[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]