[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
MANAGING TERRORISM FINANCING
RISK IN REMITTANCES AND MONEY TRANSFERS
=======================================================================
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
__________
JULY 18, 2017
__________
Printed for the use of the Committee on Financial Services
Serial No. 115-32
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PUBLISHING OFFICE
29-451 PDF WASHINGTON : 2018
----------------------------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).
E-mail, [email protected].
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:
July 18, 2017................................................ 1
Appendix:
July 18, 2017................................................ 33
WITNESSES
Tuesday, July 18, 2017
Cassara, John, Member, Board of Advisors, Center on Sanctions and
Illicit Finance, Foundation for Defense of Democracies......... 9
DeVille, Duncan, Global Head of Financial Crimes Compliance & US
BSA Officer, The Western Union Company......................... 5
Oppenheimer, Matthew, Co-Founder and Chief Executive Officer,
Remitly, Inc................................................... 7
Paul, Scott T., Chief Humanitarian Policy Advisor, Oxfam America. 10
APPENDIX
Prepared statements:
Cassara, John................................................ 34
DeVille, Duncan.............................................. 51
Oppenheimer, Matthew......................................... 58
Paul, Scott T................................................ 62
Additional Material Submitted for the Record
Pearce, Hon. Stevan:
Written statement of Bradley S. Lui, on behalf of The Money
Services Round Table....................................... 73
Ellison, Hon. Keith; and Vargas, Hon. Juan:
Written responses to questions for the record submitted to
Duncan DeVille............................................. 81
Written responses to questions for the record submitted to
Matthew Oppenheimer........................................ 89
Written responses to questions for the record submitted to
Scott T. Paul.............................................. 93
Perlmutter, Hon. Ed:
Written statement of the Electronic Transactions Association. 98
Written statement of various undersigned organizations....... 99
Letter to Hon. Mike Rogers from Bradley S. Lui, on behalf of
The Money Services Round Table, dated May 2, 2017.......... 100
Letter to Hon. Paul Battles from Western Union and MoneyGram,
dated February 3, 2017..................................... 106
MANAGING TERRORISM FINANCING
RISK IN REMITTANCES AND MONEY TRANSFERS
----------
Tuesday, July 18, 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 2:40 p.m., in
room 2128, Rayburn House Office Building, Hon. Stevan Pearce
[chairman of the subcommittee] presiding.
Members present: Representatives Pearce, Pittenger,
Rothfus, Messer, Tipton, Williams, Poliquin, Love, Hill, Emmer,
Zeldin, Davidson, Budd, Kustoff; Perlmutter, Maloney, Himes,
Foster, Sinema, Vargas, Gottheimer, Kihuen, and Lynch.
Ex officio present: Representatives Hensarling and Waters.
Also present: Representatives Heck and Ellison.
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.
Without objection, the gentleman from Washington, Mr. Heck,
is permitted to participate in today's subcommittee hearing.
Mr. Heck is a member of the Financial Services Committee, and
we appreciate his interest in this important topic. Welcome,
Mr. Heck.
Today's hearing is entitled, ``Managing Terrorism Financing
Risk in Remittances and Money Transfers.'' I now recognize
myself for 5 minutes to give an opening statement.
I want to thank everyone for joining us today for this
hearing. Today, we are examining the terrorism financing risk
for money services, businesses, and remittances. As the
Treasury Department noted in its 2015 National Terrorism
Financing Risk Assessment, the fight against money laundering
and terrorist financing is a pillar of U.S. national security
and a strong financial system. It is essential that we work
closely together to develop and effectively implement strong,
focused, and reasonable laws and regulations to detect,
disrupt, deter, and prevent terrorist finance.
The threat from terrorist financing in particular is
constantly evolving and requires diligent adaptation by law
enforcement, financial regulators, intelligence agencies,
policymakers, and the financial sector.
This hearing will explore the terrorist illicit financing
risks that are inherent in the use of money services business
(MSBs), remittance payments, and other value transfer systems,
as well as how efforts to combat this activity have
unintentionally contributed to the problem of de-risking.
The hearing will explore both formal and informal value
transfer systems, including the extent to which de-risking
excludes entire groups of customers from the financial system
and less transparent underground, unregulated systems which are
more difficult to track and easier for bad actors to
successfully transfer funds.
The scourge of terrorist finance isn't a new problem, but I
hope that today we can shed some new light on this issue and
help inform this subcommittee on ways in which we can help
disrupt that flow of money. I would like to thank our witnesses
for being here today and I look forward to the conversation to
come.
I now recognize the ranking member of the subcommittee, the
gentleman from Colorado, Mr. Perlmutter, for 2 minutes for an
opening statement.
Mr. Perlmutter. Thanks, Mr. Chairman. I want to thank all
of our witnesses for testifying today, but in particular I want
to welcome Duncan DeVille of Western Union, and also my friend,
Tim Daly, whom I see sitting behind you. Western Union is the
largest money transmitter in the world. It is located in the
Denver metropolitan area just outside of my Congressional
district. Thank you for being here.
We live in a world of rapidly evolving threats and rapidly
evolving technology. The adoption of technology has not only
reduced the cost of sending money abroad, but created
efficiencies benefiting consumers, markets, and the law
enforcement community. But as technology has advanced, so too
have the terrorists and criminals.
I am certain we already are and will continue to harness
new technologies to stop the flow of funds to the bad guys.
Criminals will always search out the unregulated channels to
access funding, but if we strike the appropriate balance, we
can mitigate the concern of this de-risking phenomena and
ensure that companies like Western Union are not at risk of
losing their settlement banking relationships. This would drive
all activity underground, only exacerbating the national
security risks.
So I hope the conclusion we come to today is that we can
manage terrorist financing risks associated with remittances
and money transfers without destroying the marketplace either
through excessive compliance regimes or taxing remittances.
Let me also say at the outset, I strongly oppose H.R. 1834,
the Taxing Remittances to Pay for the Border Wall Act, and I
look forward to discussing further this subject further with
our witnesses. And with that, I yield back.
Chairman Pearce. The gentleman yields back.
The Chair now recognizes Mr. Pittenger for 1 minute.
Mr. Pittenger. Thank you, Mr. Chairman. I would like to
thank all of our distinguished panelists for lending their
expertise to our subcommittee today.
I am particularly glad to see our good friend, John
Cassara, on the panel testifying today. I am so grateful for
the exceptional partner he has been with us over the last few
years, having spoken at a number of our parliamentary security
forums for members of parliament.
Mr. Chairman, this hearing is particularly timely and
relevant to my interests in reforming financial institution
information-sharing mechanisms. As many of you know, I have
worked to streamline and improve Sections 314(a) and (b) of the
USA PATRIOT Act, which govern bank-to-government and bank-to-
bank information-sharing. When we make it easier for banks and
money services businesses to talk to each other and better
identify money laundering terror financing threats, we not only
improve government enforcement, but we also improve
institutional compliance with the laws and support our efforts
related to privacy.
And in the process of improving compliance, we actually
offset many of the concerns related to de-risking and creating
financial services vacuums in the very areas where we seek
better enforcement. Mr. Chairman, thank you for hosting today's
important hearing, and I yield back.
Chairman Pearce. The gentleman's time has expired. The
Chair now recognizes Mr. Emmer for 2 minutes.
Mr. Emmer. Thank you, Mr. Chairman, for yielding, and for
organizing this important hearing.
I would also like to thank our witnesses for being here.
Your insights and experiences are extremely valuable to this
subcommittee and this Congress as we examine the intricate and
evolving nature of how terror organizations finance their
operations.
The hundreds of billions of dollars in remittances and
other value transfer payments sent around the globe each year
play an important role in the lives of millions. These
transfers can help stabilize an individual's household or even
an entire economy's finances, and in many cases serve as an
important and vital lifeline among family members and loved
ones separated around the globe. That is why today's hearing is
so important.
While much of the estimated $575 billion in remittances
sent globally in 2016 went to support livelihoods and the well-
being of relatives, these transfers were also vulnerable to
exploitation by criminal and terror organizations. For decades,
our intelligence and terror financing communities have held
that without money, there is no terrorism.
I believe this mantra holds true and I am encouraged to see
the subcommittee undertake the important challenge of reviewing
our Nation's anti-money-laundering and counterterrorist
financing laws to ensure our regulatory framework allows for
the continued flow of money to friends and family members
abroad while eliminating the use of remittances as a means to
conduct acts of terror both overseas and here at home.
Striking this important balance, however, is especially
relevant, as I represent one of the largest and most diverse
refugee populations in the country. Many are surprised to learn
that Minnesota has the largest number of refugees per capita in
the United States and ranks first in the Nation for secondary
migration, or refugees who have resettled in Minnesota from
other U.S. States.
The Sixth Congressional District in particular is home to
one of the largest populations of Somali-Americans in the
country, a population that relies heavily on the use of money
services businesses and other forms of transfer to send money
to family members abroad. While an estimated $200 million in
remittances is sent to Somalia every year, the channels to send
these funds are rapidly changing.
The lack of sufficient banking infrastructure and the
spread of Al-Shabaab in countries like Somalia have made it
difficult for money remittance transmitters and financial
institutions to verify their customers and ensure remittances
are being used for legitimate purposes.
Although the practice of de-risking is not a new phenomenon
that financial institutions have employed to mitigate risk
associated with remittances, I am concerned that the continued
use of such techniques may have a wider, more detrimental
impact to our ability to track the flows of money to finance
terror operations globally.
Eliminating funding streams to terrorists and keeping
families connected do not have to mutually exclusive, and I
have no doubt we can improve our regulatory system to
accomplish these goals.
Again, I want to thank the chairman for holding this
important hearing today.
Chairman Pearce. The gentleman's time has expired.
We now welcome the testimony of our witnesses. First, Mr.
Duncan DeVille is senior vice president at Western Union where
he serves as global head of financial crimes compliance, and as
BSA officer. Previously, Mr. DeVille served as head of the
Office of Compliance and Enforcement at FinCEN; as a Senior
Financial Enforcement Adviser at the U.S. Treasury Department
Office of International Affairs; as an Adviser with the
Department of Defense in Iraq; and in a series of prosecutorial
positions at the Federal, State, and local government levels.
Mr. DeVille has earned his law degree from the University of
Denver, and other graduate degrees from Harvard University and
Oxford University, and his bachelor's degree from the
University of Louisiana. Thanks for being here, Mr. DeVille.
Next, we have Mr. John Cassara. Mr. Cassara is a member of
the board of advisers for the Center on Sanctions and Illicit
Finance at the Foundation for Defense of Democracies. Mr.
Cassara began his 26-year government career as an intelligence
officer during the Cold War. He later served as a Treasury
Special Agent in both the U.S. Secret Service and the U.S.
Customs Service, where he investigated money laundering, trade
fraud, and international smuggling. He was an undercover arms
dealer for 2 years. Assigned overseas, he developed expertise
in Middle East money laundering, value transfer, and
underground financial systems. Mr. Cassara also worked 6 years
for Treasury's Financial Crimes Enforcement Network and was
detailed to the Department of State's Bureau of International
Narcotics and Law Enforcement Affairs.
Mr. Scott T. Paul is the humanitarian policy lead at Oxfam
America, where he spearheads the organization's advocacy on a
number of crises and cross-cutting humanitarian issues. Mr.
Paul previously worked for the Civic, an organization that
seeks to make warring parties more responsible to civilians,
where he initiated civics work on the conflict in Somalia and
directed its Making Amends campaign. Mr. Paul also serves as
deputy director, government relations, at Citizens for Global
Solutions, where he led numerous coalition-based campaigns to
promote a vision of U.S. foreign policy centered on
cooperation, pragmatism, and the rule of law.
Mr. Heck will introduce our next witness, Mr. Oppenheimer.
So, Mr. Heck, you are recognized for the introduction.
Mr. Heck. Thank you, Mr. Chairman, very much. I am proud to
be able to introduce my friend, Matthew Oppenheimer, the co-
founder and CEO of Remitly, which is yet another Seattle-based
success story of a company. They provide low-cost remittances
to Latin America, India, and the Philippines.
Matthew's resume is impressive, indeed. It combines almost
all the issues that make me excited about the opportunity to
work together on this committee. He worked for Barclays Bank,
where he rose to become head of mobile banking in Kenya. If you
understand that, you understand that is quite a success story
in and of itself. And he co-founded Remitly to bring fintech
innovation to bear on an old problem.
And in dealing day in and day out with Bank Secrecy Act
regulation, I know for a fact he has lots of ideas on how these
can be made to be more efficient and effective. I look forward
to hearing his testimony, and I am sure that if we all do so,
we can, indeed, find several opportunities to work across the
aisle on mobile banking and fintech regulation and Bank Secrecy
Act modernization and strike, as my dear friend, Mr.
Perlmutter, says, that appropriate balance.
Welcome to the committee. And thank you for making that
trip I make a couple of times of a week.
Chairman Pearce. Each of you is going to be recognized for
5 minutes to give an oral presentation of your testimony. And
without objection, each of your written statements will be made
a part of the hearing record.
Mr. DeVille, you are now recognized for 5 minutes.
STATEMENT OF DUNCAN DEVILLE, GLOBAL HEAD OF FINANCIAL CRIMES
COMPLIANCE & US BSA OFFICER, THE WESTERN UNION COMPANY
Mr. DeVille. Good afternoon, Chairman Pearce, Ranking
Member Perlmutter, and members of the subcommittee. Thank you
for inviting me here today to discuss ways to detect and combat
the use of money services businesses, or MSBs, by terrorist
organizations and to talk about Western Union's efforts and how
various programs in our compliance umbrella have changed over
time.
Western Union's worldwide network includes more than a half
million agent locations in over 200 countries and territories.
In 2016, across all our products and platforms, Western Union
averaged 31 transactions per second and over 900 per second at
peak times. For Western Union, a critical part of serving our
customers is complying with regulatory requirements. Even
though regulatory compliance costs money and inhibits our
ability to drive down transaction costs for our customers, we
do not view these compliance and customer service goals as
conflicting, but as complementary.
Our business model depends upon trust. We cannot build and
maintain our business unless we create a safe global
environment for the people, families, and businesses who use
our services. To that end, Western Union has increased its
overall compliance funding by more than 200 percent over the
last 5 years and now spends more than $200 million annually on
compliance. Approximately 2,400--two thousand, four hundred--
full-time employees, over 20 percent of our workforce, are
exclusively dedicated to compliance functions.
We have added more employees with banking and legal and law
enforcement and regulatory expertise. Our chief compliance
officer, Jacqueline Molnar, who is here today, and I are proud
to be some of the hundreds of compliance professionals
recruited by Western Union in the last few years.
Our compliance program is comprehensive and has 12
components. Today, I will just discuss briefly two of those
components, two that are especially relevant to this
committee's work: agent oversight; and our financial
intelligence unit (FIU.)
Agent oversight is a key component of an MSB's compliance
program. In designing our program, we have been cognizant that
Western Union's retail money services business operates through
company partnerships with our network of agent locations around
the world. In addition to regional store chains, convenience
stores, small businesses, and other retailers, in most other
countries, banks and post offices act as Western Union agents.
But for those small businesses, revenue generated through
offering Western Union products is very significant, and we are
proud to help spur job growth and contribute to the larger
economy.
We have established a dedicated compliance team
specifically to conduct due diligence on our agents prior to
entering the relationship with them, upon renewal of contracts
and at other triggering events such as a change of ownership.
We also provide training and we do field visits.
We monitor all transactions that flow through agents. In
addition to the back-end traditional automated transaction
monitoring--which I know other witnesses have spoken to you
about--which looks for patterns post-transaction on a weekly or
monthly basis, Western Union has something unique. We do
upfront monitoring. We call it real-time risk assessments. And
these are rules and algorithms that are designed to stop
transactions before they go through. This is just one example.
We hold 26 patents related to categorizing and identifying data
patterns.
The other component of our compliance program I will
briefly describe to you is our FIU. Modeled after intelligence
programs in the government and law enforcement communities, our
FIU, in addition to doing in-depth financial analysis and
investigations, develops and maintains collaborative
relationships with key law enforcement and other government
partners.
For example, within hours of recent European terrorist
attacks, our FIU's rapid response team provided actionable
intelligence to law enforcement via confidential reports,
suspicious activity reports (SARs), and suspicious transaction
reports (STRs). Providing this type of immediate insight into
active investigations has in at least one case--and law
enforcement told us this--helped identify additional terrorists
before they carried out more attacks.
In conclusion, on behalf of Western Union, I thank the
members of the subcommittee for having me here today and for
your critical work in this area. I will be happy to answer any
questions you may have.
[The prepared statement of Mr. DeVille can be found on page
51 of the appendix.]
Chairman Pearce. Thank you, Mr. DeVille. I now recognize
Mr. Oppenheimer for 5 minutes.
STATEMENT OF MATTHEW OPPENHEIMER, CO-FOUNDER AND CHIEF
EXECUTIVE OFFICER, REMITLY, INC.
Mr. Oppenheimer. Good afternoon. My name is Matt
Oppenheimer, and I am the co-founder and CEO of Remitly, an
online remittance provider based in Seattle, Washington. I
thank the subcommittee for the opportunity to explain why our
country has an interest in ensuring that legitimate remittance
services are accessible, affordable, and safe.
Remittances matter for the millions who rely on these
services, but equally matter as a matter of national security.
I founded Remitly in 2011 after living in Kenya and seeing
firsthand how difficult it was to send money across borders.
Not only that, but it was expensive, costing 8 percent to 10
percent of the total transfer just to send the money.
Looking at the technology available to solve this problem,
I knew there had to be a better way. When I moved back, I
started Remitly to make remittances easier, faster, and more
transparent. By replacing the cash-based brick-and-mortar model
with a purely digital one, we sought to build a better, more
affordable service for customers.
By focusing on that vision, we have cut the cost of service
from 8 percent to under 2 percent, putting hard-earned money
back into consumers' pockets, while delivering a better user
experience. I am humbled to say that our team of over 400
employees now helps customers send $3 billion a year to
recipients in India, Mexico, Latin America, and the
Philippines.
While our technology has improved remittances, the basic
reasons for sending money have not changed. Our customers send
money to pay for basic needs of their family members--housing,
food, water, power, medical care, and education--things we take
for granted here, but which can be unattainable for millions
abroad.
Our customers are heroes. They sacrifice to provide a
better life for their families. When they send, it is more than
money. It is a lifeline. Paying their family's rent or their
child's tuition, if you add up all these transfers, you will
find that remittances contribute nearly 4 times the funds
provided by all foreign aid.
Beyond the human impact, when remittances are sent through
modern, legitimate channels, they strengthen our national
security. As a regulated provider, we invest heavily to comply
with AML laws and other requirements using the latest
technology to detect and report suspicious activity.
Digital providers like Remitly provide an additional
security by serving only customers with U.S. bank accounts and
by embedding KYC, OFAC screens, and risk features directly into
our product. This creates a more secure, lower-risk service
compared to the traditional model.
This approach is also a powerful weapon against illegal
activity. When our machine-learning systems or our trained
staff spot something suspicious, we report it. This provides
law enforcement with a high-resolution view into global money
flows, an invaluable tool in fighting against illegal activity,
money laundering, and terrorism.
Licensed remittance companies keep money in the light by
processing legitimate transactions while detecting and
reporting those that are not. By contrast, there is an
underground market of unlicensed remittance providers that
don't comply with these obligations. These informal networks
operate without oversight and can be associated with black
market activity.
If policies are enacted that raise the cost of legitimate
services, money will flow into these shadowy alternatives. That
is why I am troubled by recent proposals to tax remittances to
fund a border wall. A 2 percent tax would radically increase
the cost of sending money, far more than you might expect.
Remitly charges less than 2 percent for our service, so this
tax would more than double prices.
Do that and money will flow to underground channels,
funding the very activities we want to stop. The worst thing
Congress could do to our customers and to border security would
be to tax remittances to build a wall. It is just bad policy.
Congress should focus on low-risk means to reduce
regulatory burdens and enhance competition. While there is no
silver bullet to AML reform, a few lead bullets include
revisiting SAR reporting thresholds, aligning KYC requirements
with international trends and improving OFAC sanctions list to
reduce the operational burden posed by false positives.
These improvements would focus private sector and law
enforcement resources on higher-risk activities. It makes sense
to reality-check our risk-based approach from time to time, so
I applaud the subcommittee's focus on these issues.
Making legitimate remittance services more accessible,
affordable, and secure benefits consumers and strengthens
national security. Smart policies and continued innovation put
this goal within reach.
I thank you again for the opportunity to be here. I welcome
any questions the Members may have.
[The prepared statement of Mr. Oppenheimer can be found on
page 58 of the appendix.]
Chairman Pearce. Thank you, Mr. Oppenheimer.
I now recognize Mr. Cassara for 5 minutes.
STATEMENT OF JOHN CASSARA, MEMBER, BOARD OF ADVISORS, CENTER ON
SANCTIONS AND ILLICIT FINANCE, FOUNDATION FOR DEFENSE OF
DEMOCRACIES
Mr. Cassara. Chairman Pearce, Ranking Member Perlmutter,
and members of the subcommittee, thank you for the opportunity
to testify today. It is an honor for me to be here.
I am joined by experts from the formal remittance industry,
so I will limit my remarks to the informal, underground
remittances sometimes known as informal value transfer systems,
parallel banking, underground banking, or sometimes just
hawala.
There are an estimated 244 million migrant workers around
the world. Globalization, demographic shifts, regional
conflicts, income disparities, and the instinctive search for a
better life continues to encourage more and more workers to
cross borders in search of jobs and security. Many countries
are dependent on remittances as an economic lifeline.
Although estimates vary, according to the World Bank,
global remittances may have reached approximately $575 billion
in 2016. That is an estimate of what is officially remitted.
Unofficially, nobody knows.
However, using IMF and World Bank assessments, unofficial
remittances may be greater than $850 billion per year, with a
substantial portion of that originating from the United States.
Although diverse alternative remittance systems are found
around the world, most share a few common characteristics.
The first is that they all transfer money without
physically moving it. Another is that they all offer the three
``Cs'': they are certain, convenient, and cheap. They are all
ethnic-based. They are sophisticated and efficient and,
finally, historically and culturally, most alternative
remittance systems use trade as a primary mechanism to settle
accounts or balance the books between brokers.
In my written testimony, I go into some detail about how
they operate. Informal remittance networks are found throughout
our country. The overwhelming percentage of money transfers
generated by the use of these informal systems is benign. We,
of course, do not wish to interfere with migrants sending money
back home to support their loved ones.
However, these informal systems are also abused by criminal
and terrorist organizations. They avoid our primary anti-money-
laundering counterterrorism finance countermeasures. As Osama
bin Laden once said, jihadists are aware of the ``cracks'' in
the Western financial system. Informal remittances are not just
a crack. They are a Grand Canyon.
There have been many incidents relating to terror finance,
both in the United States and overseas. Some examples include
the use of hawala in areas our adversaries operate, such as
Afghanistan, the Horn of Africa, and ISIS-controlled Syria and
Iraq. Hawala was used to help fund the 2010 Times Square
bombing in New York City. In 2013, a Federal judge in San Diego
sentenced three Somali immigrants for providing support via
hawala to Al-Shabaab, a designated terrorist organization.
Hawala is legal in the United States, as long as a service
is registered with Treasury's FinCEN and adheres to State
licensing guidelines. Yet our government's own statistics
suggest our money services business registration is not
successful.
And from an investigative standpoint, it is very hard to
penetrate these networks. To use just a few examples, law
enforcement does not have many Gujarati, Farsi, Pashtu, or Urdu
speakers, and even if we recruited some sources to walk into
some of these networks, the question may well be, well, who is
your uncle in the village back in the old country? And if you
can't answer that question, they are probably not going to have
much to do with you.
Because these systems are closed and opaque and based on
trust, there are no easy countermeasures. But I do include a
number of recommendations in my written statement. These
include steps to improve our registration of underground money
services businesses using trade transparency as the backdoor
into these networks, better exploiting data and advanced
analytics, improving financial inclusion by lowering the cost
of formal remittances, and improving training and analytics so
that compliance and law enforcement officers and analysts can
better detect the systems.
I also urge that we begin to pay attention to the worldwide
Chinese underground financial systems, sometimes known as Fei-
chien or ``flying money.''
Once again, it is an honor to be here and I am happy to
answer any questions you may have.
[The prepared statement of Mr. Cassara can be found on page
34 of the appendix.]
Chairman Pearce. Thank you, Mr. Cassara. And I now
recognize Mr. Paul for 5 minutes.
STATEMENT OF SCOTT T. PAUL, CHIEF HUMANITARIAN POLICY ADVISOR,
OXFAM AMERICA
Mr. Paul. Chairman Pearce, Ranking Member Perlmutter, and
members of the subcommittee, on behalf of Oxfam America, I
thank you for the opportunity to testify here today.
Oxfam envisions a world without poverty, where all people
are able to enjoy the full range of their human rights. Both
financial exclusion and terrorism stand in the way of achieving
that vision. Therefore, we need to make remittance services
accessible, affordable, and accountable, both to law
enforcement authorities and to the families sending and
receiving money.
As you know, remittances help fight poverty and aid
humanitarian response worldwide. But they are particularly
crucial in the world's poorest countries and during
humanitarian emergencies. Oxfam works in many countries where
state institutions and the private sector are very weak or have
collapsed. In these countries especially, remittances are a
powerful stabilizing force. They help communities build
resilience to crises, weather the storm, and then build back
better.
Unfortunately, we are witnessing a market failure in the
financial sector today that is threatening to reduce and
obscure remittance flows. Money transfer operators like Western
Union or Remitly, also called MTOs, are the primary providers
of remittance services to many migrants, and they typically
rely on banks to perform financial services for them, including
wiring money. But banks are closing the accounts of legitimate
MTOs at an alarming rate.
Oxfam has commissioned research and conducted extensive
outreach to banks, MTOs, community groups, and government
agencies to gain a greater understanding of the problem and its
possible consequences and solutions. The 9/11 terrorist attacks
and 2008 financial crisis created pressure to crack down hard
on abuse in the financial sector. In this environment, many
banks view MTOs as high risk and are deciding that the benefits
of maintaining their accounts just don't justify the costs and
consequences that come with it. So rather than manage the AML/
CFT risk of their MTO customers, many banks are instead
terminating MTO accounts.
It is important to bear in mind that high-risk businesses
like some MTOs are not bad actors. They are just viewed as
vulnerable to abuse, which means they require more resources
and expertise to oversee. Closing MTO accounts may, in fact, be
a rational decision for banks, but it likely means a decline in
remittances and an increase in the share of remittances
transmitted through informal networks, which makes money more
difficult for law enforcement officials, regulators, and money
senders to trace.
Somalia presents a unique and illustrative case.
Remittances make up roughly a third of Somalia's entire economy
and are generally spent on basic survival needs. One Somali-
American I interviewed told me that without the money we are
sending them, he didn't think the entire Somali nation would
exist.
Another confessed to me tearfully that the thought of not
being able to send money to his sick mother for food and
medicine made him consider going back to face drought and
conflict. ``I can't even eat thinking about it,'' he told me.
Because of the security situation, most international banks
and well-known MTOs are no longer present in Somalia, leaving
only lesser-known Somali MTOs operating in the U.S. as a viable
option. These MTOs are registered, examined, and regulated.
They have collaborated with law enforcement during prosecutions
of Al-Shabaab supporters. Nonetheless, banks have closed nearly
all of their accounts, forcing them to find alternatives that
make remittances more costly and much less secure.
Let's remember, banks will manage risk in the right
circumstances. In today's business environment, banks have
thought it prudent to participate in multi-billion-dollar money
laundering schemes, yet barely offer any service to MTOs whose
core business is the transmission of $50 or $100 each month to
a migrant who wants to build a better life for her family. It
is obvious that the size and profitability of a customer
matters a great deal to its bank.
U.S. law and regulation have made the costs and
consequences of managing money laundering and terrorist
financing a lot steeper, but the revenue potential of MTOs for
banks, particularly small MTOs, remains very low. I would urge
this subcommittee to work with the Treasury Department, the
State Department, USAID, and the Federal banking agencies to
refine the risk-based approach in order to encourage more
investment in risk management and less risk avoidance,
including of MTOs operating in high-risk jurisdictions. That
will mean more money in the hands of people looking to escape
poverty and less opportunity for terrorists and other financial
criminals to transact business.
I look forward to your questions. Thank you.
[The prepared statement of Mr. Paul can be found on page 62
of the appendix.]
Chairman Pearce. Thank you, Mr. Paul.
The Chair now recognizes himself for 5 minutes for
questions. So without getting too deep into it, last year,
about a year ago, I found myself in the middle of Bangladesh,
in the middle of the night, needing cash to fill up a small
airplane that needed to fly to Muscat, Oman, where I needed
cash again. So finding that black and gold logo was somewhat
reassuring. I didn't actually use it, but something about
hitting the ATM machine in the middle of the night from
Bangladesh, then Muscat, Oman, caused some alarm back in the
U.S. and caused those cards to be summarily dismissed and
turned off.
Again, thanks for what each of you do, because you serve a
very real purpose for real people trying to just do things and
live lives. So I appreciate that.
So Mr. Oppenheimer mentions three suggestions in his
testimony. Mr. Cassara, have you had a chance to--did you pick
up those basically, saying that the reporting thresholds for
suspicious activity across banks, non-banks should be
consistent? And then the travel rule update, and then finally
OFAC to build a more complete, updated sanctions list, that
sort of--do you have an opinion on those recommendations,
something that you would see to be productive? If you don't, it
is fine.
Mr. Cassara. At first hearing, they seem very reasonable to
me, but I have not studied them.
Chairman Pearce. You would like more time to look, but
there wasn't anything that said, hey, this is not--it is a
track we ought to consider, is what I hear.
Mr. Cassara. Yes. Nothing there is just outside the pale.
Chairman Pearce. Okay, fine. Mr. Oppenheimer, you heard Mr.
DeVille say that 20 percent of their time is spent on
regulations. Do you find that much of your time going into
regulations?
Mr. Oppenheimer. I certainly spend a lot of my time on
regulatory matters, and we have a compliance team that we hired
very early. Our second hire was our compliance officer. I think
that one advantage of digital channels is because it is
centralized, our regulators appreciate everything that a
customer enters in. There is no human intervention. We don't
have a lot of cash agents.
Chairman Pearce. Okay, so--
Mr. Oppenheimer. So the number of people is less.
Chairman Pearce. Yes, if I can interrupt here for a second,
of that 20 percent, do you find all of it to be very
productive, or half of it, or you don't want to say with the
IRS watching? I don't know.
Mr. Oppenheimer. It is a great question, Congressman. And I
think that some of the recommendations that you just mentioned
in terms of reducing the number of false positives from OFAC
screening, some of that work I think is less productive. And if
we expand the number of criteria right now for OFAC matches,
for instance, it is name, location, and date of birth. And
building the company from day one, those false positives, once
they got through our systems, and then it went through a manual
review, I was doing personally, and we basically collect
additional information from the customer to make sure that it
is not on a terrorist watch list. That is not the individual.
And so I think that some of the recommendations about
expanding that criteria, so that can be automated and collected
and screened in an automated fashion, so good customers don't
go through that false positive experience and we still catch
nefarious activity, that is important.
Chairman Pearce. I appreciate it. I just need to keep
moving here. Mr. DeVille, if you want to answer the same
question, what percent of your 20 percent do you think is
really productive in improving the security of the transfer of
money, improving your operations, and improving the security of
your customers?
Mr. DeVille. In the current regulatory environment, of
course, it is a requirement. But your question is somewhat
different. There is no doubt that there is a tick-the-box
regime on the part of regulators, rather than the things in
which I would like to focus, which is like our financial
intelligence unit, which as I said provides actionable
information to law enforcement.
In fairness to the regulators, however, they are excluded
from the law enforcement investigations by definition. So they
don't have insight into what is really important to law
enforcement.
Chairman Pearce. Okay, I am just trying to get the big
picture. Are the regulations well-directed or are they not
well-directed? And we will keep working on that. How many SARs
do you file each year?
Mr. DeVille. We are actually the largest SAR filer in the
country, nearly 200,000 SARs last year and an equivalent number
overseas, STRs, we call them generally.
Chairman Pearce. What is the turnaround time that you get?
Mr. DeVille. The turnaround time? We have--it is a
complicated regulation, but in simple form, 30 days from the
alert to file a SAR. Certainly if it is a terrorist finance
SAR, we file it quicker and we pick up the phone to call.
Chairman Pearce. Do you ever get any responses from FinCEN?
Mr. DeVille. We do get occasional responses from FinCEN, I
think in large part because I used to work there.
Chairman Pearce. Would it be more productive if you had a
little bit more feedback? Or would that--
Mr. DeVille. The feedback has improved. It is easier for me
because I used to work there. But I do hear from my
counterparts that they wish they had more feedback, but I have
been pleased with it. And they have improved it over the last
few years.
Chairman Pearce. My time has expired. I now recognize the
gentleman from Colorado, Mr. Perlmutter, for 5 minutes.
Mr. Perlmutter. Thanks, Mr. Chairman, and thank you to the
panel for your testimony today. Let's get this out of the way.
The first questions I have are on H.R. 1834, the border tax, or
the remittance tax. So I would like to direct these to you, Mr.
DeVille, and to you, Mr. Oppenheimer. And I also want to
introduce into the record a letter dated February 3, 2017, from
Western Union, and a letter from the Electronic Transactions
Association, objecting to the bill dated May 1, 2017, and
finally a letter from Morrison and Foerster on behalf of the
Money Services Roundtable, all in objection to the remittance
tax.
Chairman Pearce. Without objection, it is so ordered.
Mr. Perlmutter. Mr. DeVille, why don't you go first? Talk
to us a little bit. Mr. Oppenheimer gave us a little opening
about it. What effect would this tax have in connection with
your operations?
Mr. DeVille. Thank you, Representative Perlmutter. It is a
very good question and timely.
It is especially important to understand how price-
sensitive the money transmitter business is. Mr. Oppenheimer
and I did not talk beforehand, but my statistic is the same as
his, that a 2 percent tax would nearly double in our case the
cost of the average transmittal of funds between Western Union
clients.
Mr. Perlmutter. Do you agree with him that this could drive
these transactions underground, which would then make them less
transparent to law enforcement--
Mr. DeVille. Yes, it almost certainly would drive them
underground. There are so many opportunities underground as it
is, even without the tax. And the relationship part we have
with law enforcement, the SARs I discussed with the chairman,
those would not be as readily available, if at all, from an
underground money transmitter.
Mr. Perlmutter. Thank you. Mr. Oppenheimer?
Mr. Oppenheimer. Yes, thank you for the question,
Congressman. As I mentioned in my oral testimony, I think that
for the reasons that Mr. DeVille mentioned and that we have
talked about, funding a border wall with remittance tax would
be both bad for our national security and would be harmful for
consumers trying to get money back home. So I think regardless
of one's views on a border wall, taxing remittances to fund it
is just not good policy.
Mr. Perlmutter. Okay, thank you. Mr. Cassara, Mr. Paul, I
really do want to understand. You gave us an overview, Mr.
Cassara, of hawala. And I would like a couple of examples. I
know you give them in your written testimony. But for oral
testimony today, give me an example of how the money goes
underground and how it could get to a terrorist organization.
Mr. Pearce said that you had been a gun dealer or an arms
dealer at some point in your past--
Chairman Pearce. That was an underground, legitimate--
Mr. Perlmutter. An underground--
Chairman Pearce. Undercover, excuse me.
Mr. Perlmutter. Undercover, pardon me. So explain to me--I
understood you were doing it on behalf of all of us, and I
appreciate that, all right, thank you--so give us some examples
of how this goes underground. And then, Mr. Paul, what I would
like you to talk about is, what is the effect to just law-
abiding people in Minneapolis or Denver or wherever it may be,
if we really tighten down on this stuff?
Mr. Cassara. Congressman, here in the United States, I
believe that underground financial networks, such as hawala,
are found throughout the country. So, for example, there could
be a Somali--and I am not picking on Somalis; it could just as
easily be an Afghan or a Bangladeshi or whomever, it doesn't
make any difference--individual who wants to remit money back
to his home country, for example, Somalia. Maybe he wants to
help support Al-Shabaab.
There are limitations and real concerns why he would not
want to go into a formal financial institution, which I outline
in my paper, as well as, for example, a money services
business. So he feels comfortable in talking to somebody from
his extended family, clan or tribe, somebody that may be called
a hawaladar. He gives them some money that he wants transmitted
back to Somalia, back to the old country. The money does not
physically leave the United States. It stays here in the United
States.
The hawaladar here in the United States contacts his
counterpart in Somalia. The equivalent of money, less small
fees at both ends, is then delivered to the destination that he
designates. That destination could be affiliated with, for
example, an Al-Shabaab. That money could go for nefarious
purposes.
Mr. Perlmutter. Okay, so the money is here, but it is like
security for the money over there? Like having a certificate of
deposit that is on loan to somebody who puts up the money in
the old country?
Mr. Cassara. Correct. It is money transfer without money
movement. In a sense, it is what Western Union does.
Mr. Perlmutter. Mr. Paul--and I know my time is up--
Mr. Paul. Yes, I will just quickly agree with Mr. Cassara
and just say, on top of the consequences for our national
security, consider also the perspective of the individual money
sender. Once that money gets out of his pocket and into the
hawaladar's pocket, there is no recourse. You can't sue. You
can't call someone who has any authority over the person who
has just taken your money. That money, for all intents and
purposes, is out of his or her hands.
Mr. Perlmutter. Thank you. And I yield back.
Chairman Pearce. The gentleman's time has expired. The
Chair now recognizes the gentleman from North Carolina, Mr.
Pittenger, for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman.
Mr. DeVille and Mr. Oppenheimer, do your companies share
information on terror financing and other illicit financial
threats with each other and with other financial institutions?
Mr. DeVille. Yes, we participate in 314(b), Congressman.
Mr. Pittenger. Yes, sir. Is that the same as you, Mr.
Oppenheimer?
Mr. Oppenheimer. That is correct, yes.
Mr. Pittenger. Do you have any impediments or challenges
there in the respect of that exchange of information?
Mr. DeVille. I know my counterparts at other financial
institutions have had impediments. We actually have not. It has
worked well for us.
Mr. Pittenger. Okay.
Mr. DeVille. Perhaps because we are a bigger player, it
could be.
Mr. Pittenger. Sure. Mr. Cassara, you have testified
previously and also written regarding the trade transparency
units. And give us some detail, if you would, on how these
trade transparency units can be helpful in identifying illicit
financing in remittances, wire transfers, hawalas, and other
regard.
Mr. Cassara. It depends on the geographic location in the
world, but historically and culturally, most underground
financial systems, particularly hawala and Fei-chien, they
settle accounts or balance the books through trade, value
transfer, over- and under-invoicing, for example, sometimes
called ``countervaluation.''
I have testified here before on the idea of establishing
trade transparency units around the world. There are
approximately 16 today. We have one here in the United States
in homeland security investigations. The idea is very simple.
Looking at one country's targeted imports comparing those with
a corresponding country's exports, you can spot anomalies.
Those anomalies could be an indication of simple customs fraud.
It could also be an indication of some form of underground
financial system, like hawala or a black market peso exchange.
Some people have called this a possible backdoor into these
networks. I think the trade transparency unit initiative
deserves some funding and some more manpower to see if this
network could be expanded as a real countermeasure to
underground financial systems.
Mr. Pittenger. Very good. How then, Mr. Cassara, does
trade-based money laundering itself--how is it tied into
illicit remittance payments or other non-bank means of
financing?
Mr. Cassara. I'm sorry. I did not get that question.
Mr. Pittenger. The trade-based money laundering, how is it
tied into illicit remittance payments or other non-bank?
Mr. Cassara. Underground banking is tied into trade-based
money laundering simply because it is part of the
countervaluation process. And if you include things like
hawala, like Fei-chien, like the black market peso exchange,
like padala in the Philippines, like all these others, as I
said, historically and culturally, they all use trade-based
value transfer.
So you can't separate them out. All these--
Mr. Pittenger. Mr. DeVille, would you like to comment? We
are looking to try to streamline and try to clarify 314(a) and
(b) so as to provide sharing and provide a capacity for
financial institutions to be protected, to have a safe harbor
in those transfers with each other and with the government. And
would you find this helpful, not just in sharing information,
but do you believe it would reduce the amount of oversight and
engagement that you have to have with multiple SARs, accounts?
You could be identifying those individuals so that data that is
really relayed to you by the Federal Government or by each
other. Would that be a supportive effort for you?
Mr. DeVille. Yes, if I may, Congressman, it would be. We
certainly, like all financial institutions, receive 314(a)
requests. I think the biggest help to us would be is if we
could share SARs with our foreign subsidiaries. You have a
Western Union license in the U.S., you have a Western Union
license in Europe. We cannot share SARs even though they are
all Western Union. Now, whether a Congress would put that under
314(a) or something else is another question. But that inhibits
our information-sharing.
Mr. Pittenger. Very interesting. Thank you very much. I
yield back.
Chairman Pearce. The gentleman's time has expired. The
Chair now recognizes the ranking member of the full Financial
Services Committee, the gentlelady from California, Ms. Waters.
Ms. Waters. Thank you very much, Mr. Chairman. It is very
important for all of us that you are holding this hearing
today. As a matter of fact, this past weekend, I was in Jamaica
and had an opportunity to talk with a number of the
parliamentarians and the former prime minister. And they talked
about correspondent banking relationships that were not
available to them anymore from major banks.
And I had representatives from Saint Vincent's and the
Grenadines in my office last week, where they came to tell us
they have no bank that will do business with them, and that
they can't pay the salaries of the people working in the
embassies and pay their bills, and they want us to help them in
some way.
And then, of course, they talked about remittances and the
important role that it plays in all of these Caribbean
countries. And so I want to know, why is the Caribbean being
hit so hard? And what suggestions do you have? I certainly
don't think that taxing remittances would be a good thing to
do. It would be a terrible thing to do. Even for those banks
that were--those countries that were able to hold onto some
banking relationships, they have increased the charges for
providing the services and so, I think taxing would be
terrible.
And we should all be appreciative of these remittances and
the role that it is playing in these countries to help with
poverty problems and education and health and all of that. And
so I guess my big question is, can you comment, Mr. Paul, on
the effect that this trend is having in terms of the
transparency of overall remittance flows? And can you elaborate
on the regions where the adverse effects of this trend are more
pronounced? For example, you wrote in your testimony that
Caribbean governments at the highest levels have raised
concerns about the impact of bank closures on remittances
flows. What have these adverse effects entailed?
Mr. Paul. Thank you, Representative Waters. It is an
incredibly critical issue, correspondent banking. And the issue
of correspondent banking and banks--foreign banks' access to
the U.S. financial system is very closely related and in a lot
of ways parallel to the issues that MTOs have had accessing the
U.S. financial system.
Essentially, the costs and consequences of maintaining
correspondent banking relationships are outweighing the
profitability of maintaining those relationships. And the
cascading effects of the breakdown in correspondent banking is
having horrific effects on remittance flows, on the ability of
organizations like Oxfam and other nonprofit organizations to
move money around the world, also for trade finance. So this is
an issue that absolutely demands the subcommittee's attention.
I would say the region that has been hit hardest would be
the Caribbean. Belize has come forward to say they may not have
any correspondent relationships with the U.S. at all at the
moment. Jamaica, you mentioned. The other one that has come out
very strongly is the Pacific. A lot of small island states in
the Pacific are finding it more and more difficult to connect
to the global financial system. And I would say that is a
systemic risk.
Ms. Waters. Do you have any ideas about what we can do to
deal with this? We can't make the banks do what they don't want
to do, but they can't say that it is not at all profitable,
because actually they can charge and they have been increasing
the charges for quite some time. We don't want them to continue
to do this, but what I recognize, talking with those in the
Caribbean, is that many of these small countries spend a lot of
money in the United States. For example, in Florida, whether
you are talking about the Bahamas or any of these countries,
they come and they do business, they shop, what have you. We
should have a good relationship with them.
And we should respect the fact that they have to maintain
these embassies, and we want them to do that. Do you have any
ideas about what we can do?
Mr. Paul. Absolutely. Thank you, Representative Waters.
There are a few different ways to deal with this--so we have
costs and consequences on the one hand, and we have
profitability on the other. So one way to do it is to find a
way to minimize the cost and consequences.
There are a number of ways to do that. The most simple way
is probably just to clarify exactly what banks'
responsibilities are when managing risks of correspondent
relationships. A second way is to be creative and think about
how to create more incentives to bank otherwise unprofitable
correspondent banks.
But lastly, and I think maybe the most practical, immediate
step that the subcommittee could take is to bring all the
stakeholders together to make sure that the right people are in
the room, and as concerns the U.S. Government, to bring in some
of the voices that are more inclusion-minded. So the
International Affairs Directorate at Treasury, parts of the
State Department, parts of USAID that have a lot of equities in
this issue, but aren't always writing policy.
Ms. Waters. Thank you very much. I yield back.
Mr. Emmer [presiding]. The gentlewoman's time has expired.
The Chair now recognizes the gentleman from Pennsylvania, Mr.
Rothfus.
Mr. Rothfus. Thank you, Mr. Chairman. Mr. Cassara, can you
please explain how charitable organizations fund hawalas? And
have you seen U.S.-based charities involved with funding
hawalas?
Mr. Cassara. I personally have not seen U.S. charities use
hawala, although there were cases immediately after 9/11 where
those charities were alleged to have been involved. Again, it
depends on the area of the world that we are talking about. In
certain areas in Afghanistan, or Somalia, there are not that
many alternatives for regular businesses, for nonprofits. They
are almost forced to use these underground systems to transmit
funds. So, yes, it is conceivable that this is happening.
Mr. Rothfus. On page nine of your testimony, you mentioned
Iran's form of hawala is havaleh. On that same page, you
mentioned 300,000 Iranians are in Dubai, with reports that
billions in capital is invested in Dubai real estate to launder
Iranian money. Are Iranian actors using hawala to launder and
integrate this money? Or do they use the Western banking
system?
Mr. Cassara. I believe they are using hawala, havaleh, to
transfer funds from Iran into Dubai to purchase properties, et
cetera, yes.
Mr. Rothfus. How would they use havaleh to launder large
sums? How does that work? How much are we talking here?
Mr. Cassara. I can't give you an estimate. I don't know
whether our government, whether the intelligence community and
others have studied that issue. I don't know whether those
numbers are available.
Mr. Rothfus. You also mentioned that the hawala system is
based on trust, but that terrorists also use the hawala
networks, as ISIS does in Iraq and Syria. The Treasury
Department designated the Al-Kauthar money exchange in December
2016 as an ISIS-linked MSB. Is there a network of ISIS-
controlled hawalas? Or was this a unique situation where ISIS
managed to gain the trust of non-ISIS controlled hawalas?
Mr. Cassara. I don't have specific intelligence on this one
instance. I don't believe there is an ISIS-controlled network.
This is my own impression. I think there are hawaladars of
opportunity out there that cooperate with ISIS. I also think
you have to look at the whole issue of trade-based value
transfer in the region. But most definitely, hawala is present
in ISIS-controlled territories in Iraq and Syria.
Mr. Rothfus. With respect to the unregistered MSBs and
hawala brokers here in the United States, is the fact that they
are unregistered a function of a lack of Federal agents and
resources to enforce compliance? Or are there other factors at
play here?
Mr. Cassara. I was at FinCEN in the late 1990s. At that
time, the Director of FinCEN commissioned a study--how many
MSBs are there in the United States? This happened right before
9/11. The answer came back approximately 240,000 in the United
States. I am sure that number has increased.
I believe that the number of registered MSBs here in this
country today is probably in the area of 30,000. So if that
original study was correct, there was a missing two-hundred-
some-odd thousand. Why aren't more registering? There are a
number of reasons. Number one, lack of outreach. There are a
lot of communities here that aren't aware of the requirements
to register. FinCEN, the IRS is supposed to do much more in
that regard.
Second of all, it comes down to enforcement. There should
be agents knocking on the doors. Why aren't you registered? Why
aren't you licensed? And that is not happening.
Mr. Rothfus. Is it a function of insufficient resources? Do
we need more agents working on this?
Mr. Cassara. I think part of it is resources and part of it
is priorities.
Mr. Rothfus. Can you explain the mechanism of how wealthy
Chinese individuals purchase high-end real estate in the United
States through their flying money system?
Mr. Cassara. Thank you for that question. I am very
concerned about Fei-chien, flying money, and its use here in
the United States. There is a lack of reporting on this issue
in our government and in open source information. But as you
well know, in China itself, Chinese citizens are limited to
about $50,000 a year they can take out of the country. And even
if they use smurfing networks, family members, et cetera, et
cetera, there is a massive amount of capital flight leaving
China going into the United States, purchasing high-end
properties, and I feel that Fei-chien plays a part in this.
The same thing is also happening in places like Canada, in
London, in Australia, and elsewhere. And we are not paying any
attention to it.
Mr. Rothfus. I yield back.
Mr. Emmer. The gentleman's time has expired. The Chair now
recognizes the gentlewoman from New York, Mrs. Maloney.
Mrs. Maloney. Thank you. And I thank so much the Chair and
the ranking member for calling this hearing and all of your
testimony. Mr. DeVille, your testimony notes that a current
area of focus for Western Union's financial intelligence unit
is the continued analysis of transaction controls and other
risk measures in Iraq, Syria, Turkey, and Libya, to ensure that
you appropriately manage risk while at the same time serving
the very real humanitarian needs.
But as you know, most other American financial institutions
are not operating in these countries. They have pulled out. So
why do you think Western Union has been able to continue to
serve higher-risk countries such as Syria when so many firms
have not continued, have pulled out? You are alone in so many
countries. What is the difference? And why are you able to
succeed where others are not able to stay and serve? And thank
you for doing that, too.
Mr. DeVille. Thank you, Congresswoman Maloney. I appreciate
that. And you are correct. In many instances, we are the only
Western institution in these countries. Take the example of
Syria, for instance. We have zoned the country off into zone
one and zone two. We shut down the agents in zone one. We apply
a lot of due diligence controls in zone two. We don't talk
about our specific controls publicly, but limiting thresholds,
limiting the velocity.
We also look for individuals who will transmit--do a
Western Union transfer on the Turkish side and then go into
Syria and vice versa, or go from a western European country.
The bottom line is, it takes a lot of resources and a lot of
data analysis to allow us to be there.
I will say, in all my conversations with the State
Department and the Treasury Department, they are glad we are
there, because we are, within the constraints of privacy laws,
a source of financial information for them.
Mrs. Maloney. Well, congratulations, and thank you for your
service.
Mr. Paul, as you know, one of the reasons that financial
institutions have been de-risking entirely from certain
countries rather than trying to manage the risk of doing
business in that country is the lack of clarity from the
banking regulators about what they need to do to comply with
their anti-money-laundering obligations.
And what kind of regulatory action do you think would give
financial institutions sufficient clarity on their anti-money-
laundering obligations so they can continue to provide
essential financial services and humanitarian support? And
could you really--and anybody--talk about this, because this is
a problem. How could we clarify it so that they would feel
comfortable? Can you expand on it?
Mr. Paul. Thank you, Congresswoman. As you know, in recent
years, the Treasury Department has tried to issue guidance
statements, either policy guidance, in some cases blog posts,
with the expectation that financial institutions would hear
that message and be heartened that they don't have to be
infallible, they don't need to know their customer's customer,
and that the risk-based approach means taking a proportionate
approach in all of these different places, and they should take
heart and do business in some of these high-risk jurisdictions.
Unfortunately, I think it is fair to say that for the most
part, that hasn't worked. I would encourage regulators to
continue the program of outreach that they have begun in
general. But specifically, in jurisdictions that are extremely
high-risk and at the margins of the formal financial sector,
where people are getting pushed out, people might have
nonprofit organizations or correspondent banks or remittance
services may only have a single bank account and maybe under
threat of losing that account, that is where some sort of
hybrid risk-sharing approach might be more useful, where you
have regulators being willing to promulgate more concrete rules
as opposed to a more amorphous risk-based approach and actually
take on and share some of that risk by being specific about
what is expected.
Mrs. Maloney. And would anyone else like to clarify in this
area, which is a reason why many people are not continuing to
serve? Yes?
Mr. DeVille. Yes, if I may, thank you. I think we are on
the same page. More specifically, if we could have joint
guidance from all the regulators on the requirements for
banking and MSB, I think that would be helpful. The last time
there has been joint guidance was in 2005 on MSBs. That would
certainly help.
Mrs. Maloney. And when you say joint guidance, who all
would be part of this joint guidance?
Mr. DeVille. It would be--FinCEN did in 2014 guidance on
banking MSBs. Maybe that could be a starting point. But you
would have to have the OCC, the Fed, the banking regulators
involved, as well, for it to carry weight.
Mrs. Maloney. Maybe that is something we can work on
together in a bipartisan way to accomplish. It is a tremendous
challenge for our country. And we have to be concerned about
it, particularly in our own country, the money laundering
taking place. My time has expired. Thank you. Thank you for
having the hearing.
Mr. Emmer. The Chair now recognizes himself for 5 minutes.
Mr. Oppenheimer and Mr. DeVille, and I am going to put it
in more simplistic terms and give you a little bit of room to
run--and I don't care who starts--but can you give the
committee a better understanding of the current regulatory
environment for money transmitters from an industry
perspective?
Mr. DeVille. I think it sort of segues from the last
question. The current environment is, I think, difficult for
the banks in many ways because there is a lack in some ways of
what is a clear guidance on the part of what MSBs have to
comply with. So that is a problem from the banks.
Another issue is just divorcing the de-risking argument
from this, which we have been talking about, is very often at
an MSB we have to extrapolate from banking regulations, because
oftentimes there are not specific regulations for MSBs. So more
clarity there would certainly be helpful, as well.
I think probably the main point from my perspective at
Western Union is the lack of a level playing field in the MSB
industry. Mr. Cassara mentioned registered MSBs. As of
yesterday, there were 25,939 registered MSBs, but as you said,
there are countless unregistered MSBs.
And both the smaller registered MSBs and certainly the
unregistered MSBs, frankly, do not get examined. And so there
is not a level playing field. And let's forget about Western
Union, because I am biased, but there is not a level playing
field between them and the PayPal, Xoom, Moneygram, Remitly,
those like us.
Mr. Emmer. Mr. Oppenheimer, do you have anything to add?
Mr. Oppenheimer. Thank you for the question, Congressman. I
think that the environment for registered money services
businesses is one that is robust. I think that there is a lot
of work in the industry around streamlining the various
regulators we have, and I think efforts to do that are welcome.
And I think that we are regulated by both State agencies, and
then we also, obviously, register with FinCEN. We are also
under the purview of the CFPB. So the more streamlining that
can happen, partnering between regulators, the States are doing
a lot of streamlining between various State agencies I think is
welcome.
And I think that the other thing is aligning bank and non-
bank regulations. And I mentioned some of that in my written
testimony.
Mr. Emmer. By the way, Mr. Oppenheimer, has your company
ever had to deal with the issue of de-risking?
Mr. Oppenheimer. We have. When I started the company in
Boise, Idaho, when I came back from Kenya--I am from Boise
originally--I set up a bank account and filled out on the form
that I was a money transmitter. It took the bank about 6 months
to go through their internal process, but after that point, we
had raised about $750,000 in capital to get the business off
the ground. We had not processed a single transaction.
But they went through the process, saw we were an MSB, and
I got a letter in the mail saying we saw that you are a money
transmitter, we are going to be mailing the balance on your
account to the registered address. Thanks for being a customer.
And those experiences, I think, happen to a lot of money
services businesses. Thankfully, I knew about de-risking, and
so I had been working to get a redundant bank account. We
transferred it over. And now we have multiple bank accounts.
But I think the story that we experienced--there are countless
stories out there for MSBs that are not able to get bank
accounts and, unfortunately, just have to shut down.
Mr. Emmer. Mr. DeVille, same question. Has Western Union
dealt with de-risking?
Mr. DeVille. We have. As one of the bigger players, it
doesn't perhaps affect us as much, but, Mr. Cassara said
earlier that the way Western Union settles up is like a hawala.
Well, aside from our--and I know you didn't mean that--huge
compliance program, there is a difference.
We require a correspondent bank to settle between us in
Denver and our agents overseas, so that is where our de-risking
risk comes in. And then for our agents, who are not as big, of
course, they certainly face a de-risking risk, as well, if you
will.
Mr. Emmer. And I am sorry that I am picking on these two,
but I am going to stick with it, because I am interested to
know, I asked you about the regulatory environment to start
with. So now with de-risking, how much does the regulatory
environment actually impact de-risking? Mr. Oppenheimer or Mr.
DeVille or the other two witnesses?
Mr. DeVille. I will give you an example. Mr. Paul's
organization, Oxfam, is obviously a very reputable organization
and it is a customer of ours. They have 11 accounts with us. I
pulled the numbers, and we had to do 77 investigations on Oxfam
last year because of alerts.
We knew Oxfam was good, but you can't just put it aside. A
regulator is going to come and look and say, why did you not
file a SAR? So that is a perspective from the other side, as
opposed to us being de-risked, it is our view into perhaps de-
risking a good customer like Oxfam. So it is quite expensive to
have a high-risk customer, be it an MSB or a charity.
Mr. Emmer. I see my time has expired. At this point, the
Chair will recognize the gentleman from Illinois, Mr. Foster,
for 5 minutes.
Mr. Foster. Thank you, Mr. Chairman. And thank you to all
our witnesses for your testimony today.
Mr. Paul, one thing that I sort of find missing in this
discussion is the human element. As you mentioned in your
testimony, remittances are particularly important to developing
countries. For one thing, remittances have helped lift millions
out of poverty, and thereby unquestionably saved hundreds of
thousands of lives through access to medical care, et cetera,
that would not otherwise be available.
A recent study conducted by the U.N. International Fund for
Agricultural Development stated that approximately 200 million
migrants globally send more than $445 billion in 2016 as
remittances back to their families. And there is a lot of good
that is done by that money when it arrives in poor countries.
And in many cases, the majority of this money just helps
people meet their most basic needs--food, shelter, education,
medical treatment. Remittances also play a crucial role during
humanitarian emergencies, particularly in institutions where
state institutions and the private sector have unfortunately
failed.
However, despite being viewed as, by and large, law-abiding
consumers, financial institutions have increasingly moved to
de-risk the accounts perceived to be higher risk, often with a
sort of broad-brush approach that restricts many consumers from
any access to financial services.
And while effective BSA and AML compliance is important,
the remittance services, as you stated in your testimony, must
be accessible, affordable, and accountable. Can you just talk
briefly about the human impact of such wholesale and broad-
brush de-risking?
Mr. Paul. Thank you, Congressman Foster. I have had the
privilege now in my 5\1/2\ years with Oxfam to travel to
regions around the world where people have been able to benefit
from different kinds of financial inflows, foreign direct
investment, remittances, U.S. development and humanitarian
assistance. Each has its comparative advantage, but one of the
most interesting things about remittances is, it is entirely in
the hands of the recipients. It gives people an incredible
amount of agency over their lives. It is more insulated from
global economic shocks and stresses, not completely insulated,
but more insulated, and more insulated also from political
shifts than, say, foreign assistance flows.
So really, it is the sort of financial inflow that allows
people to identify their most immediate needs. And I have seen
that recently in humanitarian emergencies in three countries
facing famine--Nigeria, Somalia, and Yemen--where remittances
are essentially the firewall from destitution and death. And
also in places where remittances enable people to identify
their most promising opportunities, be it a college education
or a small business, or investment in a family member. So it
has been really amazing to see that.
Mr. Foster. Well, thank you. Because we have to bear that
in mind. My next question I guess is probably directed to Mr.
DeVille and Mr. Oppenheimer. What fraction of all of the
uncertainties and liabilities that you have to deal with have
to do with identity fraud, either at the host country end or
the home country end? And would some sort of approach where
having a high-quality authenticated digital ID on both ends of
the transaction, in exchange for some sort of legal safe
harbor, is there a useful arrangement to be made along those
lines?
Mr. DeVille. Yes, certainly. And I understand it is a
controversial issue, a national ID, but we accept--we will view
in some cases record an ID. And we do checks. Our templates are
designed--if it is a California ID and there are the wrong
number of digits, then the transaction will be rejected. But we
don't have a means other than that to determine the validity of
the ID, at least not in the U.S., so that would be enormously
helpful.
Mr. Foster. And also, you are talking about how a lot of
these are immigrants, immigrants or guest workers here, for
which presumably the political resistance to having a very
high-quality ID mandated might be a lot smaller. So this might
not be a solution for everyone, but might be a significant
factor. Especially, it must be more important online than for
someone appearing in person.
Mr. Oppenheimer. Yes, and just to reiterate that point, I
will just add on the systems we have, not only help from a
compliance perspective, but we also have similar systems in
place, machine learning, rules-based engines, that help us
prevent any sort of fraudulent attempts to go through our
platform.
Mr. Foster. But those have to do with big commercial
databases that know everything about you, that are more
difficult to use by the Federal Government.
Mr. DeVille. Ours is an IBM product, so, yes, similar.
Mr. Foster. But it is the big databases from these
companies that analyze everything produced by your cellphone
and everything else that are different.
Chairman Pearce. The gentleman's time has expired. The
Chair now recognizes the gentleman from North Carolina, Mr.
Budd, for 5 minutes.
Mr. Budd. Thank you, Mr. Chairman, and thank you to the
panel.
Mr. Cassara, a question for you. Are these payments in the
hawala networks identifiable by law enforcement and our
intelligence community on the block chain, thereby breaking the
tradition of hawala transfers, not maintaining a record of
these transactions?
Mr. Cassara. Congressman, I wish I could answer your
question about the block chain.
Mr. Budd. Sure.
Mr. Cassara. I just can't. I just don't have access to that
type of information. But one thing I am concerned about is the
fact that bitcoins and cyber currency in general in the coming
years will be used more and more to settle up between
hawaladars.
Mr. Budd. Okay. Is that valid that there is a tradition of
not maintaining a record in hawalas?
Mr. Cassara. They do maintain temporary records. I have
interviewed hawaladars. I have seen their general--they use--
again, it depends on the region of the world. Sometimes these
are on Excel spreadsheets. Sometimes they are just paper
ledgers. But yes, there are records, but it is not like a bank
that has to keep these records, say, for 5 years, et cetera, et
cetera, et cetera. They use them, then they dispose of them.
Mr. Budd. Okay, thank you. Is there anything the U.S. can
be doing differently to counter this growth without infringing
on the largely peaceful users in the network? And that is for
you or anyone on the panel. So would you say that we are on the
right track?
Mr. Cassara. Regarding hawala? No. We use this overused
expression. There is no silver bullet. This issue is so complex
and it involves, again, macroeconomics, microeconomics,
literacy rates. That is a huge issue. There are certain areas
in the world, for example Pakistan, where about 80 percent of
the people are illiterate. So they do not want to go into a
bank or a formal money services business simply because they
are intimidated. It is hard for them to fill out forms. But
they feel very comfortable talking to their local hawaladar,
their tea shop owner who doubles as the hawaladar in their
village, that type of thing.
So there is a lot of--and the devaluation of currencies and
costs, all these things factor in. I wish I could say this is
what we need to do, but there is just not that one silver
bullet. We have to do a combination of things.
Mr. Budd. Understood. Thank you. Mr. Chairman, I yield
back.
Chairman Pearce. The gentleman yields back. The Chair now
recognizes the gentleman from Massachusetts, Mr. Lynch, for 5
minutes.
Mr. Lynch. Thank you, Mr. Chairman, and thanks for holding
this hearing. I also want to thank our witnesses for your help.
Mr. Paul, with Oxfam, are we seeing a heightened use of
bitcoin or alternative currencies in areas where you are doing
most of your work?
Mr. Paul. I couldn't say. I am not aware of any.
Mr. Lynch. Okay. Let's go back. Mr. Cassara, one of the
vulnerabilities that we see on this committee in places like
Afghanistan, Pakistan, Iraq, Syria, and Yemen is that, first of
all, our folks, our State Department folks are understaffed,
number one, but oftentimes there is a mismatch in terms of, we
don't have enough FinCEN or Treasury staff onsite. We just did
a CODEL to the Gulf, and I think we have one young man who has
three or four countries there, Bahrain, Dubai, a couple of
others, that he is responsible for.
Do you think it would be helpful either to train up State
Department personnel so they would be more tuned into this
situation, or do you think it would be better--and I don't want
to put you on the spot, I know the funding issues and all--
every year, I put an amendment in to hire some more folks for
FinCEN and give them a little bit more money to do their job.
But do you think we could do a plus-up and help us in some of
these tougher areas where we are seeing some illicit finance
going on?
Mr. Cassara. Thank you, Congressman. I think one issue is
that there are not enough intelligence reporting requirements
for embassies overseas and this whole area of illicit finance.
I used to collect intelligence, and it was always helpful if
headquarters, if you will, would say, ask these questions. I
don't think that is happening enough, not in the area of
illicit finance.
I also think there is not enough knowledge and awareness of
many of our embassy staff overseas, whether it be State
Department officials or others about these areas of illicit
finance. Frankly, they are hard, and they are tasked to do
many, many, many things.
Regarding FinCEN, let's understand that FinCEN is not law
enforcement. They do not have law enforcement capabilities.
They have analysts, or they have regulators, but they are not
law enforcement. I am all in favor of re-energizing the
Department of Treasury's Office of Enforcement, which was
decimated at the creation of the Department of Homeland
Security. Customs is gone. ATF is gone. Secret Service is gone.
This is just me talking as an old-time Treasury Special Agent.
I would love to see a revitalization of Treasury law
enforcement that could get out overseas and understand these
issues. They get the money in the value transfer. That is what
they do.
Mr. Lynch. Thank you. Mr. DeVille, I know you talked about
your early efforts at FinCEN. And we actually had a role to
play in standing up some of these financial intelligence units
(FIUs) in some of these countries. And so are you involved
right now in terms of your private business with Western Union,
are you involved in Somalia at all or are you completely out of
there?
Mr. DeVille. No, Congressman, we are in Somalia. I have the
numbers here. We are in Somaliland, and it has been difficult
to find an agent in Somalia.
Mr. Lynch. We have just recently been authorized to go into
Mogadishu, but are pretty much restricted to the airport and a
few other secure sites. Do you have anything in Mogadishu?
Because I understand that the Somali nationals are actually
coming over to Kenya, but there are a couple of safe sites, and
are doing their business, remittances and all that. But that is
less than ideal.
Mr. DeVille. It is--and I am sure Mr. Paul can testify--an
area that really needs remittance support. We have been able to
find an agent with whom we are satisfied in Somaliland, but we
have not been able to find a satisfactory agent in Somalia. So
we are not there at the moment.
Mr. Lynch. Okay, great. Mr. Paul, I only have 20 seconds
left, but Somalia, any ideas, any answers about how we might
better service the people in that area, given the problems with
Al-Shabaab?
Mr. Paul. Yes, thanks for the question, Congressman. There
are about a dozen Somali MTOs that operate in the United
States. As I said, they are licensed, they are regulated, they
are regularly examined, they cooperate with law enforcement.
They have now been pushed to the very margins of the banking
system. Most of them are unbanked. A few of them have one bank
account through which they can transmit some funds.
They are very efficient and trusted by Somali-Americans and
by Somalis in the country. But they need more--they need
stronger intervention and more assistance to stay within the
banking system.
Chairman Pearce. The gentleman's time has expired.
Mr. Lynch. Thank you, Mr. Chairman.
Chairman Pearce. The gentleman's time has expired. The
Chair now recognizes the gentleman from Ohio, Mr. Davidson, for
5 minutes.
Mr. Davidson. Mr. Chairman, thank you, and thank you,
witnesses, for your testimony. I really appreciate the things I
have been able to learn from you today and from previous
discussions with some of you.
I am curious, if you go down the line--there are only two
who are in the business of moving money. U.S. origin to U.S.,
we are talking about illicit finance and we are talking
generally from a U.S. destination to a non-U.S. destination.
And other times from a non-U.S. destination into the United
States.
But it mostly flows out. And to talk about a portion of
illicit finance it seems to be much easier to get the heroin
into the country than it is to get the cash out. That is what
they are after. But in a lot of cases, the cash out goes for
other purposes.
I am curious about the cash movements between people in the
United States to people in the United States. How much of that
is happening?
Mr. DeVille. I will start. Actually, both by volume and by
principal, U.S. to U.S. is--it is the highest in both, at least
at Western Union. And U.S. to Mexico is second. And then you
can imagine U.S. to China, U.S. to India.
Mr. Davidson. Right. And so do you have a way to track U.S.
citizen to U.S. citizen? Or do you track U.S. person, non-U.S.
citizen to--
Mr. DeVille. We certainly track the transactions, just as
we would if they were cross-border transactions, we track them
in the United States. As I mentioned earlier, there are ID
thresholds at which review--we are actually stricter than what
the law requires. And then we also have an IBM product called
Galactic ID, which affixes a number to every customer, and it
has these incredibly complex algorithms. But if a customer uses
a false ID but the same phone number, it would unite those
together. So we try to get--it gives us a unique identifier to
every customer, not perfect, but it does.
Mr. Davidson. Thank you. Does your system allow you to
discern and differentiate between U.S. citizens and non-U.S.
citizens?
Mr. DeVille. No, there is no ability to do that, short of
requesting a passport. But most--
Mr. Davidson. So you create some form of identity, unique
identifier to the citizen. I guess my question is, do you
assume that the risk posed by a U.S. citizen is equal to the
risk posed by a non-U.S. citizen?
Mr. DeVille. In the risk calculation, there is no
differentiation made. And of course, when you think of non-U.S.
citizens, I know there are certainly illegal aliens here, but
then there are also foreigners who are here under visa. So
there is no way to distinguish those in terms of risk.
Mr. Davidson. And any other products you are using?
Mr. Oppenheimer. The only other thing I would add, as part
of the discussion around domestic transfers, we do all
international money transmission, but it is really important to
understand the benefit of having a digital platform, because
when you take out the brick-and-mortar component, customers
have already gone through that KYC system to be part of the
financial system, and then there is a lot of innovation that is
happening to be able to offer customers better solutions.
So the more that I think Congress can encourage innovation
and getting people into the formal banking system, the less
risky it is.
Mr. Davidson. I guess I am curious about the risk--at the
most basic level, do U.S. citizens have an increased confidence
of privacy? Citizenship is differentiated in that respect. In
terms of risk, if you have somebody who is known to already be
illegal, we can say that their respect for the law is at least
different from the get-go. And it seems that your current
products don't differentiate. I guess the next question I have
relates to international.
And so, Mr. Cassara, Mr. Paul, you guys may be able to
comment. A lot of the money transfers that are happening
outside the United States are moving through mobile telephone
networks, particularly in Africa. U.S. persons aren't
necessarily involved in that, so some of the current provisions
that apply here don't. What best practices are you aware of
that are going on there that give us some insight into the
illicit transfer of money there?
Mr. Paul. Thanks for the question, Congressman. Mobile
payment systems have been more or less useful in different
jurisdictions. And a lot of that has to do with the
telecommunications regulation of the jurisdiction and the
interoperability of the networks within the jurisdictions. So
Mr. Oppenheimer can probably talk a bit more about M-Pesa,
which has been increasingly valuable and useful in Kenya.
In Somalia, for example, I have seen a couple of different
mobile payout systems, all of which incredibly useful for
identifying customers, all of which are incredibly useful for
efficient payouts, but aren't interoperable with one another,
so they are of limited value.
Mr. Davidson. Thanks. My time has expired. I guess my last
question would be, because it is somewhat sensitive, if you who
are willing would respond to any gaps that you see in our
current system, whether it is inside the United States or with
our ability to track outside the United States transfers, that
would be terrific. I would much appreciate it.
Mr. Chairman, I yield back the time I no longer have.
Mr. Davidson. The gentleman's time has expired. The Chair
now recognizes the gentlelady from Utah, Mrs. Love.
Mrs. Love. Thank you all for being here today. I know we
have talked a lot about terrorist financing, which is
incredibly important. But I would like to focus on a different
aspect of illicit financing, namely activities pertaining to
human and sex trafficking.
Could you tell me a little bit about the work that Western
Union is doing in regards to sex trafficking? In other words,
we had somebody from your office come in and talk to us a
little bit about how transactions or certain things are set up
that raise red flags when it comes to those specific issues.
Would you mind telling me a little bit about that?
Mr. DeVille. Certainly, Congresswoman Love. And it is one
of the things that we take the most seriously. In August of
2013, Western Union partnered with DHS on the Project Blue
campaign, which is designed to combat human trafficking. I know
you are familiar with it.
We have also, specifically to your question, developed
transaction controls that are designed specifically to detect
transactions that are possibly related to exploitation of
children. I'll give you an example. Again, I will be vague,
because we don't like to reveal our--
Mrs. Love. Right, you don't want to let it out.
Mr. DeVille. --controls, because right away, the bad guys
find out.
Mrs. Love. I get it.
Mr. DeVille. But these RTRA rules I mentioned, the up-front
rules in my opening statement, there are three that come to
mind in the Philippines. A payee is stopped from receiving more
than a certain number, and we have a fixed number of
transactions in a rolling period. I won't say the period of
time.
We also stop the transaction if a payee is receiving more
than a certain number of transactions from senders in a rolling
period. And then we also do it by dollar amount and transaction
amount.
And there is one example that comes to mind in the
Philippines, as well, where information we gave--it wasn't
solely us, but it was also two other banks--actually led to the
local authorities kicking down a door and rescuing children. It
was a photo shop where they were being held, and then people
were paying online to view the children, as you can imagine. So
that was particularly gratifying. And there was some media on
it, as well.
Mrs. Love. Is there a way that you interact with law
enforcement that is different in the realm of human trafficking
than in regards to other, for instance, terrorist activities?
When you are reacting to law enforcement, do you see specific
behaviors and react with the local law enforcement a little
differently?
Mr. DeVille. We established something--I will briefly
describe--it is called our rapid response team within our
financial intelligence unit. And within--there are really two
categories to which it will respond. One is exactly the two you
mentioned, the terrorist attack, and the other is child
trafficking, human trafficking.
And as soon as a suspect is identified, within 48 hours the
rapid response team will have scrubbed all the transactions in
the Western Union system across all our platforms to look for
connections. And we also take it out another layer, as well.
And those SARs get priority, and we also have a formalized
procedure where we will pick up the phone and call law
enforcement. DHS is usually the agency involved in child
trafficking, and other agencies in terrorist finance. And we
will call them to alert them to the information we have found.
We don't wait for a subpoena.
Mrs. Love. Okay. Do you think that there is anything that
we could be doing or doing better to disrupt and stop the money
flow that is surrounded around human trafficking?
Mr. DeVille. The best thing, Congresswoman, would be--it is
similar to on the OFAC side with terrorist names--if law
enforcement can get us names and identifying information, we
will scan all our transactions. We don't wait for that. It is
just like with terrorist financing. You stop and think about
it. We certainly have the lists from the government against
which we screen and various governments around the world, but
we are also--and we accept this burden--we are also expected to
find things that law enforcement cannot based upon transaction
analysis.
Mrs. Love. Right, and you are missing parts of the puzzle,
also.
Mr. DeVille. Yes, exactly.
Mrs. Love. Yes.
Mr. DeVille. Even things they can't find. But we readily
accept that responsibility.
Mrs. Love. Mr. Oppenheimer, I know that Remitly has been
doing some work also surrounding that. Can you tell me just
briefly if there are any ways or any type of set-ups or
transactions that you realize have popped up that put up a red
flag for you, also?
Mr. Oppenheimer. Yes, I think that we have built our system
from day 1 to detect--I am really happy you brought up this
issue--all sorts of nefarious activity. And similarly, we try
to track that proactively, work with law enforcement if we see
anything, such that we are a partner in being part of the
solution.
Mrs. Love. Okay, thank you so much for being here. At this
time, I yield back. Thank you.
Chairman Pearce. The gentlelady's time has expired. The
Chair now recognizes the gentleman from Washington State, Mr.
Heck, for 5 minutes.
Mr. Heck. Thank you, Mr. Chairman. So I was sitting here
thinking about somebody in my hometown of Olympia, Washington,
who goes down to the credit union for a remittance, which they
may be doing business with Remitly, who has a correspondent
bank relationship that then sends it overseas where it is maybe
met by another correspondent bank before it is transferred to a
bank. And I just wondered in the spirit I think it was of Mr.
Oppenheimer's streamlining observation, what is the particular
value add of requiring multiple SARs for the same transaction?
Elemental question, but I don't really understand, why do
we need--in that instance, we would have three domestically.
What is it that we really get out of that, that helps us
achieve what we are trying to do here? Anybody?
Mr. DeVille. Thank you, Congressman. I assume you mean
multiple SARs filed by multiple financial institutions?
Mr. Heck. Correct.
Mr. DeVille. This is something I have talked to my
colleagues about. And there are duplicative SARs certainly
being filed on the same individuals. Now, law enforcement would
say--and there is certainly some validity to it--that you and
the financial institutions don't see the whole picture. There
might be a small dollar amount SAR at Western Union, a small
one at Citi, a small one at PayPal, but combined together to
law enforcement, they do, in fact, have value.
The other thing is that under 314(b), we could share that
information, and that is a value of 314(b). So to answer your
question, often there probably is no value in duplicative SARs,
but there are instances where they are needles in a haystack
that law enforcement can bring together.
Mr. Heck. But is it not possible for that data to be rolled
up into the single SARs by one of the institution when there
are multiple financial institutions involved?
Mr. DeVille. There is a consortium that we have recently
been invited to that tries to do that very thing, and it has
gained permission from FinCEN for a pilot program. Another
example is--somewhat related is, we have--are about to start a
terminated agent database, where we will--with FTC and FinCEN
authority share when a Western Union agent is terminated by
us--they could go across the street and become a Moneygram
agent or vice versa. We have secured permission to have a
database that we can query when signing up a new agent to make
sure it is not one that Moneygram has recently suspended. And
we thank FinCEN and the FTC for allowing that.
Mr. Heck. So are there other countries that do things
better than we do that strike, in Mr. Perlmutter's words, the
appropriate balance between the issues of national security and
counterterrorism and efficiency? Do we have anything to learn
from any other countries' practices in this regard?
Mr. DeVille. Honestly, I would say that the information
sharing, particularly in terrorist finance in Europe, is far
less than in the U.S. We really see duplicative SARs. After the
Paris attacks, for instance, and we have spoken about this
publicly, so it is okay. And we diagramed it where we receive
from a dozen different entities in Europe a duplicative request
where it was clear to us they were not talking to each other.
It is much harder to de-conflict in those situations. And
you can file a voluntary SAR, for instance, in the United
States. In many countries, you cannot. So certainly improvement
to be made here, but I find it even more problematic in Europe.
Mr. Heck. Mr. Oppenheimer, you said earlier about
considering raising the threshold. I have to tell you, it has
been my observation that once a threshold is enacted, it is the
most stubborn thing in the world. I think of CTRs 1972, the
index for inflation, holy cow. I also think about SIFIs. And
there are a considerable number of voices, myself included, who
would argue that what we ought to be doing in the area of SIFIs
is looking more qualitatively and not quantitatively, i.e.,
what is the risky behavior you are engaged in? Is that at all a
parallel here? Is it--should we have thresholds at all? Or is
this about qualitative risk assessment?
Mr. Oppenheimer. I appreciate the question, and I think
that the important thing with things like the travel rule, as
you mentioned, it has not, I think, with the travel rule been
updated since 1995. And so going back and looking at what those
thresholds are, in my written testimony, I talk about
decreasing the threshold to $1,000. We have to collect right
now SSN and passport for any transaction over $3,000,
decreasing that to $1,000, but then actually doing KYC on those
customers, and doing a more in-depth identification process. I
think that certainly those rules can be revisited, which would
be a good thing for national security.
Mr. Heck. Thank you. I yield back, and I appreciate the
opportunity to participate, Mr. Chairman.
Chairman Pearce. The gentleman's time has expired. I would
like to thank each one of you for your testimony today.
The Chair notes that some Members may have additional
questions for this panel, 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 these witnesses and to place their 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.
Seeing no other participants, this hearing is adjourned.
Thank you.
[Whereupon, at 4:20 p.m., the hearing was adjourned.]
A P P E N D I X
July 18, 2017
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
[all]