[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
FINANCIAL INTELLIGENCE AND ENFORCEMENT:
TREASURY'S ROLE IN SAFEGUARDING
THE AMERICAN FINANCIAL SYSTEM
=======================================================================
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
__________
NOVEMBER 8, 2017
__________
Printed for the use of the Committee on Financial Services
Serial No. 115-58
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__________
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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
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Page
Hearing held on:
November 8, 2017............................................. 1
Appendix:
November 8, 2017............................................. 39
WITNESSES
Wednesday, November 8, 2017
Mandelker, Hon. Sigal, Under Secretary, Terrorism and Financial
Intelligence, U.S. Department of the Treasury.................. 5
APPENDIX
Prepared statements:
Mandelker, Hon. Sigal........................................ 40
Additional Material Submitted for the Record
Mandelker, Hon. Sigal:
Written responses to questions for the record submitted by
Representatives Pittenger, Lynch, and Tipton............... 48
FINANCIAL INTELLIGENCE AND ENFORCEMENT: TREASURY'S
ROLE IN SAFEGUARDING THE AMERICAN FINANCIAL SYSTEM
----------
Wednesday, November 8, 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 p.m., in
room 2128, Rayburn House Office Building, Hon. Stevan Pearce
[chairman of the subcommittee] presiding.
Present: Representatives Pearce, Pittenger, Rothfus,
Tipton, Williams, Poliquin, Love, Hill, Emmer, Zeldin,
Davidson, Budd, Kustoff, Perlmutter, Maloney, Himes, Foster,
Kildee, Delaney, Sinema, Vargas, Gottheimer, Kihuen, Lynch, and
Waters.
Also present: Representative Royce
Chairman Pearce. The subcommittee will come to order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time.
Members of the full committee who are not members of the
Subcommittee on Terrorism and Illicit Finance may participate
in today's hearing.
All members will have 5 legislative days within which to
submit extraneous materials to the Chair for inclusion in the
record.
This hearing is entitled ``Financial Intelligence and
Enforcement: Treasury's Role in Safeguarding the American
Financial System.''
I now recognize myself for 5 minutes to give an opening
statement.
First of all, I want to thank everyone for joining us.
Today's hearing will examine Treasury's vital role in
safeguarding the financial system.
Since its founding in 2004, the Office of Terrorism and
Financial Intelligence has been instrumental in detecting
terrorist financing, money laundering, drug cartel activity,
and other illicit movements in our financial system.
The Office of Terrorism and Financial Intelligence
comprises several bureaus, including the Office of Terrorist
Financing and Financial Crime, the Office of Intelligence and
Analysis, the Office of Foreign Asset Control, the Financial
Crimes Enforcement Network, and the Treasury Executive Office
for Asset Forfeiture. Collectively, these units are tasked with
the collection of financial intelligence, enforcement of the
Bank Secrecy Act, administering economic and trade sanctions,
policy development, and receipt of nontax forfeitures.
Recently, both Treasury Secretary Mnuchin and Under
Secretary Mandelker have dedicated to improving the effort to
stop terrorist finance. In that vein, Treasury announced in May
that the United States and Saudi Arabia would establish and co-
chair the Terrorist Financing Targeting Center. This is a
collaborative effort to confront new and evolving threats from
terrorist financing.
As we acknowledge the fluid environment of illicit finance
cooperation between policymakers, law enforcement, intelligence
agencies, and financial institutions as necessary to detect,
identify, and disrupt the funding of criminals and their
operations, it is estimated that criminals in the United States
alone generate some $300 billion in illicit proceeds that might
involve money laundering, while, globally, the volume of money
laundering could be as much as $1.6 trillion annually.
I am encouraged to hear that Treasury is reviewing the Bank
Secrecy Act and wants to work with Congress as we contemplate
ways to modernize the BSA that will increase its effectiveness,
strengthen the safety of the financial system, and reduce
burdens on financial institutions.
In today's hearing, I hope to discuss how we are currently
combating terrorism and illicit finance, including what tools
and partnerships are working well in the effort to detect and
disrupt criminal actors. I would also appreciate any comments
about deficiencies in our system that may impede our fight
against terrorist and criminal finance and what can be done to
strengthen Treasury's capabilities.
I would like to thank our witness, the Honorable Sigal
Mandelker, for being here today, and I look forward to her
expert testimony on these very important issues.
I now recognize the gentleman from Colorado, Mr.
Perlmutter, for 5 minutes for an opening statement.
Mr. Perlmutter. Thanks, Mr. Chair.
And thank you, Under Secretary Mandelker, for being here
today to discuss this topic.
One of the most effective tools we have to combat both
international and domestic threats is to cutoff the funding of
bad actors. And Treasury's Office of Terrorism and Financial
Intelligence is at the heart of that mission. From
administering sanctions on North Korea, Russia, Iran, and other
adversaries, to combating terrorist financing and stopping
money laundering, TFI has its hands full.
Additionally, we face an increasingly sophisticated global
financial system. The rise of cryptocurrencies, increased cyber
threats, and reduced transparency from shell companies has
added an additional layer of complexity to TFI's mission.
As financial technology and practices have changed, our
policies and security also must adapt to strengthen our
financial system and keep America safe. Specifically, I look
forward to discussing anti-money-laundering modernization,
improving threat detection, and making the true ownership of
shell companies transparent to law enforcement officials.
And as the Chairman said, this committee is looking at ways
to make sure that our secrecy laws, our ``know your customer''
laws are effective for those in the Treasury Department as well
as law enforcement. We want to make sure that we have a safe
and secure country--and finance is at the heart of that--all
the while protecting the privacy of our citizens.
So it is a big chore that you have, Madam Secretary, and we
look forward to hearing your testimony today.
Chairman Pearce. Today, we welcome the testimony of Sigal
Mandelker--oh. I would recognize the gentleman from North
Carolina, Mr. Pittenger, for 2 minutes.
Mr. Pittenger. Thank you, Mr. Chairman, and thank you,
Ranking Member, for calling this important hearing.
I also thank you, Under Secretary Sigal Mandelker, for
joining us today. As well, I would like to thank you for your
participation in December at the Parliamentary Intelligence-
Security Forum. You were very important, and we have about 100
delegates from 43 countries to date. And I also appreciate you
sending a staff member down to Buenos Aires for the forum there
in November.
Madam Secretary, I want to speak with you about concerns
that I have, referencing the classified memorandum of
understanding (MOU) between the U.S. and Qatar on terror
financing that I reviewed recently at the State Department.
Why this document is classified at this point is unclear to
me. We are having a difficult time in the State making the MOU
available for Members to review at a convenient time at the
SCIF on Capitol Hill. There appears to be nothing sensitive
that I have read in it that would justify highly classified
information, as there is very little there in terms of
specifics.
But it did strike me as limited in a number of key ways. As
you know, it is the specifics that we are concerned about in
Congress as we look to establish our own congressional
oversight. We look at the comments made, as well, by Secretary
Tillerson in July, when he signed the MOU, and Secretary
Mnuchin's comments about the MOU just a few days ago, there
appears to be a number of references about the agreement but,
again, very few specifics.
Here are some specifics that we do know: We know that Qatar
has supported Hamas. We know Qatar has harbored actors that
finance terrorists, like Saad al-Kaabi, who in 2015 was
designated by the U.S. Treasury as a financial supporter of al-
Qaeda and al-Nusra Front. We know Qatar finances the Muslim
Brotherhood around the Middle East and has replaced Saudi
Arabia as the chief financier of radical Islamic teachings.
Qatar has housed leaders from Hamas, such as Khaled Mashal.
They have also housed prominent members of the Muslim
Brotherhood, like Sheikh al-Qaradawi, and, as well, the
Taliban. We know that Qatar has allowed its country to be a
safe haven for known terrorists. We know Qatar has helped
finance terrorists by paying ransom for kidnappings. Qatar has,
as well, supported al-Qaeda in Syria, a comment that the Emir
made to me directly.
During this questioning time, we will explore this further.
However, I do realize that one of the best avenues of defeating
our enemies is putting a stop to the flow of money that is used
to fund the terrorism.
The Treasury Department's Office of Terrorism and Financial
Intelligence is on the front lines of the war on terror, and I
commend you for your work to ensure that terrorist enterprises
cannot reap the benefits of normal banking operations and other
matters that are essential for them to perform. Congress must,
as well, provide the necessary support for these efforts.
Mr. Chairman, I look forward to today's important hearing,
and I yield back.
Chairman Pearce. The gentleman's time has expired.
The Chair now recognizes the gentlelady from California,
the Ranking Member of the full committee.
Ms. Waters. Thank you very much, Mr. Chairman.
And I would like to welcome Under Secretary Mandelker.
Today's hearing provides an opportunity to examine not only
the roles and responsibilities of the Office of Terrorism and
Financial Intelligence, which administers targeted financial
sanctions and has a critical mandate for disrupting illicit
finance, but also to discuss your priorities as the office's
newly confirmed Under Secretary.
In a July hearing where Secretary Mnuchin testified, I
tried to get clarity on a letter that I had sent to him on the
actions the Financial Crimes Enforcement Network takes upon
receipt of information that indicates potential criminal
activity and the procedures in place to analyze and disseminate
such information to the appropriate law enforcement
authorities. He was not forthcoming.
So, given your role in overseeing FinCEN's activities, I am
hoping you can shed light on whether proactively notifying law
enforcement about potential violations of law is a priority for
you, including and in particular when such violations may
relate to the President, members of his immediate family, his
Cabinet, and Russian oligarchs subject to U.S. sanctions.
Given the latest revelations about Commerce Secretary
Wilbur Ross' business entanglements with sanctioned Russian
persons, I do hope you are paying serious attention to this
matter.
I would also briefly like to touch on anti-money-laundering
reform and the importance of closing a number of gaping
loopholes that I am hopeful this committee can address
legislatively and that you would also support.
In particular, I hope that we can apply minimum anti-money-
laundering requirements to persons involved in real estate
settlements and closings; No. 2, require beneficial ownership
disclosures for anonymous shell companies; No. 3, help mitigate
wholesale de-risking and its adverse consequences, particularly
for vulnerable populations.
With that, I look forward to your testimony, and I will
yield back the balance of my time.
Chairman Pearce. The gentlelady yields back.
Today, we welcome the testimony of Sigal Mandelker. Sigal
is the Under Secretary of the Treasury Department's Office of
Terrorism and Financial Intelligence. She has held this
critically important position for just about 4 months, after
receiving Senate confirmation on June 21.
Ms. Mandelker was previously a partner at Proskauer Rose,
LLP, in New York. She also served in senior law enforcement and
national security positions at the Department of Justice and
Homeland Security. As Deputy Assistant Attorney General in the
Criminal Division of DOJ, Sigal oversaw four major sections and
a number of significant cross-border prosecutions. Prior to
that position, she served as counselor to the Secretary of
Homeland Security. She also previously worked on
counterterrorism and national security issues as counsel to the
Deputy Attorney General.
Sigal also served as an assistant U.S. attorney in the U.S.
Attorney's Office for the Southern District of New York. She
was a law clerk to Supreme Court Justice Clarence Thomas and to
the Honorable Edith H. Jones, U.S. Court of Appeals for the
Fifth Circuit.
Sigal received her law degree from the University of
Pennsylvania Law School and her bachelor's from the University
of Michigan.
Ms. Mandelker, you will now be recognized for 5 minutes to
give an oral presentation of your testimony. Without objection,
your written statement will be made part of the record.
STATEMENT OF THE HONORABLE SIGAL MANDELKER
Ms. Mandelker. Thank you, Chairman Pearce, Vice Chairman
Pittenger, Ranking Member Perlmutter, and distinguished members
of the committee.
As the Under Secretary for Treasury's Office of Terrorism
and Financial Intelligence, I am honored to appear before you
in my first appearance formally before this committee today to
discuss the tremendous work that TFI is doing to safeguard the
U.S. and international financial systems.
The offices I lead are tasked with using financial
intelligence expertise and our unique authorities to combat
terrorist financing, money laundering, weapons proliferators,
rogue regimes, human rights abusers, and other national
security threats to the United States and our allies. We work
around the clock to deny illicit actors access to the U.S. and
international financial systems, disrupt their revenue streams,
and degrade their capabilities.
Since the early days of TFI, when Congress and the
Executive Branch had the tremendous vision to put OFAC (Office
of Foreign Assets Control), FinCEN (Financial Crimes
Enforcement Network), OIA, and TFFC under one roof, our role in
protecting our national security has grown dramatically. TFI's
economic authorities have become one of this administration's
top nonkinetic tools of choice.
In the 4 months since I was confirmed, we have been
deploying our economic authorities at a rapid pace to address
some of our greatest national security threats. In addition to
cutting off funding for terrorist groups, our authorities and
actions proactively implement U.S. policy towards Iran, North
Korea, Venezuela, Russia, human rights, and in many other
areas.
In order to be even more effective in meeting these
threats, we are ensuring that our components are properly
integrated, working closely together in deploying the tools and
authorities best suited to each challenge.
As part of this approach, we are conducting intelligence-
driven action using TFI's tools in a complementary, strategic
fashion, assessing the outcomes of actions and adjusting our
strategy for maximum impact, while collaborating and engaging
with our partners in the interagency and, of course, working
closely with the Congress.
TFI has adopted this integrated approach most notably in
countering one of our highest-priority threats: North Korea.
Our strategy is focused on attacking North Korea's key
financial vulnerabilities. All components of my office are
working in concert toward this objective.
Underpinning these efforts is our ability to rely on
intelligence. And so Treasury's Office of Intelligence and
Analysis provides expert analysis of North Korea's financial
networks, identifying key nodes to target for disruptive
action. OFAC investigates and targets individuals and entities
that support North Korea's weapons of mass destruction and
ballistic missile programs. This year, OFAC designated well
over 70 individuals and entities related to North Korea as part
of our concerted effort to pressure the regime.
Just last week, FinCEN finalized the USA PATRIOT Act
section 311 designation of Bank of Dandong, a Chinese bank
facilitating North Korean money laundering and sanctions
evasion, and FinCEN also issued an advisory to financial
institutions regarding North Korea's attempts to use front
companies to launder money and evade sanctions.
The Office of Terrorist Financing and Financial Crimes
leads our international engagement efforts to work with partner
countries, thereby hardening the defenses worldwide and
depriving North Korea of alternative financial avenues.
The private sector also plays an essential role in
identifying and disrupting illicit North Korean financial
activity. And information provided by financial institutions
has been critical to our efforts to map out and disrupt the
illicit financial networks upon which North Korea relies.
By integrating our authorities across the components, we
are seeing real impact. As just one example, on August 22, we
designated three Chinese coal companies collectively
responsible for importing nearly half-a-billion dollars' worth
of North Korean coal between 2013 and 2016. Likewise, our 311-
determination advisories and outreach and guidance have put the
world on notice of the risks of doing business with North
Korea.
We have employed this integrated approach to address other
pressing national security threats as well, including in our
efforts to counter Iran's malign behavior and the IRGC's
(Islamic Revolutionary Guard Corps) continued support for
terrorism, as well as Nicolas Maduro's assault on democracy and
human rights in Venezuela.
I want to recognize the tremendous career professionals of
TFI who work tirelessly to protect our national security and
our financial system. The TFI team, both here in the United
States and overseas, is constantly striving to protect the
United States and its allies and partners.
I am pleased also to announce today that we are adding a
valuable new member of our team, the new Director of FinCEN,
Ken Blanco. Ken is joining us from the Department of Justice,
where he has been serving as the Acting Assistant Attorney
General for the Criminal Division.
I also want to emphasize the importance we place on working
with all of you in Congress to combat the threats our Nation
faces as well as ensuring the continued success of TFI. I look
forward to working with this committee and other Members of
Congress as we seek to fulfill our shared responsibility to
keep Americans safe and secure.
And I look forward to your questions.
[The prepared statement of Ms. Mandelker can be found on
page 40 of the Appendix]
Chairman Pearce. Thanks again for being here today, and
thank you for that statement.
The Chair now recognizes himself for 5 minutes for
questions.
So, last May, FinCEN finalized regulations on the CDD, the
customer due diligence. And then there were later statements
that listed that there might be high-risk clients that require
collection of beneficial ownership information.
Have you got anything more on the high-risk clients and how
they would be recognized or identified?
Ms. Mandelker. Thank you for that question, Mr. Chairman.
We are and continue to be working on additional guidance
that we can provide to financial institutions. We recognize
that there continue to be questions about implementation of the
CDD rule, and I anticipate that we will be able to issue those
in short order.
Chairman Pearce. OK.
The Terrorist Financing Targeting Center (TFTC) that the
President helped Saudi Arabia cut the ribbon on earlier this
year, members of the countries of the Gulf Cooperation Council,
all of us joining together to fight terrorists, that is a
significant, I think, undertaking for the entire world.
Do you have any of the plans on that? Can you talk a little
bit more about what is actually happening there and what it
means to the rest of the world?
Ms. Mandelker. Yes. I would be happy to. Secretary Mnuchin
and I were actually in the region 2 weeks ago, where we were
there for a different ribbon cutting, which was of the actual
facility where the TFTC is going to be housed in Riyadh. We not
only visited Saudi Arabia, we also went to other countries in
the region. And a big focus of our trip was really on talking
about what our next plans are for the TFTC.
We believe that this could be and it should be a truly
historic development in our efforts to counter terrorist
financing. And as part of that historic development, we were
very pleased, for the first time ever, to have issued joint
designations with each of the countries in the GCC (Gulf
Cooperation Council) during our trip against ISIS and AQAP (Al-
Qaeda in the Arabian Peninsula) members who are facilitating
financing of terrorism in Yemen.
So we have a lot of work to do ahead of us. We are going to
be focused, among other areas, on information-sharing with our
key partners, on issuing additional joint designations and
actions. And we also have a lot of work to do in the region on
capacity-building, which I think is, frankly, very welcome from
our partner countries.
So we are going to be doing the work that we need to do to
elevate their domestic designation regimes and, again, to use
this as a historic, groundbreaking effort in our fight against
terrorist financing.
Chairman Pearce. So I guess that it is fair to say that we
are developing significant new directions for partners and
friends in that region, relationships that might be somewhat
delicate, relationships that need to be built over a period of
time. Is that an accurate assessment, that we are finding
cooperation from countries that maybe before were sitting on
the sidelines, especially regarding ISIS and financial
terrorist financing?
Ms. Mandelker. Absolutely. We are seeing a real commitment
to working in partnership with us in connection not only with
the center but also on our bilateral relationships there. I
have had a number of meetings in the last 4 months with my
counterparts here in the United States and in the region. And
then, when we were in the region, we enhanced those
relationships and discussed the details of what our
expectations are going to be to make this truly a successful
effort.
Chairman Pearce. And my personal opinion has always been
that we will win the fight against radical Islam when the
moderate Arab nations begin to buy in and when they begin to
take the lead. We will be there as a support mechanism, but
when we can take leadership from them, it is going to be far
more effective for the world, it will be far more effective for
that region. So please keep us advised of any ways that we can
help and cooperate in that.
Now, one of the things--we have had a tremendous number of
briefings and just sit-down meetings with members of the
subcommittee, and one of the things that is really coming to
light is that tremendous capabilities exist in the form of data
analytics. Do you all see your agencies working more in that
regard? And are you going to use off-the-shelf things or try to
create it internally?
Ms. Mandelker. We already have internal data analytic
capabilities which have been very useful. We are also exploring
other ways in which we can work in the FinTech/RegTech space to
enhance our capabilities. Look, we need to stay on top of the
technology, we need to be leaders in the technology, and that
is something that we are very committed to doing.
Chairman Pearce. Well, thank you very much.
My time has expired. I now recognize the gentleman from
Colorado, Mr. Perlmutter, for 5 minutes.
Mr. Perlmutter. Thank you, Mr. Chair.
Is it ``Mandelker''? How do you say it?
Ms. Mandelker. Perfect. Yes.
Mr. Perlmutter. OK. Good.
A couple questions.
So you ticked off a list of countries against which we have
sanctions: North Korea, Iran, Venezuela. Let's talk about
Russia for just a second.
You laid out some of the successes we see in interdiction
and other things against North Korea. We are really trying to
constrain the money going there.
How have our sanctions worked, from your point of view,
against Russia? And if you could name a couple of successes and
places where you think there are some problems.
Ms. Mandelker. So we have been very steady in our sanctions
efforts against Russia. As you may know, in June, we designated
an entire tranche of entities and individuals in connection
with Russia. We have also been working steadily to implement
the requirements of CAATSA, the bill that you passed in August.
And we have been issuing significant guidance which has
continued to enforce and tighten our sanction regimes against
Russia.
Look, this is going to be an effort that we are going to
have to stay steady in implementing and in enforcing, and it is
one that we are very much committed to doing.
Mr. Perlmutter. OK.
You brought up Saudi Arabia. And there have been a lot of
changes in Saudi Arabia in the last 2 weeks, maybe since you
were in Saudi Arabia or maybe when you were there. Obviously,
some efforts to rout out corruption among some of their
leadership and the ruling family.
In the structure that you are putting together in Saudi
Arabia, has this had any effect on you so far in the last
couple weeks? Have you seen it?
Ms. Mandelker. No, we haven't seen any changes in that
regard. We have partners that we have worked with who are very
much in place in Saudi Arabia and will continue to work closely
with them.
Mr. Perlmutter. You talked about--you have a new director
in place over at TFI. Obviously, we all think that the task you
have ahead of you, in both monitoring, enforcing sanctions,
watching for illegal activity, financial activity, it is a big
task and it is an important task. But what I am concerned
about, over time--in fiscal year 2017, the office had 421
employees with a budget of $123 million. However, under the
current budget proposal from the President, you reduce that to
386 with a budget that is dropped by about 10 million bucks.
How are you going to do your work?
Ms. Mandelker. Well, Congressman, I think, actually, what
happened in the budget was that the President's budget kept the
numbers consistent with the Obama Administration's budget. The
Congress then provided us with additional resources in the
Fiscal Year 2017 omnibus budget. And, of course, we have also
been vocal in asking for additional resources to help us fund
the Terrorist Financing Targeting Center.
So what I am focused on doing is making sure that we are
maximizing the resources that we have, that we are deploying
all of our authorities in an aggressive and integrated way. And
we have been doing so at a very rapid pace.
Mr. Perlmutter. OK.
Last question. The Chairman brought up data analytics. One
of the things that all of us are facing, but certainly TFI and
FinCEN, is this development of new types of currencies--so
cryptocurrencies and cyber, sort of, warfare and cyber attacks.
How does TFI view these new currencies? What is it that you
are doing to try to understand them?
Ms. Mandelker. So we are actually doing a lot in the
virtual-currency space. As you may know, a month or two ago, we
issued an enforcement action against a virtual-currency scheme
that was being used by illicit actors overseas, and, in
connection with that enforcement action, we levied an over-
$100-million fine.
We are also the leaders, really, in the world on regulating
virtual currency. We do think that it is very concerning that
these kinds of cryptocurrencies can be used for illicit
activity. It is something I am actually very familiar with from
my time at the Justice Department, where I supervised the
prosecution of the--I think it was one of the first of these
kinds of entities. It was called e-gold.
And so we have to stay very vigilant in this regard. We
have to be ahead of the technology. We have to watch the use of
these cryptocurrencies by illicit actors. And we are very
committed to doing so.
We are also urging other countries to take on this problem.
We are only going to be successful if we have regulatory
regimes really all over the world that ensure that the right
AML efforts are put toward preventing illicit actors from
abusing these kinds of currencies.
Mr. Perlmutter. OK. 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 very much.
Again, thank you for your great work. To the issue of your
budgeting, I think we get enormous bang for the buck for what
you do--
Ms. Mandelker. Thank you.
Mr. Pittenger. --and I really commend you. And you are the
right person doing the right job.
As it relates to the MOU and to Qatar, I think our interest
is really an oversight. As Ronald Reagan would say, trust but
verify.
But how will we be able to assure that we have been able to
cut off support, for example, to government-sponsored or
government-affiliated, government-sanctioned support for, let's
say, Hamas and other terrorist groups in the region?
Ms. Mandelker. Let me just start by saying thank you for
the compliment, but, really, I have an army of people--
Mr. Pittenger. I know.
Ms. Mandelker. --in back of me who are doing tremendous
work around the clock in TFI. So I--
Mr. Pittenger. They are led well.
Ms. Mandelker. Well, thank you.
So, in terms of Qatar, which I know is a specific area of
concern for you, we have been working in my short time in TFI
but really historically with Qatar on this terrorist financing
problem, just as we have worked with all countries in that
region. It has been a big area of focus for us.
And so I know you--that mention of the MOU. We have a
number of lines of effort under the MOU that we are working
on--
Mr. Pittenger. I think I would be interested to know, kind
of, the benchmarks that we have there, the metrics, what the
timetable would be in terms of their performance and if they
are doing what we have asked them to do. How will Congress know
that?
Ms. Mandelker. So I would be happy to come in and give you
a briefing on our efforts with respect to Qatar.
What I can tell you is that this has to be a long-term
relationship. So we have gotten a lot of--I think we have made
some progress with Qatar. Secretary Mnuchin mentioned it
recently. We are working on a number of lines of effort with
them. And we are seeing a lot of willingness on their part to
work closely in connection with us on terrorist financing in
various different ways. But this has to be a concerted and
long-term effort, as it does with every country, frankly, in
the region.
Mr. Pittenger. Yes, ma'am. I had the Ambassador in this
morning, which we have already met several times. And I think
he understands the issues and our concerns. We had a very
amenable discussion.
I think we want to find out what are the repercussions if
Qatar continues to support Hamas or if they don't enforce their
laws there in-country, they don't prosecute. We would like to
see, what is our response going to be to enforce this to occur?
Ms. Mandelker. Again, we have a productive relationship
right now with the Qataris, where we are working with them on a
number of different lines of effort, including capacity-
building, which we do with other countries in the region, and
in information-sharing. And, of course, we were pleased that
they joined us in the designations of a couple of weeks ago
against ISIS and AQAP.
But it is something that we have to continue to monitor
very closely and carefully. We actually have an attache in
Qatar who works closely with our counterparts, and I personally
do so, as well.
Mr. Pittenger. Thank you.
Last month, the Treasury Department took action to sanction
Iran's Islamic Revolutionary Guard as a supporter of terrorism.
Do you intend to take additional actions to designate
individual IRGC-owned companies or front entities or
individuals affiliated with the Guard?
Ms. Mandelker. Well, since the beginning of this
Administration, we have targeted over 70 entities and
individuals connected to the IRGC's support for terrorism,
their ballistic missile program, their human rights violations,
among other areas. As you know, this is a very high area of
concern for us. And as you recognize, we just designated the
IRGC under our Executive Order 13224.
So, while I can't tell you what additional actions we are
going to take in the coming months, rest assured that the
Treasury Department is very focused on implementing the
President's strategy to target the malign behavior that Iran
has been engaging in.
Mr. Pittenger. Very quickly--and, Mr. Chairman, I do have
some additional questions, if I could submit them to the record
for the Madam Secretary to respond to.
Just quickly, are there additional steps that you would
recommend that the U.S. take to target the IRGC's role in the
Iranian economy?
Ms. Mandelker. Well, we are taking a number of steps to
target the IRGC. We have also been very vocal in terms of the
strategies that we are going to be employing. And, again, you
will certainly be hearing more from us on that front.
Mr. Pittenger. Thank you. My time has expired.
Chairman Pearce. The gentleman's time has expired.
The Chair now recognizes the gentlelady from California,
Ms. Waters, the Ranking Member of the full committee, for 5
minutes for questions.
Ms. Waters. Thank you very much.
FinCEN's most recent geographic targeting order, the GTO,
is designed to combat money laundering within the real estate
sector. It requires U.S. title insurance companies to identify
the natural persons behind shell companies used to pay for
high-end residential real estate in seven U.S. real estate
markets. And it now captures a broader range of transactions,
including both cash and wire transactions.
Is that right?
Ms. Mandelker. That is correct.
Ms. Waters. Separately, I am concerned because--let me just
give you this case.
It has been alleged in Paul Manafort's recent Federal
criminal indictment that he purchased two New York City
residential real estate properties using two LLCs registered in
New York. Specifically, it has been alleged that Manafort paid
$2,850,000 for the SoHo property and $3 million in cash for the
Brooklyn property, and all money used to purchase the
properties came from companies in Cypress that Manafort owned
or controlled.
Now, if this kind of activity occurred when the current GTO
was in place, would this type of activity have to be reported
to FinCEN? And what happens when FinCEN receives reports like
this? Are they flagged and passed along to law enforcement?
Ms. Mandelker. So, Congressman, I don't want to comment on
any particular investigation. That, of course, is being handled
by the special prosecutor.
But I can tell you, as a general matter, when we issue our
GTOs--and real estate has been a focus for us, as you know, and
we recently expanded it, thanks to the authorities that were
provided to us by the Congress to wired transactions--that is
something that we receive and, of course, work closely with our
law enforcement partners.
There are various ways in which we get information from the
private sector. And law enforcement of course has access to the
information that we receive.
Ms. Waters. AML (anti-money laundering) experts, community
banks, large financial institutions, and members of the law
enforcement community widely agree that we need to close
loopholes that allow anonymous shell companies to mask the
identities of illicit actors.
In recent weeks, we have seen Paul Manafort, President
Trump's former campaign manager, be indicted on Federal money-
laundering charges that allege he used Cypress shell companies
to purchase high-end residential real estate in the United
States.
Also, this week's release of the Paradise Papers tie
several of the world's elite and mega-rich to offshore shell
companies registered in tax havens. This includes political
advisers, political donors, and even current Cabinet members
such as U.S. Secretary of Commerce Wilbur Ross, who even after
joining the Trump Cabinet in February 2017 is alleged to have
kept a stake in the shipping company Navigator Holdings through
a chain of companies in the Cayman Islands. One of Navigator's
biggest clients is a Russian gas and petrochemicals company
called Sibur, which has close ties to the Kremlin.
However, the release of the Paradise Papers and recent
adjustments just reaffirm what we already knew about the perils
of hidden, beneficial ownership. These types of shell companies
are also used by foreign governments and transnational criminal
organizations to launder money throughout the U.S. financial
system. The Iranian Government used shell companies to hide its
ownership of a Fifth Avenue skyscraper. The Los Zetas drug
cartel used U.S. shell companies to launder dirty money through
a horse farm in Oklahoma. And an Eastern European human-
trafficking ring used Kansas, Missouri, and Ohio shell
companies to hide its illicit activities.
Given the significant illicit finance risk these anonymous
shell company structures entailed, what actions are you
committed to taking to address these vulnerabilities?
Ms. Mandelker. So, of course, historically--I don't want to
comment on any particular set of facts or circumstances, but,
historically and today, transparency in the international
financial system and the AML/CFT regime has always been a big
priority for us. And we know that there are a number of
legislative proposals in the Congress that are specifically
addressing those types of issues, as you have done in the past,
and we look forward to working with Congress on those
proposals.
Ms. Waters. But in terms of what authority you have now
addressing some of these issues, how do you do that? What do
you do?
Ms. Mandelker. Well, we have a robust AML/CFT (combating
the financing of terrorism) regime, as you know, which, among
other things, requires financial institutions to report
suspicious activity to FinCEN. And there are a number of other
requirements, of course, that banks are required to do when it
comes to, again, enhancing and promoting the transparency of
the financial system as well as keeping illicit activity away
from our financial system and internationally.
Ms. Waters. Thank you.
I yield back.
Chairman Pearce. The gentlelady's time has expired.
And I would now recognize the gentleman from Pennsylvania,
Mr. Rothfus.
Mr. Rothfus. Thank you, Mr. Chairman.
Madam Under Secretary, it is known that Hezbollah uses a
range of illicit activities around the globe, from corruption
to money laundering. It has been U.S. policy to weaken
Hezbollah because of its engagement in terrorism. Do you
believe we are doing enough to ensure Hezbollah does not have
the financial resources to engage in terrorism?
Ms. Mandelker. Thank you for that question.
Hezbollah is a big area of focus for us. And this past
February, we actually designated an IRGC Quds Force entity in
connection--that had relationships with Hezbollah.
We are very focused on it in our Iran strategy. We have
been very focused on it in our multilateral engagements. We
serve as the leader in an international law enforcement group
that is specifically focused on Hezbollah. We believe that they
present dangerous activities in their support for terrorism.
And this is something that you will be hearing more from us in
the near future.
Mr. Rothfus. Staying with Hezbollah for a minute, reports
go back as far as 2004 showing their involvement in Latin
America, specifically the tri-border region of Argentina,
Brazil, and Paraguay. What is the United States doing to curb
Hezbollah's actions in this region?
Ms. Mandelker. Well, again, we work internationally with a
number of partners to curb the activities of Hezbollah in
connection with this law enforcement working group that we
have. I have raised our concerns with Hezbollah in many of my
engagements, multinationally, including in that region,
including in the Gulf, and other partners--in Europe, for
example.
So we have a lot of efforts underway in this regard. We
work very closely with our interagency partners, also, in
countering and tracking the illicit financing that is going to
support Lebanese Hezbollah, and we will continue to do so. It
is, without a doubt, a big priority for this Administration.
Mr. Rothfus. I applaud OFAC's recent updating of its
listing of IRGC entities to reflect their new terrorism
designation, but there are public reports of hundreds of IRGC-
owned or controlled entities that have not yet been named or
sanctioned by Treasury.
Can you tell me if we are looking at other entities?
Ms. Mandelker. We are always looking at entities. And,
again, in the last 10 months, in addition to designating the
IRGC under 13224, we have also designated more than 70
individuals and entities in connection with the IRGC's efforts.
It is a big area of focus for us. Again, it is something
that I discuss with my partners overseas as well. I think that
we need to take--that the world needs to take much more
aggressive action to counter the malign behavior of the IRGC
and the IRGC Quds Force, and we are very focused on doing so.
At the same time, we have to make sure that we are
intelligence-driven. So what I am constantly focused on is
making sure that we are going against targets where we can have
the greatest strategic impact. And so, just for example, in the
last 4 months, we have--since I have been here, we have
targeted entities and individuals in connection with their
proliferation efforts, in connection with their ballistic
missile development. And you will continue to see more of that
coming from us.
Mr. Rothfus. In the remainder of my time, I want to talk
about another issue that is not specifically called out in your
written testimony. And I am going to be doing a lot of follow
up with you on this issue. And it has to do with the epidemic
of heroin in our country.
And your offices have not been silent in this area. Back in
September, OFAC designated four Mexican entities and three
Mexican individuals linked to cartels, including Jalisco Nueva
Generacion, as specially designated narcotics traffickers.
Sixty-four-thousand people we lost in 2016; 52,000 people
in 2015. Of the people we lost in 2016, it is estimated that
15,000 were from heroin.
Most, if not all, of the heroin we have in this country is
coming from Mexico. If there was ever an issue that these two
countries need to be working together on, it is smashing these
cartels. And 130,000 people south of the border have been
slaughtered by these cartels.
And I am not looking for any answers right now, but when I
follow up with you in your office, I want to know if we have
sufficient resources being put into this fight, maximum effort
to track the money that is going to these entities that are
killing people on both sides of our borders.
And I would just encourage you, as you reach out to your
Mexican counterparts, that we need to be working together on
these issues.
Ms. Mandelker. If I can just quickly address, I share your
concerns about the opioid epidemic. And as you may know, this
has also been a big focus for the President, who recently made
an announcement with respect to escalating our efforts against
the opioid crisis.
We do work closely with our Mexican counterparts on these
narcotics-trafficking regimes. And I would be happy to come in
and talk to you in some more detail about some of the efforts
that we have been undertaking. I can tell you that we have an
entire team that is very focused on using our authorities to
designate narcotics traffickers. It is a big concern for us,
and I know it is a big concern for you. And I look forward to
working with you on it.
Mr. Rothfus. Thank you.
Chairman Pearce. The gentleman's time has expired.
The Chair now recognizes the gentlelady from New York, Mrs.
Maloney, for 5 minutes.
The Chair now recognizes Mr. Himes, from Connecticut, for 5
minutes.
Mr. Himes. Thank you, Mr. Chairman.
And thank you, Madam Secretary, for being with us. And
thank you for what you do. It is very important.
A couple categories of questions.
You used a word in your oral testimony and your written
testimony that stuck in my ear a little bit. You said you are
``attacking'' North Korea. ``Attacking'' is a word I associate
with a Congressional declaration, other authorization, or with
a Presidential finding. I am used to hearing the Department of
Treasury talk about enforcing sanctions or looking for
violations of law.
So my question is, when you use the word ``attacking,'' as
you have, does that word mean something beyond--well, let me--
open-ended question: What exactly does that word mean beyond
enforcing sanctions and looking for violations of domestic or
international law?
Ms. Mandelker. We are doing a lot more than just enforcing
sanctions. Of course, our sanctions regime is a very big part
of our effort. And, as I noted, we have sanctioned a number of
individuals and entities in the last 10 months in connection
with the North Korea problem. But there is a lot more that we
have been doing.
So, just as an example, we recently designated a Chinese
bank, Bank of Dandong--or, designated--we issued a 311 action
against a Chinese bank, the Bank of Dandong, which we finalized
just last week.
We have also been working with the private sector to make
sure that they understand all of the evasive tactics that the
North Koreans have traditionally used to get around our
sanctions. So we issued a financial advisory last week.
And I have been talking to banks all over the world about
this problem, because the North Koreans have been incredibly
adept at evading our sanctions, and we need to take a much more
holistic approach to cutting out those evasive tactics. So we
have been targeting the front companies. We have been telling
the banks how they can target the front companies. The banks
have actually been giving us very useful information about
illicit activity that they have been seeing.
We have been working with our counterparts all over the
world, in Europe, in South Korea, in Japan, in Australia, in
the Gulf, to make sure that we are working in concert to
implement the very tough U.N. Security Council resolutions that
were just passed--
Mr. Himes. So let me just clarify--thank you. Everything
you are describing right now is the conventional language I am
used to hearing Treasury employ when they talk about these
things, working with the private sector, designating, et
cetera.
So I guess my very specific question is, when you use the
word ``attacking,'' are all of those activities consistent with
authorities conferred by statute?
Ms. Mandelker. Absolutely.
Mr. Himes. OK. OK. Thank you.
My other set of questions was, I am curious a little bit
about the discussion in your testimony about the Saudi
Terrorist Financing Targeting Center.
Two questions, really. Can you tell us a little bit about
what you anticipate the U.S. staffing at that center would be--
that is question No. 1--by agency, if you can? I understand it
hasn't actually opened yet. Is that correct?
Ms. Mandelker. It has opened. So we were just in the region
2 weeks ago, Secretary Mnuchin and I, and we had a little bit
of a ribbon-cutting ceremony. We have facilities that--
Mr. Himes. OK.
Ms. Mandelker. --Saudi Arabia has provided for us.
Mr. Himes. I only have about a minute and a half here. So I
am just curious about how the U.S. Government is thinking about
staffing that center, not just Treasury but other agencies that
may be involved.
And, secondarily, I would love you to talk just a little
bit about targeting. In other words, one of the challenges in
the region, of course, is that some of the folks in the Gulf
Cooperation Council have been known from time to time to
actually help the terrorists. So I am really curious about how
you are thinking through the targeting function that that
entity will undertake.
Ms. Mandelker. Sure. I would be happy to talk to you about
that.
So we have been deploying resources to the center. We have
also made it clear that we are hoping for more appropriation to
help us in the funding of the center. But our plan, ultimately,
is to have upwards of 15 people from Treasury specifically
dedicated to the center.
Some of that is, of course, in the region. And then I have
a number of people here in Washington, D.C., who are also
actively working on supporting the efforts to make this an
operational success, which it needs to be.
In terms of targeting--
Mr. Himes. Sorry. Quick question.
Ms. Mandelker. Yes.
Mr. Himes. Will there be other elements of the I.C. present
in that center?
Ms. Mandelker. Yes. So we have been working closely with
interagency departments to make sure that we have the proper
resources not only from the Treasury Department but also with
other departments and agencies, as we do, frankly, in all of
our efforts. All of our efforts are really interagency efforts.
In terms of the targeting, I will just give you one
example, which I mentioned earlier, which is, 2 weeks ago, when
we were in the Gulf, we announced joint designations by all of
these countries against a number of targets in Yemen who have
been involved in supporting ISIS and AQAP.
And so part of our effort is going to be to make sure that
we are continuing to jointly designate individuals and entities
who are supporting terrorist financing. We have to work in very
close partnership with our GCC colleagues to make that happen,
because it is imperative that all of the GCC send the same,
very strong message that they will no longer tolerate the
financing of terrorism in the region. And so this is a first
but very important step in that effort.
Mr. Himes. Great. Thank you.
Thank you, Mr. Chairman. I yield back.
Chairman Pearce. The gentleman's time has expired.
The Chair now recognizes the gentleman from Colorado, Mr.
Tipton, for 5 minutes.
Mr. Tipton. Thank you, Mr. Chairman.
And, Under Secretary Mandelker, thanks for being here.
I would like to be able to echo some of the comments that
Mr. Rothfus had stated in regards to the cartels as well. Just
as an example, recently, Pueblo, Colorado, which happens to be
the largest community in my district, it was uncovered by
Federal and local authorities, a drug cartel stronghold that
was disguised as a legitimate business. It was an auto body
repair shop.
In that cartel activity, they found more than 60 pounds of
heroin, 2-1/2 pounds of methamphetamines, 50 grams of cocaine,
35 firearms, $540,000 worth of cash. And it is truly unclear at
this time whether or not this was being used to be able to
launder money or resulting from its activity or what the
financial institution implications were as well.
So, on the first point, I guess we would really like to be
able to discuss with you and to be able to advocate in terms of
paying attention to the cartels in Pueblo. Visiting with the
DEA (Drug Enforcement Agency), they have identified Russian
cartels, Cuban cartels, Mexican cartels that are working in
that area.
But on a sidenote that we probably haven't covered here, as
well, and it is in the financial service sector, we have a lot
of small community banks, as well. And you talked earlier in
your testimony about the integration with all of the different
components that you work with to be able to share the
information, the identifying. What tools are you using to be
able to help these small community banks perhaps uncover some
of the money-laundering activities or illicit use of funds and
some of the exposure that they have? Because simply by the
nature of their size, they probably aren't going to have the
resources.
Ms. Mandelker. Sure. So just to start with your first
question, this is an area that I am very familiar with, having
prosecuted some of those cases when I was at the Department of
Justice, and it is an area of focus for us.
We work very closely with the DEA, actually. They are a
very important partner for us, both in the work that we do here
in the U.S. and also internationally. And I would be happy to
come down and sit and talk to you about the specific issues
that you are facing in Colorado.
In terms of the small community banks, I think that
education and training is key. I know it is something that
Treasury has done historically, and it is something that I am
going to make sure that we continue to do.
We will be also rapidly increasing the number of public-
private dialogs that we have. And we are not just focused on
the big banks in New York; we are going to be focused also in
different regions in the country and different types of banks.
And I know and appreciate from my private-sector experience
that small community banks do need guidance and assistance. And
we are committed to providing them with that guidance and
assistance, both to make sure that they understand what their
obligations are and also so that we understand that what they
do is going to look a little bit different than some of the
banks that have a lot more resources.
Mr. Tipton. Has it been your experience at all through
those different elements that you have already worked in that
our smaller community banks would be less likely, more likely
to be able to identify some illicit activity?
Ms. Mandelker. So I would like to come back to you and give
you a better assessment on that particular question.
Look, the bigger banks, of course, are going to have a lot
more resources to implement the kind of AML regimes that they
have been implementing. But we need to make sure that the small
community banks understand, again, what their obligations are
but also so that they get the right kind of training to be able
to detect this illicit finance. What we don't want to have
happen is for illicit actors to suddenly think that they can go
to the small community banks and take advantage of them. That
is also very important to us.
But I very much appreciate that the small community banks
are different in size from the bigger banks. And we have to
make sure we have a very good and concerted effort to get them
an understanding of what their obligations are so, again, they
can join us, as they have, in this effort to keep illicit
actors from abusing their system.
Mr. Tipton. Great. I appreciate that.
And, Mr. Chairman, my next question would be a little bit
lengthy, and I would like to maybe be able to submit that to
the record.
And we could have, maybe, that conversation in our office.
And I appreciate your forthrightness and look forward to our
visit.
Ms. Mandelker. Thank you.
Chairman Pearce. The gentleman's time has expired.
The Chair now recognizes the gentleman from Nevada, Mr.
Kihuen, 5 minutes for questions.
Mr. Kihuen. Thank you, Mr. Chairman.
And thank you, Mr. Ranking Member.
And thank you for being here today.
As you know, I represent a district in Las Vegas, Nevada.
And not long ago, there was a shooting that killed 58 people
and injured over 500. It has been reported in the news that, in
the last 3 years alone, more than 200 suspicious activity
reports about the Las Vegas shooter's activities, particularly
large transactions at casinos, had been filed with the law
enforcement authorities.
When an individual has such a tremendous amount of CTRs
(currency transaction reports) and SARs (suspicious activity
reports) filed on their activities, does it trigger a law
enforcement investigation? And what does that investigation
look like?
Ms. Mandelker. So thank you for that question. And, of
course, I wouldn't be able to talk about any particular set of
SARs or circumstances. We would be happy to come and talk to
you about it personally.
Look, there are various tools that--analytic tools--not
only that we have but other members of law enforcement has when
it comes to understanding what is coming in through our system
in terms of the SARs. We deploy those tools. We have, again, an
overlay of analytic tools that we use to make sure that we are
detecting suspicious activity and we are very dedicated not
only to making sure that we continue to do so but to making
sure that we elevate our technological capacity.
Mr. Kihuen. Thank you, Madam Under Secretary.
And, more broadly, can you comment on the type of analysis
that FinCEN does on an ongoing basis of the SARs that it
receives from covered institutions?
And, also, to what extent is FinCEN actively sifting
through this data to identify actors whose suspicious
activities warrant scrutiny by law enforcement?
Ms. Mandelker. So, again, we do a lot of analysis when it
comes to looking at the types of information that is coming in
through those SARs. It is not only us, of course. There are
many different law enforcement agencies that have access to the
BSA (Bank Secrecy Act) system, as well they should. So we work
in close partnership.
When we see trends, we work in close partnership with our
law enforcement partners. We also put out a number of financial
advisories, similarly, when it comes to seeing trends in
illicit activities, because we think it is very important that
the financial institutions also understand what we are seeing
and incorporate different kinds of typologies in their
algorithms. Because what we want them to do is to have the
sophisticated means to red-alert illicit activity that is
problematic.
So we do a lot of work analyzing the data. I know our law
enforcement partners, likewise, do a lot of work analyzing the
data. We have very good and constructive dialogs with them. And
we also have important dialogs with the private sector.
Mr. Kihuen. Thank you.
And my last question. I have heard from the casinos that
they are having to file the CTRs and SARs in large numbers for
what, in the gaming world, is a relatively routine operation.
The American Gaming Association estimates that the industry
filed 58,000 SARs and more than a million CTRs last year.
Taking both the regulatory burden and law enforcement
objectives into consideration, what are your views on changing
the reporting thresholds?
Ms. Mandelker. So I know that is a subject that is--that
there is also a lot of discussion in the Congress on how do we
think through what changes we might make to the BSA regime.
That is something that we are taking a hard look at. We are
reviewing it very carefully.
I don't want to comment on the particular problem of the
American Gaming Association, but we need to make sure that we
are getting the right data that we need from the financial
institutions and that they are focused on the high-value
threats.
And so I look forward, really, to working closely with this
Congress on that issue. I think that we need to make sure that
we are making decisions based on data, so we are digging into
the data and digging into the details so that, again, we have a
system in place that gives us the information that we need and
that focuses the private sector on providing us with what is
all of our objective, which is to protect the integrity of the
financial system.
Mr. Kihuen. Thank you, Madam Under Secretary.
And thank you, Mr. Chairman.
Chairman Pearce. The gentleman's time has expired.
The Chair will now recognize the gentleman from Texas, Mr.
Williams, 5 minutes for questions.
Mr. Williams. Thank you, Mr. Chairman.
And, Madam Secretary, thank you for taking time to meet
with us today, I appreciate that, to discuss these important
programs.
Our Nation's security is paramount, and the work that you
and the Office of Terrorism and Financial Intelligence do is
extremely important in keeping us safe. It is all of our goals
to keep those who wish to harm us from having the financial
means to do so. I look forward to hearing how the Trump
Administration and your team are prepared to tackle the
challenges before us as we move on.
So the question is, Madam Secretary, earlier this morning
during a hearing before the Subcommittee on Monetary Policy and
Trade, I had the pleasure of hearing testimony from one of your
colleagues, Under Secretary Malpass, regarding the IMF. And in
his testimony, Mr. Malpass discusses the technical assistance
provided by the IMF to nations in need. A small part of that
assistance targets improving countries' ability to combat money
laundering and terrorism financing.
So to what extent does your team interact with foreign
nations and the IMF when developing effective anti-terrorism
strategies? Or, to be more specific, are we ensuring that we
are incorporating a broad spectrum of international financing
when developing those strategies?
Ms. Mandelker. Absolutely. That is a very big focus for us.
We work both in tandem with the IMF and we are also leaders in
the Financial Action Task Force, or the FATF. We currently have
the vice presidency of the FATF, and next summer we will have
the presidency of the FATF, which is really an international
body that is very focused on making sure that countries around
the world have the regulatory regimes in place that we all want
them to have when it comes to AML and CFT.
So not only are we very involved in setting those standards
and making sure they are up to par in the way that we would
want them to be, but we also play a very active role in
assessing the regimes in other countries, called mutual
evaluations or assessments.
So it is something that we are very focused on. It is
something that I raise regularly in my interactions with my
counterparts all over the world. Look, we can have--we do have
a very strong AML regime, but we need to make sure that our
allies and partners all over the world have the same regime.
And it is a concerted effort on our part.
Mr. Williams. OK.
In your testimony, you touch on the need for BSA reform and
say that your term is currently taking a hard look at the
current framework, that this is a welcome action.
This subcommittee has had institutions testify to the
sentiment that the cost of compliance with this law is
difficult and expensive.
So what is the status of your review, and what changes
would you like to see made to the BSA that would ensure that
improvements are made to improve the anti-money-laundering
efforts at these institutions?
Ms. Mandelker. So, as I mentioned, we are taking a hard
look at the BSA. We want to make sure that we have a regime in
place that is harnessing the resources of the banks in the
right way.
So the financial institutions have thousands of financial
crime analysts, not only here in the United States but all over
the world, and we need to make sure that those resources are
deployed. And they are really, in some ways, on the front lines
for what we are trying to accomplish and do. We need to make
sure those resources are deployed, again, to give us the
information that we need on a number of different threats but
with a real focus on our high-priority threats.
And so that is what we are taking a careful look at, how do
we have a system in place that is going to ensure that we are
targeting the resources in the right way. And we have had
discussions with the financial institutions, I have had
discussions with the banks about that, and I have a sense of
where they are deploying their resources and how they are
deploying their resources. And I want to make sure that they
are focused to achieve what we all want to achieve, which is to
safeguard the financial system and to make sure that we have
the right level of transparency in that system.
Mr. Williams. OK. I yield my time back. Thank you for your
service.
Ms. Mandelker. Thank you.
Chairman Pearce. The gentleman yields back.
The Chair now recognizes the gentlelady from Arizona, Ms.
Sinema, for 5 minutes for questions.
Ms. Sinema. Thank you, Mr. Chair.
And thank you, Under Secretary, for being here today.
Arizonans are deeply concerned about the increasingly
unstable regime in North Korea and the threat it poses to
regional stability and our national security.
So Congress has passed multiple rounds of sanctions to hold
North Korea and other bad actors accountable, but the threat of
weapons proliferation exists and persists. While sanctions are
an essential tool to discourage proliferation, they are not a
complete solution to the threats we face.
So my first question for you is: Along with sanctions, some
advocates have suggested a risk-based approach by our global
financial institutions to actively identify and cutoff
financing within their own institutions used for weapons
proliferation. And my question for you is, what is Treasury's
view of the efficacy of this approach?
Ms. Mandelker. We work globally with other countries on
this problem and with the financial institutions on this
particular problem. So what we have been focused--we have been
focused on a variety of fronts with respect to this problem,
because it is not just sanctions alone, and we don't think it
is sanctions alone.
So, among other things, we have been providing typologies
to banks all over the world with respect to--to enhance their
capacity to detect illicit evasion schemes, to detect the front
companies that North Korea has been so adept at using to
facilitate this kind of financing.
We also work with the Financial Action Task Force, which I
mentioned recently, which is an international body that is
focused on making sure that we have the right standards across
the world when it comes to AML and CFT. And this body actually
just met the last week or so and issued a--we served as the
leaders in this effort, with other counterparts, for them to
issue a statement that is very specifically focused on the
North Korea proliferation financing.
We are also working with the G7 on actions that we can take
jointly to counter financing.
So there are many other things that we are doing; that is
just a list of a few. But we are working with high-risk
jurisdictions, we are working with partners and key allies.
This has to be a global effort. The U.N. Security Council
resolutions that were passed in August and September made that
clear, that it has to be a global effort. And we are very
activity involved in implementing that regime.
Another--and I will just end with, another area of focus
for us is going after North Korean financial facilitators. So
there are people who North Korea has deployed all over the
world to help--they have a particular skill set and expertise
to help to provide illicit financing back to the regime. So,
last month, we actually designated 26 of these financial
facilitators. We have designated others in the past. And that
is another area we are very focused on. And they are in some
high-risk jurisdictions.
So it is something that--I agree with you. It is something
we are focused on. It is a big part of our effort, in addition
to the sanctions that we have been deploying.
Ms. Sinema. Thank you.
More sophisticated proliferators will use front companies
or proxies to circumvent safeguards that are put in place by
major financial institutions.
So what, if any, best practices has Treasury offered to
financial institutions in these high-risk jurisdictions to take
this risk-based approach to stop money laundering or suspicious
transactions and other activities that are seeking to conceal
proliferation finance?
Ms. Mandelker. So, as I mentioned, we have been sharing
this kind of information with the banks. Last week, we issued a
financial--a 10-page financial advisory that alerted the banks
to the kinds of front-company activity that North Korea, again,
has been very adept.
I was recently in Europe, where, in addition to meeting
with my government counterparts, I met with banks in three
different cities, again, to alert them to the typologies that
we are seeing when it comes to North Korea front-company
activity. And we have been doing that across the board in many
of our engagements.
Ms. Sinema. Thank you.
And my last question would be, has Treasury considered the
role that entities such as FinCEN and prudential regulators
play in this regard? And how can they be more actively engaged?
Ms. Mandelker. So FinCEN, of course, is one of the agencies
that I supervise. And what I have been discussing is activity
that FinCEN has been very involved in and will continue to be.
Ms. Sinema. Great. Thank you.
Ms. Mandelker. Thank you.
Ms. Sinema. Mr. Chair, I am also submitting a number of
questions for the record concerning Iran and its nuclear
program.
Ms. Sinema. But thank you for the time. I yield back.
Chairman Pearce. Thank you.
The gentlelady yields back.
The Chair now recognizes the gentleman from Maine, Mr.
Poliquin, for 5 minutes for questions.
Mr. Poliquin. Thank you, Mr. Chairman. I appreciate it very
much.
And thank you, Madam Under Secretary, for being here. We
appreciate very much all the hard work you are doing, and your
terrific staff, to make sure that the folks that want to cause
American families harm do not receive the funding they need to
carry out their business.
Madam Under Secretary, you have been in this business for
quite some time. Now, I know it has been a short period of time
in your current position. Could you comment on how has this
business of stopping illicit financing for terrorist activities
changed over the last 10 or 20 years?
Ms. Mandelker. So I think we have had a much more concerted
effort. So, for--
Mr. Poliquin. By whom?
Ms. Mandelker. Well, I would say by the Treasury
Department, by law enforcement--
Mr. Poliquin. Did you find that this activity was so
concentrated in the last administration or the one before that,
or has it ramped up recently?
Ms. Mandelker. I would say there has been a ramp-up since
2004 when TFI was created. So I think there was a recognition,
as I mentioned, in the post-9/11 world that it was important to
put these four components together to deploy this broad range
of economic authorities that we have in concert with--
Mr. Poliquin. And how about foreign governments, Madam
Under Secretary? How have they responded recently as compared
to 5 or 10 years ago with respect to your activity and those
that came before you, as far as stopping these illicit funds
from reaching home?
Ms. Mandelker. So what I can really comment on is what I
have seen in the 4 months that I have been here. And I also
have some experience historically. But we have benefited from a
partnership with a great many countries--
Mr. Poliquin. Is that getting better or worse?
Ms. Mandelker. I would like to say it is getting better,
because we are having a very important dialog with them, but
this has been a concerted effort for some time.
We also have been very focused on capacity-building. So we
want to make sure that other countries have the regimes in
place to enforce sanctions in the way that we enforce those
sanctions.
Mr. Poliquin. With American and coalition victories over
ISIS in Syria and Iraq, in particular, recently, have you folks
discovered anything new about the strategies involved in
illicitly financing terrorist activities? Are they becoming
less institutionalized, more decentralized? What have you
learned?
Ms. Mandelker. So I would defer to perhaps a briefing in
another setting before getting into some of those details. What
I think we are seeing is a lot of success in our efforts, of
course, to counter ISIS, including in financing. And it is
something that we have been focused on. Also, we focus on it in
very close collaboration not only with our interagency
partners, because that is important, but, also, we lead a
counter-ISIS global coalition focused on terrorist financing.
Mr. Poliquin. A short time ago, you and I met with a
smaller group of members of this committee dealing with this
issue. And, of course, I know you won't disclose anything that
is classified. But I was very interested, and I think other
folks would be also, about some of the specific ways that the
North Korean Government is getting hard currency back to its
homeland.
And you just mentioned a moment ago financial facilitators.
Could you explain that a little bit more? And we don't have
much time.
Ms. Mandelker. So financial facilitators are individuals
who have a particular expertise and skill set--
Mr. Poliquin. So they are folks that are from North Korea
that leave their homeland to go work in other places and they
send their hard cash back home. Is that correct?
Ms. Mandelker. Through various sophisticated means--
Mr. Poliquin. Legal or illegal means?
Ms. Mandelker. Well, we believe it is illicit.
Mr. Poliquin. Fine. Thank you. And we are making headway as
far as choking off that form of financing for the North Korean
goal that they are now--
Ms. Mandelker. Yes.
Mr. Poliquin. --the path that they are on? OK.
Let me pivot in my last question, if I may, Madam Under
Secretary. We just had a horrific, horrific attack on our
homeland a very short time ago in New York City, where an
individual got a hold of a rental truck and drove it down a
bike path on the west side of Manhattan for about 40 blocks,
about 2 miles, roughly.
How does someone like that tap into this network of illicit
financing? Is it institutionalized? Is it specific to that
individual? Do you have any idea where that originates and how
we can stop that?
Ms. Mandelker. So I don't want to comment on that specific
case.
Mr. Poliquin. I understand.
Ms. Mandelker. It is obviously an active law enforcement--
Mr. Poliquin. I understand.
Ms. Mandelker. --investigation. But we, of course, do work
to identify how those kinds of individuals who appear to be
lone wolves, for example, get their financing. It is an area--
Mr. Poliquin. Can you give the American people any
confidence that we are making headway at Treasury to stop this?
Ms. Mandelker. I think we are making headway at Treasury
across a wide array of efforts.
Mr. Poliquin. OK. Thank you, Madam Under Secretary. Keep
doing your great work. I appreciate it.
Ms. Mandelker. Thank you.
Mr. Poliquin. I yield back my time.
Chairman Pearce. The gentleman's time has expired.
The Chair would now recognize the gentlelady from New York,
Mrs. Maloney, for 5 minutes for questions.
Mrs. Maloney. Welcome, Madam Under Secretary.
When the Panama Papers came out, people were commenting
that Americans were largely missing from that report. And some
law enforcement friends pointed out to me that Americans don't
have to go to Panama to hide their money; they can hide it in
the United States very easily in these LLCs.
And, actually, at the request of law enforcement that was
tracking terrorism financing, drug financing, and they had hit
a brick wall called an LLC, I introduced a bill roughly 15
years ago called the Corporate Transparency Act, which would
crack down on anonymous shell companies, requiring companies to
disclose their true beneficial owners at the time that the
company is formed.
Would having access in Treasury to beneficial ownership
information be helpful to your office in cracking down on money
laundering and terrorism financing?
Ms. Mandelker. So thank you for that question. I know this
is something that has been a long concern to you.
What I can tell you is that we are--there are a number of
bills, I know, that have been introduced in Congress in this
particular area. This is a complex issue and a complex problem.
Transparency, of course, is very important for us. I know that
from not only my time, my 4 months in Treasury, but also my
time as a prosecutor at the Department of Justice and in the
private sector.
And, as I am sure you know, last year, we issued the CDD
rule, which requires financial institutions to get beneficial
ownership information from their customers, which I think is
going to be a very important effort and advancement in this
regard.
So I look forward to working with you and others on what is
the right model, what makes sense, in terms of increasing
transparency in our system.
Mrs. Maloney. My bill would require FinCEN to build a
database of beneficial ownership information, which would be
accessible to law enforcement and to financial institutions for
purposes of their own ``know your customer'' obligations.
Does FinCEN have the capacity to build this database, or
would you need additional funding to build the database? Would
you build it through Treasury or the private sector or FinCEN?
Have you put any thought into it? Because the chairman tells me
that we may be moving, thankfully, a beneficial ownership bill.
Ms. Mandelker. So, again, this is a complex issue and a
complex problem, and I would be happy to come back and talk to
you about what we think makes sense in this regard without
commenting on any--at this time, on any particular piece of
legislation.
Mrs. Maloney. Well, then, why don't I send you the
legislation and a list of questions.
And I would like to ask you about, really, the
effectiveness of ``know your customer.'' Banks are cracking
down, we may be cracking down on LLCs. Then, all of a sudden,
you have crypto and Bitcoin, which has no regulation at all. No
one knows the value. If you go on the web, you will see some
are $26, others are $6,000. It jumps to $7,000, $8,000. There
is no explanation of why it is jumping. There is just
absolutely no control on it.
What steps is Treasury having to really try to protect
consumers and investors in this new currency?
Ms. Mandelker. We are very concerned with this new
currency. We, I think, actually were the leaders in the world
when it comes to regulating cryptocurrency. And so, in addition
to the regulations that we have, which requires exchangers to
have an AML program, we are also focusing our enforcement
actions on going after cryptocurrency that harvests this type
of illicit behavior.
So just, I think it was 2 months ago, as I mentioned, we
brought a case, in close coordination with the Department of
Justice, against a cryptocurrency scheme that was housed
internationally. And so, in that effort, we are sending a very
strong message around the world that we are on the lookout for
the use of these cryptocurrencies to engage in illicit
activity.
We are also working with counterparts around the world to
make sure that they have the regulatory regimes that they need
to have in place to monitor and effectively have AML mechanisms
to monitor this type of behavior. Because it can't be the
United States engaging in this alone; it has to be an
international effort.
Mrs. Maloney. Uh-huh. Well, my time has expired. Thank you.
Chairman Pearce. The gentlelady's time has expired.
The Chair would now recognize the gentlelady from Utah,
Mrs. Love, for 5 minutes.
Mrs. Love. Thank you, Madam Under Secretary, for being here
today.
I have done a little bit of work on human and sex
trafficking. And I am realizing that we are dealing with a
group or an organization that is a lot bigger than what we
think.
I met a young girl who was working at the age of 13 in
Mexico and was pretty much targeted. A young man was talking to
her for about 3 weeks and, after he had convinced her and had
found out about her and knew that she was vulnerable at home,
brought her into the family and took the time, actually, to go
in.
Then, inadvertently, after a while, got across the border.
Worked in Manhattan. Realized that the uncle was actually the
pimp. Cousins everywhere. I mean, you are talking about
drivers--the drivers and appointments that they would go to,
and she was locked in this room.
And she was trafficked for over 3 years. Listening to her
story and listening to the amount of people that were involved
and how much time and effort they took, they had it down to a
science.
And I am looking at your bio and the objectives of the
agency which you oversee, and it is clear you have some
expertise combating a host of illicit activities. My
understanding is that many of these, such as narcotics
trafficking, money laundering--some of those may overlap with
human trafficking.
Do you or the agency that you oversee encounter this
horrible crime within those activities? And, if so, can the
Treasury do anything to prevent inadvertently financing for
human trafficking?
Ms. Mandelker. So I share your grave concern about human
trafficking. It is actually an area that was a big focus of
mine when I was at the Justice Department. So, in my last 2-1/2
years in the Justice Department, I supervised a number of
sections, including the Child Exploitation and Obscenity
Section, where we had a very big focus on child trafficking.
And, of course, it is not just a trafficking problem; we also
have a problem with child prostitution here, domestic
prostitution here in the United States, which is part of what
you discussed with this poor child in New York. So it is
something that I am very familiar with and something that I
have dedicated a lot of effort to in the past.
What we have been doing at the Treasury Department is
working very closely with our partners overseas to make sure
that we collaborate when it comes to information that we get
either through our SARs or that they receive through their AML
regimes on suspicious activity focused on trafficking. So we
lead an effort in that regard.
We are also considering other ways--
Mrs. Love. OK. So, as you consider other ways, I know
section 314(b) of PATRIOT grants financial institutions with
the ability to share information, one with another, to prevent
money laundering and terrorist activities.
Over the course of this year, my office and I have met with
numerous 501(c)(3)'s and organizations that are working to
combat human trafficking, and they have a great deal of
information about traffickers, how these traffickers operate,
especially in some other countries, and how they are actually
connected to the United States.
I have actually witnessed a lot of the aftercares that I
have seen that may have been inadvertently funded that are used
as actual shells for--or, I could say, the mechanism for,
actually, selling of these children.
Do you think it would be feasible and effective to add
these kinds of organizations to the list of organizations that
would be eligible to participate in 314(b)?
Ms. Mandelker. So what I can tell you, as a general matter,
I think the NGOs (non-governmental agencies) provide an
incredible amount of extremely valuable information when it
comes to trafficking. And at the Justice Department, we worked
closely with the NGOs on a wide range of child exploitation
issues.
I would be happy to talk to you about any particular
provision. I mean, 314(b) right now is really focused on the
financial institutions. There may be other mechanisms when it
comes to information-sharing. I know that there is a lot of
information-sharing that goes on--
Mrs. Love. Right.
Ms. Mandelker. --already. The question as to whether that
safe harbor is the right provision with respect to dealing with
this particular problem is something we would be happy to take
a look at.
Mrs. Love. I would love to talk to you about it, because
there is so much information that is not being shared between
the 501(c)(3)s that have done a lot of work and your department
that I think would be really beneficial to at least even
following where the money is.
And, anyway, thank you so much for your time.
Ms. Mandelker. Thank you.
Chairman Pearce. The gentlelady's time has expired.
The Chair would now recognize the gentleman from Arkansas,
Mr. Hill, for 5 minutes.
Mr. Hill. Thank you, Chairman.
Thank you, Under Secretary, for being with us today.
Congratulations on your new position.
This is a topic I want to raise, with deference to my
colleagues, not one of my favorite subjects. But since you are
new in your position and we have switched administrations, I
want to talk about this continued topic of beneficial ownership
and how we assess it.
And, when you look at the rule that you have pending that
will come into effect for banks in 2018, there is a lot of
varying ability to comply with that rule across the financial
services space from the very big, sophisticated partners that
you deal with that do 80 percent of the global transactions
down to community banks.
And one issue I keep raising is the IRS already has the
data that you want, because if you have a passthrough entity, a
subchapter S, an LLC, they file a partnership return, a
passthrough Federal tax form with the IRS, and at least once a
year that shows the beneficial ownership because you have to
issue a K-1 to everybody who is a passthrough owner or
recipient under that passthrough entity.
And it is a challenging area, but, to me, to spend legal
time sorting through that and finding a way to use that data
would be far better for the Federal Government and for the
private sector than dealing with the 50 State incorporation
standards across our country, which we can't really do anything
about very effectively in a very timely way.
So I raise this issue for you and ask for your view on
getting the very sharpest minds in your legal office and at
Main Treasury to try to figure out a way to, consistent with
privacy, obtain that data for the purposes of determining
beneficial ownership.
Ms. Mandelker. OK. As you know, this is a complex issue,
and I know that there are a lot of different options that are
on the table. We are studying those options. There is balancing
that needs to take place, and I look forward to working with
you on it. I am not going to comment at this point on any
particular solution, but it is certainly something that we are
studying very closely.
Mr. Hill. Switching back to your enforcement of sanctions,
your sanctions, in regard to the North Korea situation, I know
you were asked questions, is it better than it has been in the
past. And just in the 4 months you have been involved in the
process, are you seeing leads and enforcement from our allied
nations, both in North Asia and around the world? Do you see a
distinct cooperation, is the question I am asking, for
enforcement now of both the U.N. sanctions and the sanctions
that the United States has put on?
Ms. Mandelker. We are seeing cooperation. We are tracking
it very carefully and closely. We do that, the State Department
does that. We now have the strongest U.N. Security Council
resolutions that we have ever had, but they can't be
resolutions on paper; they have to be monitored and implemented
and enforced.
And so we work very closely with our allies and partners on
this problem. We also work to monitor what other countries are
doing and, of course, to the extent that we need to, to
pressure them to do more.
So, yes, we are seeing more than--I believe that we are
seeing more than we have before. And, of course, we are very
intent on staying on top of it.
Mr. Hill. Well, you have strong bipartisan support for both
our bilateral sanctions and for the good work Ambassador Haley
has done at the United Nations.
But this issue of enforcement by both small and large
companies, North Asian, and countries and North Asian players
is important. And I hope you will keep the members of this
committee attuned, either in a classified or unclassified
briefing, as to who is not doing a good job under multilateral
or bilateral sanctions so that when we are with the
representatives of those countries we can call them out.
Because this is an important phase. I don't think the U.S.
over the past 24 years has ever had a coordinated, effective
sanctions regime on North Korea under--now we are in the our
fourth administration. So this is a chance for us in the United
States, I think, to get this right. And to get it right, we are
going to have to have effective enforcement.
So thanks for what you are doing. I appreciate that. And I
hope you will commit to keep us informed on who we need to call
out on not doing an effective job.
Ms. Mandelker. I would be happy to do that. I can tell you
that in my conversations with some of my counterparts, I also
emphasize that the Congress, our Congress, is very intent on
making sure that we are doing the right thing and applying
maximum economic pressure. So, happy to sit down and talk to
you about that.
Mr. Hill. Thank you very much.
Thank you, Mr. Chairman.
Chairman Pearce. The gentleman's time has expired.
The Chair would now recognize the gentleman from Ohio, Mr.
Davidson, for 5 minutes.
Mr. Davidson. Thank you, Mr. Chairman.
Thank you, Madam Under Secretary. I am always amazed by
your expertise in this subject, and so thanks for your service
to our country and for the great men and women that you lead in
this role. We really appreciate them and the importance that
the function serves for keeping our country safe.
I want to associate myself with the remarks of Mr. Rothfus
and Mrs. Love on drug cartels for one and human trafficking for
the other. These are things that are present threats in our
country, and our office will be working particularly with Mr.
Rothfus on drug trafficking, as Ohio has a tremendous problem
with overdose deaths.
And I am just curious if you could put into scope the size
of dollar volume and number of transactions that you suspect
are associated with drug trafficking on the one hand and human
trafficking on the other.
Ms. Mandelker. For those numbers, I would really defer to
my colleagues at the DEA, the Justice Department, the State
Department. I know these are tracked very carefully, but I want
to make sure that we get it right. So we would be happy to
provide you with some additional information.
I can tell you that the drug trafficking problem, in
particular, is something that we are very focused on. We have a
team that has been working on this intently for a number of
years. And they are not just here in the United States; we also
have them deployed into some key countries. It is a very active
portfolio for us.
And this crisis is one that hits all of us. It is not just
an international problem. I know it hits you at home. So it is
something we are focused on, and we are going to continue to
be.
Mr. Davidson. Yes, an impressive set of capabilities, and
some that are expanded. As you mentioned, since 9/11, we have
changed some laws. We have added a lot of flexibility. And I am
just curious if you could provide a distinction in the support
you provide for law enforcement between the term ``query'' and
``search.''
Ms. Mandelker. I am not sure I understand your question.
Mr. Davidson. I guess the distinction between law
enforcement asking you to query a database versus asking for
support on a search warrant.
Ms. Mandelker. Oh, I see. So law enforcement has this
access to the BSA's database, just as we do, so they don't
actually need to come to us to get that type of information. We
have MOUs with a number of different law enforcement agencies.
Of course, when they need our help, we are happy to provide it
to them. We work very closely with a number of different law
enforcement agencies on a wide array of efforts. But they don't
need to come to us. They have the same access that we do.
Mr. Davidson. Direct access. OK.
And so, as you update the things that you are asking for
support from our financial institutions, your business rules, I
think they are termed, how do you update those? And if you have
flags because of recent activity, whether that is truck
rentals, cross-border activity, how do you update those, and
how timely can that be? Because banks have whole floors devoted
to this compliance of AML and BSA. How do they get focused and
productive?
Ms. Mandelker. So we work closely with the banks. I mean,
one of the things that we have done historically but we are
going to be increasing are public-private dialogs with the
banks. That is where we go to the banks and we tell them, look,
we have a particular case or a particular typology, we present
that information to them, and ask for their feedback.
And then, of course, there are a lot of different ways in
which we update our rules or our queries to detect different
types of activities, as do our partners in the law enforcement
community.
Mr. Davidson. OK. So one of the ways that you interact is
through 314(a), but then we have seen some interest in
expanding the ways for banks to interact with one another,
financial institutions to interact with one another.
It is really somewhat intuitive to understand how a law
enforcement organization would be working with banks to access
information in their databases, the ``know your customer''
regimes, things like this, suspicious activity reports. It is
not intuitive, to me anyway, as to why they would need to
engage in ostensibly law enforcement functions amongst
themselves with no government involvement whatsoever.
Could you elaborate on that, please?
Ms. Mandelker. Look, we are encouraged that banks are
working with each other in different settings, and we do
interact closely with them in those efforts. So, for example,
there is a consortium of banks under 314(a) that are sharing
information with each other and providing us with the link
analysis that they are getting and identifying illicit activity
and front companies.
I think that when they do that they are also enhancing
their own ability to sophisticate their algorithms and their
red alerts. So it has been something that has been beneficial
to us; I think it has also been beneficial to them.
Mr. Davidson. Thank you.
My time has expired. I yield, Mr. Chairman.
Chairman Pearce. The gentleman's time has expired.
The Chair would now recognize the gentleman from North
Carolina, Mr. Budd, for 5 minutes.
Mr. Budd. Thank you, Mr. Chairman.
And thank you, Madam Under Secretary, for all that you do
in service to our Nation. And, again, I also agree that your
expertise is quite amazing across so many different areas. So
thank you again for serving our country in the way that you do.
Ms. Mandelker. Thank you.
Mr. Budd. So, this past July, my colleague from Arizona,
Ms. Sinema, and I introduced the National Strategy for
Combating Terrorist, Underground, and Other Illicit Financing
Act. And in August, our legislation was rolled into a sanctions
bill, the Russia-Iran-North Korea sanctions package, and signed
into law.
So the Budd-Sinema legislation requires that the President
consult with Treasury and other appropriate agencies to develop
a national strategy for combating the financing of terrorism.
So are you aware of any planning sessions that have begun as a
result of that, and can you elaborate on them?
Ms. Mandelker. Yes, absolutely. So we are leading that
effort and the strategy. We are working closely with our law
enforcement and interagency partners. It is actually something
I am familiar with because we had these kinds of strategies
when I was at the Justice Department and also at Homeland
Security 10 or so years ago. So we are actively working on the
strategy and will be happy to update you on it.
Mr. Budd. Thank you.
So, outside of that legislation, what other role, in your
view, should Congress be playing in the fight against terrorist
financing in the U.S. or abroad?
Ms. Mandelker. Well, I think Congress has provided us with
tremendous authorities and tools to combat terrorism, illicit
financing. I know it has been an area that has been of great
concern to this committee, and we very much appreciate your
partnership in that.
I will say, one area that I think would also be helpful for
us is the ability to ensure that we can stay flexible in the
use of our authorities. So there have been some pieces of
legislation which have tried to limit our licensing
authorities, for example, or our ability to waive or delist
entities.
And what I am constantly focused on is making sure that we
are using our economic authorities aggressively to combat
terrorist financing, proliferation, human rights violators, et
cetera, and the ability to do so, to achieve what we all
collectively want, which is really maximum strategic impact to
curb these threats, also requires that we act with agility and
flexibility.
So I would be happy to talk to the committee about that
some more, but I would also ask that you make sure that we have
the flexibility that we need to execute our authorities in the
way that I know you would all want us to do.
Mr. Budd. Let's continue the dialog on that so you can have
that flexibility. Thank you.
Ms. Mandelker. Thank you.
Mr. Budd. So, with the time I have left, I want to
transition into the FinTech and the virtual currency space, and
I want to get your opinion on Treasury's role in that arena.
So I think we, as lawmakers, are in a tough spot right now.
So how do we encourage FinTech to innovate by limiting
regulation but, at the same time, getting ahead of what many in
the national security field see as a future problem? And that
is increased terror and illicit use of virtual and
cryptocurrencies. Any thoughts there?
Ms. Mandelker. So it is an area that we are focused on. We
are actually going to be focused--and my staff are going to be,
and I will, as well, doing some work, having productive dialogs
with FinTech and RegTech. Because I think this is the wave of
the future; artificial intelligence is the wave of the future.
We need to make sure that we stay on top of it, that, among
others, the financial institutions can continue to sophisticate
the ways in which they track illicit financing and that we in
the Treasury and in the government do the same.
Mr. Budd. Sure.
Ms. Mandelker. So, again, something I would be happy to
discuss with you in the future. We have to be ahead of these
illicit actors, far, far ahead of these illicit actors. And
some of that, of course, is going to involve FinTech and some
of the exciting, new developments that are in the arena.
Mr. Budd. Any changes, in particular, that you see are
concerning in the virtual currency landscape that is
appropriate for this conversation?
Ms. Mandelker. I wouldn't say it is appropriate for this
conversation.
Mr. Budd. Sure. OK.
Well, in your view, is there any way that we can more
effectively balance the anti-money-laundering, combating
financial terrorism, the interest of the government there, with
encouraging innovation?
Ms. Mandelker. Look, I am a big proponent of encouraging
innovation. We are seeing a lot of innovation. I have been
seeing a lot of it, frankly, in the last 4 months. I think it
is something we need--we need to encourage innovation. There
are a lot of different ways to do so. And, again, I would be
happy to have a longer conversation with you about it.
I know also that there are a number of different pieces of
legislation that are focused on--and recommendations from the
private sector that are focused on making sure that they can
innovate in the way that they need to. And it is something that
I am very involved in exploring.
Mr. Budd. Thank you.
My time has expired. I yield back.
Thank you again.
Chairman Pearce. The gentleman's time has expired.
Memphis is the home of the Memphis Belle, Elvis Presley,
King Cotton, and our next questioner. I recognize the gentleman
from Tennessee, Mr. Kustoff, for 5 minutes.
Mr. Kustoff. Thank you, Mr. Chairman.
Thank you, Madam Under Secretary, for being here today. And
as a former United States attorney, thank you for your prior
service to the Department of Justice as well.
Ms. Mandelker. Thank you.
Mr. Kustoff. If I could, back in June, Representative
Sinema and I wrote a joint letter to Treasury urging the
Financial Action Task Force to reimpose countermeasures against
Iran. I think we have all seen that Iran has continued to
engage in troubling behavior throughout the Middle East, which
poses a continued and serious threat and a growing threat.
And, if I could, I did receive a letter back in July of
this year from Deputy Assistant Secretary Matt Kellogg. I won't
read all of it to you, but, if I could, if I could cite part of
the letter and then ask you.
He says that the FATF decided in June to maintain Iran on
its, quote/unquote, ``blacklist,'' close quote, and called upon
its members and urged all jurisdictions to continue advising
their financial institutions to apply enhanced due diligence to
business relationships and transactions with all natural and
legal persons from Iran.
He then goes on to say that we will also continue to
address Iran's troubling behavior throughout the Middle East,
which poses a serious and growing threat.
And I do appreciate the response that I received back from
Treasury. Can you elaborate, if you could, on any further
sanctions or any further actions that Treasury and other
entities are taking against Iran at this time?
Ms. Mandelker. I would be happy to.
So Iran is a big area of focus for us in the Treasury
Department. As you may know, the President recently announced a
new strategy to counter Iran's malign and destabilizing
activity, and at the Treasury Department we are a very big part
of that effort.
So we have issued over 70 designations since the beginning
of this administration against entities that have been involved
in Iran's ballistic missile development and Iran's support for
terrorism and its human rights violations and proliferation,
and we are not going to stop. I mean, we have to be--I think,
really, the world has to be united in its efforts to counter
the malign and destabling activity of the Iranian regime, and
we are intent on doing so.
We are also working within the FATF on monitoring any
developments with respect to Iran's AML and CFT regime. Look,
there is no transparency in the Iranian system, the Iranian
economy. Not only that, but the IRGC plays a very big role in
the Iranian economy. And there needs to be significant changes
on both fronts, and we are intent on holding them accountable
in that regard.
Mr. Kustoff. In the July letter back to me, he cites that
the FATF has again decided not to lift countermeasures,
extending a temporary suspension of countermeasures instead.
That is still in place?
Ms. Mandelker. That is currently still in place. The review
process for Iran will end in February, and it is, again,
something that we are working on very intently.
Mr. Kustoff. And after February, can you give any
assurances that it will be extended? Or what do you see
happening after February 2018?
Ms. Mandelker. Well, the FATF is a consensus body, so I
can't tell you exactly what the FATF will do. What I can tell
you is that this is a very big focus of effort for us in the
United States. We are deeply disappointed by what Iran has been
doing with respect to the FATF efforts. And we have made our
expectations known and we have made our disappointment known
and will continue to do so, including in February.
Mr. Kustoff. And I appreciate that.
If I can, to follow up on a question, and maybe Mr. Budd's
question as well, about the cryptocurrencies. And I think one
concern that we all have is that some lone wolf, if you will,
or some small-cell terrorist will try to use the virtual or
cryptocurrencies for activity.
Would you, if you could, describe the extent that any
attackers have relied on anonymous financing means such as
cryptocurrency?
Ms. Mandelker. So I don't think that I can do so in this
setting. What I can tell you is that cryptocurrency is a big
area of focus for us, and I know it is for the Department of
Justice as well. It was when I was at the Department of
Justice. And we are going to continue to take action in
connection with the use by any illicit actor of cryptocurrency.
Mr. Kustoff. Thank you very much.
My time has expired, and I yield back.
Ms. Mandelker. Thank you.
Mr. Pittenger [presiding]. The gentleman's time has
expired.
I would now like to call the Chairman of the Foreign
Relations Committee, Mr. Ed Royce.
Mr. Royce. Well, thank you, Secretary. Congratulations
again to you.
Ms. Mandelker. Thank you.
Mr. Royce. We have had a chance to talk about a couple of
things. I wanted to follow up on Ed Perlmutter's commentary to
you earlier. And I share the same concern here. We have been
working on sanctions issues now, and our concern is that you
inherited basically an agency that is the lynchpin of the
enforcement, and the budget is going to be inadequate to the
dramatic increase in sanctions that we are passing. We have
passed--over the last 20 years, I have been engaged in most of
these issues, and all of a sudden you have an exponential
increase.
And the other part of this that I am concerned about is
work force retention, not because of the culture in the agency.
The problem is that the private sector has a demand for the
skill that you are turning out. And so the reality is you are
also going to be losing people to the private sector that are
willing to pay to get that kind of expertise, and suddenly the
amount of expertise necessary to deal with what we have done on
Korea and what we are doing on the Iranian missile sanctions
and so forth, that is going to be a challenge. You are going to
have to have a situation where you are able to retain skilled
staff, and we are going to have to be agile at replacing the
individuals that do get hired away.
And for all of those reasons, a point Ed raised and that I
am raising with you, it sort of demands a strategy in terms of
how you address that.
Ms. Mandelker. So I have been very focused on that issue as
well.
Look, I think what--I have been incredibly impressed--and I
heard this before I came to Treasury, but it is really true--by
the mission focus of the people who work in the Treasury
Department and, in particular, on this portfolio. So we have a
number of people--in fact, I would say, the whole work force--
who comes to work every day inspired and excited about the work
that they do because they are helping to protect the safety and
security of our country.
At the same time retention is important, recruitment is
also very important. We have to recruit the best and the
brightest. And I have a number of initiatives I would be happy
to come talk to you about.
Mr. Royce. Well, Hezbollah sanctions are coming as well.
And so I wanted to offer a dialog with you and your staff on
this critical issue, if we could, because I think it is going
to--normally, you would consider it sort of overwhelming, in
terms of the amount of workload that is coming. And that is not
just my concern; my team that helped me write the sanctions
bills were all concerned about.
Ms. Mandelker. Thank you.
Mr. Royce. I do have a few questions related to anti-money-
laundering efforts. And I have talked to you before about my
concern about the ``know your customer'' law, and yet we don't
have transparency. And that issue has come up a couple of times
today, in terms of different ways to deal with that.
But the threshold for filing suspicious activity reports
was set back in 1996. And the threshold for filing currency
transaction reports, that was in 1972. So how were the
threshold amounts determined 20 years ago and 45 years ago? And
do you think it is time for Congress and Treasury to revisit
the thresholds?
Ms. Mandelker. I think it is time for us to revisit the
regime writ large. I mean, we have to get out of the 1970's and
the 1990's and move way past 2017. So I look forward to working
with you on that. I think it is a very important effort. I view
the financial crimes analysts who are working on these SARs and
other reporting mechanisms as really being on the front lines
for us--
Mr. Royce. But I think we have to do it in tandem with the
beneficial ownership issue. We have to get transparency in our
system. We are not as bad as Kenya, but we are the second worst
from the bottom in terms of being able to monitor this. And it
has to be addressed. And we will talk more about that.
How do we encourage the use of new technologies to combat
money laundering? And do financial institutions have sufficient
legal certainty to be innovative in their efforts? And would
you be supportive of further clarification along these lines?
Ms. Mandelker. Look, I think innovation is very important.
I have had financial institutions come and talk to me about the
efforts that they are undertaking to be more innovative, and I
think that we need to encourage and promote that activity. So,
whether we need guidance or different statutory authorities, it
is something that we would have to discuss, but they need to be
more sophisticated. They need to have more sophisticated
algorithms.
And, of course, there is a lot of discussion about the use
of AI in helping to monitor and detect illicit financing, and
we need to stay ahead of it. The criminals are ahead of it. We
need to be far ahead of them.
Mr. Royce. Thank you, Madam Secretary.
Thank you, Mr. Chairman.
Mr. Pittenger. Thank you.
The gentleman's time has expired.
We would like to thank you, Secretary Mandelker, for being
with us today and for your testimony.
Without objection, all members will have 5 legislative days
within which to submit additional written questions for the
witness to the chair, which will be forwarded to the witnesses
for their response. I ask our witness to please respond as
promptly as she is able.
This hearing is adjourned.
Ms. Mandelker. Thank you.
[Whereupon, at 3:55 p.m., the subcommittee was adjourned.]
A P P E N D I X
November 8, 2017
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