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entitled 'International Finance: Treasury Has Reduced the Number of 
Attachés Overseas' which was released on September 23, 2005. 

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Report to Congressional Requesters: 

September 2005: 

International Finance: 

Treasury Has Reduced the Number of Attachés Overseas: 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-1010]: 

GAO Highlights: 

Highlights of GAO-05-1010, a report to congressional requesters: 

Why GAO Did This Study: 

The number of financial attachés that the Department of the Treasury 
(Treasury) deploys overseas dropped from approximately 30 in 1981 to 7 
at the beginning of fiscal year 2005. Treasury has traditionally used 
financial attachés to monitor and gather information on international 
economic and financial developments to help shape U.S. international 
economic policy and to promote U.S. national interests. These attachés 
are part of the U.S. mission overseas and are typically stationed in 
U.S. embassies in key countries. Since at least 1981, however, the 
number of financial attachés placed overseas has been declining in 
response to changing conditions. Due to congressional interest in these 
financial attachés, this report describes (1) the role of financial 
attachés and (2) the process Treasury uses to determine attaché 
placement. 

In commenting on this report, Treasury considered our report to be fair 
and accurate. Both Treasury and the Department of State provided 
technical comments, which we incorporated where appropriate. 

What GAO Found: 

Financial attachés represent Treasury overseas and cover economic and 
financial issues relevant to U.S. international economic policies and 
U.S. national interests, although the role and need for financial 
attachés have evolved. Specifically, financial attachés conduct 
monitoring and analysis of macroeconomic and financial issues, 
including those affecting the private sector. Typically, financial 
attachés interact with host government financial agencies such as the 
ministries of finance and central banks, as well as with private sector 
financial entities. Financial attachés typically work in conjunction 
with the Economic Section of the U.S. mission and usually share the 
information they collect with other U.S. agencies. In Afghanistan and 
Iraq, financial attachés are primarily involved in coordinating 
economic reconstruction efforts. In general, the role of attachés has 
evolved over time due to changing Treasury priorities, as well as 
factors such as technological advances in communications. To some 
extent, these changes have reduced the necessity for some financial 
attaché posts overseas. 

Treasury has recently begun to formalize its process for determining 
attaché placement. Previously, the placement of Treasury’s attachés was 
accomplished through an informal process, according to Treasury 
officials. More recently, Treasury has taken steps to formalize its 
process by specifying placement criteria it will take into 
consideration relative to overall Treasury priorities. These criteria 
include whether the United States has major financial interest in a 
country or whether there is significant U.S. engagement in a country. 
However, Treasury officials stated that budget constraints have been a 
primary factor in determining the number of attachés in recent years. 
Furthermore, projected rising costs are likely to constrain the number 
of attachés in the future. 

Locations of Financial Attachés at the Beginning of Fiscal Year 2005: 

[See PDF for image] 

[End of figure] 

What GAO Recommends: 

www.gao.gov/cgi-bin/getrpt?GAO-05-1010. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Loren Yager at (202) 512-
4347 or yagerl@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Attachés Generally Provide Macroeconomic and Financial Policy 
Perspectives; Role in Afghanistan and Iraq Includes Economic 
Reconstruction: 

Treasury Has Begun to Formalize the Process for Determining Attaché 
Posts, but Budget Constraints Limit the Number of Attachés: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comparison of Financial Attachés and Technical Advisors: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Table: 

Table 1: Key Differences between Treasury's Financial Attaché vs. 
Technical Advisor: 

Figures: 

Figure 1: Estimated Total International Affairs Staff vs. Financial 
Attachés (1981-2005): 

Figure 2: Locations of Financial Attachés in Fiscal Year 2005: 

Figure 3: Estimated Expense Categories for Cost Per Financial Attaché 
for FY 2005: 

Figure 4: Organizational Chart of Treasury Offices and the Office of 
International Affairs: 

Figure 5: Treasury's Process and Criteria to Establish Financial 
Attaché Posts: 

Abbreviations: 

CSCS: Capital Security Cost-Sharing: 

DAS: Deputy Assistant Secretary: 

ESF: Exchange Stabilization Fund: 

G-8: Group of Eight: 

IA: (Treasury's) Office of International Affairs: 

ICASS: International Cooperative Administrative Support Services: 

IFI: International Financial Institution: 

IMF: International Monetary Fund: 

OECD: Organization for Economic Cooperation and Development: 

Letter September 23, 2005: 

The Honorable Michael G. Oxley: 
Chairman: 
The Honorable Barney Frank: 
Ranking Minority Member: 
Committee on Financial Services: 
House of Representatives: 

The Honorable Deborah Pryce: 
Chairman: 
The Honorable Carolyn B. Maloney: 
Ranking Minority Member: 
Subcommittee on Domestic and International Monetary Policy, Trade, and 
Technology: 
Committee on Financial Services: 
House of Representatives: 

The number of financial attachés that the Department of the Treasury 
(Treasury) has posted overseas dropped from approximately 30 in 1981 to 
7 at the beginning of fiscal year 2005. Treasury has traditionally 
deployed financial attachés overseas to monitor and gather information 
on international economic and financial developments to help shape U.S. 
international economic policy and to promote U.S. national interests. 
These attachés are part of the U.S. mission overseas and are typically 
stationed in U.S. embassies in key countries. Since at least 1981, 
however, the number of financial attachés placed overseas has been 
declining in response to Treasury's changing needs and budgetary 
constraints. 

In response to congressional interest in these financial attachés, this 
report describes (1) the role of financial attachés and (2) the process 
Treasury uses to determine attaché placement. 

To explain the role of financial attachés and document the placement 
process for financial attachés, we interviewed officials from Treasury 
and the Department of State (State) and reviewed documents including 
key memorandums, budget data, and attaché position descriptions 
provided by Treasury. At Treasury, we interviewed officials from the 
Office of International Affairs (IA), which houses financial attachés, 
as well as all five current and three recently returned financial 
attachés, for a total of eight officials in the financial attaché role. 
We also contacted State Economic Section officers in five selected 
locations on how financial attachés function in the context of U.S. 
missions. Lastly, we met with officials from the Securities Industry 
Association, an organization that represents various private sector 
financial companies. Due to time constraints, we were not able to 
determine the reliability of the budget and other data provided by 
Treasury. We are providing these data for informational purposes and do 
not base any conclusions on them. For a more detailed explanation of 
our scope and methodology, see appendix I. We conducted our work in 
Washington, D.C., from June 2005 to August 2005 in accordance with 
generally accepted government auditing standards. 

Results in Brief: 

Financial attachés represent Treasury overseas and monitor 
macroeconomic and financial policy issues that are relevant to U.S. 
international economic policies and U.S. national interests, although 
the roles and need for financial attachés have evolved. Specifically, 
financial attachés conduct macroeconomic monitoring and analysis, such 
as trends in host country fiscal policies and the stability of its 
financial system. In addition, financial attachés monitor and try to 
influence financial issues affecting the private sector, such as 
banking, taxation, and corporate governance. Typically, financial 
attachés serve as interlocutors with host government financial agencies 
such as ministries of finance and central banks, as well as with 
private sector financial entities. Financial attachés usually work in 
conjunction with the Economic Section of the U.S. mission, sharing 
information and complementing each other's area of focus. For example, 
since financial attachés tend to have specialized knowledge of 
financial issues, they focus on the financial sector, while State 
officials in the Economic Section focus more broadly on other sectors 
of the economy. Financial attachés share the information they collect 
with State and other U.S. agencies through cables as well as through 
interagency embassy meetings. In Afghanistan and Iraq, financial 
attachés are primarily involved in coordinating economic reconstruction 
efforts such as building the capacity of the central bank and 
negotiating host country debt issues with international donors. In 
general, the roles of attachés have evolved over time due to changing 
Treasury priorities, as well as other factors such as technological 
advances in communications. To some extent, these changes have reduced 
the necessity of maintaining the same number of financial attaché posts 
overseas that Treasury had in the early 1980's. 

Treasury has recently begun to formalize its process for determining 
attaché placement. Previously, the placement of Treasury's attachés was 
accomplished through an informal process, according to Treasury 
officials. More recently, as it works with a constrained budget, 
Treasury has taken steps to formalize its process by specifying 
placement criteria, such as whether the United States has major 
financial interest in a country or whether there is significant U.S. 
engagement in a country. However, Treasury officials stated that budget 
constraints have been a primary factor in determining the number of 
attachés in recent years. For example, although Russia is both an 
important source of energy for the United States and a Group of Eight 
(G-8) partner, Treasury plans to close the Moscow financial attaché 
post by the end of fiscal year 2005, primarily because of budget 
constraints and also because this post is of a lower priority compared 
with some other regions. Furthermore, according to Treasury officials, 
projected rising costs of attaché posts and overall resource 
constraints in IA may further constrain the number of attachés in the 
future. 

Background: 

To help shape U.S. international economic policy and promote U.S. 
national interests, Treasury has placed financial attachés overseas. 
Financial attachés are part of IA and as such, support its mission to 
serve the interests of the American people by improving financial 
stability and security in emerging and world markets, enhancing the 
functioning of the International Financial Institutions (IFI), and 
promoting an open and transparent international trade and investment 
regime. 

According to Treasury officials, the number of financial attachés 
placed overseas has been declining since at least 1981, as shown in 
figure 1. This trend mirrors a decline in overall IA staffing levels. 
Treasury had used the Exchange Stabilization Fund (ESF)[Footnote 1] for 
expenses related to financial attachés until 1978, when Congress passed 
legislation disallowing use of this fund for administrative purposes, 
including payment of salaries.[Footnote 2] Since then, Treasury has 
generally funded attachés out of IA's overall budget. 

Figure 1: Estimated Total International Affairs Staff vs. Financial 
Attachés (1981-2005): 

[See PDF for image] 

[A] Although precise data on attachés were not available prior to 1985, 
Treasury estimated that it had more than 30 attachés in 1981. 

[End of figure] 

At the beginning of fiscal year 2005, Treasury had seven[Footnote 3] 
financial attachés dispersed across South America, Europe, the Middle 
East, and Asia (see fig. 2). According to Treasury, maintaining 
attachés overseas cost 12 percent (or $3.1 million) of IA's total 
budget of approximately $26 million for fiscal year 2005, although the 
financial attachés represented 4 percent[Footnote 4] of IA's total 
staff of 175. Treasury has assumed the full cost for five financial 
attachés, while State has funded costs, excluding salary and benefits, 
for financial attachés in Baghdad and Kabul. However, Treasury expects 
to fund the full cost of the attaché in Baghdad in fiscal year 2006. 

Figure 2: Locations of Financial Attachés in Fiscal Year 2005A: 

[See PDF for image] 

[A] Treasury officials said they plan to establish two new posts in FY 
2006. 

[End of figure] 

According to Treasury estimates, the average annual cost of maintaining 
an attaché abroad is over $520,000 in fiscal year 2005.[Footnote 5] 
About 70 percent of the annual cost per attaché is comprised of 
nonsalary expenses such as housing and support staff, as well as shared 
administrative charges and capital security cost charges assessed by 
State (see fig. 3). Treasury expects the cost to increase by about 
$100,000 per year in part because of State's Capital Security Cost- 
Sharing (CSCS) program, which is discussed in more detail 
below.[Footnote 6] As a result of the increase in costs, Treasury 
officials estimated that by fiscal year 2008, the annual cost per 
attaché would exceed $800,000; and the cost of the current attaché 
structure would increase from $3.1 million to $5.2 million. 

Treasury's financial attachés are part of the U.S. mission overseas and 
are typically housed in the embassy. As such, Treasury incurs 
administrative and other costs, such as sharing the cost for embassy 
construction, to maintain overseas posts for financial attachés. 
Administrative expenses are paid through the International Cooperative 
Administrative Support Services (ICASS) cost-distribution system, 
operated primarily by State, which divides cost among different U.S. 
government agencies and sub-agencies with staff assigned to various 
posts.[Footnote 7] In addition to ICASS, agencies are expected to help 
finance the cost of the embassy construction program through the CSCS, 
which is expected to ensure that agencies "rightsize" (i.e., assign 
only the number of staff needed to accomplish their overseas mission). 
This program would require agencies to share construction costs based 
on the per capita proportion of total overseas staff and the type of 
space (controlled access, noncontrolled access, or nonoffice) they 
need. As a result, the fiscal year 2007 construction costs borne by non-
State agencies, such as Treasury, are expected to be about three and a 
half times higher than they were in fiscal year 2005. 

Figure 3: Estimated Expense Categories for Cost Per Financial Attaché 
for FY 2005: 

[See PDF for image] 

[A] International Cooperative Administrative Support Services. 

[B] Other expenses consist of entitlements such as moving costs, and 
educational and travel allowances (5 percent), Capital Security Cost- 
Sharing (5 percent), allowances including nonregular compensation such 
as danger pay (3 percent), travel for field and regional work purposes 
(3 percent), office support including utilities and subscription 
charges (3 percent), security charges, including payment for local 
guard support (1 percent), and other periodic expenses such as storage 
(1 percent). Percentages do not add up to 100 due to rounding. 

[End of figure] 

Attachés Generally Provide Macroeconomic and Financial Policy 
Perspectives; Role in Afghanistan and Iraq Includes Economic 
Reconstruction: 

Macroeconomic and financial policy monitoring and analysis are key 
functions of financial attachés. Typically, attachés serve as 
interlocutors with host government financial agencies and private 
sector financial entities. They also work in conjunction with the 
Economic Section of the U.S. mission, which complements the role and 
expertise of financial attachés. In Afghanistan and Iraq, financial 
attachés are primarily involved in coordinating economic reconstruction 
efforts. In general, the roles and need for attachés have evolved over 
time due to changing Treasury priorities, as well as other factors such 
as technological advances in communications. 

Attachés Provide a Macroeconomic and Financial Policy Perspective and 
Supplement Staffing at U.S. Missions: 

Financial attachés provide a macroeconomic and financial policy 
perspective to officials at Treasury headquarters as well as to U.S. 
mission officials. In terms of macroeconomic policy, financial attachés 
cover important fiscal and monetary trends and developments of the host 
country or region. Financial attachés monitor and analyze financial 
issues, including those affecting the private sector, such as banking, 
taxation, and corporate governance. Attachés may also work on debt 
issues relating to IFIs such as the International Monetary Fund (IMF), 
the World Bank, and other multilateral donor organizations. Attachés 
work closely with officials primarily from host government financial 
and regulatory institutions such as the ministries of finance and 
central banks, representatives of IFIs, and private sector financial 
institutions such as investment and commercial banks. These government 
and private sector contacts allow attachés to obtain information 
regarding changes and trends in the economic and financial sectors. 
According to one Treasury official, attachés are especially important 
in countries in which economic and financial systems as well as markets 
are less transparent and hence difficult to understand without close 
contact with relevant officials and private sector groups in the 
country. 

The attachés use information gleaned from their contacts to support 
Treasury objectives such as promoting U.S. economic policy and national 
interests by positively influencing the economic policy and regulatory 
decisions of the host country, advocating the interests of U.S. 
financial services companies, and providing intelligence to help shape 
U.S. international economic policy. The financial attachés with whom we 
spoke illustrated the impact of their efforts with the following 
examples: 

* In one country undergoing financial crisis, the financial attaché 
reported assisting the finance ministry officials in taking actions and 
developing policies necessary to generate donor support. 

* An attaché in Europe noted his role in facilitating U.S. and European 
Union regulatory dialogue by staffing meetings for these discussions, 
preparing briefing papers, and providing input on these developments to 
Treasury and other U.S. regulatory agency officials. 

* An attaché, who had been working on improving financial regulatory 
transparency of the host country government, stated that in conjunction 
with U.S. embassy officials, he convinced the host country to 
incorporate changes in a new law that otherwise would have increased 
the legal risk for U.S. companies. 

IA expects attachés to function with considerable independence within 
the policy goals of Treasury, in particular, and the U.S. government in 
general. However, attachés reported receiving varying degrees of 
operational direction from IA. For example, in most cases, the attachés 
reported close operational guidance from IA, while in another case, IA 
had little involvement in directing the efforts of the attaché. One of 
the attachés with whom we spoke said that IA provided constructive 
advice periodically, including guidance on specific technical issues 
that were new to the attaché. 

In addition to their intelligence gathering role, the attachés also 
provide logistical support for visits by Treasury officials, U.S. 
government financial regulators, and others, including putting these 
officials in contact with relevant host country officials. Also, since 
financial attachés are part of the U.S. mission in the host country, 
they brief the ambassador on economic and financial issues and may 
provide specific help as requested by the ambassador. 

Treasury's financial attachés usually work closely and are colocated 
with officials from the Economic Section of the U.S. mission. Despite 
this proximity, the role of financial attachés can vary significantly 
from that of State's economic officers, in part because of differences 
in skills and qualifications, as well as the differing objectives of 
their agencies. For example, according to both Treasury and State 
officials, financial attachés have more specialized knowledge of 
financial issues. In addition, financial attachés tend to be midcareer 
or senior officials with several years of experience in government or 
the private sector, whereas economic officers usually start at an entry 
level and work their way up to midcareer and senior levels. However, 
according to Treasury and State officials, irrespective of rank and 
experience, many economic officers do not have the level of expertise 
on financial issues that financial attachés have because economic 
officers tend to have a broader focus. Furthermore, both Treasury and 
State officials said that, in large part due to their institutional 
affiliation with Treasury, financial attachés tend to be well connected 
to officials in host government financial and regulatory institutions 
as well as IFIs and that this access would be difficult for economic 
officers to replicate. 

The Treasury and State officials whom we contacted reported little or 
no overlap in activities of the financial attaché with the economic 
officers in U.S. missions. These officials reported that financial 
attachés focus on financial issues, while economic officers often cover 
other sectors of the economy. Some State officials in the field who 
currently work with financial attachés noted that without those 
attachés, the Economic Section can do some of the reporting on 
financial issues, but it will not be at the level of technical details 
that financial attachés can provide. Most attachés noted that their 
work complements that of the Economic Section. In Afghanistan and Iraq, 
where Treasury has recently placed financial attachés, the attachés 
noted that there is a good working relationship with the Economic 
Section, and that division of labor is necessitated by the large number 
of issues confronting the mission. Additionally, according to State, in 
U.S. missions where State officials assume the deputy attaché role, 
information sharing occurs regularly between State and Treasury. 
However, another attaché noted transition difficulties with the 
Economic Section when the financial attaché post was established. 

Attachés Assist with Reconstruction Efforts in Afghanistan and Iraq: 

Treasury's financial attachés in Afghanistan and Iraq have undertaken 
roles that are different from their counterparts in areas without 
conflict. Since these two countries do not have well-functioning 
financial systems, financial attachés in these countries have been 
involved in coordinating and guiding technical assistance provided to 
the host countries on financial and economic issues through U.S. 
government entities such as Treasury's Office of Technical Assistance 
and the U.S. Agency for International Development. (See app. II for a 
description of the differences between financial attachés and the 
Office of Technical Assistance's technical advisors.)

Treasury's access to multilateral agencies such as the World Bank and 
IMF, as well as bilateral donors, has enabled financial attachés to 
coordinate the efforts of international donors and creditors in Iraq 
and Afghanistan. For example, former Treasury attachés in Afghanistan 
stated that they were closely involved in debt reduction negotiations 
between the Afghan and Russian governments. The Treasury attaché in 
Iraq has been involved in discussions on Iraqi debt and reconstruction 
with creditors such as the IMF and the Paris Club.[Footnote 8] 
Furthermore, the two financial attachés in Afghanistan, who were posted 
there at different times, were involved in designing donors' economic 
assistance strategy as well as the Afghan government's national 
development strategy. One of the attachés stated that he provided 
advice on topics such as bank supervision and bank reconstruction, 
private sector growth, tax administration and policy, and government 
debt issuance. 

The Treasury attaché in Baghdad heads the Iraq Reconstruction 
Management Office for Fiscal and Financial Affairs, which is engaged in 
providing technical assistance to Iraqi financial and regulatory 
institutions, including the Ministry of Finance and central bank. 
According to the attaché, this office is involved in implementing 
initiatives such as the national payments system that was designed by 
the now defunct Coalition Provisional Authority in Iraq. The new 
payments system, reported the attaché, is intended to increase the 
efficiency and effectiveness of the Iraqi government as well as the 
private sector by enabling electronic payments instead of the current 
cash-based payment system, which was both a logistical challenge and a 
security risk. Additionally, as the director of fiscal and financial 
reconstruction, the attaché reported managing the efforts of experts 
(hired on short-term contracts by State) in helping the Iraqi 
government with budget formulation and execution. This office is also 
coordinating with the Iraqi Ministry of Finance to administer and close 
out contracts issued by the Coalition Provisional Authority, as well as 
transfer assets--such as schools constructed by the U.S. government--to 
the Iraqi government. 

The Roles and the Need for Financial Attachés Have Evolved: 

The roles and the need for financial attachés have evolved over time 
due to changing Treasury priorities and budgetary considerations, as 
well as factors such as improved communications technology, wider range 
of information sources, and increased frequency of meetings among 
economic and finance officials from industrialized countries. Senior 
Treasury officials stated that while they do not have a sufficient 
number of financial attachés to adequately cover key financial markets, 
Treasury does not need as many financial attachés as it had in the 
early 1980's, due in part to these technological advancements (see fig. 
1). 

Improvements in communications technology have affected the type of 
work done by attachés, and, according to attachés, Treasury expects 
them to provide more nuanced information or detect subtle economic and 
financial trends that may not be captured by other information sources. 
Issues such as countering terrorist financing and money-laundering 
efforts are now of higher priority to Treasury and are part of the 
portfolio of issues for current financial attachés.[Footnote 9] 
Furthermore, while budgetary considerations have contributed to fewer 
financial attachés in the field, they are expected to cover broader 
regions. For example, the attaché in Buenos Aires currently covers 
countries throughout South America. The attaché in Frankfurt covers the 
various member countries of the European Union, in addition to German 
financial and regulatory entities. 

At the same time that financial attaché roles have evolved, changing 
economic conditions of countries have also altered the need for 
attachés in certain posts. For example, one State official in a U.S. 
mission stated that the need for an attaché in that country has 
decreased as the country has achieved greater economic stability over 
time. In addition, according to one Treasury official, forums such as 
meetings of the Group of Seven industrialized nations provide officials 
in financial and regulatory institutions opportunities to meet more 
often and hence may decrease the reliance on financial attachés for 
information exchange. However, Treasury officials also said that while 
the need for financial attachés in industrialized nations may have 
declined, the need for attachés in developing countries seems to have 
increased. Treasury officials emphasized the need for attachés to 
engage with emerging markets such as China, India, and Brazil and to 
combat terrorist financing in the Middle East and elsewhere, describing 
these as major Treasury priorities and U.S. policy imperatives. 

Treasury Has Begun to Formalize the Process for Determining Attaché 
Posts, but Budget Constraints Limit the Number of Attachés: 

Until recently, Treasury determined attaché placement through an 
informal process, according to Treasury officials. More recently, as it 
works with a constrained budget, Treasury has taken steps to formalize 
its process by specifying placement criteria. However, Treasury 
officials stated that budgetary considerations have been the primary 
factor in determining the number of attachés in recent years, and 
projected rising costs are likely to constrain the number of attachés 
in the future. 

In the Past, Treasury Used Informal Process to Determine Attaché Posts: 

The determination of attaché posts has been rather informal, according 
to Treasury officials, as Treasury has tried to respond to changing 
needs. These officials went on to say that, although less structured, 
this process still allowed Treasury to place attachés in posts where it 
had key priorities. For example, when the Argentine financial crisis 
occurred in late 2001, the financial attaché in Mexico City was moved 
to Buenos Aires in response to the emergency and changing priorities in 
Latin America. Treasury officials stated that IA management conducts 
much of the discussion surrounding attaché placement through informal e-
mails and conversations. According to IA officials, they prefer to use 
an informal method because the process of opening or closing of attaché 
posts is sensitive for several reasons. First, the presence of an 
attaché in a country is considered indicative of the country's relative 
importance to the United States and thus holds symbolic value. Second, 
financial attaché positions are highly coveted within Treasury, and 
officials told us that they use the possibility of attaining a 
financial attaché position as a recruiting tool. Furthermore, external 
stakeholders may express a particular interest in maintaining a certain 
financial attaché post. For example, the U.S. ambassador to the 
Organization for Economic Cooperation and Development (OECD) stated 
that maintaining a financial attaché position at the OECD, which 
Treasury closed in April 2005, supports a variety of U.S. interests. 

During the most recent cycle of determining attaché placement, Treasury 
officials reported considering the views of both external and internal 
stakeholders. The former included U.S. mission officials as well as the 
private sector, and the latter included office directors and Deputy 
Assistant Secretaries (DAS). The private sector officials with whom we 
spoke, for example, made it known through various meetings with 
Treasury officials that they wanted a financial services expert on the 
ground in key financial market countries. These officials also support 
legislation to allow more flexible funding of financial 
attachés.[Footnote 10] In terms of internal stakeholders, figure 4 
shows the organizational chart for IA and its location with respect to 
other Treasury offices. IA officials said that office directors made 
their preferences known to their respective DAS by way of narrowly 
distributed internal memorandums, rather than through a formal report 
or even a department-wide memorandum. Each DAS, in turn, sent his or 
her preferences via memorandum to the Under Secretary for International 
Affairs and to the Secretary. The Secretary of the Treasury makes the 
final decision on placing attachés. 

Figure 4: Organizational Chart of Treasury Offices and the Office of 
International Affairs: 

[See PDF for image] 

[End of figure] 

Treasury Has Taken Steps to Formalize Some Aspects of the Process: 

Treasury has recently begun to take steps to formalize certain aspects 
of the process to determine attaché placement. As of June 2005, 
Treasury decided to formally review the necessity of financial attaché 
posts either every 2 years or upon the conclusion of the attaché's term 
of service. Treasury officials reported that they have established 
criteria for determining priority posts for attaché placement (see fig. 
5). These criteria include the following: 

* Whether the United States has major financial interest in the 
country, including regulatory issues and emerging markets;

* Whether there is significant U.S. military or political engagement 
such as in Iraq and Afghanistan;

* Whether the country is difficult to cover from Washington, D.C., due 
to time differences or language barriers; and: 

* Whether Treasury has a congressional mandate to place a financial 
attaché in a certain post. 

These criteria, however, are not given equal weight, according to 
Treasury officials. For example, officials noted that Treasury would 
consider major U.S. financial interest in a country of more importance 
than whether a country is more difficult to cover from Washington, D.C. 
Furthermore, U.S. military and political engagement geared toward 
reconstruction efforts, as is the case in Afghanistan, tend to be 
shorter term. The relative importance of that criterion, therefore, may 
be temporary and eventually give way to other criteria. Irrespective of 
the process, however, Treasury officials noted that they continue to 
consider the IA's overall budgetary resources and other IA priorities 
before determining priority posts for financial attaché placement. For 
example, although Russia is both an important source of energy for the 
United States and is a G-8 partner, Treasury plans to close the Moscow 
financial attaché post by the end of fiscal year 2005 because of budget 
constraints and also because this post is of lower priority compared 
with some other regions. 

Figure 5: Treasury's Process and Criteria to Establish Financial 
Attaché Posts: 

[See PDF for image] 

[End of figure] 

To further formalize the process, IA defined the term of service for a 
financial attaché as per a memorandum signed by the Secretary of the 
Treasury in June 2005. According to this memorandum, an attaché can 
normally expect to serve at a post for a period of 2 years. In the 
past, some financial attachés have stayed at a post for 5 years or 
more. Treasury officials noted that limiting the term of attachés would 
allow IA to provide more employees the professional development 
opportunity afforded by the attaché position. Furthermore, rotating 
staff more often through financial attaché positions could be used as 
an incentive for employee retention. 

Rising Cost of Overseas Presence Constrain the Number of Financial 
Attaché Posts: 

Treasury's overall IA budget has implications for the number of 
financial attaché posts it can maintain overseas. Specifically, a 
relatively constant IA budget, coupled with the increasing cost of 
maintaining attachés overseas, has forced Treasury to make trade-offs 
between the number of financial attachés and the number of IA staff at 
headquarters, according to Treasury officials. In addition, these 
officials said that the demands on IA resources have gone up 
considerably, while the overall staffing level of this office has been 
declining since at least 1981 (as shown in fig. 1). Treasury officials 
cited a study, conducted by a private company in 2002, that recommended 
a minimum IA staffing level of 220. Currently, however, this office has 
a staffing level of 175. Treasury officials noted that understaffing at 
headquarters has limited IA's flexibility in reassigning staff to 
important areas and adopting a strategic approach. For example, there 
are three desk officers for Africa, and on average each desk officer 
covers 10 to 20 countries. IA officials noted that it is difficult to 
cover so many countries effectively. Furthermore, one financial attaché 
also noted that IA may not be effectively using the information that 
attachés provide. 

Treasury officials said that they expect the cost of maintaining 
overseas posts to increase due to cost-sharing programs such as ICASS 
and CSCS. Hence, one of the trade-offs Treasury officials are 
considering is to reduce the number of attachés to two by fiscal year 
2008. Although they are considering reducing the overall number of 
attaché posts, Treasury officials are planning to open new posts and 
close some existing ones in response to changing priorities. However, 
Treasury officials noted that closing some existing posts would 
significantly reduce their ability to carry out policy mandates in 
those regions. In at least one such proposed closure, Treasury expects 
both the host government and a U.S. private sector industry association 
to lobby strongly against the closure of the attaché office. State 
officials as well representatives from the industry association 
confirmed this response. 

Reducing the number of attaché positions, however, would allow Treasury 
to send staff from Washington overseas on temporary duty more often, 
according to Treasury officials, as the cost of sending an employee on 
temporary duty every 2 months would be less than half the cost of 
maintaining an attaché position. At the same time, Treasury officials 
noted that relying primarily on short-term travel rather than 
maintaining an attaché position overseas may not allow staff to develop 
the necessary contact and expertise in the given region. According to 
the OECD ambassador, a group of senior Treasury officials could travel 
for ministerial meetings, but the U.S. mission to the OECD needs a 
financial attaché weeks or months in advance to undertake the 
preparatory work leading up to those meetings. Two attachés with whom 
we spoke also expressed concerns about Treasury's ability to fund more 
travel. Treasury officials in Washington noted that IA's overall travel 
budget in fiscal year 2005 is capped internally at $1.2 million, and IA 
has noted other program priorities for which funds saved from attaché 
post closures would be used. These other priorities include more 
engagement with key emerging markets in Asia and focusing on economic 
development initiatives in the Middle East, by hiring economists at 
headquarters that focus on these regions and issues. Given these other 
IA priorities, according to Treasury officials, travel fund limits may 
further restrict the attaché functions that could be undertaken by 
staff in Washington. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Departments of the Treasury 
and State. Treasury considered our report to be fair and accurate. Both 
Treasury and State provided technical comments, which we have 
incorporated where appropriate. 

We are sending copies of this report to the Secretaries of the Treasury 
and State, and interested congressional committees. We will make copies 
available to other interested parties upon request. In addition, this 
report will be available on the GAO Web site at http://www.gao.gov. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-4347 or [Hyperlink, yagerl@gao.gov]. Contact 
points for our Offices of Congressional Relations and Public Affairs 
may be found on the last page of this report. GAO staff who made major 
contributions to this report are listed in appendix III. 

Signed by: 

Loren Yager: 
Director, International Affairs and Trade: 

[End of section]

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

To explain the role of financial attachés, we interviewed officials at 
the Department of the Treasury's (Treasury) Office of International 
Affairs (IA) in Washington, D.C., as well as contacted all five current 
financial attachés posted overseas. In addition, we interviewed three 
former financial attachés who recently returned to Washington. We 
reviewed position descriptions and other Treasury documents on 
financial attachés. Treasury officials provided us with data on the 
number of total IA staff from 1981 to 2005 and the number of attachés 
from 1985 to 2001. Treasury was not able to provide precise figures for 
attachés prior to 1985 but did give us an estimate for the number of 
attachés in 1981. We did not assess the reliability of these data 
because we used them as background to our researchable objectives. In 
addition, since Treasury officials could not provide accurate locations 
prior to fiscal year 2002, we are unable to authoritatively comment on 
how changes in attaché posts have paralleled Treasury's changing 
priorities or lack thereof. Furthermore, we interviewed officials from 
the Department of State (State), as well as obtained information from 
officials in four U.S. missions, of which three have financial 
attachés, to assess the role of financial attachés within the context 
of U.S. missions and understand how the State Economic Section of U.S. 
missions either works with financial attachés or substitutes for them 
in locations that lack a financial attaché. Due to time constraints, we 
could only contact State officials in five posts, including one post 
where there is not a financial attaché. As a result, we are unable to 
comprehensively describe the extent to which State Economic Sections 
currently fulfill the financial attaché role in U.S. missions that lack 
a financial attaché. 

To document the financial attaché placement process, we interviewed 
officials from IA and reviewed relevant memorandums and documents. To 
understand how resource requirements and budgetary considerations 
affect attaché placement decisions, we reviewed various planning, cost, 
and budget-related documents provided by Treasury. To assess the 
reliability of the cost data, we considered the specific expense 
categories for reasonableness, and compared the categories to other 
sources of data when that was possible. However, we were unable to 
determine fully the reliability of the cost data due to time 
constraints. We are using these data to provide details into Treasury's 
position about the high costs of maintaining attaches overseas. No 
conclusions rely upon these data. To obtain the perspective of the 
private sector on the financial attaché placement and role, we 
interviewed officials from the Securities Industry Association. We also 
interviewed the U.S. ambassador to the Organization for Economic 
Cooperation and Development, where Treasury recently closed an attaché 
post. Additionally, due to time constraints and the scope of this 
engagement, we did not undertake any travel to relevant financial 
attaché posts. We conducted our work in Washington, D.C., from June 
2005 to August 2005 in accordance with generally accepted government 
auditing standards. 

[End of section]

Appendix II: Comparison of Financial Attachés and Technical Advisors: 

While some financial attachés have served in the capacity of technical 
advisors with Treasury's Office of Technical Assistance, and other 
attachés, specifically those in Afghanistan and Iraq, see their role as 
guiding and coordinating the efforts of technical advisors, the role of 
a financial attaché differs in some key respects from a technical 
advisor, as summarized in table 1 below: 

Table 1: Key Differences between Treasury's Financial Attaché vs. 
Technical Advisor: 

Financial attaché: Primarily engaged in broad policy functions relating 
to economic and financial issues, such as influencing host country 
policies and regulations, as well as helping shape U.S. economic 
policy; relies on networks of contacts within key host country 
institutions; 
Technical advisor: Advises other governments on specific issues such as 
pension reforms, money-laundering, etc. 

Financial attaché: Advocates U.S. interests and policies; 
Technical advisor: Does not engage in advocacy of U.S. interests. 

Financial attaché: Tends to work closely and is colocated with U.S. 
embassy officials, especially in the Economic Section; 
Technical advisor: Tends to be located in host country institutions, 
such as the Ministry of Finance, administering technical advice. 

Financial attaché: Primarily stationed in areas where the United States 
has significant economic and financial interest; 
Technical advisor: Not necessarily in locations where the United States 
has the greatest financial interests. 

Financial attaché: In the past, some financial attachés have stayed at 
a post for 5 years or more (new policy would make a typical posting for 
a 2-year term); 
Technical advisor: Duration of assignments range from months to several 
years. 

Source: Based on information provided by Treasury officials. 

[End of table]

[End of section]

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Loren Yager, (202) 512-4347: 

Staff Acknowledgments: 

In addition, Anthony Moran, Assistant Director, as well as Judith 
Williams, Mona Sehgal, and Ernie Jackson made key contributions to this 
report. 

(320354): 

FOOTNOTES

[1] The ESF consists of three types of assets: U.S. dollars, foreign 
currencies, and Special Drawing Rights. Currently, according to 
Treasury, the ESF has a total of approximately $43 billion in these 
three assets. The ESF can be used to purchase or sell foreign 
currencies, to hold U.S. foreign exchange and Special Drawing Rights 
assets, and to provide financing to foreign governments. All operations 
of the ESF require the explicit authorization of the Secretary of the 
Treasury. The legal basis of the ESF is the Gold Reserve Act of 1934. 

[2] Public Law 95-612 placed ESF administrative expenses on budget and 
required that funds for such expenses be appropriated. The enactment of 
this law was preceded by a 1977 GAO audit, which discussed Treasury's 
use of ESF funds for administrative expenses. See GAO, Use of Exchange 
Stabilization Fund Resources: Arrangement with Treasury Provides Access 
to Information, ID-77-42 (Washington, D.C.: September 28, 1977). 

[3] Currently, Treasury has five financial attachés overseas, as it 
recalled the attaché at the Organization for Economic Cooperation and 
Development in Paris in April 2005, and the attaché in Kabul returned 
in July 2005 after completing a short-term rotation. 

[4] This includes two attaché positions funded by State in Baghdad and 
Afghanistan. 

[5] The 2005 average estimated costs per established attaché position 
vary considerably by location, ranging from about $330,000 in Buenos 
Aires to more than $700,000 in Tokyo. 

[6] State's Bureau of Overseas Buildings Operations is engaged in 
construction and rehabilitation of U.S. embassies and consular 
compounds abroad to make them more secure. To increase the resources 
required for this effort, the Bureau has initiated the CSCS, which it 
expects to cut the projected time to complete the funding for 150 new 
embassy and consular compounds from 26 to 14 years. (Source: 
http://www.state.gov/m/p/results/49532.htm#rightsized). For more 
information on CSCS see GAO, Embassy Construction: Proposed Cost-
Sharing Program Could Speed Construction and Reduce Staff Levels, but 
Some Agencies Have Concerns, GAO-05-32 (Washington D.C.: November 14, 
2004). 

[7] For more information on effectiveness of ICASS in delivering 
services at U.S. overseas missions, see GAO, Embassy Management: 
Actions Are Needed to Increase Efficiency and Improve Delivery of 
Administrative Support Services, GAO-04-511 (Washington D.C.: September 
7, 2004). 

[8] The Paris Club is an informal group of official creditors whose 
role is to find solutions to the payment difficulties experienced by 
debtor countries. Paris Club creditors agree to provide a country with 
debt relief through a postponement and, in the case of concessional 
rescheduling, a reduction in debt service obligations. 

[9] Treasury has recently drafted a plan for inclusion in its fiscal 
year 2007 budget proposal for having attachés jointly funded by IA and 
the Office of Terrorism and Financial Intelligence. According to 
Treasury, this would allow for not only a greater number of financial 
attachés, but would also allow a greater focus on combating terrorist 
financing. 

[10] See H.R. 3058, 109TH Cong., 1ST Sess., which would allow the 
Secretary of the Treasury to transfer funds from within Treasury 
accounts for any costs necessary to pay for both career and non-career 
Senior Executive Service positions and support staff in locations of 
economic strategic interests throughout the world. 

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