[House Hearing, 115 Congress] [From the U.S. Government Publishing Office] SAFEGUARDING THE FINANCIAL SYSTEM FROM TERRORIST FINANCING ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON TERRORISM AND ILLICIT FINANCE OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED FIFTEENTH CONGRESS FIRST SESSION __________ APRIL 27, 2017 __________ Printed for the use of the Committee on Financial Services Serial No. 115-18 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] U.S. GOVERNMENT PUBLISHING OFFICE 27-419 PDF WASHINGTON : 2018 ____________________________________________________________________ For sale by the Superintendent of Documents, U.S. Government Publishing Office, Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800 Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001 HOUSE COMMITTEE ON FINANCIAL SERVICES JEB HENSARLING, Texas, Chairman PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking Vice Chairman Member PETER T. KING, New York CAROLYN B. MALONEY, New York EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California STEVAN PEARCE, New Mexico GREGORY W. MEEKS, New York BILL POSEY, Florida MICHAEL E. CAPUANO, Massachusetts BLAINE LUETKEMEYER, Missouri WM. LACY CLAY, Missouri BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts SEAN P. DUFFY, Wisconsin DAVID SCOTT, Georgia STEVE STIVERS, Ohio AL GREEN, Texas RANDY HULTGREN, Illinois EMANUEL CLEAVER, Missouri DENNIS A. ROSS, Florida GWEN MOORE, Wisconsin ROBERT PITTENGER, North Carolina KEITH ELLISON, Minnesota ANN WAGNER, Missouri ED PERLMUTTER, Colorado ANDY BARR, Kentucky JAMES A. HIMES, Connecticut KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois LUKE MESSER, Indiana DANIEL T. KILDEE, Michigan SCOTT TIPTON, Colorado JOHN K. DELANEY, Maryland ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona BRUCE POLIQUIN, Maine JOYCE BEATTY, Ohio MIA LOVE, Utah DENNY HECK, Washington FRENCH HILL, Arkansas JUAN VARGAS, California TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey LEE M. ZELDIN, New York VICENTE GONZALEZ, Texas DAVID A. TROTT, Michigan CHARLIE CRIST, Florida BARRY LOUDERMILK, Georgia RUBEN KIHUEN, Nevada ALEXANDER X. MOONEY, West Virginia THOMAS MacARTHUR, New Jersey WARREN DAVIDSON, Ohio TED BUDD, North Carolina DAVID KUSTOFF, Tennessee CLAUDIA TENNEY, New York TREY HOLLINGSWORTH, Indiana Kirsten Sutton Mork, Staff Director Subcommittee on Terrorism and Illicit Finance STEVAN PEARCE, New Mexico Chairman ROBERT PITTENGER, North Carolina, ED PERLMUTTER, Colorado, Ranking Vice Chairman Member KEITH J. ROTHFUS, Pennsylvania CAROLYN B. MALONEY, New York LUKE MESSER, Indiana JAMES A. HIMES, Connecticut SCOTT TIPTON, Colorado BILL FOSTER, Illinois ROGER WILLIAMS, Texas DANIEL T. KILDEE, Michigan BRUCE POLIQUIN, Maine JOHN K. DELANEY, Maryland MIA LOVE, Utah KYRSTEN SINEMA, Arizona FRENCH HILL, Arkansas JUAN VARGAS, California TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey LEE M. ZELDIN, New York RUBEN KIHUEN, Nevada WARREN DAVIDSON, Ohio STEPHEN F. LYNCH, Massachusetts TED BUDD, North Carolina DAVID KUSTOFF, Tennessee C O N T E N T S ---------- Page Hearing held on: April 27, 2017............................................... 1 Appendix: April 27, 2017............................................... 31 WITNESSES Thursday, April 27, 2017 El-Hindi, Jamal, Acting Director, Financial Crimes Enforcement Network, U.S. Department of the Treasury....................... 4 APPENDIX Prepared statements: El-Hindi, Jamal.............................................. 32 Additional Material Submitted for the Record Perlmutter, Hon. Ed: Department of the Treasury Financial Crimes Enforcement Network Guidance dated February 14, 2014, ``BSA Expectations Regarding Marijuana-Related Businesses''...... 45 El-Hindi, Jamal: Written responses to questions for the record submitted by Representatives Pearce, Hill, Love, Messer, Pittenger, and Foster..................................................... 52 SAFEGUARDING THE FINANCIAL SYSTEM FROM TERRORIST FINANCING ---------- Thursday, April 27, 2017 U.S. House of Representatives, Subcommittee on Terrorism and Illicit Finance, Committee on Financial Services, Washington, D.C. The subcommittee met, pursuant to notice, at 2:23 p.m., in room 2128, Rayburn House Office Building, Hon. Stevan Pearce [chairman of the subcommittee] presiding. Members present: Representatives Pearce, Pittenger, Rothfus, Tipton, Williams, Poliquin, Love, Hill, Emmer, Zeldin, Davidson, Budd, Kustoff; Perlmutter, Maloney, Himes, Foster, Kildee, Delaney, Sinema, Vargas, Gottheimer, Kihuen, and Lynch. Ex officio present: Representatives Hensarling and Waters. Also present: Representative Royce. Chairman Pearce. The Subcommittee on Terrorism and Illicit Finance will come to order. Without objection, the Chair is authorized to declare a recess of the subcommittee at any time. Also, without objection, members of the full Financial Services Committee who are not members of the Subcommittee on Terrorism and Illicit Finance may participate in today's hearing. Today's hearing is entitled, ``Safeguarding the Financial System from Terrorist Financing.'' I now recognize myself for 5 minutes to give an opening statement. Today, most of us are very fortunate to have a more modern and secure means of storage for our hard-earned money. Unfortunately, so do terrorists, cartels, and other criminals around the world. In an ever-evolving world, this is the driving mission of our subcommittee: How can we continue to provide the safety and security in our markets that American families have come to expect while rooting out the bad actors in the system? What actions is our Nation taking to ensure markets for legitimate users? What in our current AML/CFT structure is working and what needs improvement? Today's hearing is the first in a series this subcommittee will hold on the Bank Secrecy Act and the regulatory structure the United States has in place to combat money laundering, terrorist financing, and other illicit financing activities. It is only fitting that the subcommittee begins its work by examining the role and the function of the Financial Crimes Enforcement Network, more commonly known as FinCEN, which was established in 1990 by the Secretary of the Treasury. FinCEN was upgraded to official bureau status in 2002 with the passage of the PATRIOT Act. The bureau is not only the primary regulator of the BSA, but it also acts as the United States' financial intelligence units (FIUs). FinCEN's mission is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities. From the most traditional forms of financial transactions to the ever-evolving world of financial technology, it is essential that our Nation has an efficient, effective, and modern set of rules and regulation to safeguard our Nation's financial system. This hearing starts the conversation and ensures our subcommittee is taking pragmatic and complete look at the laws and regulations we currently have in place. I thank our witnesses for being here today and I look forward to the conversations to come. With that, I will now recognize the ranking member of the subcommittee, the gentleman from Colorado, Mr. Perlmutter, for 5 minutes for an opening statement. Mr. Perlmutter. Thanks, Mr. Chairman, for holding this hearing so our subcommittee can design policies to update, modernize, and strengthen the Bank Secrecy Act. FinCEN plays a critical role in safeguarding our Nation's financial system through the collection and analysis of suspicious activity reports (SARs) and currency transaction reports (CTRs). In fact, FinCEN has collected over 200 million filings. The U.S. continues to be the financial capital of the world whereby essentially all payments move through or touch the United States' financial system. Therefore, the U.S. plays an important role in reducing the threat of terrorism and disrupting illicit and illegal financial flows. So it is important we evaluate how our current regulatory regime is functioning, what is lacking or needs updating, how we can better strike a balance between law enforcement and civil liberties, and how we can build in efficiencies without overburdening our financial institutions. I want to thank Mr. El-Hindi for your testimony today. Chairman Pearce. If you will hold here, let me yield one of my minutes to Mr. Pittenger, and then that gives us a second there to-- Mr. Perlmutter. All right. I will yield. Chairman Pearce. Mr. Pittenger is recognized for 1 minute. Mr. Pittenger. Thank you, Mr. Chairman, and thank you, Ranking Member Perlmutter, for organizing such an important hearing and such a timely reason to meet with our Financial Crimes Enforcement Network. Director El-Hindi, thank you for your excellent service and your friendship, and thank you for lending your time to our subcommittee today. Earlier today, FinCEN associates of Mr. El-Hindi joined our subcommittee members and staff at a roundtable meeting with several major financial institutions to discuss the importance of information sharing as a tool to combat terror finance. Specifically, we were discussing how Section 314 of the USA PATRIOT Act can be codified to improve the information-sharing process for our financial institutions. Information sharing for financial institutions is a critical component of our domestic capabilities to stop the flow of illicit funds to support terror, both domestic and abroad. Director El-Hindi, thank you for your service. I look forward to hearing your testimony. I yield back. Chairman Pearce. The gentleman yields back. Mr. Perlmutter. I will yield the balance of my time back to the Chair. Chairman Pearce. Okay. And when we get an opportunity, we will try to recognize that. Today, we welcome the testimony of Mr. Jamal El-Hindi, who has served since May of 2015 as the Deputy Director of the Financial Crimes Enforcement Network, or FinCEN, a bureau of the Treasury Department. Mr. El-Hindi has served at FinCEN in various positions since June of 2006. Prior to joining FinCEN, Mr. El-Hindi served as the Associate Director for the Program on Policy and Implementation at Treasury's Office of Foreign Asset Control, or OFAC. Mr. El-Hindi first joined Treasury in December of 2000 in the Office of General Counsel. Prior to that, he served as an associate at Patton Boggs in Washington, D.C.. Mr. El-Hindi graduated from the University of Michigan Law School, and received a master of arts in modern Middle Eastern and North African studies from the University of Michigan, a diploma in international relations from the London School of Economics and Political Science, and an undergraduate degree in journalism from the University of North Carolina. Mr. El-Hindi, you will now be recognized for 5 minutes to give an oral presentation of your testimony. And without objection, your written statement will be made a part of the record. And I recognize the gentleman from Colorado. Mr. Perlmutter. Thanks, Mr. Chairman. I notice the ranking member has just joined us, and if I could have unanimous consent to-- Chairman Pearce. Yes. The gentleman is recognized to yield time to the gentlelady from California. Mr. El-Hindi, if you will suspend here for a second. Mr. Perlmutter. I would like to yield to the ranking member of the full Financial Services Committee, the gentlelady from California, Ms. Waters, for her statement. Ms. Waters. Thank you very much. I appreciate your consideration. Thank you, Mr. Chairman. One of the key issues this subcommittee will be looking at is the adequacy of current information-sharing authorities and the degree to which they strike the right balance between security and civil liberty concerns. Last Congress, we heard from a number of experts and Administration officials who spoke to the benefits and efficiencies that would accrue from increased information sharing between financial institutions and the government, as well as financial institutions themselves. But I would also like to note that nearly every expert who spoke in favor of improved information sharing also acknowledged that these efforts must be cognizant of the need to protect privacy and civil liberties. So, Mr. Chairman, as we explore legislative efforts to codify current authorities or otherwise enhance information sharing, I strongly agree that we have a responsibility to solicit views from all interested stakeholders, and we need to hear and discuss these views and concerns in a public setting, such as this hearing today, and not only in private meetings. I would also like to touch upon another important issue, which is the gaping hole in our anti-money-laundering framework with respect to the real estate sector. While I appreciate, Mr. El-Hindi, that your written testimony notes the ``outstanding concerns'' that FinCEN has had with the money laundering risk in real estate, I must say that I find it disturbing that FinCEN continues to largely exempt the real estate sector from even the most basic anti-money-laundering requirements, given that high-end real estate is a key sector used by corrupt foreign leaders, drug traffickers, and other criminals to launder illicit money. I believe FinCEN should take more urgent action to address these risks nationwide and on a permanent basis. And with that, I yield back the balance of my time. And thank you very much. Mr. Perlmutter. I yield back. Thank you. Chairman Pearce. The gentleman yields back. Now, Mr. El-Hindi, I will recognize you for 5 minutes. STATEMENT OF JAMAL EL-HINDI, ACTING DIRECTOR, FINANCIAL CRIMES ENFORCEMENT NETWORK, U.S. DEPARTMENT OF THE TREASURY Mr. El-Hindi. Chairman Pearce, Vice Chairman Pittenger, Ranking Member Perlmutter, and the distinguished members of the subcommittee, thank you for inviting me to appear before you today to discuss the role of the Financial Crimes Enforcement Network in collecting, analyzing, and disseminating Bank Secrecy Act data. I appreciate the subcommittee's interest in FinCEN's mission and your continued support of our efforts. My oral remarks are brief. I am submitting a more comprehensive written statement. FinCEN, as we are commonly known, is a Treasury Department bureau charged with safeguarding the financial system from illicit use, combating money laundering, and promoting national security through the collection, analysis, and dissemination of BSA information, and the strategic use of our authorities. We are one of five components reporting to the Under Secretary for Terrorism and Financial Intelligence collectively focused on Treasury's mission in this area. FinCEN serves two roles. First, as the financial intelligence unit for the United States, we collect, analyze, and disseminate financial intelligence to help fight money laundering and the financing of terrorism. Second, we are the lead regulator for the Federal Government with respect to anti- money-laundering and countering the financing of terrorism, also known as AML/CFT. FinCEN's ability to work closely with regulatory, law enforcement, industry, and international partners promotes consistency across our regulatory regime. In short, we strive for responsible use of financial information for greater security and integrity in the U.S. financial system. The Bank Secrecy Act is the primary Federal anti-money- laundering law. It requires a broad range of U.S. financial institutions to establish anti-money-laundering programs, maintain records, and provide reports to FinCEN. The majority of BSA data FinCEN collects comes from two reporting streams. Financial institutions must file currency transaction reports, known as CTRs, with FinCEN for cash transactions totaling more than $10,000. They must also file suspicious activity reports, known as SARs, to report suspected illicit transactions. The objective reporting in CTRs and the subjective reporting in SARs are both critically important. They provide a wealth of potentially useful information to FinCEN and other agencies working to detect and prevent money laundering, other financial crimes, and terrorism. Thanks to funding from Congress, FinCEN successfully completed an information technology modernization program in 2014 updating the process of collecting, analyzing, and disseminating BSA data. FinCEN receives an average of roughly 55,000 new financial institution filings each day. These filings come from more than 80,000 financial institutions and 500,000 individual foreign bank account holders through FinCEN's modernized e-filing system. FinCEN maintains over 200 million of these BSA filings in our database. FinCEN makes this information available to more than 10,000 law enforcement and other government users through a search tool designed to meet their specialized needs. We call it FinCEN Query. Our users, internal and external, perform approximately 30,000 searches of the data per day. E-filing has streamlined the reporting process for financial institutions and individual filers, and has significantly improved users' ability to exploit BSA data by making it more accessible and searchable. The protection of the sensitive information received is a critical part of our mission. FinCEN safeguards BSA data through a continual process of reviewing IT security measures and procedures, adjusting to current and emerging risks, and ensuring that security is a consistent requirement considered throughout the life cycle of each system. FinCEN systems are accredited to high Federal information security management levels and employ strong security measures, such as two-factor authentication, encryption, and activity monitoring to protect BSA data. FinCEN works with others in the Department of the Treasury and the Department of Homeland Security in its focus on cybersecurity within the general context of security operations and mitigation activities. FinCEN delivers BSA information and related analysis to law enforcement, regulatory, foreign, and private sector partners following a five-stage cycle. The cycle involves: one, collection; two, data processing and exploitation; three, analysis; four, dissemination; and five, the direction of future BSA collection efforts. In the first stage of the cycle, FinCEN not only collects the types of reports I mentioned previously, such as SARs and CTRs, but also has the ability to collect other data. FinCEN can proactively target certain financial intelligence for collection using a variety of authorities and special measures that might involve focus on particular areas or financial institution. Data processing and exploitation is the second stage of the cycle. With approximately 55,000 filings per day, advanced technology solutions are needed to review, analyze, and quickly disseminate time-sensitive information. To combat our most significant money laundering and terrorist financing threats, FinCEN employs automated business rules to screen filings on a daily basis and identify reports that merit further review by analysts. For the analysis and dissemination stages of the cycle, the third and fourth stages, over the past few years we have consolidated our analytic capabilities and expanded the scope of our work to create products that address critical priority threats for our stakeholders, including the financial industry. With respect to dissemination in particular, financial intelligence is most effective when information flows in both directions between the public and private sectors. FinCEN is a critical hub between financial institutions, law enforcement, regulators, and international colleagues. Providing information back to the financial industry based on our analysis of their reporting is a force multiplier. One of the tools FinCEN uses to disseminate information to industry is our financial institution advisory program. FinCEN can issue public and nonpublic advisories to alert financial institutions of specific illicit finance risks. Advisories often contain illicit activity typologies, red flags to facilitate monitoring, and guidance on complying with FinCEN requirements. In addition to close collaboration with domestic partners, FinCEN works to establish and strengthen mechanisms for the exchange of information globally. We engage with, encourage, and support international partners to take steps to strengthen their own regimes. Much of this involves FinCEN's interaction with other financial intelligence units. FinCEN and most other FIUs are members of the Egmont Group, through which we collectively serve as conduits for information requests from each other's law enforcement agencies. The fifth and final stage of the intelligence cycle involves using everything we have learned to help inform future planning and direction. Once threats and vulnerabilities have been identified, FinCEN can adjust the regulatory framework protecting the U.S. financial system. FinCEN uses its regulatory rulemaking authority to, among other things, define the reporting that financial institutions and others must provide. These rulemaking activities, together with the special information collections and advisories I previously mentioned, expand or improve the information that FinCEN collects. The dovetailing of this final stage with the collection I outlined as the first stage confirms the iterative and cyclical nature of our financial intelligence activities. I will conclude by noting that the annual CFT landscape is complex and dynamic. It requires ongoing adaptation by FinCEN and our many partners. As we have to adjust to ever-evolving threats, we will continue to use the tools at our disposal to collect financial intelligence information, analyze it, and deploy it in support of our mission to safeguard the system from illicit use, and promote national security. On behalf of all the hardworking and dedicated FinCEN staff, I want to thank you again for the opportunity to testify today, and I look forward to your questions. [The prepared statement of Acting Director El-Hindi can be found on page 32 of the appendix.] Chairman Pearce. Thank you, Mr. El-Hindi. The Chair now recognizes himself for 5 minutes for questions. Mr. El-Hindi, on page 3, you talk about the number of filings each day, and those numbers seem very large. Of those filings, which ones actually turn into actionable information, just roughly? Mr. El-Hindi. In terms of trying to associate each filing with a particular action, that is a little bit difficult. I realize that the number of filings that we have is large, but you have to understand how it is used. The filings could be a tip in and of themselves alerting law enforcement to something that they hadn't known before. They can be used to expand law enforcement investigations. They are also used to identify trends in terms of what is going on in terms of the financial sector, and new methodologies with respect to illicit activity. Chairman Pearce. How many people do you have assigned to review these reports? Mr. El-Hindi. At FinCEN, we currently have on staff 280-- Chairman Pearce. I am not asking the number on staff. I am asking the number of people who are directed to this. Surely you have some people who open the mail and who answer the phones to just walk-in traffic, so not every one of your people. How many are assigned to go through the 55,000 new filings every day? Mr. El-Hindi. At FinCEN, we have an intelligence division staff of approximately 70. But keep in mind that because we have 10,000 other users of the database throughout the government, there are others who are also looking at the information on a daily basis. Chairman Pearce. That gives me a scope of what I am looking at. Now, on page 12, you are talking about the amount of money that you returned. Do you have estimates of how much is lost every year? Mr. El-Hindi. I think that you are referring to the portion in the written testimony where I talk about business email compromise. Just by way of background, that is a situation in which we have been working with the FBI to have reported to us situations in which someone has compromised an email account and directed a financial institution to send funds, maybe a payment or something else, instead of the usual place that it should go, to a new place to go. The estimates of that type of fraud, business email compromise, are in the hundreds of millions. I don't have specific numbers on it. Chairman Pearce. Hundreds of millions a year or-- Mr. El-Hindi. Yes. Chairman Pearce. Yes. Okay. Mr. El-Hindi. This is a phenomenon that has started over the past few years. So I think that is cumulative. We have been able, through our contacts with other financial intelligence units, when we can alert them quickly to the fact that funds have fraudulently gone overseas, we have been able to work with them to have a transaction stopped and have money returned to the United States. Over the past year and a half, 2 years, we have been able to assist in the recovery of approximately $250 million. Chairman Pearce. Okay. You talk in your testimony about IT modernization. How long had you all been working on that, and did the modernization actually work? I ask that because, as a pilot, I watch the FAA and their continual attempts to change the way they process data, and it never works and it is always extremely expensive and it is always behind time. Give me a little bit of an update on that? Mr. El-Hindi. With respect to our modernization program, I think we do consider it complete. We are now in the operation and maintenance phase of continuing it. It was a program that was a multiyear effort, but we delivered it on time and under budget. And in terms of external review of it, it was one of those few situations where we got no recommendations from our auditors in terms of how we might have been able to-- Chairman Pearce. So you feel satisfied with what you got? Mr. El-Hindi. Yes. Chairman Pearce. Okay. Mr. El-Hindi. We actually--I will say, there is always room-- Chairman Pearce. All right. I don't need any qualifiers here. The process does not appear to have undergone much change since you all were stood up as an organization. Does that process need review? Mr. El-Hindi. In terms of the premise of the question that the process hasn't changed much since we were stood up, I might disagree with that. Chairman Pearce. Okay. Mr. El-Hindi. I think that the rules and the requirements have pretty much stayed the same, but we collect information from the financial sector. The ways in which we have analyzed that information and begun to disseminate it and more actively target some of our information collection with industry have changed over the course of time. Chairman Pearce. Okay. My time has expired. I will now recognize the ranking member, the gentleman from Colorado, for 5 minutes. Mr. Perlmutter. Thanks, Mr. Chairman. And we have a lot of Members here today, so I am just going to focus on one subject and then yield back. First, I would like to introduce into the record FinCEN- 2014-G001, dated February 14, 2014, ``BSA Expectations Regarding Marijuana-Related Businesses.'' Chairman Pearce. Without objection, it is so ordered. Mr. Perlmutter. Thank you. Mr. Perlmutter. So my focus is going to be, obviously, on marijuana. We are now at 29 States that have some level of medical marijuana or fully legalized marijuana usage, plus eight or nine States with cannabis oil for seizures and other maladies. So today, I introduced the Secure and Fair Enforcement Banking Act, which was formerly the Marijuana Business Access to Banking Act, to try and get us here in the Congress to say if a State has a regulatory structure in place, then all of the different Bank Secrecy Act and SARs and things like that are sort of set to the side, and if individuals are operating as legitimate businesses in their State, then they will be given authority to continue to do business. But my questions are to you, Mr. El-Hindi--and thank you for your service to the country--what is the status of the guidance that I just listed, otherwise known as the Cole memo? Are you going to follow it? That is my question. Mr. El-Hindi. The Cole memo actually came from the Department of Justice. Mr. Perlmutter. Right. Mr. El-Hindi. And I will say-- Mr. Perlmutter. In concert with FinCEN. Mr. El-Hindi. And our guidance followed on that. The Cole memo specified some priority areas for law enforcement focus in the marijuana space. Our guidance was designed, within the financial sector space, to provide law enforcement with information that would be useful with respect to following those priorities. We feel that the guidance has worked. There is information in the database that, under the guidance, helps financial institutions distinguish between situations in which they are providing service to a marijuana business where it seems to be consistent with the State law and does not touch upon any of the priorities in the Cole memo. That is one type of filing that they can do. They can do a type of filing where they indicate that there are other activity--there is more suspicion-- Mr. Perlmutter. They are out of--there are irregularities of some kind. Mr. El-Hindi. Yes. And then they file reports when they have terminated the relationship as well. The construct there actually came from what we saw the banks filing even prior to the guidance coming out. In a situation where you have a conflict of a Federal law and a State law, we wanted to see how the banks were actually dealing with it. And when we looked at the data that they had already been providing, they were making those distinctions in terms of situations where they would say, the only reason we are filing this suspicious activity report is essentially because marijuana trade remains illegal under Federal law. So we saw the distinctions that they were making. We felt that going forward with guidance in the way that we did would provide law enforcement in States, whether legalized or nonlegalized, it would provide them with information that they could use. In our context, for us, it is all about the information and making sure that law enforcement has the information that it needs. We will continue to work with law enforcement and the Department of Justice on that front. And to the extent that they--you will provide any further indication of what their needs are, we will be working with them. Mr. Perlmutter. So far, you are operating under that guidance that I read into the record? Mr. El-Hindi. That guidance still stands. Mr. Perlmutter. Yes. Thanks. I yield back. Chairman Pearce. The gentleman yields back. The Chair now recognizes the gentleman from North Carolina, Mr. Pittenger. Mr. Pittenger. Thank you, Mr. Chairman. And thank you again, Mr. El-Hindi. Mr. El-Hindi, just for clarity, your interest in FinCEN is to receive the data from the financial institutions, these SARs reports, and analyze this data and then send that out for certain investigations. Is that correct? Mr. El-Hindi. That is one of the many things that we do in terms of our support to law enforcement. Mr. Pittenger. In that framework. Mr. El-Hindi. Yes. Mr. Pittenger. What I would like to assess here is the impact that could be achieved by the banks also having access to data from the government and how that might limit or greatly restrict the number of potential SARs reports that need to truly be evaluated or to be processed out for investigation. Is that a good assumption? Mr. El-Hindi. I think that you are touching upon some of the work that we have been trying to do with industry and law enforcement to target information-collection efforts. Mr. Pittenger. Given the impediments that we have in terms of restrictions in data sharing, would it be reasonable to assume that we can achieve better results with less proactive engagement through a broad range of data over the financial institutions? If we had a safe harbor for banks where they could share with each other, and if they had access to government data, would that enhance our ability and make it a more fluid approach that would make us to not have to address as many data points as are acquired at this point? Mr. El-Hindi. I think the enhanced sharing of information across financial institutions, based on what we have seen and how we have worked with them, really would be helpful. Each of them only has so much of a view of a particular transaction. And some of the special projects that we have engaged with them, we have been quite happy to bring them together, have them share information with each other and share information with ourselves, and we do view that as bringing added efficiencies to our regime. The benefits with respect to that type of information sharing are clear. Mr. Pittenger. We heard this morning from Andrea Sharrin, your associate, and with a number of banks who were there who were wanting to achieve the best results but believe that we may have less interest--or less cause for privacy issues if we--through--if that data-sharing capacity was there, and that we wouldn't infringe on privacy issues as much if we would be able to enhance the data-sharing capabilities. Would you concur with that? Mr. El-Hindi. I think that the opportunities for greater data sharing among the banks and among the banks with government are great. And I think that, as was mentioned earlier, we have to be sensitive to the privacy issues that come up both with respect to general reporting under our rules as well as with respect to information sharing among the banks. Mr. Pittenger. One other question quickly, as you work with other FIUs and the Egmont Group, what is your assessment in terms of their technological capabilities, admitted extraordinary software capabilities that are already there at FinCEN, do you believe that we need to do greater work with our allies and friends in terms of enhancing their technological capabilities to have better engagement with us and collaboration with us? Mr. El-Hindi. One of the things that we have been talking about within the FIU community generally is making sure that FIUs are well-positioned to do the work that they are supposed to be doing. Different FIUs in different jurisdictions are at different points, but as a group, we work on trying to elevate each other as much as possible. And there are ways in which some of them could benefit from greater capacities technologically as well as greater support within their own legal systems. Mr. Pittenger. But to the extent that they are weak, it weakens the entire system. Isn't that correct? Mr. El-Hindi. Yes. We always say that within a global system, the weakest link can hurt the chain. Mr. Pittenger. Yes, sir. Thank you. Chairman Pearce. The gentleman's time has expired. The Chair now recognizes the gentlelady from New York, Mrs. Maloney, for 5 minutes. Mrs. Maloney. Thank you, Mr. Chairman, and thank you to the ranking member. And thank you to our witness for being here today. You mentioned in your testimony that FinCEN issued two geographical targeting orders, or GTOs, covering two sites, Manhattan and Miami, that would require title insurers to collect beneficial ownership information for any legal entity making an all-cash real estate transaction over a 6-month period. And I am very pleased that FinCEN extended these GTOs in February, so I want to thank you and your organization for doing that. But the findings from the first 6 months were absolutely startling. As you noted, about 30 percent of the transactions reported in those 6 months involved a beneficial owner or purchaser representative that had previously been the subject of a suspicious activity report. And I would say it is unusual to be buying real estate with all cash. It is usually in the banks and everything. So the fact that it is an all-cash transaction and that there also is a suspicious activity report, and 30 percent is really, I think, problematic. I would characterize it as a shockingly high number, especially since you announced to the world that you would be collecting this information on beneficial ownership in these two cities for that exact period of time. So I would think that money launderers or bad actors would just know not to go to those two cities during this timeframe, since it was so widely reported. So in light of the findings from these two GTOs, would you say that collecting beneficial ownership information is important for catching money launderers and stopping terrorism financing and other illegal activity like gun running or other illegal activities? Mr. El-Hindi. Yes. Beneficial ownership information and the collection of it and greater transparency in that space are definitely something that will help law enforcement in their efforts. Mrs. Maloney. And what do you think about the 30 percent who are using cash to-- Mr. El-Hindi. Let me also clarify that in the context of the geographic targeting order, when we talk about a cash transaction in real estate, we are essentially saying, and we clarified this in the rollout of the GTO, that we were focused on non-loan-related transactions. The cash component of it comes into play with respect to the confines of our 8300 requirement and our geographic targeting order, generally. The way the requirement works, if it is a non-loan-related transaction, and some portion of that transaction involved cash or a monetary instrument and was done by a legal entity and within the thresholds that we set with respect to the value of the property, then it was reportable. So the geographic targeting order was very specific. There are certain things that would not be captured within that reporting, for example, an all wire transfer of funds, even though it was--there was no loan involved with a bank, would not have been covered by that geographic targeting order. Mrs. Maloney. There have been a number of reports in New York that real estate over $2 million is almost always an LLC. Beneficial ownership is hidden. Have you done any reports looking at LLCs, which is the prime form of hiding the ownership, the number of them in the country now? Could you look at it if you haven't? Mr. El-Hindi. I would have to get back to you in terms of precisely what our analysts might have researched. We are all familiar with some of the things that we see in the press reports. And real estate has been an area that we know that we need to focus on. It has been an evolutionary process for us. I would just go back and say that with respect to how we have covered residential real estate in the past, since roughly 75 percent of the market involves a bank or a bank loan, we feel that the involvement of the banks in those contexts provides us with a certain amount of coverage, but we do have to focus on areas where banks aren't involved. Mrs. Maloney. Actually, we just came from a meeting that Mr. Pittenger organized, and the banks were saying they don't know the ownership either in an LLC. They have no idea. So I just would just like to ask very quickly, do you think it would be easier if companies had to disclose the beneficial owners at the time the company is formed? Mr. El-Hindi. Yes. That kind of transparency would certainly be of benefit to law enforcement. Mrs. Maloney. As many people on this committee know, I have a bill that would do just that. So I want to thank you for your thoughts and input on it. Mr. El-Hindi. If it would be helpful, and to the extent that Congress is going to focus on this issue, we would be happy to work with them. Mrs. Maloney. Thank you very much. My time has expired. Chairman Pearce. The gentlelady's time has expired. The Chair now recognizes the gentleman from Pennsylvania, Mr. Rothfus. Mr. Rothfus. Thank you, Mr. Chairman. And thank you, Mr. El-Hindi, for being here today. Talk a little bit more about these real estate transactions. Does the government have any idea of how many real estate transactions involve money originating from foreign accounts? Mr. El-Hindi. I would have to get back to you on that in terms of any work that we have done particularly in that context. I will say that the real estate market is complicated. It is something that varies, the information requirements and processing requirements vary by State, and vary by county. So it is something where we feel that we still are in the process of collecting information to find out precisely what information is out there and how we should approach it. Mr. Rothfus. I may want to follow up with you on that. Do you foresee a need to expand the use of geographic targeting orders to more localities in the U.S.? Mr. El-Hindi. The geographic targeting order authority that we have had, we have been using more of, of late, just as part of FinCEN being more active in this space. Law enforcement has asked us, and we have worked with them on geographic targeting orders in Los Angeles with respect to garment manufacturing. We have done work in Miami with respect to trade in electronics equipment, both of those on a trade-based money laundering context. It is a useful tool and it is something that we continue to explore the best use of with law enforcement. If you are asking with respect to real estate in general, I am not in a position right now to talk about any future regulatory efforts. I can just tell you in general that we find the tool useful and continue to discuss it. Mr. Rothfus. What about the 180-day duration of a GTO? Is that long enough? Mr. El-Hindi. To the extent that a GTO needs to be extended, we can extend it for another 180 days under the statute. Mr. Rothfus. Do you know whether there would be certain domestic real estate markets that are exposed to cartel-owned real estate, real estate that the cartels from Latin America might be going to certain geographic regions? Mr. El-Hindi. I can tell you that in terms of some of the criteria that we looked at and discussed with law enforcement when we identified regions of focus, we were looking at the market, we were looking at to the extent that there was an active use of shell companies within that real estate market, we were looking at value, we were looking at the amount of foreign interest in those jurisdictions. So that is how we made selections in terms of the scope of the geographic targeting order. Mr. Rothfus. The difference between our larger institutions and smaller ones, are smaller banks and credit unions more vulnerable to money laundering versus the bigger banks? Mr. El-Hindi. Small banks and bigger banks, they are both banks, they both process transactions. They have different ways of knowing who their customers are. I would say that both can be vulnerable, and that is why both are subject to our rules. We say that banks need to comply on a risk-based approach. They need to assess their risks and act accordingly. I would just say that with respect to smaller institutions, for example in the terrorism context, some might assume that they may not have the same type of information that large banks might have, or be able to look at thousands and thousands of records, but we have seen that in the terrorism context, small banks are contributing, I think it is 10 or 12 percent of some of the most useful reporting in that regard. There are differences among those institutions and there are differences in the way they approach things, but both large institutions and small institutions have a very important role in what we do. Mr. Rothfus. I thank the gentleman. I yield back. Chairman Pearce. The gentleman yields back. The Chair notes that votes have been called. It is my intention that if Mr. Foster, who is next in the queue, desires to go ahead and ask questions now, we will do that. We will come back and complete the hearing afterwards, but you can go now or wait till after the votes, Mr. Foster. It is your choice. Mr. Foster. I am happy to proceed. Chairman Pearce. Okay. The gentleman is recognized for 5 minutes. Mr. Foster. Thank you for everything you do here. I would like to return to the real estate issue a little bit. You mentioned the value of just eliminating anonymous shell corporations, which is something--do you know roughly what fraction of countries on Earth allow anonymous shell corporations and what don't? Mr. El-Hindi. I do not have that information. Mr. Foster. Would you feel comfortable in saying the majority do not allow anonymous shell corporations? Mr. El-Hindi. Again, I would have to-- Mr. Foster. Okay. I would be interested in knowing that, because it is my impression that we are sort of an oddity in allowing this, and it is the--makes--one of the reasons that the U.S. is not on the center for financial activity generally, but also unfortunately for a lot of money laundering. The other thing, some countries, it is my impression, have what is often called a cadastre. This is a legally binding registry of who owns which parcel of land, so you can sometimes literally just go to the Federal map and mull over a certain plat of land, and it gives you the whole ownership history and all the transactions. This is information that is publicly accessible in the U.S., but often only by going into the basement of some dusty courthouse to get that information. And if there was a national legally binding registry of who owns which parcel of land--and I think some States are doing this, for example, Minnesota, areas of Canada, I believe, do this-- would that really simplify the whole procedure of figuring out what each transaction was about? Mr. El-Hindi. I would just say that in general, greater transparency with respect to beneficial ownership in this space would be useful. Precisely how we get there is something that, again, we would be happy to work with the Congress on to the extent that they are focused on this issue. Mr. Foster. Now, you go through title insurance companies to attempt the geographical targeting. In what ways is that satisfactory or unsatisfactory or complete or incomplete? Mr. El-Hindi. When we looked at the geographic targeting orders, we were trying--and as we would do in any regulatory context where we are trying to collect information, we are looking for nodes and places where we can efficiently collect information. In that context, given their role in the transactions and the information that they could obtain as part of that, we felt that it made sense. Mr. Foster. All right. And is title insurance mandatory for these cash transactions and so on? Mr. El-Hindi. I had mentioned before that what happens in each particular part of the country in terms of the jurisdiction--there are different rules in different places, whether it is mandatory, whether it is something that is essential--has become essential by virtue of practice, I would have to get back to you on. I just would say that part of the complications in the real estate sector is the variety of rules that exist. Mr. Foster. Thank you. I think this is something where Congress should really have a look at this, because the anonymous ownership of land is--not only having to do with terrorist financing, but there is a lot of just ordinary corruption associated with secret ownership of land in this country. And it would be, I think, in the interest of good government, general governance generally to have some improvements here. So thank you. I yield back. Chairman Pearce. The gentleman yields back. It is the intent of the Chair to reconvene the hearing immediately after votes. For now, the subcommittee stands in recess. [recess] Chairman Pearce. The subcommittee will come to order. We will resume with questions. We left off with Mr. Foster from the minority side, and we will proceed to Mr. Williams from Texas. You are recognized for 5 minutes. Mr. Williams. Thank you, Mr. Chairman. And thank you, Mr. Director, for being here today. I wanted to first start by exploring the topic of trade- based money laundering (TBML) this afternoon, then discuss in more depth the use of geographic targeting orders, GTOs as we know them, by FinCEN and the use of trade transparency units. As you know, trade-based money laundering is a process in which someone, whether that be a criminal or terrorist organization, attempts to disguise the proceeds of crime, in this case using trade to legitimize their illicit behavior. And although it is difficult to put a price tag on how much money is laundered annually through trade, I think it is safe to say it is in the billions of dollars. In fact, a 2010 advisory report on TBML issued by FinCEN stated that from 2004 to 2009, more than 17,000 suspicious activity reports described TBML involving transactions totaled $276 billion. And although the practice of TBML is common, combating it remains very difficult, especially when companies change names, locations, and schemes so frequently. So let me start by asking you this: Is that normal? Is it routine for the names to change and the businesses to go on operating? Mr. El-Hindi. I would say that is definitely a methodology we have seen in some of our work and certainly with our work with law enforcement. Mr. Williams. Okay. Is the U.S. Government not providing adequate resources to help you combat these schemes? Mr. El-Hindi. Congressman, I think that, as you have seen from the things that we have put out, we know that trade-based money laundering is an issue, and we continue to work on it and we work with financial institutions on it. We work with the trade transparency units as well. They have access to the data that comes to us through the financial institutions, and we work with them to make sure that they are in a position to use it. We have ongoing discussions with them on that. It is definitely an issue and it is something that we are focused on. Mr. Williams. Do you think it is all about resources, or does Congress need to give more authority in this space? Mr. El-Hindi. I am really not in a position right now to talk about our authorities. I can just tell you that within the authorities that we do have, and the information that we are currently collecting, we are working with other parts of the government. Mr. Williams. Okay. In your testimony, you spoke about GTO authority, which Congress gave Treasury the authority to use in the 1980s. And although back then, criminal organizations were mostly cash and other monetary instruments, wire transfers are not covered in the GTO authority. And as we had talked about in past hearings, and something that is personal to me as an auto dealer, the trade-based money laundering scheme using used cars relies heavily on money transfers for completing a sale. Do you believe Congress needs to go back and update this authority? Mr. El-Hindi. To the extent that Congress is interested in looking at that authority, and looking at some of the issues that have been raised with respect to the limits on what we are able to collect currently, we would be happy to work with Congress on that. Mr. Williams. Good. In your opinion, what industry that GTOs are intended to target can circumvent these orders by using wire transfers? Mr. El-Hindi. I'm sorry. Could you repeat that? Mr. Williams. What industry the GTOs are intended to target can circumnavigate these orders by using wire transfers? Mr. El-Hindi. To the extent that the authority right now is limited to our ability to use geographic targeting orders when there is cash involved, any type of transaction that goes through wire transfers wouldn't be within the scope of what we could do. So I would say that that is going to apply to a variety of different businesses. Mr. Williams. Okay. Finally, something that this committee has talked extensively about expanding is the use of trade transparency units (TTUs) to help combat trade-based money laundering. Most of the active TTUs reside in countries located in South America. In addition, the importance of knowing trends and conducting ongoing analysis of trade data provided through partnerships with other countries, trade transparency unit is vital. I think we would agree. So, Director, although FinCEN doesn't run these units, can you talk to the committee about the importance of sharing data with other countries and maybe how expanding these units will help you better do your job? Mr. El-Hindi. A lot of other parts of government that are focused on the TTUs address the TTU aspect of it. I can just tell you again that, domestically, we work with the TTUs and we are focused on making sure that they have the data that we have and they are able to use it. And then generally speaking, in terms of the way we as a financial intelligence unit work with our counterparts overseas, we have definitely been pushing for more and more appropriate sharing on a secure and efficient basis of the information that each of us have. So, I think in the FIU context, with respect to financial intelligence, we definitely see the value of working with our counterparts overseas. Mr. Williams. Thank you for your testimony. And I yield back. Chairman Pearce. The gentleman's time has expired. The Chair now recognizes the gentleman from Minnesota, Mr. Emmer. Mr. Emmer. I thank you very much. I want to thank you for being here today, and the chairman and the ranking member for setting this up. As I understand it, you have been the acting Director-- well, actually, not the acting Director. You have been the acting Director since the new Administration came in, of FinCEN? Mr. El-Hindi. I have been acting Director since-- Mr. Emmer. 2015? Mr. El-Hindi. I have been the Deputy Director since 2015, and in May 2016, I became the acting Director. Mr. Emmer. Thank you. FinCEN has how many total employees? Mr. El-Hindi. Onboard right now, we have about 280, and our target is 340. Mr. Emmer. And your total budget, annual budget, is in the neighborhood of what? Mr. El-Hindi. Historically, it has been in the $110 million to $115 million range. I am not prepared to get into budget specifics right now. Mr. Emmer. No. I was just asking for a ballpark, and it is nothing--these aren't ``gotcha,'' whatever. I am just asking-- Mr. El-Hindi. Thank you. Mr. Emmer. --mostly for my own knowledge. And you are divided up into six divisions, as I understand it? Mr. El-Hindi. Yes. Mr. Emmer. And since you have been at FinCEN, has the organization been remodeled in any way or changed, or has this always been the way it has been since it was created? Mr. El-Hindi. Actually in 2013, we went through a restructuring of the organization under the previous Director. I was onboard at that point and I headed one of the divisions at the time. And that restructuring, we undertook because FinCEN, as I mentioned before, bridges the financial community, the law enforcement community, the regulatory community, and our international counterparts. Mr. Emmer. Right. Mr. El-Hindi. And under our previous structure, we found that the divisions that were focused on regulatory seemed to view only the financial sector as their customers. The division that was focused on analysis and liaison only viewed law enforcement as their customers. A division focused on international issues only focused on other FIUs. The reality is, for an organization like ours, every one of our stakeholders is a customer of the whole organization. And in the new structure, we tried to break that down a bit, and we really stressed the fact that every external stakeholder is a customer of every part of FinCEN and every part of FinCEN is a customer of every other part. So it is six divisions-- Mr. Emmer. If I can interrupt you, because I am going to run out of time. I am not interested--and forgive me if I sound a little sharp--in customers of FinCEN. I am more interested in you are collecting all this information, 154,000 reporting entities, which I would suggest you would call one of your customers if you are looking at this whole thing. I am really concerned about private information and how you ensure that law abiding people are not drawn into this net: 55,000 reports every day based on suspicious activity. I was trying to look at the law. How is suspicious activity defined and who makes the determination as to whether it is suspicious or not? Mr. El-Hindi. With respect to the reporting that we get, keep in mind that some of it is the currency transaction reporting, which is objective reporting of the value of the transaction if it is more than $10,000 of cash coming in and out. Mr. Emmer. Right. Mr. El-Hindi. That is objective reporting. That is roughly 15 million reports a year. Suspicious activity is more subjective, and our regulations-- Mr. Emmer. Who determines it? Mr. El-Hindi. Our regulations instruct the bank. Mr. Emmer. Yes. So you send out a guideline, right? Mr. El-Hindi. To the bank, yes. Mr. Emmer. And what is your guideline-- Mr. El-Hindi. Banks and other financial institutions. Where they have reason to believe that the source of funds might be illicit, where the transaction might not seem to have an apparent business purpose-- Mr. Emmer. What happens if they don't--so what if they are just putting money into a savings account? Mr. El-Hindi. To the extent that an individual is putting money into a savings account, a bank might not find that suspicious. Mr. Emmer. But it seems to be so vague. What is suspicious activity? And if you are putting the onus on the reporting institution, what is the consequence if they don't-- Mr. El-Hindi. I understand. So let me just work through a story. Say, I am a customer of the bank--maybe I am a student; I am a student customer of the bank. The bank understands that I am a student and I have opened up an account. To the extent that as a student I begin to engage in incredibly large and repeated transactions, that is going to be something that the bank, in terms of knowing its customer and what it might expect from a student, would say, that looks suspicious. That is different from a transaction that you would normally expect from a student. That is just one category. The guidance that we provide to banks walks through--helps them identify red flags in certain situations in which they could be identifying that type of activity. Mr. Emmer. I see my time has expired. If I could get a copy of your guidance afterwards-- Mr. El-Hindi. Sure. Mr. Emmer. --I would appreciate it. Mr. El-Hindi. Of course. Mr. Emmer. Thank you. Chairman Pearce. The gentleman's time has expired. The Chair now recognizes the gentleman from Maine, Mr. Poliquin, for 5 minutes. Mr. Poliquin. Thank you, Mr. Chairman, very much. And thank you very much for being here, sir. You folks, in my terminology anyway, are the financial cops for the U.S. Government, intelligence and the cops. Is that right, roughly? Mr. El-Hindi. Yes. We assist. We assist the cops and-- Mr. Poliquin. Good. Mr. El-Hindi. --we assist the financial institutions. Mr. Poliquin. Great. So we know how important your work is, Mr. El-Hindi. We are quite proud of our State of Maine. We consider ourselves one of the safest States, and statistically are one of the safest States in the country. However, all of us, I think, here in Congress have been alarmed by knowing that there are terrorist investigations going on in each of the 50 States, I should say. And one of the things that really frightened us last summer was, actually, an individual who had settled in Maine as a refugee ended up dying on the battlefield for ISIS in the Middle East. So we all want to make sure we help you make sure this process is as efficient as possible. Now, Mr. Emmer and other folks have mentioned the huge volume of SARs every day, about 55,000. Based on 70 or 80 folks you have working on this at your shop, if I understand this, that is about 800 per day. So, that is a lot. And I am not quite sure. I am guessing it probably doesn't make a lot of sense to spend a lot of manhours on 800 filings per day. I am guessing some of those aren't of great quality. And is there anything--and if I am wrong, I know you will correct me--that we can do to help you, any legislation we can pass, any rulemaking that you folks can go through with our support that allows you to use different technology to get to a better place so this is more efficient, to make sure we drill down on what filings are actionable? Mr. El-Hindi. I will just try to provide a little context with respect to all that information that comes in. It is varying types of information. As I mentioned before, some of it is objective reporting. Some of it is suspicious activity reports. And when you think about the percentage of things that come in on a daily basis, the percentage of SARs is actually going to be lower in comparison with currency transaction reports. That is just the math. But people need to--we try to make sure that industry and the public understand that the way this information is used is in a variety of contexts. It is not easy to associate any one particular filing with any one particular action. In fact, in terms of our metrics and how we measure our success, we try to emphasize the fact that it is not as if every single piece of information is going to lead to some individual arrest. Mr. Poliquin. Okay. Let me drill down a little bit, if I can, Mr. El-Hindi. I only have a couple of minutes left here. Under the Bank Secrecy Act, is there liability for a financial institution to--not permit; that is not the right word--but is there a financial liability, and otherwise responsibility for a financial institution if some of the money laundering issues and other illicit activities flow through their institution? Is there liability? Mr. El-Hindi. Under the Bank Secrecy Act, they are required to have programs in place that enable them-- Mr. Poliquin. And if they don't, there is liability? Mr. El-Hindi. If they don't, there are liabilities. Mr. Poliquin. Okay. You-- Mr. El-Hindi. We have an Enforcement Department, and they, on occasion, will take action. Mr. Poliquin. Okay. In our healthcare industry, for example, in our great country, there are instances where doctors--I don't want to be accusatory here. But there are narratives where some folks in the healthcare profession will overuse procedures--or testing, I should say, instead of procedures--because of fear of liability down the road, defensive medicine. Do you find that might be analogous to the situation we have here where financial institutions will file these suspicious activity reports in abundance to make sure they are protecting themselves against future liability, and, therefore, it gums up your work, and we are missing opportunities to really drill down on actionable items? Mr. El-Hindi. This issue actually came up prior to the financial crisis, and we actually looked at the SARs to try to discern whether or not we found that data was coming into the database on a defensive basis where it had no value. And we could not see that. The financial institutions themselves, we feel, are making good decisions about what to file and what not to file. We don't ask for perfection. We ask for them to have systems in place so that they can meet the requirements and generally provide the information that is necessary. And, again, as we have looked at it, we have not been able to discern this so-called defensive filing. Mr. Poliquin. Mr. El-Hindi-- Mr. El-Hindi. We are sensitive to a lot of the concerns that industry has in terms of the costs and the resources that go into it. And we continue to discuss with them better ways of making the system more efficient. Mr. Pearce. The gentleman's time has expired. Mr. Poliquin. Thank you, Mr. Chairman. Chairman Pearce. The Chair now recognizes the gentleman from Arkansas, Mr. Hill, for 5 minutes. Mr. Hill. Thank you, Mr. Chairman. I appreciate you being here, Mr. Director. Thanks for sharing your thoughts about FinCEN. I want to follow up on some of Mr. Emmer's questions. I have looked at a lot of material and found a number of different authorized and FTE positions. So I am just going to try to clarify that. It looks like there are 373 FTEs for FinCEN, with about 280 current positions. Is that-- Mr. El-Hindi. I think it is closer to 340. Mr. Hill. Okay. That is what I am saying. I have some confusing information. And it is my understanding that there are a number of unfilled staff positions at FinCEN based on those numbers. How many exactly are unfilled, and what is the average unfilled slots for the past year or two? And is it fair to just look at FTEs versus-- Mr. El-Hindi. I will focus on the FTEs. Currently, we have roughly 70 vacancies that we are looking to fill. Of that, roughly half are in what I will call an active recruitment process or a selection process where we are waiting for people to get through security clearances. We have had some issues with respect to our hiring, and we are working on that. One of the things that-- Mr. Hill. What is an example of--I mean, you have security clearances. That gets backlogged. Mr. El-Hindi. Yes, security clearances-- Mr. Hill. Do you have a competitive pay issue at all? Mr. El-Hindi. Given the interest in what we do, there are instances where we lose people to the private sector. Mr. Hill. What is the average tenure of an intel investigator for you? Mr. El-Hindi. I would have to get back to you on that. I don't have that. Mr. Hill. But you do a good job of training, I would-- Mr. El-Hindi. We do do a good job of training. And because we have a great mission, I think that we are in a position to recruit the talent that we need. I will just say that you lose a person in about 2 weeks. The amount of time that it takes from the posting of an announcement to the selection and primarily the security clearance, the average is sometimes over a year. So that is something that we continue to work to address. Mr. Hill. Really, for us, and the work that we do on this Terrorism Subcommittee, that is a national security problem, isn't it, that you have a year lag time in that process? As I understand it, some aspects of national security intel analysts are--have a fast-track hiring authority. Is that correct? Mr. El-Hindi. That is correct. Mr. Hill. And are your slots not covered by that authority? Mr. El-Hindi. We are not covered by that. Mr. Hill. Does it take legislative action to have you covered under that authority? Mr. El-Hindi. I would have to get back to you in terms of precisely how something like that might work. Mr. Hill. It seems like somebody like the Secretary of the Treasury could make that happen. So how many, roughly--is that the 70 intel analyst slots that would be covered by that-- Mr. El-Hindi. Actually, the intel division is, I believe, almost fully staffed at this point. Mr. Hill. Okay. If slots go unfilled and you have them authorized, which means you have the appropriated money to pay them, but they go unfilled for a year, you don't risk losing that Federal funding; it is authorized-- Mr. El-Hindi. We have done a number of things. We work to bring on Presidential Management Fellows. We work with the Workplace Recruitment Program to try to bring people on faster. We do have the ability to use some of that money to bring in contractors on a basis to make sure that we are able to get the work done. Mr. Hill. If you don't mind just following up maybe with a memo on this subject that talks about authorized positions and steps you have taken to compress the hiring time and any additional authority you think the Secretary needs to have the critical national security analytic jobs be covered under that fast-track authority, that would be, I think, very helpful to the committee. Mr. El-Hindi. We can provide you with the information, I think. Mr. Hill. And in the intelligence community inside the government, do people pay retention bonuses or things of that nature within the government scale to retain key employees who are sought after by the private sector? Mr. El-Hindi. Keep in mind that we are not part of the intelligence community. Mr. Hill. I am throwing you in with a great group of people. You can just say thank you. But in the law--in Federal law enforcement--I will rephrase and say, ``within Federal law enforcement.'' Mr. El-Hindi. Yes. I will just say, within FinCEN, that we do have the ability to use retention bonuses. Mr. Hill. Okay. Thank you for your time. Thank you, Mr. Chairman. Chairman Pearce. The gentleman's time has expired. The Chair now recognizes the gentlelady from Utah, Mrs. Love, for 5 minutes. Mrs. Love. Thank you. Thank you, Mr. Chairman. Thank you for being here today. One of the concerns we hear is that financial institutions are spending so much time and money to gather information. But there is a great desire, at the same time, to make sure that the effort that is being spent to gather--is spent to gather actionable information rather than just more information. So there is a concern--and I apologize if this was covered already. We have been in and out. I just need them for my information. There is a concern that FinCEN gets too much information and, thus, is unable to sort through it for all important indicators of crimes. Can you please address that? Mr. El-Hindi. It is true that we get a lot of information. And we get more information now than we did 10, 20 years ago. Actually, this is FinCEN's anniversary week. We are now 27 years old. But the capacity to digest that information and use it and disseminate it quickly has also increased over the course of time. We are in an electronic era now where the information can come in faster and can be analyzed more quickly. And we work on that. I think that one of the things that we also try to do is make sure that the financial sector knows the many ways in which we use the information and how valuable it is. Mrs. Love. Do you need to gather that much information? Are you focused on specific actionable information that you gather? Or because of the technology, do you decide to get as much as you possibly can and try and analyze it? Mr. El-Hindi. Keep in mind that FinCEN is a bridge between law enforcement users and the financial sector. I think one of the things that we like to point out is that law enforcement would probably want more information on basically everything that they can. As a regulator in this space, we are responsible for making sure that we are balancing burden and benefit and trying to hit the-- Mrs. Love. Okay. So who looks at the 55,000 reports that come in every day? Mr. El-Hindi. 55,000 filings come in each day. They go into the database. Within the database, they are subject to queries by 10,000 stakeholders. And essentially there are-- Mrs. Love. So 10,000 stakeholders are the ones who look into the-- Mr. El-Hindi. They have the ability to use that information and access that information. But they are not--would 10,000 people be looking at every single filing that came in? That is not how it works. Mrs. Love. Okay. Mr. El-Hindi. What we try to stress is that there is--for each filing, it has its individual value, but then collectively they have aggregate value as well. And different pieces of information filed by different financial institutions with respect to different transactions can be connected in that system. Mrs. Love. Okay. Let me-- Mr. El-Hindi. That is how we develop and understand better networks of illicit activity, by putting all of this information together. Mrs. Love. Okay. Let me delve a little bit more specifically into your operations. Does FinCEN report on the commonalties found between SARs and, namely, these common items: addresses; ID numbers; phone numbers; email addresses; IP addresses? Mr. El-Hindi. Commonality? I think that what--when the information is in the database, one of the things that our modernization has enabled us to do is use business rules and algorithms to help identify situations in which there may be common elements, such as you said, for example, a phone number and address that may be appearing in multiple reports coming in with respect to different transactions and particularly across different institutions. So that is a way in which those data points can be connected and we can identify network activity. Mrs. Love. So, according to you, FinCEN proactively analyzes the above to find common attributes and share with law enforcement so that investigations can be initiated. So how do the rules--how do--I am losing time. If there is extra time, I would like some extra time. Chairman Pearce. The gentlelady's time is extended. Mrs. Love. Thank you. Oh, thank you. How do the searches within the database work daily? What are the rules that you use when you are searching within the database daily? Mr. El-Hindi. I will give you an example in the terrorism context. We will identify a situation, and we will work with our team to figure out what types of terms or what types of situations might be most associated with a terrorist-type activity. We will put that into the system, use that as a business rule, and then that will help us flag items of particular interest for further follow-up. That is just one example of the development of a business rule. Mrs. Love. So are they basically glorified Google searches? How long does-- Mr. El-Hindi. Some types of searching of the database might be based on a simple watch list or a name type thing. Others are going to be much more complicated, weighted, multifactor analysis. I have to apologize. I am not one of the experts with respect to the development of these types of rules. But we can certainly get back to you in terms-- Mrs. Love. I would like to have some details as to what the rules are. You are talking about quite a bit of information daily. I would just like to dive into that a little bit more and understand how it works. Thank you, Mr. Chairman. Chairman Pearce. The gentlelady's time has expired. The Chair now recognizes the gentleman from Ohio, Mr. Davidson, for 5 minutes. Mr. Davidson. Thank you, Mr. Chairman. And thank you for being here and thanks for the information and the time that it takes to answer all these questions. I am new to the committee and new to the topic as a Member of Congress anyway, but certainly right at the intersection of a lot of things where you say, ``Just follow the money.'' And you are the folks who make that possible. So it is nice to talk with you, and I think it is an incredibly important mission. I am particularly concerned about, how do we do that and not forget about our Bill of Rights? How do we not forget about who we are as Americans? And one of the things that is very relevant is something in your testimony regarding Section 314(b). I am just going to read what you stated here briefly: ``One issue that FinCEN frequently hears about from the financial services industry regarding information sharing is the scope of their safe harbor for information sharing under Section 314(b). The statute currently only provides safe harbor from liability for disclosing information under this section for activities that may involve terrorist activities. Activities that are predicate offenses for money laundering are not exclusively included in the provision.'' So, serious activity that could lead to money laundering. When we provided the USA PATRIOT Act, we basically said: ``Hey, we are going to kind of stretch the parameters of our civil liberties here because we really want to get after terrorists.'' Then we said: ``Well, let's go a little deeper because these things might actually lead to that.'' So what kinds of safeguards are in place? Historically, that was a warrant or a subpoena. You get all this information. People are querying it. Could you go into some of the safeguards that protect civil liberties in this? Mr. El-Hindi. In terms of the 314, we have 314(a), which is about industry--the government sharing information back and forth between industry and government, and 314(b), which enables the institutions to share with one another. The 314(a) authorities, as we put them in place, we have been--again, I mentioned before, we are between law enforcement and the financial sector. Part of our responsibility is to make sure that, when we are putting out requests from law enforcement for information, we do that in a responsible-- Mr. Davidson. Do those requests from law enforcement come in the forms of warrants or subpoenas? Mr. El-Hindi. They come to us in--not in warrants or subpoenas. They come into us with respect to ongoing significant investigations. Keep in mind that the requests come to us, and under 314(a), we are able to send that information out to financial institutions. They then say whether or not they have anything that meets-- Mr. Davidson. Right now, this is a little bit like playing Go Fish and saying: ``Got any transactions?'' Mr. El-Hindi. But after that, when law enforcement reaches out to the financial institution, they then proceed with engaging with them in the normal course and-- Mr. Davidson. This isn't yet personalized. In some cases, where it is just like we have this big set of data, and we just say: ``Hey, do we have any transactions that look like clubs? Do you have any clubs?'' To put it in Go Fish language: clubs, hearts, or diamonds. So whatever the parameter is that you are looking for, and then you go: We have these five people who have completed a transaction like that. Or is it, instead, personalized, where you say, ``I am looking for this person right here or this LLC?'' Mr. El-Hindi. The way the requests come in to us, they are going to be much more particular. Again, the particular information we receive from law enforcement that involves their investigations is--the names are--shared with the financial institutions, and they say: Do you have transactions where these individuals or entities are involved, or do you have accounts? If they say yes or no, then law enforcement is able to follow up with them. It is a very efficient system. I think that one of the things that, over the course of time, because we have been able to mete out the requests and work with the financial institutions on it, it has worked very well for law enforcement. They have been--the average connection of identifying ways in which they can expand their accounts--for every request they make, they are able to identify roughly 50 transactions or accounts of interests. Mr. Davidson. Thank you for that. Most of that is (a). But (b)--you highlight some of the categories under (a) that are the government's interaction with the bank. But then, frankly, we didn't get to all the safeguards. And we, perhaps, can schedule a briefing to go into that. But then you go to the next layer. Now banks can share this stuff iteratively back to one another. And I don't want to dismiss that it could be effective, but I want to understand what are the civil liberty safeguards, which is something we didn't quite get to. So I would like to try to schedule time with your office to follow up. My time has expired. Mr. El-Hindi. We would be happy to do that. Chairman Pearce. The gentleman's time has expired. The Chair now recognizes the gentleman from New York, Mr. Zeldin, for 5 minutes. Mr. Zeldin. Thank you, Mr. Chairman. Thank you, Mr. El-Hindi, for being here today. The issue of illicit financing and money laundering is hitting home in the most personal and tragic way in my district where we have seen ongoing violence perpetuated by MS-13 and other Central American gangs taking innocent lives and threatening the safety of our schools. Money laundering is a key tool for these violent criminal organizations. They are tearing apart peaceful communities on Long Island and across our country. It allows them to hide their drug-trafficking revenue and transfer it illicitly across the border. That is how they buy weapons, and it fuels the growth of their dangerous criminal enterprises. Earlier this month, we saw the senseless and tragic murders of four young men in Suffolk County, New York, which only further cemented our need to solve the gang violence problem on Long Island and nationwide. These murders have gotten the attention of both President Trump and Attorney General Sessions. Two of the victims of these murders perpetuated by MS-13 were residents of my district, and tomorrow, Attorney General Jeff Sessions will be visiting this community of Central Islip, which has been shattered by these senseless murders and other acts of transnational gang violence. Mr. El-Hindi, we know that FinCEN, as the national experts on combating money laundering, is playing a key role to defeat threats to America's safety and security. Now more than ever we need coordination on all fronts so that our local law enforcement on our front lines can respond to this grave threat, working with other State and Federal agencies. My first question is asking for you to speak on the effort currently to combat the threat of MS-13. Mr. El-Hindi. With respect to priorities that we have in FinCEN in terms of our focus, transnational organized crime, narcotrafficking, gang activity are within those priorities. When you mention Federal, State, and law enforcement working together, Federal, State, and law enforcement all have access to the data that FinCEN has, and they all have access to the support that we can provide. To the extent that law enforcement is focused in terms of investigations and gang activity, we are there to support them and make sure that they have the best use of the information that we have. Mr. Zeldin. Can you walk me through how FinCEN flags suspicious activity at the local level and shares this intel with local law enforcement, especially in dealing with transnational criminal organizations like MS-13? Mr. El-Hindi. We have a memorandum of understanding (MOU) that allows access to our database at the Federal level, at the State level, and, in many situations, at the local level with certain municipalities. When we have an MOU with a municipality, they have direct access to the data. In many instances, however, they can work through a State coordinator to have access to the data as well. In terms of the products that we put out where we identify a methodology or a trend, those can go out to a wide variety of our law enforcement stakeholders. Mr. Zeldin. The Bank Secrecy Act puts the onus of reporting suspicious financial activity on banks. But what about violent gangs that are increasingly using apps and other technology, prepaid cards and various other nonbank instruments to launder money? How is FinCEN intercepting and monitoring those transactions and working with the local agencies on that front? Mr. El-Hindi. We cover more than just banks. Money transmitters are subject to our regulations. And some of the methods that you mentioned for moving money electronically might involve apps. To the extent that that activity gets into the realm of money transmission, which it often does, those financial institutions--we consider them financial institutions--are covered under the scope of our requirements. They are required to file suspicious activity reports. They are required to have programs in place to enable them to identify illicit activity and make themselves resilient to that. So that is the type of information that will go into the database. In terms of new methods, for example, FinCEN clarified in 2013 that virtual currency exchangers, administrators of virtual currency are actually money transmitters and subject to the scope of our regulations. And we find that, by working with that industry, we are able to get valuable information to law enforcement. Mr. Zeldin. I appreciate that. And we certainly have law enforcement from all different levels of government and elected and community leaders. Everyone is engaged in this very important issue in Suffolk County. Again, as I mentioned, Attorney General Sessions is coming to Suffolk County tomorrow, and the President himself often talks about this issue that is in our community in Suffolk. So anything that you can possibly do to be able to assist with this effort, it is an urgent effort for my local community. And I would certainly appreciate all of your help. I yield back. Mr. El-Hindi. Thank you. Chairman Pearce. The gentleman yields back. The Chair now recognizes the gentleman from California, Mr. Royce, chairman of the House Foreign Affairs Committee, and a member of the full Financial Services Committee, for 5 minutes. Mr. Royce. Thank you, very much, Mr. Chairman. I appreciate that. Mr. El-Hindi, in November, the Treasury Department acknowledged to Congress that it was seeking to detail 15 FinCEN personnel to the Office of Intelligence and Analysis on a temporary basis. This committee raised concerns about the impact of the reorganization on Treasury's ability to disrupt and inhibit the financing of terrorism and other financial crimes. It was also a puzzling development in light of the fact that the Obama Administration had requested an increase in FinCEN's 2017 budget to expand the use of contractors to support FinCEN's efforts to disrupt the financing of terrorist groups, including ISIS. So, Mr. El-Hindi, can you provide the committee with an update on the reorganization and how it is impacting your work? Is the Trump Administration supportive of or aware of the changes that their predecessor made shortly before leaving office? Mr. El-Hindi. I can just provide you with a little bit of context in terms of within Treasury-- Mr. Royce. That would be helpful. Mr. El-Hindi. --a focus on--I mentioned in my testimony that we are one of five components that report to the Under Secretary for Terrorism and Financial Intelligence. There were thoughts about how we could all work better together. One aspect of that involved the idea of detailing staff from FinCEN to another component part. The status of that is it has not occurred. Mr. Royce. Let me ask you another question. In its advisories, FinCEN recommends U.S. financial institutions use risk-based policies, procedures, and practices regarding jurisdictions with anti-money-laundering deficiencies. This is appropriate, but some institutions would argue that the Federal banking regulators do not themselves use a risk-based approach when they develop AML/CFT reporting requirements. To the contrary, many bankers complain that their regulators take a dragnet approach focused on burdensome and, in their view, time-consuming reporting inputs over quality outcomes. So, Mr. El-Hindi, is it fair for FinCEN to ask financial institutions to meet a standard that the regulators do not meet? Would you agree with The Clearing House's conclusion that many, if not most, of the resources devoted to AML/CFT by the financial sector have limited law enforcement or national security benefit? That would be one question I would ask. And what can Congress do to refocus the Bank Secrecy Act and other legal tools on outcomes over inputs? Mr. El-Hindi. I will just respond to that by noting that I personally, and FinCEN generally, have talked about the fact that, along with a risk-based approach on the financial industry's part in terms of complying with our regulations, there should be a risk-based approach to regulation as well. We have been very clear on that. And to the extent that we have to make decisions on the industries or the types of activities that we fold within the scope of our regulations, that risk-based approach to regulation is very much a part of it. A number of things were raised in The Clearing House report that you mention. I think it is an example of a situation where industry reaches out to discuss concerns that they have with respect to how situations could be improved. FinCEN has always been eager to work with industry and discuss those ideas. We have a forum called the Bank Secrecy Act Advisory Group where we are able to bring together law enforcement, the regulatory community, and the industry sector together with us where we can have very frank and open discussions about what is working, and what is not working. A lot of the issues that are raised in the paper that you mention are things that we discuss and are working on within that context. But we have always been eager to work with industry and law enforcement to make sure that we are on the right track and that we are doing the right things. That is why we have--I continue to say that we are a bridge between both worlds. To the extent that neither is completely satisfied with the results that we sometimes come up with, it probably is an indication that we are doing the right thing. Mr. Royce. Mr. El-Hindi, thank you very much. I yield back. Chairman Pearce. The gentleman yields back. Mr. El-Hindi, you have been very gracious with your time. If you could spare just a couple more minutes. You are part of a group of about 150 FIUs worldwide. Of those, which would you estimate has probably the best information technology sharing? Mr. El-Hindi. I am not in a position right now to comment on particular jurisdictions. We have strong relationships with many of our FIU partners, and there are other relationships that we would like to improve. At the same time, there are some of our FIUs that are in great shape in terms of their ability to do things and others that would need to improve. In some of the rulemaking that we have discussed, if you go through past FinCEN records, you can see a close involvement that we have with our Canadian counterparts, our Australian counterparts, and other counterparts as well. But I am not in a position to comment on the strengths-- Chairman Pearce. If you could reach out and grab someone's technology and put it into FinCEN, whose would that be? Do you have an opinion about that? Mr. El-Hindi. I am not in a position to comment on that right now. I would just say that one of the great things about being an FIU and having a forum that we can compare the tools that we have and the authorities that we have is that it does create opportunities for us to think along those lines. And that happens. I mentioned virtual currency earlier today. When we came out with our interpretation of virtual currency, our FIU counterparts from other jurisdictions were on the phone, and we were comparing notes. And in terms of how we approach that situation, the same could be true with respect to the technology as well. And we do have workshops with them in which we can compare ideas. Chairman Pearce. And if you were going to take a guess-- again, these are highly speculative things--how many of the 150 would like to take ours and implement? I am still trying to drive-- Mr. El-Hindi. How many of them-- Chairman Pearce. Would like to use our technology instead of the one they have? Half? Three quarters? All of them? Mr. El-Hindi. I would--given-- Chairman Pearce. I am just trying to figure out kind of where we stand in the world as far as our expertise and our capabilities from the IT point, not the human capacity. Mr. El-Hindi. I think that we are up there. And others are up there as well. Chairman Pearce. Okay. So we are in the top 10 percent or so? Top 30 percent? Mr. El-Hindi. I will just say we are up there, and others are up there as well. Chairman Pearce. You have been very gracious. We appreciate everything. I would like to thank you for your testimony today and for answering all of our questions. The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to this witness and to place his responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. This hearing is adjourned. [Whereupon, at 4:35 p.m., the hearing was adjourned.] A P P E N D I X April 27, 2017 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]