[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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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                  Kirsten Sutton Mork, Staff Director
             Subcommittee on Terrorism and Illicit Finance

                   STEVAN PEARCE, New Mexico Chairman

ROBERT PITTENGER, North Carolina,    ED PERLMUTTER, Colorado, Ranking 
    Vice Chairman                        Member
KEITH J. ROTHFUS, Pennsylvania       CAROLYN B. MALONEY, New York
LUKE MESSER, Indiana                 JAMES A. HIMES, Connecticut
SCOTT TIPTON, Colorado               BILL FOSTER, Illinois
ROGER WILLIAMS, Texas                DANIEL T. KILDEE, Michigan
BRUCE POLIQUIN, Maine                JOHN K. DELANEY, Maryland
MIA LOVE, Utah                       KYRSTEN SINEMA, Arizona
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              RUBEN KIHUEN, Nevada
WARREN DAVIDSON, Ohio                STEPHEN F. LYNCH, Massachusetts
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    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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