[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
                           
                           
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                 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.]

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