



    at CES for its candid assessment of cases and communication with the FBI and U.S. Attorney's
    Offices. I

             Although OIG's report reflects some criticism of aspects ofNSD's review of FARA
    cases, NSD notes at the outset, as OlG acknowledged in the Report, that personnel interviewed
    in preparation of the Report frequently confused FARA (22 U.S.c. § 611 el seq) with 18 U.S.C.
    § 951 ("Section 951 "), a criminal statute entitled "Agents of foreign governments." Although
    the two statutes have similar terms, they address different types of conduct. The typical conduct
    to which Section 951 applies consists of espionage-like behavior, information gathering, and
    procurement of technology, on behalf of foreign governments or officials. FARA, on the other
    hand, is designed to provide transparency regarding efforts by foreign principals (a term defined
    more broadly than foreign governments or officials) to influence the U.S. government or public
    through public speech, political activities, and lobbying. Accordingly, Section 95 1 is codified in
    Title 18 of the U.S. Code (designated for "Crimes and Criminal Procedure"), while FARA is
    codified in Title 22 (designated for "Foreign Relations"). Section 95 1 is aimed exclusively at
    criminally punishing individuals who violate its terms, and lacks a formal administrative
    registration regime. FARA' in contrast, is predominantly a disclosure statute, under which there
    is an administrative registration regime, and while the Act authorizes criminal penalties for
    willful violations, the primary means of achieving FARA's main purpose of transparency is
    through voluntary disclosure in compliance with the Act. The mistaken conflation of the two
    statutes can lead to undue weight being given to criminal prosecution as the measure of FARA
    enforcement and insufficient recognition of the significance of administrative enforcement
    efforts relating to the FARA registration regime. It is therefore essential to understand the
    distinctions between FARA and Section 951 for purposes of this audit, the scope of which is
    expressly limited to the enforcement and administration of FARA'

            The administrative enforcement efforts undertaken by FARA Unit staff focus on
    identifying foreign agents with an obligation to register and achieving compliance with the Act's
    provisions. Actions undertaken by FARA Unit staff in furtherance of these goals include:
    combing public source information for prospective registrants; reviewing registration materials
    submitted by existing registrants and inspecting registrants' books and records for information
    pertaining to registration obligations for other entities and individuals; analyzing referrals or
    information provided by other government agencies or offices; and reviewing information
    obtained from the public. Based on that work, FARA Unit staff draft and issue letters to

              I To NSD's knowledge, during its audit, OIG did not contact or interview any existing FARA registrants or
    firms that represent FARA registrants, although NSD provided contact information for those groups. Existing
    FARA registrants and firms who represent FARA registrants are significant stakeholders who have extensive
    knowledge of and experience with the adm ini stration and enforcement ofF ARA NSD understands that OIG did
    seek to interview officials at the U.S. House of Representatives and U.S. Senate who are responsible for the
    admin istration of the Lobbying Disclosure Act ("LDA"), a statute which has certain overlaps with FARA, although
    those officials declined to be interviewed. NSD believes those officials also may possess useful insights into
    FARA 's administration and enforcement.

             2 NSD further notes that in the Report, the DIG states that they "were told by FBI that their case coding
    commingles both FARA and Section 951 cases" and therefore the OIG was "unable to isolate cases presented under
    FARA alone." For this reason, among others, NSD believes that many of the references in the Report to FARA
    cases or investigarions were actually references to cases or investigations relating to Section 95/.




                                                               

                                                            30

 




    individuals or entities they identify who may have an obligation to register. In those letters, they
    outline the infonmation potentially giving rise to an obligation to register and seek information to
    make a detenmination regarding that obligation. They analyze the responses to those letters and
    continue to research public information to assess whether a registration obligation does in fact
    exist. The letters they send frequently result in the filing of registrations by the individuals or
    entities, thus achieving FARA's transparency purpose. Once a registration is on file, FARA Unit
    staff carefully reviews registration filings for deficiencies, seeks amendments to correct those
    deficiencies, and conducts inspections (and follow-up inspections) to ensure continued
    compliance. FARA Unit staff also provides advisory opinions regarding the application and
    requirements of the Act.

            In add ition to activities devoted to administrative enforce ment of the Act, FARA Unit
    personnel produce and process a significant volume of registration forms and assoc iated filing
    fees; provide support, guidance, and assistance to registrants, potential registrants, their
    attorneys, and other govenunent agencies concerning FARA issues; produce a semi-annual
    report to Congress; maintain a public office reading room; process a high volume of database
    searches for the FBI, Department of Homeland Security, Senate Foreign Relations Committee,
    and other government agencies; handle frequent media inquiries; and assist numerous members
    of the public with registration and search guidance through in-person meetings, e-mail
    exchanges, and telephone inquiries. They perfonm all of these duties while maintaining and
    enhancing the FARA e-File system and database, and while providing extensive customer
    service to users of the system.

            As noted above and in the Report, FARA contains a criminal penalty provision, and NSD
    approves criminal prosecution as an enforcement mechanism if there is sufficient admissible
    evidence ofa willful violation ofFARA, and the standards applicable to all federal criminal
    prosecutions set forth in the U.S. Attorney's Manual are otherwise satisfied. The high burden of
    proving willfulness, difficulties in proving "direction and control" by a foreign principal, and
    exemptions available under the statute make crimi nal prosecution for FARA violations
    challenging. These challenges are compounded by the government' s current inability to compel
    the production of records from potential and current registrants, a situation NSD is working to
    remedy by proposing legislation for consideration by the Department of Justice (Department).
    Despite these challenges, the Department has brought four FARA criminal cases since 2007, all
    of which resulted in convictions (one conviction at trial for conspiracy to violate FARA and
    other statutes; two guilty pleas for violating FARA; and one guilty plea to related non-FARA
    charges).

            The 010 Report, however, also cites a view that the limited number ofFARA criminal
    prosecutions is indicative of a counterintelligence tool that is underutilized. To demonstrate this,
    the Report refers to a belief by some FBI staff that the prospect of FARA charges might assist in
    obtaining cooperation from FARA violators, presumably in counterintelligence investigations.
    This, agai n, is most likely indicative ofa mistaken conflation of Section 951 with FARA. It
    might be possible to use Section 95 1 in this manner; however, given the considerable challenges
    cited above in developing viable, appropriate prosecutions for FARA-related activity, such a use
    ofFARA to obtain cooperation is unlikely at best. By promoting disclosures that wunask
    foreign political influence and foreign direction of political activities, FARA is an effective




                                                       

                                                    31

 




    counterintelligence tool. In the alternative, a reluctance to register and disclose under FARA
    can, in fact, deter a foreign principal from engaging in political activities in the United States in
    the first place.

             The Report devotes significant emphasis to the timeliness of filings by registrants. NSD
    notes that well over half of the fi lings categorized as late were filed within 30 days after the
    filing deadline. In addition, in a number of filings considered late in the Report, the FARA Unit
    provided an extension to the registrant, which mitigated the lateness. Under FARA's current
    statutory and regulatory authorities, there is no penalty for lateness. Although the Department
    previously has proposed legislation imposing fines for late filing under FARA, NSD' s recent
    assessment is that imposing fines for late filing could act as a disincentive to registration and
    result in less transparency. Many parties who register late do so because they are unaware of the
    existence of FARA. Penali zi ng someone who, when informed about the Act, complies with the
    statute, could serve as a deterrent to registration. NS D believes that encouraging disclosure is
    preferable to fines in furthering the national security mission ofFARA.


    OIG Recommendations

        I. OIG Recommendation - Consider the value of making FARA advisory opinions
           publicly available as an information resource.

           NSD Response - Agree. Prior to thi s audit, NSD determined it was appropriate to
           release, in response to specific FOrA requests, redacted versions of advisory opinions
           issued to persons who subsequently registered based on the decision in the advisory
           opinion. By March 31 , 2017, NSD will review its policy and practices regarding FARA
           advisory opinions and determine how to expand public accessibility of these opinions.

       2. OIG Recommendation - Update its current training for investigators and prosecutors to
          include information about the time it takes and the process used by NSD to approve or
          deny these types of cases for prosecution.

           NSD Response - Agree. NS D will continue to update and provide training for
           investigators and prosecutors regarding FARA, to include information about the time it
           takes and the process used by NS D to approve or deny FARA cases for prosecution.
           NSD already commenced efforts to enhance prosecutors' understanding of FARA with
           multiple presentations to prosecutors and law enforcement partners around the country in
           2016. These presentations delineated the differences between FARA and Section 951,
           and highlighted the types of cases suitable for prosecution under each statute. NSD will
           continue to deli ver such training to prosecutors and agents. In addition, CES has initiated
           preparation of a monograph on FARA and Section 951 for broad dissemination to
           prosecutors and agents. NSD anticipates completion of the monograph by September 30,
           20 17.




                                                         

                                                      32

 




    3. OIG Recommendation - Explore with the FBI the feasibility of distinct classification
       codes for FARA and Section 95 1 in its record keeping system.

       NSU Response - Agree. Although the FBI already has distinct codes, as indicated in
       the Report, FBI personnel often commingle the coding, causing confusion. It is
       imperative that agents are aware of the correct code to use for FARA investigations, and
       NSD wi ll meet with the FBI prior to September 30, 20 16 to explore reso lution of this
       Issue.

    4. OIG Recommendation - Develop a comprehensive strategy for the enforcement and
       admin istration ofFARA that includes the agencies that perform FARA investigations and
       prosecutions and that is integrated with the Department's overall national security efforts.

       NSD Response - Agree. NSD agrees with the importance of having a comprehensive
       strategy regarding FARA that is integrated within the Department's overall national
       security efforts. In fact, in March 2015, NSD conducted its own written internal
       assessment of the existing strategy for enforcement and administration of FARA,
       identifying key current issues and strategies for addressing them, and then took active
       steps to implement those new strategies. The Department has an "all tools" approach to
       addressing national security threats, and NSD currently includes FARA as one of those
       tools. Effort!) tu enforce compliance with FARA include research, identification of
       potential agents, inquiry, investigation, and prosecution if wi ll ful conduct is found.
       FARA fits into the Department's overall national security efforts by promoting detection
       of, discouraging, and neutralizing undisclosed foreign messaging and forcing disclosure
       of foreign efforts to influence United States domestic and foreign policy, as well as
       public opinion. As noted above, CES has initiated preparation of a monograph on FARA
       and Section 95 1 for broad dissemination to prosecutors and agents that it anticipates wi ll
       be completed by September 2017. This "ill clarify for agencies the use of FARA and
       Section 95 1, and NSD also will include discussion of its comprehensive strategy in its
       ongoing training for investigators and prosecutors. NSD's comprehensive strategy wi ll
       include updates to its FARA-related training materials to provide helpful information
       regarding NSD's evaluation of potential criminal cases under FARA. These updates will
       be included in all FARA-related training presentations going forward.

    5. OIG Recommendation - Ensure that it timely informs investigators and prosecutors
       regarding the reasons for decisions not to approve FARA prosecutions.

       NSD Response - Agree. As noted in the OIG Report, CES has taken steps to ensure that
       it timely infonns investigators and prosecutors in individual cases regarding the reasons
       for not approving FARA charges and will continue these efforts in all FARA
       investigations and prosecutions. In addition, as discussed in the response to OIG
       Recommendation 2 and 4, NSD is updating its FARA-related training materials to
       provide helpful information regarding NSD's evaluation of potential criminal cases under
       FARA. These updates wi ll be included in all FARA-related training presentations going
       forward.




                                                   

                                                33

 




    6. OIG Recommendation - Establish a comprehensive system for tracking the FARA
       cases received for review, including whether cases are approved for further criminal or
       civil action, and the timeline for approval or deniaL

       NSD Response - Agree. NSD will improve tracking of FARA matters through: (I) the
       efforts set forth in Recommendation 3 above regarding working with the FBI to ensure
       FARA matters are coded correctly; and (2) improvements to NSD' s case tracking system
       to ensure ready identification of those FARA matters. Moreover, NSD will ensure the
       case tracking system captures actions that are taken and approved, and, consistent with
       Recommendations 2 and 5, also captures dates the matter was received, as well as dates
       of actions and approvals. As noted above, NSD will meet with FBI on the coding issue
       prior to September 30, 2016. Improvements to the case tracking system to ensure
       identification of FARA matters will take place on an ongoing basis as NSD's new case
       management system is developed and implemented during 20 16 and 2017.

    7. OIG Recommendation - Complete its etTort to standardize a system for batching and
       sending registration delinquency notices at regular intervals, and develop policy and
       procedures that ensure appropriate follow up on them.

       NSD Response - Agree. NSD is committed to completing its current effort to
       standardize a system for batching and sending registration delinquency notices at regular
       intervals, and to develop policy and procedures that ensure appropriate follow-up.
       During the past year, the FARA Unit has standardized a system for batching and sending
       registration delinquency notices at regular intervals. It is currently in the process of
       expanding on thi s system to ensure appropriate tracking of responses, and estimates that
       the enhancement will be completed by September 30, 2017. When the system is
       complete, NSD will ensure that FARA Unit personnel will be able to adequately and
       efficiently track compliance and that they take appropriate measures to address
       delinquency.

    8. OIG Recommendation - Develop a policy and tracking system that ensures that
       registration files are timely closed and that when agents cease meeting their supplemental
       filing obligations for an extended period of time an appropriate investigation is
       conducted.

       NSD Response - Agree. NSD will develop a policy and tracking system that ensures
       that registration files are timel y closed and that appropriate action is taken when
       supplemental filing obligations are not met for an extended period of time. NSD's
       current efforts to update its system for batching and sending registration delinquency
       notices at regular intervals will help to identify candidates for termination. These
       upgrades wi ll help to determine which registrants are no longer active and enable the
       FARA Unit to take appropriate action to terminate the registrations. NSD anticipates this
       policy will be developed by March 3 1, 2017.




                                                  

                                               34

 




    9. OIG Recommendation - Consider expanding the sources of information beyond those
       currently used by the FARA Unit to help identify potential or delinquent foreign agents,
       currently limited to open source internet and LexisNexis searches.

       NSD Response - Agree. NSD agrees that expansion of sources of information would
       assist in identifying potential or delinquent foreign agents. NSD has already engaged in
       outreach to other government agencies that might have access to additional information
       that would assist the FARA Unit's efforts. NSD will continue to pursue that outreach on
       an ongoing basis and also will work to identify other sources of information that would
       be useful to the Unit in fulfilling its mission.

    10. OIG Recommendation - Either take steps to improve the compliance rates for the filing
        of informational materials to achieve the purposes of the Act or, if the Unit considers the
        current 48-hour standard unreasonable, pursue appropriate modifications.

       NSD Response - Agree. NSD considered this issue and determined that the 48-hour rule
       is out of date and unreasonable. To that end, NSD drafted appropriate modifications to
       address this issue that are being reviewed within the Department.

    II . OIG Recommendation - Ensure appropriate and timely follow-up and resolution of
         findings identified in its inspection reports.

       NSD Response - Agree. Many of the inspections conducted by the FARA Unit are
       conducted to correct deficiencies in registrations, and to bring into compliance untimely
       registrations. NSD notes that OIG viewed most (87.4 percent) inspection follow-up as
       timely. To ensure appropriate and timely follow-up and resolution of inspections, the
       FARA Unit's efforts with respect to Recommendation 7 and 8 above will provide
       benefits here as well. In addition, the FARA Unit will standardize its electronic
       calendaring of inspections and time lines for completion of recommendations after
       inspections. NSD expects enhancements to its inspection practices to be completed by
       September 30, 2017.

    12. OIG Recommendation - Perform a formal assessment of the LDA exemption, along
        with the other current FARA exemptions and determine whether a formal effort to seek
        legislative change on any of these exemptions is warranted.

       NSD Response - Agree. NSD endorses, and will undertake, a formal assessment of the
       LDA and other current FARA exemptions. As noted in the Report, the FARA Unit has
       attributed a decrease in the number of registrants and foreign principals to the enactment
       of the LDA exemption and has also noted that the reporting requirements of LOA are not
       as robust as those under FARA. Prior to the OIG Report, NSO embarked on efforts to
       study the LDA and other FARA exemptions. Those efforts will continue, and NSD will
       determine the need and viability of legislative changes by June 30, 2017.

    13. OIG Recommendation - Conduct a formal cost-benefit analysis to determine whether
       the current fee structure is appropriate.




                                                     

                                                   35

 




           NSD Response - Agree. NSD will conduct a formal cost-benefit analysis to determine
           whether the current fee structure is appropriate by September 30, 2017. Included in this
           analysis will be an assessment of whether the processing of fees takes valuable time and
           resources of the FARA Unit that could be better utilized on enforcement.

       14. OIG Recommendation - Include improvement of timeliness as an objective in the
           development of the eFile system, to include requiring execution dates for all contracts.

           NSD Response - Agree. The FARA Unit has discussed this issue with the FARA eFile
           system development team and has received positive feedback that it is feasible to add a
           field to the eFile system to collect the date of the registrant's agreement with the foreign
           principal. This feature will be included in the roll out of the FARA eFile system, which
           is anticipated by September 30, 2017.

    Conclusion

            NSD appreciates the time and effort of the OIG in conducting its audit. The enforcement
    and administration ofFARA is an important responsibility, and NSD welcomes the opportunity
    to improve efforts to help others better understand FARA's administration and enforcement, as
    well as increase the Act's effectiveness.




                                                          G. Bradley Weinsheimer
                                                          Acting Chief of Staff
                                                          National Security Division




                                                       

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                                                                      APPENDIX 4

OFFICE OF THE INSPECTOR GENERAL ANALYSIS AND SUMMARY
       OF ACTIONS NECESSARY TO CLOSE THE REPORT

       The Office of the Inspector General (OIG) provided a draft of this audit report
to the National Security Division (NSD). NSD’s response is incorporated in
Appendix 3 of this final report. The following provides the OIG analysis of the
response and summary of actions necessary to close the report.

Analysis of NSD Response

        In its response, NSD agreed with each of our recommendations and
discussed the actions it will implement in response. NSD also provided general
comments on the report. In its general comments, NSD reemphasized what NSD
officials told us during the audit - although 22 U.S.C. § 611, et seq. (FARA) and 18
U.S.C. § 951 (Section 951) have similar terms, they address different types of
conduct. NSD also reemphasized that it generally disagrees with investigators who
believe that FARA can serve as an effective tool to compel the development of
cooperating sources. We acknowledge both of NSD’s points in the report and
continue to believe that these differing understandings among key personnel are
the result of insufficient training on FARA for field investigators and the lack of a
comprehensive FARA enforcement strategy within the Department. As we state in
the report, we believe our recommendations, once implemented, have the potential
to greatly improve the Department’s overall FARA enforcement efforts by helping to
ensure that field personnel and NSD officials are in agreement on their approach to
these important statutes.

       NSD also noted in a footnote to its general comments that the OIG did not
interview any FARA registrants. NSD is correct. The OIG determined that although
FARA registrants might be in a position to offer an opinion about their interactions
with NSD, interviewing these individuals would not significantly advance our
objective to evaluate the monitoring and enforcement actions taken by the
Department to ensure appropriate registration and to identify areas where the
Department might make administrative or seek legislative improvements to its
FARA enforcement efforts. In performing our audit, we ensured that we performed
appropriate analysis and conducted numerous interviews, including discussions with
individuals external to NSD and the Department of Justice, who provided us with an
appropriate and sufficient understanding of FARA administration and enforcement.

       Lastly, in its general comments, NSD addressed our findings with respect to
late submissions by FARA registrants. NSD stated that for a number of filings we
considered to be late in the report, the FARA Unit had provided an extension to the
registrant, which mitigated the lateness. In our review and analysis of registrant
documentation during our audit, we included all extensions that we found within
registrant files in calculating the timeliness of submitted documentation and, as a
result, believe that our calculations accurately reflect the timeliness of submissions.




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Summary of Actions Necessary to Close the Report

1.	   Consider the value of making FARA advisory opinions publicly
      available as an informational resource.

      Resolved. NSD agreed with our recommendation. In its response, NSD
      stated that by March 31, 2017, it would review its policy and practices
      regarding FARA advisory opinions and determine how to expand public
      accessibility.

      This recommendation can be closed when we receive evidence that this
      review was conducted and of the actions taken as a result of the review.

2.	   Update its current training for investigators and prosecutors to
      include information about the time it takes and the process used by
      NSD to approve or deny these types of cases for prosecution.

      Resolved. NSD agreed with our recommendation. In its response, NSD
      stated it would continue to update its FARA training for investigators and
      prosecutors, to include information about the time it takes and the process
      used by NSD to approve or deny FARA cases.

      This recommendation can be closed when we receive evidence that the
      relevant training was updated and provided to prosecutors and agents.

3.	   Explore with the FBI the feasibility of distinct classification codes for
      FARA and Section 951 in its record keeping system.

      Resolved. NSD agreed with our recommendation. In its response NSD noted
      that, to its understanding, the FBI already has distinct classification codes for
      these statutes. However, NSD also acknowledged possible confusion and
      commingling of those codes. We note that we asked FBI officials about its
      classification codes for FARA cases both during our audit and subsequent to
      the issuance of our draft report to NSD, and were told by the FBI that both
      statutes are recorded under a single FARA code. NSD stated it intends to
      meet with FBI prior to September 30, 2016, to explore resolution of this
      issue.

      This recommendation can be closed when we receive evidence that NSD
      explored with the FBI the feasibility of distinct classification codes in its
      record keeping system.

4.	   Develop a comprehensive strategy for the enforcement and
      administration of FARA that includes the agencies that perform FARA
      investigations and prosecutions and that is integrated with the
      Department’s overall national security efforts.


                                             

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      Resolved. NSD agreed with our recommendation. In its response, NSD
      stated that it has conducted an internal assessment of FARA enforcement
      and administration and has begun implementing strategies resulting from
      that assessment. NSD’s response stated that FARA fits into the
      Department’s overall national security efforts by promoting the detection of,
      discouraging, and neutralizing undisclosed foreign messaging, and forcing
      disclosure of foreign efforts to influence United States foreign and domestic
      policy and public opinion. NSD’s comprehensive strategy will include updates
      to FARA training materials to provide helpful information regarding NSD’s
      evaluation of FARA criminal charges.

      This recommendation can be closed when we receive evidence of a
      completed comprehensive strategy that includes the agencies that perform
      FARA investigations and prosecutions and is integrated with the
      Department’s overall national security efforts.

5.	   Ensure that it timely informs investigators and prosecutors regarding
      the reasons for decisions not to approve FARA prosecutions.

      Resolved. NSD agreed with our recommendation. In its response, NSD
      stated it has taken steps to ensure that it timely informs investigators and
      prosecutors in individual cases regarding the reasons for FARA decisions.
      NSD added that it intends to update training materials to provide helpful
      information regarding evaluation of FARA charges.

      This recommendation can be closed when we receive evidence of the steps
      described and of the updated training materials.

6.	   Establish a comprehensive system for tracking the FARA cases
      received for review, including whether cases are approved for further
      criminal or civil action, and the timeline for approval or denial.

      Resolved. NSD agreed with our recommendation. In its response, NSD
      stated it intends to address this recommendation by addressing classification
      coding with FBI as described in recommendation 3 above, and by
      improvements to NSD’s case tracking system to ensure ready identification of
      FARA matters, to include dates of receipt, action, and approval of FARA
      matters. Case tracking improvements are anticipated to take place during
      2016 and 2017.

      This recommendation can be closed when we receive evidence of the
      classification code resolution with FBI, and of a case tracking system that
      includes information about approval for further criminal or civil action, and
      the timeline for approval or denial.

7.	   Complete its effort to standardize a system for batching and sending
      registration delinquency notices at regular intervals, and develop
      policy and procedures that ensure appropriate follow up on them.
                                        

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      Resolved. NSD agreed with our recommendation. In its response, NSD
      stated that in the past year it has standardized a system for batching and
      sending registration delinquency notices at regular intervals. NSD also noted
      that it is currently in the process of expanding the system, which is
      anticipated to be complete by September 30, 2017. Additionally, NSD stated
      that it is committed to developing policy and procedures that ensure
      appropriate follow-up. NSD stated that upon completion of the delinquency
      notice system, it will ensure FARA Unit staff adequately and efficiently track
      compliance and take appropriate measures to address delinquency.

      This recommendation can be closed when we receive evidence of the
      completion and implementation of the delinquency notice system, and policy
      and procedures to ensure appropriate follow-up.

8.	   Develop a policy and tracking system that ensures that registration
      files are timely closed and that when agents cease meeting their
      supplemental filing obligations for an extended period of time an
      appropriate investigation is conducted.

      Resolved. NSD agreed with our recommendation. In its response, NSD
      stated it intends to address this recommendation through the development of
      the delinquency notice system described in recommendation 7 above, which
      will help identify candidates for termination, and through the development of
      policy to ensure registration files are timely closed and appropriate actions
      are taken when obligations are not met for an extended period of time. NSD
      anticipates this policy will be developed by March 31, 2017.

      This recommendation can be closed when we receive evidence of the
      completion and implementation of the delinquency notice system, a policy is
      implemented to ensure registration files are timely closed, and appropriate
      actions are taken when obligations are not met for an extended period of
      time.

9.	   Consider expanding the sources of information beyond those
      currently used by the FARA Unit to help identify potential or
      delinquent foreign agents, currently limited to open source internet
      and LexisNexis searches.

      Resolved. NSD agreed with our recommendation. In its response, NSD
      stated it has already engaged in outreach to other government agencies that
      might have such sources of information. NSD stated it will continue to
      pursue that outreach on an ongoing basis, and additionally will work to
      identify additional sources of information.

      This recommendation can be closed when we receive evidence of such
      outreach and identification.

                                          

                                        40

 


10.	   Either take steps to improve the compliance rates for the filing of
       informational materials to achieve the purposes of the Act or, if the
       Unit considers the current 48-hour standard unreasonable, pursue
       appropriate modifications.

       Resolved. NSD agreed with our recommendation. In its response, NSD
       stated it has determined the 48-hour standard is out of date and
       unreasonable. NSD has drafted appropriate modifications to address the
       issue which are under review within the Department of Justice.

       This recommendation can be closed when we receive evidence of the
       modifications or steps taken to improve the compliance rates for the filing of
       informational materials.

11.	   Ensure appropriate and timely follow-up and resolution of findings
       identified in its inspection reports.

       Resolved. NSD agreed with our recommendation. In its response, NSD
       stated that, in addition to its actions with respect to recommendations 7 and
       8 above, the FARA Unit will standardize its electronic calendaring of
       inspections and timelines for completion, anticipated to be complete by
       September 30, 2017.

       This recommendation can be closed when we receive evidence of appropriate
       and timely follow-up and resolution of findings identified in inspection
       reports.

12.	   Perform a formal assessment of the LDA exemption, along with the
       other current FARA exemptions and determine whether a formal
       effort to seek legislative change on any of these exemptions is
       warranted.

       Resolved. NSD agreed with our recommendation. In its response, NSD
       stated that it has already embarked on a study of Lobbying Disclosure Act
       and other exemptions, that these efforts will continue, and that NSD will
       make determinations with respect to need and viability of legislative changes
       by June 30, 2017.

       This recommendation can be closed when we receive evidence of the
       completed LDA assessment and the results of any additional exemption
       assessments performed by NSD.

13.	   Conduct a formal cost-benefit analysis to determine whether the
       current FARA fee structure is appropriate.

       Resolved. NSD agreed with our recommendation. In its response, 

       NSD stated it will conduct a formal cost benefit analysis of the fee structure 

       by September 30, 2017. 

                                            

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       This recommendation can be closed when we receive evidence of that
       analysis and NSD’s resulting decision about the current fee structure.

14.	   Include improvement of timeliness as an objective in the
       development of the e-file system, to include requiring execution
       dates for all contracts.

       Resolved. NSD agreed with our recommendation. In its response, NSD
       stated it has determined it is feasible to add a field to collect execution dates
       for all contracts; however, NSD’s response was silent on the overarching
       issue of incorporating timeliness as an objective in the development of the e-
       file system, beyond the specific contract date issue. We continue to believe
       that e-file presents opportunities to better manage and ultimately improve
       registrant timeliness, and recommend that e-file develop with timeliness as a
       consideration.

       This recommendation can be closed when we receive documentation
       demonstrating that NSD has included the improvement of timeliness as an
       objective in the development of the e-file system, including the requirement
       of execution dates for all contracts.




                                             

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    The Department of Justice Office of the Inspector General
    (DOJ OIG) is a statutorily created independent entity
    whose mission is to detect and deter waste, fraud,
    abuse, and misconduct in the Department of Justice, and
    to promote economy and efficiency in the Department’s
    operations. Information may be reported to the DOJ           
    OIG’s hotline at www.justice.gov/oig/hotline or
    (800) 869-4499.               

                                

                                

                                

                                


                                          
             Office of the Inspector General
               U.S. Department of Justice
                   www.justice.gov/oig


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