[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




 
                      THE ANNUAL TESTIMONY OF THE

                       SECRETARY OF THE TREASURY

                          ON THE STATE OF THE

                     INTERNATIONAL FINANCIAL SYSTEM

=======================================================================

                                SHEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 12, 2018

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-107
                           
                           
                           
                           
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          
                             _________ 

                 U.S. GOVERNMENT PUBLISHING OFFICE
                   
 31-506 PDF               WASHINGTON : 2018      
                          
                           
                           
                           
                           

                 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

                     Shannon McGahn, Staff Director
                     
                     
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 12, 2018................................................     1
Appendix:
    July 12, 2018................................................    55

                               WITNESSES
                        Thursday, July 12, 2018

Mnuchin, Hon. Steven T., Secretary, U.S. Department of the 
  Treasury.......................................................     5

                                APPENDIX

Prepared statements:
    Mnuchin, Hon. Steven T.......................................    56

              Additional Material Submitted for the Record

Mnuchin, Hon. Steven T.:
    Written responses to questions for the record submitted by 
      Representatives Beatty, Moore, Sinema, Tipton, and Waters..    59


                      THE ANNUAL TESTIMONY OF THE


                       SECRETARY OF THE TREASURY


                          ON THE STATE OF THE


                     INTERNATIONAL FINANCIAL SYSTEM

                              ----------                              


                        Thursday, July 12, 2018

                     U.S. House of Representatives,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:04 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Present: Representatives Hensarling, Royce, Lucas, Pearce, 
Luetkemeyer, Huizenga, Hultgren, Ross, Pittenger, Wagner, Barr, 
Rothfus, Tipton, Williams, Poliquin, Love, Hill, Emmer, Zeldin, 
Trott, Loudermilk, MacArthur. Davidson, Budd, Tenney, 
Hollingsworth, Waters, Maloney, Velazquez, Sherman, Meeks, 
Clay, Lynch, Scott, Green, Cleaver, Moore, Himes, Foster, 
Kildee, Delaney, Sinema, Beatty, Heck, Vargas, Gottheimer, 
Crist, and Kihuen.
    Chairman Hensarling. The committee will come to order.
    Without objection, the Chair is authorized to declare 
recess of the committee at any time, and all members will have 
five legislative days within which to submit extraneous 
materials to the Chair for inclusion in the record.
    This hearing is entitled, ``The Annual Testimony of the 
Secretary of the Treasury on the state of the International 
Finance System.'' I now recognize myself for 5 minutes to give 
an opening statement.
    Whether you are looking at unemployment, disposable family 
income, GDP (Gross Domestic Product), small-business optimism, 
you name it, it is clear that many, if not most, Americans are 
enjoying the very best economy of their entire lifetimes. And 
no man is more responsible than President Donald Trump.
    However, if we find ourselves mired in a full-fledged 
global trade war with no end in sight, all of the economic 
gains he has helped bring us may well be lost.
    I have heard the President boldly call for the elimination 
of global tariffs. I enthusiastically applaud the President for 
doing so. However, I also continue to hear talk from the 
Administration of, quote, ``ending trade deficits,'' and, 
quote, ``imposing reciprocal trade policies.'' These are not 
identical goals to reducing trade barriers. For example, we 
could end trade deficits tomorrow by simply outlawing trade and 
then watch as GDP and disposable family income plummet.
    With respect to reciprocal trade agreements, just because 
other nations punish their consumers with tariffs, doesn't mean 
we should necessarily follow suit, because at the end of the 
day, a tariff is a tax, a tax that is usually passed on to the 
consumer. So, for the example, when the Administration first 
announced their tariffs on steel, aluminum, and washing 
machines earlier this year, it became more expensive for 
working Americans to share a six-pack with their friends at the 
local laundromat.
    As of last Friday, when the Administration announced $34 
billion in tariffs on an array of Chinese goods including auto 
parts, it also became more expensive to work on your car in the 
same laundromat parking lot. And now with an additional $200 
billion in tariffs announced, who knows whether the laundromat 
will even be here at year's end.
    As my constituent Chris in Mesquite, Texas, wrote me about 
tariffs, quote, ``I am now facing increased cost in auto parts 
and housing,'' it can't get any closer to home than that. Not 
only do tariffs harm American consumers, they harm many 
American employers and their American workers as well, since 
over half of our imports are intermediate components or raw 
materials for American businesses.
    As my constituent Elizabeth from Dallas wrote me, quote, 
``I am a metal manufacturer. Since the tariff talks began in 
February, I have seen major increases, well over 25 percent 
from steel vendors and the mills. Soon my end users won't be 
able to afford the cost of our products. I may have to actually 
lay off workers,'' end quote. This is the voice of one American 
business, but she undoubtedly speaks for many.
    Tariffs can also damage entire industries, including 
strategic ones like our domestic energy industry. For most of 
my life, America has been energy dependent. Now we are on the 
cusp of producing more oil than any country in the world, but 
the oil and gas industry imports specialty steel and aluminum 
for pipelines, wells, and other infrastructures. The tariffs 
may just harm our ability to remain energy independent.
    And I have yet to speak of the retaliatory tariffs of the 
E.U., Canada, Mexico, and China. Needless to say, it is a bad 
time to be an American SUV producer or an American soybean 
farmer.
    The soybean prices have dropped to their lowest level in 
almost a decade. One farmer said about his family farm, quote, 
``That is $100,000 that has disappeared into thin air. We were 
already in the red, now it is even worse,'' unquote.
    We have known since the days of Adam Smith and David 
Ricardo that trade is a win-win situation; no trade, in 
contrast, is a lose-lose situation.
    I understand that our trading partners have more to lose 
than we do because their economies are far more export-
dependent, but losing less is not the same as winning more.
    When the dust finally settles, the Administration's trade 
policy may prove to be brilliant. I hope so. With patience, 
short-term pain may pay off in long-term gain if tariff and 
non-tariff trade barriers are actually reduced. But in the 
meantime, capEx check books are closing and expansion plans are 
being put on hold as growing uncertainty creeps throughout our 
economy. So I hope it is time that we get on with it.
    I would respectfully call upon the Administration to 
concentrate time, resources, diplomacy on those nations that 
consistently violate WTO guidelines, enforce involuntary I.P. 
and technology transfers. In other words, it is the moment we 
should be uniting with our traditional allies to confront 
China.
    I would also call upon the Administration to drop any 
effort to unilaterally impose auto tariffs under Section 232. 
The 11-year-old Honda Accord I drove to work today in, simply 
does not threaten national security, nor does any other 
imported vehicle. I fear further efforts in this regard are 
counterproductive and will simply undermine the 
Administration's credibility.
    I do wish, though, to compliment the President, and 
Secretary Mnuchin, for working with Congress on vital CFIUS 
(Committee on Foreign Investment in the United States) reform. 
Thanks to the leadership of Mr. Pittenger, Mr. Heck, Mr. Barr, 
and the Ranking Member, the House's bill was passed 400 to 2, 
and we look forward to going to conference with the Senate.
    This shows how the Administration and Congress and both 
parties can work together on shared trade goals. The 
Administration should continue to work collaboratively with 
Congress on trade, and yesterday's Senate 88 to 11 vote is 
indicative of its importance.
    I now yield 3 minutes to the Ranking Member for an opening 
statement.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I am looking forward to hearing Secretary Mnuchin's 
testimony today on the state of the international financial 
system.
    I must admit that I was surprised to learn that the Trump 
Administration had agreed to back a $13 billion capital 
increase for the World Bank and the IFC; that is the 
International Monetary Fund (IMF). This positive step is a 
notable departure from the Trump Administration's unprecedented 
and harmful approach to multilateral agreement.
    However, it would be a serious mistake for the World Bank 
to take my support for this capital increase for granted. I am 
extremely concerned about the bank's recent recommendations in 
its upcoming World Development Report for the wide-scale 
dismantling of regulations protecting workers, including lower 
minimum wages and greater firing powers, particularly in 
developing countries. The World Bank should not be rewriting 
the social compact to recast the balance of power between labor 
and capital.
    This will lead to greater inequality and undermine social 
cohesion and, ultimately, harm the bank's legitimacy and 
relevance in the fight against global poverty. That said Mr. 
Chairman, while I do appreciate the Administration's support of 
the World Bank, I am very concerned about the actions this 
Administration has taken in many other areas that fall into the 
purview of the Treasury Secretary.
    As we meet here today, the Trump Administration is waging a 
trade war that will have wide-ranging economic consequences. 
Last week, Mid-Continental Nail, America's largest nail 
manufacturer, laid off 60 workers and announced that the whole 
company would go out of business by Labor Day.
    Volvo no longer plans to hire 4,000 workers in South 
Carolina. The U.S. Chamber of Commerce is warning that 2.6 
million jobs are at risk. Hard-working Americans are already 
suffering as a result of the retaliatory tariffs provoked by 
the ensuing economic uncertainty caused by this President.
    And moreover, this trade war comes at a time when our 
deficit has bloomed due to the Republican tax law, which has 
been nothing more than a giveaway to very wealthy individuals, 
Wall Street banks, and big corporations.
    I look forward to hearing Secretary Mnuchin address the 
adverse impact this Administration's policies are having and 
will have on small businesses and consumers, and I yield back 
the balance of my time.
    Chairman Hensarling. Gentlelady yields back, the Chair now 
recognizes the gentlelady from Wisconsin, Ms. Moore, Ranking 
Member of the Monetary Policy and Trade Subcommittee for 2 
minutes.
    Ms. Moore. Thank you so much Mr. Chairman, and I want to 
welcome Secretary Mnuchin back to the committee. I appreciate 
your reply to my letter that I sent on May 17th, you replied 
just recently. The letter was related to the transfer of the 
Universal Service Fund (USF) to the Department of Treasury.
    So I look forward to your testimony, but during the Q&A, we 
have already alerted your staff so that you could be prepared 
for my questions. There are outstanding issues surrounding the 
Universal Service Fund that are important to both my urban 
constituents and rural constituents of many of my Republican 
colleagues here who really rely on these services.
    Like the Rural Healthcare Program, the Connect America 
Fund, and in my district, there are over 50,000 households that 
subscribe to the Lifeline, just one of the programs that is 
supported. It connects disabled people, poor people with jobs 
and with health care assets.
    I am going to appreciate hearing a detailed explanation of 
the regulations, resources, and staff you have put in place to 
ensure that the FCC continues to use these funds to provide 
telecommunications access to Americans, and assurance from you 
that these services will not be disrupted.
    The specific funds that you deposited into the Treasury 
account and the funds that you are still waiting to be 
transferred, that you referred to in your letter, and how you 
plan to make up for the loss of interest that the funds were in 
interest-bearing accounts in a private sector when they were 
there and how you will make up the deficit so there won't be 
any lapse in ability to serve those constituents.
    And so I look forward to your testimony, Mr. Secretary, and 
I yield back the plethora of time that I have.
    Chairman Hensarling. Gentlelady yields back. Today we 
welcome back to the committee, for his third appearance, the 
honorable Steven Mnuchin, Secretary of the U.S. Department of 
Treasury. Secretary Mnuchin has previously testified before 
this committee, and so because of that, I believe he needs no 
further introduction.
    Without objection, the witness' written statement will be 
made part of the committee record. Secretary Mnuchin, welcome 
again and you are now recognized to give an oral presentation 
of your testimony. Thank you.

               STATEMENT OF HON. STEVEN T. MNUCHIN

    Secretary Mnuchin. Thank you.
    Chairman Hensarling, Ranking Member Waters, and members of 
the committee, it is good to be here with you today to discuss 
the National Advisory Council (NAC) on International, Monetary, 
and Financial Policies Report to Congress and other priorities 
of the Treasury Department.
    The NAC Report highlights international financial 
institutions (IFIs) roles in encouraging global macroeconomic 
growth and financial stability, advancing U.S. national 
security priorities, supporting the development of markets for 
U.S. business and working to alleviate poverty.
    The Treasury has promoted reforms at the IFI's to help them 
better contribute to these objectives, and we will continue our 
efforts to increase the IFI's effectiveness and value to 
taxpayers. I would like to note that the International Monetary 
Fund's periodic review of quotas is scheduled to be concluded 
next year.
    Every 5 years, the fund reviews its financial resources and 
decides whether to increase them. At this time, the United 
States finds that the IMF's overall resources are adequate 
following the 2016 implementation of the 2010 quota and 
governance reforms.
    I also want to highlight the strength of the U.S. economy. 
We continue to implement President Trump's economic agenda 
focused on tax cuts, regulatory reform, and trade. In only 6 
months since the Tax Cuts and Jobs Act, Americans are seeing 
faster GDP growth, more money in their paychecks and better 
career opportunities.
    Unemployment numbers are historically low, with an average 
of over 200,000 jobs added each month of the second quarter 
this year. Over 500 companies have announced bonuses, wage 
increases, and enhanced benefits. The National Federation of 
Independent Business, the National Association of 
Manufacturers, and the Consumer Confident Index are all at 
reporting level records of optimism.
    Americans are keeping more of their hard-earned money and 
U.S. business is more competitive. Our efforts to eliminate 
unnecessary burdensome regulations are also having a tremendous 
impact. We have worked closely with this committee and others 
in Congress, as well as our colleagues across the 
Administration, to create a regulatory environment that is more 
efficient and predictable for business.
    These reforms are enhancing the flow of credit and 
supporting job creation and wage growth. At the same time, we 
remain committed to ensuring the stability of the financial 
system and protecting taxpayers and consumers.
    Our tax and regulatory reform agenda compliments our trade 
efforts. We strongly support Congress' bipartisan effort to 
strengthen and modernize the commodity on foreign investment in 
the United States CFIUS review process and its inclusion in the 
National Defense Authorization Act.
    The Administration is pleased to work with members to 
maintain our open investment environment, while ensuring that 
certain transactions are reviewed for national security 
purposes. We have made great progress in the last 18 months in 
implementing the President's agenda.
    We are working every day to guide multilateral financial 
organizations toward a limited role that is more consistent 
with free markets, faster growth, and U.S. national interests. 
Hardworking taxpayers across the country are optimistic that 
they will have a more prosperous and secure future, and we are 
seeing America's great potential come to fruition.
    Thank you very much. I look forward to answering your 
questions.
    [The prepared statement of Secretary Mnuchin can be found 
on page 56 of the appendix.]
    Chairman Hensarling. Thank you, Mr. Secretary.
    I will now yield to myself for questioning.
    Clearly, as you heard from my opening remarks, I am most 
concerned about the status of global trade. And I realize that 
most of this was within the bailiwick of USTR and Commerce, but 
clearly America's trade policies do have an impact on the 
international finance system.
    So again, as I said, I have been heartened by comments by 
the President and by Secretary Ross that our goal appears to be 
to eliminate, or at least significantly reduce, trade barriers, 
but I am concerned because in the one trade agreement that has 
been modified since the Administration began its policy, Korea, 
what I think I saw in the Korean agreement is the imposition of 
a quota on Korea and steel exports to the U.S. and a 20-year 
extension of a 25 percent tariff on Korean trucks.
    So I would hope that the answer and the goal would be for 
America to export more, not necessarily import less. And so the 
question, Mr. Secretary is, is Korea the template for future 
modifications of our bilateral or multilateral trade 
agreements?
    Secretary Mnuchin. Mr. Chairman, thank you very much.
    And I have had the opportunity to work very closely with 
Ambassador Lighthizer and Secretary Ross and others in the 
Administration with the President. The President is very 
focused on free and fair trade, as you mentioned.
    At the G-7, the President specifically said, let us sign a 
free-trade agreement with no tariffs, no barriers, no 
subsidies. So the President is very much focused fighting every 
day on having free and fair trade.
    In regards to your question, there is no specific model for 
other agreements. We are very focused on NAFTA (North American 
Free Trade Agreement) and renegotiating that.
    Chairman Hensarling. I will just say again, Mr. Secretary, 
I appreciate the words, but I am concerned about the deeds as I 
look at how the Korean trade agreement has been modified.
    Mr. Secretary, I also want to speak again--I could not say 
it more clearly--that many Americans are seeing an economic 
miracle and it is because of the President and, frankly, the 
work you have done and others on tax cut, increased jobs, 
rightsizing regulation. But I think the greatest economic 
stimulus I have seen is business optimism. And unfortunately my 
fear is that may be receding.
    I am not sure if you are familiar, CNBC does a survey of 
CFOs of major U.S. companies, and 65 percent have reported that 
they fear U.S. trade policy will negatively impact their firms 
over the next 6 months.
    It's been reported as of July 6th that the FOMC's (Federal 
Open Market Committee) minutes of the June meeting had this in 
it. Quote, ``Most FOMC participants noted that uncertainty and 
risk associated with trade policy had intensified and were 
concerned that such uncertainty and risk eventually could have 
negative effects on business sentiment and investment 
spending.''
    So I am just curious, Mr. Secretary, how does the 
Administration think about business uncertainty as it 
calculates its trade policy?
    Secretary Mnuchin. Mr. Chairman, I can assure you that the 
President is very focused on economic growth, and I can also 
assure you that I am monitoring the situation very carefully.
    I am not familiar with that specific poll, but I speak on a 
regular basis to many industries as well as people within the 
Administration, and we are monitoring the economic situation.
    We have not yet seen any negative impact, although as you 
have said, we are monitoring carefully the impact on 
uncertainty on investments.
    Chairman Hensarling. Mr. Secretary, even as of today, the 
actual tariffs are a small part of our global trade, but that 
is soon to change if the $200 billion that has now been 
threatened against China actually comes to be in 60 days.
    I guess the last question I would have, Mr. Secretary, is I 
am curious how the Administration thinks about the possibility 
of a global recession. In the U.S. we are facing rising 
interest rates, the Fed needs to have an orderly wind down of 
its balance sheet.
    You know better than others that we may be looking at an 
inverted yield curve that at least historically has been a 
leading indicator of the recession. We know about tightening 
monetary policy in other segments.
    So there is already a threat to economic growth. How do you 
factor that in, again, to the Administration's trade policy? 
What is the risk?
    Secretary Mnuchin. Mr. Chairman, let me just comment 
specifically on the--we don't have an inverted yield curve, 
there is a flattening of the yield curve that somewhat reflects 
people's future view of rates and where rates will be.
    I don't think that is indicative of any way of recessionary 
concerns. And as I said, we are monitoring very carefully the 
impact of tariffs and we will continue to do so and we are very 
focused on economic growth and look forward to what hopefully 
will be a very big quarter of GDP and future growth for the 
balance of the year and next year.
    Chairman Hensarling. The time is expired, I now recognize 
the Ranking Member for 5 minutes.
    Ms. Waters. Thank you very much. Mr. Secretary, because of 
this President's trade war, again, Mid-Continental Nail that I 
mentioned in my opening statement, America's largest nail 
manufacturer based in Missouri, laid off 60 workers last week 
and expects to go out of business by Labor Day.
    Harley Davidson, this company is as American as motherhood 
and apple pie, based in Wisconsin, is moving jobs overseas to 
Europe to avoid tariffs on its exports. Volvo, again, will no 
longer hire 4,000 new workers in South Carolina and the U.S. 
Chamber of Commerce warns that 2.6 million jobs are on the 
chopping block because of Trump's policy on tariffs.
    On top of all the job loss, American families will pay 
higher prices for the goods that they buy since tariffs are a 
tax paid by Americans. And it seems things are only going to 
get worse. Just yesterday, Trump announced that he may levy an 
additional $200 billion in tariffs on China.
    China responded that it would take further retaliatory 
measures, possibly including more tariffs on U.S. goods, 
letting its currency depreciate or even selling off billions of 
treasury bonds.
    The Trump Administration appears to be flying by the seat 
of its pants with no plan for how to address the possibility of 
a recession, the higher prices consumers will pay and the 
resulting losses of millions of American jobs.
    Further, reports indicate that while the Federal Reserve is 
concerned about the possibility of a recession resulting from a 
trade war, it does not have the tools necessary to combat such 
a self inflicted disaster.
    As each day brings another announcement of jobs being 
eliminated or shipped overseas and consumers paying more for 
goods, what are you doing as Treasury Secretary to prevent 
further harm to our economy from the growing trade war?
    I know that you have attempted to answer this when the 
chairman questioned you about it, but I want to hear more in 
depth about how you are thinking about this and what you plan 
to do if there is further harm to our economy.
    Secretary Mnuchin. Thank you very much. First of all, I 
have noted the nail company and I will reach out to the 
Secretary of Commerce to see if that company is subject to some 
type of exemption, because obviously we don't want companies 
losing jobs.
    As it relates to Harley Davidson, I have previously 
publicly commented on this, I think the President has been a 
huge advocate of Harley Davidson. I think it is unfortunate 
that they are talking about moving jobs. My sense is that this 
was before tariffs.
    I will comment specifically on China, because I personally 
have been very involved in China. I have had multiple 
negotiations with them. Our objective is to create a level 
playing field for our companies to stop force technology 
transfer. We put a modest amount of tariffs on China as a 
result of technology transfers, China reciprocated.
    Our tariffs were less than 10 percent of what they shipped, 
they matched that dollar for dollar, and the President 
threatened if they did that, that he would retaliate, and we 
are now in a comment period on the $200 billion.
    And again, I would just assure you, we are monitoring the 
impact on the economy of all these different issues.
    Ms. Waters. I want to thank you for that. But I want to get 
back to Harley Davidson, because this is something that the 
American public really understands. They understand that Harley 
Davidson is a company that we would not like to see export 
overseas.
    So you mumble that the tariffs had nothing to do with them 
exporting jobs overseas. What did you just say?
    Secretary Mnuchin. So first of all, let me apologize if I 
mumbled. I will try to be clearer. First of all, in all 
fairness, I have not spoken to the Harley Davidson people 
direct. I know that the President has spoken to them.
    I can tell you, as I have sat in meetings with the 
President, other leaders, he always talked about tariffs on 
motorcycles and cutting tariffs on motorcycles. My sense is 
that Harley Davidson had previously planned on moving some of 
this manufacturing, and it is not just a result.
    In all fairness, I have not spoken to them direct. I share 
your concern very much of any jobs being moved by Harley 
Davidson or other people as a result of tariffs.
    Ms. Waters. What will you do to try and get them not to 
move the jobs overseas?
    Secretary Mnuchin. I am going to specifically reach out to 
them and find out the details with the Secretary of Commerce.
    Ms. Waters. And are you saying the President's tariffs have 
nothing to do with them moving those jobs overseas?
    Secretary Mnuchin. I have not spoken to them direct, so I--
    Ms. Waters. Have you spoken to the President?
    Secretary Mnuchin. Yes I have, I--
    Ms. Waters. And what did he say?
    Secretary Mnuchin. Again, he President has been a huge 
advocate of Harley Davidson, and is very disappointed on Harley 
Davidson's--
    Ms. Waters. Did he ask them to stay?
    Secretary Mnuchin. Yes, he did.
    Ms. Waters. And they turned him down?
    Secretary Mnuchin. No, I--they asked them afterwards, and I 
don't know the status of those--
    Ms. Waters. Thank you, I yield back the balance of my time.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from Kentucky, Mr. 
Barr, chairman of our Monetary Policy and Trade Subcommittee.
    Mr. Barr. Mr. Secretary, I certainly support the 
Administration's objectives to promote fair and reciprocal 
trades, but since we are on the topic, I will stick with the 
topic for a little while.
    I do appreciate your testimony that you and the 
Administration continue to monitor the impact of tariffs, but I 
do have concerns the tariffs and retaliatory measures on 
American industries could very well suppress or even reverse 
the record level of growth and job creation we have seen under 
your leadership and the President's leadership and in the 
booming economy.
    As we have discussed, my home State of Kentucky's signature 
bourbon and distilled spirits industry accounted for more than 
$450 million in exports worldwide in 2017. Of that, nearly $200 
million was exported to E.U. countries where the market for 
bourbon has been growing at record levels in recent years. An 
extended trade war would not only harm that iconic industry but 
also Kentucky's farm family suppliers, tourism, and ultimately 
consumers through higher prices and limited availability.
    Similarly, our companies and workers in the auto industry 
are facing steep international competition for jobs, sales, and 
innovation that has been intensified by the ongoing tariffs. 
Toyota's 30-year-old plant in my district in Georgetown, 
Kentucky, is Toyota's largest manufacturing plant globally. It 
employs more than 8,000 team members that produce more than 
550,000 vehicles and 650,000 engines last year. Toyota has told 
us that the tariffs have negatively impacted their supply 
chain.
    For example, the price of rolled steel is up 40 percent and 
the current price increase for engine and transmission parts is 
closer to 20 percent. I know that you, Mr. Secretary, and the 
President fully appreciate that neither Toyota Camrys nor 
bourbon implicate national security. But I do want to ask you, 
does the Administration have plans to mitigate the negative 
impact of retaliatory tariffs in ongoing trade negotiations 
that it has on American jobs and industries?
    Secretary Mnuchin. First of all, I appreciate the specifics 
and I am familiar with them. I think that you know the 
President is in Europe; he just concluded meetings yesterday 
with several European leaders and discussed trade, that was a 
very significant issue. There is a planned meeting with the 
E.U. later in the month. Again, we are very focused on the 
retaliatory measures and resolving them.
    Mr. Barr. Thank you. And again, we do want to hear more 
about your plans to mitigate the negative impact that these 
retaliatory measures are taking, so please stay in touch with 
us on that.
    Switching gears to North Korea really quickly. By all 
accounts the Singapore Summit was successful, but we are now 
hearing that North Korea is actually in the process of 
expanding its nuclear facilities despite the Summit and last 
week the North went on to criticize our quote, ``gangster like 
calls, for nuclear disarmament.''
    I appreciate that this Administration is not making the 
same mistake as the JCPOA (Joint Comprehensive Plan of Action) 
in the upfront sanctions relief but I do want to ask you for 
some reassurance about us not taking the foot off of the 
sanctions pedal when we continue to hear this belligerent 
rhetoric from the North. And in answering that question, I just 
remind you that this committee produced the Otto Warmbier North 
Korea Nuclear Sanctions Act. That bill passed the House 415 to 
2 and it's over in the Senate and that represents the toughest 
economic sanctions ever directed at North Korea. Can you use 
that legislation as leverage to continue to focus that maximum 
pressure as we continue to negotiate?
    Secretary Mnuchin. First of all let me just say there are 
no plans to loosen up on sanctions, if anything quite the 
contrary. The sanctions have been very effective. In regards to 
the legislation, we appreciate your efforts. We have tremendous 
tools at our disposal right now.
    I am not going to comment on some of the specifics that you 
have said about what North Korea may or may not be doing. I can 
assure you I have the utmost confidence in Secretary Pompeo. I 
think there is nobody better to be leading this effort for the 
Administration. We speak regularly on the specific status and I 
would just say don't believe everything you read in the press.
    Mr. Barr. Thank you. And finally on Iran, is the 
Administration on track to have sanctions fully re-imposed by 
the November deadline and what role do you see for Congress in 
the process of implementing sanctions with respect to the new 
policy toward Iran?
    Secretary Mnuchin. We are enforcing the maximum sanctions 
on Iran. They have been very effective. I have had many 
discussions with my European counterparts. There are few 
situations where we will have modest wind down periods and 
other things, but we expect compliance with the sanctions and 
we have made that very clear and many European companies have 
already done that.
    Mr. Barr. Thank you.
    Chairman Hensarling. Time of the gentleman has expired. The 
Chair now recognizes the gentlelady from New York, Ms. 
Velazquez.
    Ms. Velazquez. Thank you Mr. Chairman. Secretary Mnuchin, 
following the 2008 financial crisis, we learned that banks and 
mortgage companies engaged in deceptive marketing practices and 
provided fraudulent information to homebuyers in concerted 
efforts to disguise a mortgage's true cost to homebuyers. These 
dishonest practices fueled the subprime mortgage crisis which 
helped drive the broader financial crisis, which brought the 
world's financial system to the brink of collapse.
    Just a few years ago, we also learned that Wells Fargo 
fraudulently opened more than three million customer accounts 
in order to inflate their cross-selling business and increase 
their bottom line.
    Most recently, it has been reported that UBS executives 
both in Puerto Rico and here on the mainland purposely withheld 
and disguised the true risk of Puerto Rican government bonds 
that UBS packaged into mutual funds and sold to residents on 
the island, wiping out $10 billion in retirement savings.
    So, Mr. Secretary, my question to you is, in your role as 
both Treasury Secretary and Chair of FSOC (Financial Stability 
Oversight Council), do you believe that fraudulent and 
deceptive actions practiced by financial institutions could 
pose a threat to financial stability?
    Secretary Mnuchin. Thank you. I do not believe that they 
could pose a threat, at this point, to financial stability. 
Although I do acknowledge there are some very specific cases 
which the regulators are dealing with of improper practices.
    Ms. Velazquez. Do you believe that fraudulent and deceptive 
financial practices should be criminally investigated and, if 
necessary, prosecuted by the Department of Justice (DOJ)?
    Secretary Mnuchin. It's not my role to comment on 
prosecution but definitely I believe that if there are rules 
broken or anything else, the regulators should be responsible 
for--
    Ms. Velazquez. So we know that executives knowingly 
committed financial crimes or covered them up, they should do 
the time, don't you think?
    Secretary Mnuchin. I would just say my role in FSOC is to 
deal with the regulators. I am not commenting on--obviously its 
DOJ's responsibility to enforce the laws. That is not within my 
purview.
    Ms. Velazquez. On Tuesday, President Trump imposed a second 
round of tariffs on the additional $200 billion of Chinese 
goods. This led financial markets to tumble all day Wednesday. 
The Dow opened more than 100 points lower and continue to fall 
throughout the day, losing almost 200 points at the market 
close.
    Mr. Secretary, media reports indicate that high level talks 
between Chinese officials and the Trump Administration on 
tariffs and trade have ground to a halt. Do you believe that 
talks will be reopened and do you plan to participate in those 
discussions?
    Secretary Mnuchin. Yes, I plan to participate. Second of 
all I would say, that the Chinese want to make serious efforts 
to make structural changes, I and the Administration are 
available any time to discuss those. As it relates to the $200 
billion, I would just comment that had been previously 
announced; all we did the other day was announce the list which 
is now out for public comment and review.
    Ms. Velazquez. I yield back, Mr. Chairman.
    Chairman Hensarling. Gentlelady yields back.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Luetkemeyer, Chairman of our Financial Institutions 
Subcommittee.
    Mr. Luetkemeyer. Thank you, Mr. Chairman, and welcome, Mr. 
Mnuchin.
    I will give you a little respite from the trade talk here, 
I have a couple other questions with regard to guidance, 
derisking, and harmonization. So with regard to guidance, over 
the years, a large amount of agency guidance, handbooks, and 
circulars have been issued. Almost none of it has been 
withdrawn or rescinded.
    Almost none of it went through notice and comment 
rulemaking or was submitted to Congress pursuant to the 
Congressional Review Act. I recently sent a letter to the 
Federal Financial Regulators, asking them that they issue 
directives affirming that agency statements, including 
guidance, that haven't gone through the notice and comment 
rulemaking do not establish binding legal standards.
    I have asked this question of Chairman Powell and 
Comptroller Otting, among others, so do you agree with your 
colleagues that guidance is guidance and rules are rules?
    Secretary Mnuchin. I do.
    Mr. Luetkemeyer. As Treasury Secretary and head of FSOC, 
would you consider such an affirmation be included on future 
guidance coming out of your department, agencies you oversee, 
and FSOC?
    Secretary Mnuchin. Again, I assure you that we will address 
this at the next FSOC meeting and discuss it; I don't think we 
need guidance coming out of FSOC, but we will review that with 
the regulator.
    Mr. Luetkemeyer. My hope would be, Mr. Secretary, that you 
would take the lead in having harmonization with all the 
agencies with regards to guidance and with the guidance that is 
issued. Whenever a guidance is issued, say something in there 
to the effect that this is guidance, it is not a rule, that 
guidance is something that punitive action can be taken on 
because it is guidance, it is best practices, it is a 
suggestion of somehow how a bank should be doing something 
versus a rule that says, you will do this.
    And I think it is important there be a distinction there 
and it is important that I think in your position, as head of 
FSOC, that you could take the lead in harmonizing all this 
across all the financial agencies, to be able to make this 
happen.
    Secretary Mnuchin. I have always believed there should be 
consistency across the regulators, so that is an issue we will 
address with them. Thank you.
    Mr. Luetkemeyer. OK, appreciate that very much.
    With regard to derisking, 2 weeks ago Congressman Clay and 
I sent you a letter on derisking following a hearing that we 
held in the Financial Institutions Subcommittee. Our 
subcommittee has held several hearings on the issue and heard 
from a variety of stakeholders. What we have learned is that 
this is not only a domestic problem, but an international one.
    We are talking about an entire geographical region losing 
access to financial services and being cut out the most 
regulated financial sector in the world. According to testimony 
given a couple of weeks ago, it is the regulator regime, namely 
BSA (Bank Secrecy Act)/AML (anti-money laundering) that is 
driving this dangerous trend.
    And the problems go beyond banking. Right now it is 
impeding the flow of humanitarian aid across the globe. We have 
passed bipartisan legislation on Operation Choke Point and the 
regulators tell us that it isn't happening.
    But every witness, Mr. Secretary, that we had before the 
subcommittee that day, told us a different story, as have our 
Nation's financial institutions and their customers.
    Number one, are you familiar with a letter that we wrote to 
you with regard to this?
    Secretary Mnuchin. Yes.
    Mr. Luetkemeyer. Does this trend alarm or are you concerned 
about it, do you recognize that there's a problem?
    Secretary Mnuchin. It is something we think there is an 
issue with, we are looking at BSA reform, AML reform, we need 
to strike the right balance on that. I am not aware of any 
humanitarian aid that hasn't gone through as a result of this, 
but BSA reform is something we are studying carefully and the 
derisking issue is something we share your concern with and we 
are looking at.
    Mr. Luetkemeyer. When the IMF actually is concerned about 
derisking, that raises some alarm bells for me, because they 
are not necessarily on the cutting edge sometimes, the 
regulatory oversight, but I appreciate your comments, sir.
    Obviously, I couldn't let this opportunity go by without 
discussing the customer due diligence (CDD) rule. We have had 
some concerns about that as you well know the BSA/AML bill that 
we are talking about, we are trying to find a way to deal with 
beneficial ownership. We are looking for guidance from you, 
would you be willing--I know we have talked about this in a 
number of settings already and tried to set up meetings and 
hopefully we will be able to get that done, we want to get the 
commitment from you to continue to work on that issue.
    Secretary Mnuchin. Yes, you have our commitment to continue 
to work on that issue.
    Mr. Luetkemeyer. Do you have any suggestions today for us?
    Secretary Mnuchin. I have no suggestions today for you 
other than I have shared in the past.
    Mr. Luetkemeyer. Mr. Secretary, I appreciate your comments 
today, and I know that this is an issue that is paramount with 
a lot of the banking industry. Those folks have become 
basically deputized law enforcement officers, and with some 
punitive outcomes if they don't do this. And they don't need to 
be in the middle of this so we want to really sincerely work 
with you, try and find a way to get this situation resolved. I 
appreciate your comments.
    I yield back the balance of my time to the Chairman.
    Chairman Hensarling. Gentleman yields back.
    Chair now recognizes the gentleman from California, Mr. 
Sherman.
    Mr. Sherman. Thank you, Mr. Chairman.
    We in the United States have a good problem; the economy is 
good so we have to fight over who gets the credit. The facts 
are these: Dodd-Frank stabilized the financial system, and 
coincident with its effective date, we have had a massive 
economic expansion that has produced 17 million new jobs. Of 
those 17 million new jobs, 15 million occurred during the Obama 
Administration, and 2 million occurred under the Trump 
Administration. That is 15 million under the Obama 
Administration, 2 million under the Trump Administration.
    Now, this committee has seen a lot of charlatans in the 
financial services world, but we haven't seen one quite as bad 
as what I am going to say. Go to a consumer and you say we are 
going to give you a $500 bonus--no, a $1,000 bonus, right here 
is the check, and then you fail to disclose to them, in any way 
they understand, that you are going to slap a $34,000 mortgage 
on their house.
    If any charlatan had done that, this committee would have 
nailed them. But that is exactly what the tax bill does. People 
are told they got a $1,000 bonus. A few of them did as a result 
of this tax bill, some only got $500, most got nothing. But 
what wasn't mentioned was the $34,000 which is the share of the 
average family of five of the increase in the national debt.
    As to trade, and, Mr. Secretary, I am going to send you the 
transcript of the hearing we did yesterday in the Asia 
Subcommittee, I am going to be perhaps the one person in this 
room that says that Mr. Trump's focus on China has been a 
little too late, a little too hesitant, and a little too weak. 
We gave China MFN, Most Favored Nation status in the year 2000. 
When that happened, two thirds of democrats voted, no.
    Now, Wall Street trotted out some economists who said that 
the increase from that MFN bill would only be--the increase in 
the trade deficit with China would only be $1 billion a year. 
Two thirds of democrats were right, the Wall Street economists, 
bought and paid for, were wrong. They were off by a factor of 
25,000 percent.
    And so I would hope that, and we have a chart behind you 
that shows the massive increase in the trade deficit with China 
since the beginning of this Administration, but I do not think 
that anti-Trump democrats, and on most things I am anti-Trump, 
should change our position. Two thirds of us were right 18 
years ago, and we are right today, and MFN should be provided 
to China only in the context of fair and free trade.
    Now, something far less controversial, I want to thank you 
for your last appearance here when we talked about the U.S. 
Armenia Tax Treaty. You made a commitment then that you would 
have at least one tax lawyer spend 28 hours on the project. And 
that work has not begun and it is not your fault. The Armenian 
government has had a lurch toward democracy and transparency 
that many of us applaud. Things are a little bit of a state of 
tumult still in Yerevan.
    I am assured that when things calm down, the Armenian 
government will approach us, committed to the kinds of 
transparency that our model tax treaty calls for, and then I 
will hold you to the 28 hours. As a matter of fact, that 28 
hours was based on that 28 Members of Congress have asked you 
to do that. It is now up to 31, so I may ask for another 3 
hours.
    Marijuana, legal in a lot of States, I hope that you would 
act so that the activities of the Treasury Department don't 
mess up the economies of those States, whether it be large 
amounts of cash being moved around, very dangerous to society 
and an invitation to crime. Or the risk to land title, where 
people say, well, maybe I don't own this property, because 
maybe 10 years ago it was used for marijuana and the Federal 
Government might seize it.
    In the insurance area, the International Association of 
Insurance Supervisors (IAIS) is continuing to pursue insurance 
capital standards that seem incompatible with the U.S. system 
of State insurance regulation. And I hope that you would answer 
for the record how you will ensure that the U.S. State-based 
regulatory system will be protected in the negotiations, and I 
will have another question for the record on mutual funds.
    And I yield back.
    Chairman Hensarling. Gentleman yields back.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Huizenga, Chairman of our Capital Markets Subcommittee.
    Mr. Huizenga. Thank you, Mr. Chairman, and I am sure 
Secretary Mnuchin, yes, you are encouraged as well as I am by 
my colleagues' newfound concern with our debt situation, 
especially in light of $1 trillion-plus deficit spending that 
had happened under the last Administration on an annual basis.
    And I hope these same colleagues will have that same 
enthusiasm to tackle the entitlement situation that we have 
here so we can actually have a safety net system that will 
exist for future generations. So that is where we need to focus 
and concentrate on.
    But I want to hit on a couple of things, one very briefly 
here on the Volcker Rule. I need to take this opportunity as 
Chair of the Capital Markets Subcommittee to do that. Then I 
want to talk a little bit about China and our debt with China 
and some trade.
    So recently, last month, Treasury announced that the five 
Federal financial regulatory agencies dealing with Volcker had 
come together and had proposed some changes to ease compliance 
while still implementing Section 619 with the 60-day comment 
period, you said, quote, ``the five agencies responsible for 
regulation of the Volcker Rule coming together on this notice 
is an important first step.''
    I am wondering, could you explain a little bit about how 
these reforms help address the Volcker Rule so that compliance 
can be streamlined, rules clarified, and markets can be made 
more efficient?
    Secretary Mnuchin. I think on the Volcker Rule, it is all 
about providing more clarity and making sure that the 
appropriate people can properly execute the rule. So I think 
there was a lot of ambiguities. Some people refer to, you 
should have a lawyer and a psychiatrist to interpret it. But 
this is about, we want to make sure it can be enforced but it 
can be enforced clearly.
    Mr. Huizenga. And what are the next steps Treasury is 
exploring to help appropriately tailor the Volcker Rule?
    Secretary Mnuchin. This is now--we had a series of 
suggestions on this in the executive report but this is now 
being led by the regulators and is being executed by them.
    Mr. Huizenga. Turning to China, obviously China has a very 
large chunk of our debt. It's somewhere in the neighborhood of 
$1.2 trillion, $1.2 trillion that China directly controls. Do 
you have any fear that they could use that as an alternative 
trade weapon? And if so, are there any contingency plans that 
have been established as countermeasures if that were to 
happen?
    Secretary Mnuchin. I would just comment, to a large extent, 
the big component of the reason why they have that debt is 
because the giant trade deficit and then reinvesting that cash. 
I have no reason to believe that is of concern to the market at 
this point. The market is very liquid and has a lot of depth, 
but that is something we will continue to monitor.
    Mr. Huizenga. I appreciate that. I, like some of my 
colleagues, I know Mr. Barr and others have expressed desire to 
push for better, fairer trade deals. I would join that 
sentiment as well, but we do know that sometimes victory comes 
at a heavy price. And I wanted to explore a couple of things 
real briefly with this. I chair the U.S.-Canada IPG, the inter-
parliamentary group; it is the official exchange between the 
parliament and the U.S. House.
    And I can tell you our Canadian allies and friends, 
neighbors, trading partners, are genuinely confused about why 
Section 232 was used to designate some of the tariffs on that. 
And what are you telling your colleagues internationally about 
this?
    Secretary Mnuchin. I have had very direct conversations 
with many of my colleagues on this, specifically the Canadians. 
I don't want to go in detail in this setting. But I can assure 
you we have had very detailed discussions. I am on my way to 
Mexico tomorrow with Secretary Pompeo, and obviously NAFTA is a 
big focus now that there are the elections there.
    Mr. Huizenga. I would like to maybe explore this offline 
with you. And while I commend the goal, I am afraid that there 
may be some actions trying to recapture a world that frankly no 
longer exists. The largest trading partnership in the world is 
U.S. and Canada. Sixth largest trading partnership in the world 
is the State of Michigan and Canada, a lot of that surrounding 
autos, office furniture, and agriculture.
    And what we are seeing here is an integrated supply system 
that has parts for vehicles traveling back and forth across the 
border sometimes nine different times, and thousands of parts 
doing that. So we have to be very careful with that and I look 
forward to our conversation. Thank you.
    I yield back.
    Chairman Hensarling. Time of the gentleman has expired.
    Chair now recognizes gentlelady from New York, Mrs. 
Maloney, Ranking Member of our Capital Markets Subcommittee.
    Mrs. Maloney. Thank you, Mr. Chairman, and welcome, 
Secretary Mnuchin.
    The last time you testified, I asked you about beneficial 
ownership and you said you wanted more time to look at it. I 
think it is a critical challenge before our country. I 
introduced a bill at the request of, really law enforcement, 
that said they would track money and terrorism and drugs and 
guns and hit an LLC and not know who owned it. They just want 
to know who owns it so that they can protect us better.
    And the best time to do it is when they are filing. We have 
a bill in, many of us in a bipartisan way are supporting it, 
that this information would be available to Treasury, kept at 
State level if they so wished and also law enforcement. I live 
in a city, New York, that continually faces terrorist threats 
and there are no threats unless there is financing.
    So cracking down on terrorism financing is critical and I 
now want to know that since you have had a chance to look at 
this, and in light of the testimony that the FinCEN director 
gave recently, that he believed companies should be required to 
disclose their beneficial owners at the time that they are 
formed and they are a part of Treasury, so I would now like to 
ask you if you have had a chance to look at this and what is 
your feeling now on supporting beneficial ownership and having 
this information available to Treasury and to law enforcement?
    Secretary Mnuchin. So first of all, let me just say I fully 
support that it is a very important issue and we need to be 
able to figure out an efficient and prudent way that we have 
access to beneficial ownership. I wish I could tell you I 
already had this solved. We are having a lot of discussions.
    We look forward to continuing this discussion with you and 
members of the committee to find a solution. We need an 
appropriate solution to this.
    Mrs. Maloney. Thank you, our committee has been discussing 
legislation to reform the Bank Secrecy Act and anti-money 
laundering rules. I believe that any legislative package on 
this issue must address the issue of beneficial ownership 
because anonymous shell companies are routinely used to finance 
criminal and terrorist organizations.
    So do you believe that a legislative package to strengthen 
our anti-money laundering rules should address the use of 
anonymous shell companies by criminals and terrorist 
organizations?
    Secretary Mnuchin. As I said, I believe this issue needs to 
be solved. Whether it is solved as part of BSA or whether it is 
solved separately, these are both very important issues but we 
do need to be able to have access to beneficial ownership 
information for law enforcement and for combating terrorist 
financing.
    Mrs. Maloney. Also in February, Treasury, you released a 
report recommending that we keep Dodd-Frank's Orderly 
Liquidation Authority for winding down large financial 
institutions as an emergency option, and I agree with you, and 
I want to thank you for that report. The report also 
recommended changes to the Orderly Liquidation Authority and if 
there are changes that need to be made, I think we should have 
that discussed because I strongly oppose repealing this 
authority.
    Can you discuss why you think, as your report stated, that 
the authority is a far preferable alternative to destabilizing 
financial contagion or ad hoc government restructuring or 
bailouts?
    Secretary Mnuchin. This is an issue we reviewed very 
carefully and we do support keeping it. I look forward to 
speaking with you about some of the specifics of the changes 
that we would recommend they would require legislation.
    Mrs. Maloney. Thank you and I look forward to those 
discussions.
    And finally, as chairman of the Financial Stability 
Oversight Council, in that capacity as chair, what do you see 
as the biggest risk to the financial system right now?
    Secretary Mnuchin. I think the good news is from a capital 
and a credit standpoint that not of a major concern. I would 
say the issue that I focus on at the moment of the most 
significance is cyber-security. And I am not implying in any 
way that there is a cyber-security risk but this is the area 
that we need to continue to invest in, we need to continue to 
have public-private partnerships and I am very focused on the 
safety and security of the financial infrastructure.
    Mrs. Maloney. Thank you. I yield back.
    Chairman Hensarling. Gentlelady yields back.
    The Chair now recognizes the gentlelady from Missouri, Mrs. 
Wagner, Chair of our Oversight and Investigation Subcommittee.
    Mrs. Wagner. Yes. Thank you, Chairman Hensarling, and 
welcome, Secretary Mnuchin.
    Secretary Mnuchin, according to the most recent numbers 
provided by the United States Trade Association, Missouri 
exports support some 88,000 jobs in 2016, totaling $13.9 
billion worth of goods. That is why earlier this year I joined 
many of my colleagues in urging the President to rethink his 
tariffs on steel, aluminum, and other goods.
    The retaliatory tariffs levied by Mexico will absolutely be 
felt in my home State of Missouri, which I noted earlier, 
depends heavily on trade. My constituents are concerned, as am 
I, that these tariffs will have a serious impact on our State 
and will create winners and losers in communities across 
Missouri.
    Mr. Secretary, as I mentioned before, some of these tariffs 
have targeted our allies. Can you describe in detail the 
expected endgame for these trade actions and what is a specific 
timeframe you expect for these policies to achieve their 
desired effect?
    Secretary Mnuchin. First of all let me just comment I share 
your view that exports create enormous job opportunity. So our 
overall view is we should be doing things to make sure that our 
companies can fairly compete and export fairly into these 
markets.
    We were in, to put these in different buckets, there is 
obviously the NAFTA-related issues, there is the E.U.-related 
issues, and there is the China-related issues. As I mentioned, 
this is something we meet with the President on weekly. The 
economic team is very focused on all of this.
    Mrs. Wagner. Timeframe?
    Secretary Mnuchin. I can't commit to a specific timeframe. 
Although, as I previously mentioned, NAFTA is now a big 
priority since we have the Mexican election behind us.
    Mrs. Wagner. Mr. Secretary, I want to take a second to 
focus on China. In 2017, growers in the United States sold 
nearly 1/3 of their soybean harvest to China. The recent 
Chinese tariffs on American soybeans will hit Missouri hard and 
already have. Reports of farmers are expected to sell their 
crops at a loss. What would you say to my constituents that 
will be directly impacted by the President's actions on trade, 
especially vis-a-vis my farming community?
    Secretary Mnuchin. I can assure you I never was an expert 
on soybeans, but I have now become an expert on soybeans.
    Mrs. Wagner. As have I, Mr. Secretary.
    Secretary Mnuchin. I follow this market daily. I can assure 
you that we are focused on this; we are in discussions with 
Secretary Purdue and others about this. As I said, this is an 
unfortunate impact of what we are trying to do, which is get 
free and fair trade with China and they have unfairly targeted 
specific markets and that is not coincidental.
    Mrs. Wagner. No, it is not coincidental and it is causing 
real harm in present day to the farming community and the 
soybean farmers in my home State of Missouri.
    Secretary Mnuchin. And I can assure you, I and the 
President understand that and we are focused on that.
    Mrs. Wagner. If trade relations with China remain strained, 
commodity producers in Missouri will need to find new markets, 
Mr. Secretary, for their goods. ASEAN (Association of Southeast 
Asian Nations) countries seem to be natural trade partners. 
Over half of U.S. Congressional districts export more than $100 
million in goods to ASEAN every year. ASEAN countries 
themselves wish to see stronger trade relations with the U.S.
    If U.S.-ASEAN trade relations become more formalized, 
whether that is multilateral, bilateral, whatever it is, Mr. 
Secretary, would China be pressured to institute fairer trade 
practices? I like to make sure that I do put in a plug that we 
enter into some of these bilateral, or a multilateral, with 
ASEAN countries as an opportunity to have new markets for my 
farming and ag community and others in the district.
    China's ascension, Mr. Secretary, to the World Trade 
Organization (WTO) has done little to change its predatory 
trade policies. Mr. Secretary, how can the World Trade 
Organization be restructured, in your thoughts to better 
restrain China's behavior?
    Secretary Mnuchin. That is a complicated issue that I don't 
have time to go through now. I would be happy to discuss that 
more with you. Ambassador Lighthizer is really the expert on 
this. I would say again, the rules-based system is OK if the 
rules are being followed. The problem is that, as you have 
outlined in the case of China, they are not following many of 
the things that they have previously--
    Mrs. Wagner. And they subsidize everything, Mr. Secretary.
    Secretary Mnuchin. That is correct.
    Mrs. Wagner. There are two kinds of companies in China--
those that are owned by China and those that do everything 
China says. So we are going to have to look at some of I think 
those issues when it comes to interstate commerce and such in 
dealing with the WTO. So, I look forward to continuing our 
conversation.
    I thank the Chair and I yield back.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from New York, Mr. 
Meeks?
    Mr. Meeks. Thank you, Mr. Chairman, Mr. Secretary, good to 
see you again.
    Let me just start off with a basic question. Let me just 
see, if you were a business person and you are buying a 
business, what would be the easiest way or best way for the 
business to move forward. If you bought a business that was 
deep in the hole or you bought a business that was at level and 
moving in the right direction. What would you think would be 
the hardest task for one to accomplish?
    Secretary Mnuchin. I am not trying to be coy but that is a 
little bit of a hypothetical question, that there are 
opportunities in both.
    Mr. Meeks. The hypothetical question is if there is 
something, if you have a company that is deep in the hole, 
going in the wrong direction, problems all over the place, as 
opposed to a company that you are buying that is, they have 
corrected some of the problems that were in there. They are 
moving forward in the right direction. Things are starting to 
improve. They are starting to hire people. Things are moving in 
the right direction. Which, as a CEO if you came in, I figure 
you were a business man, what would put you in the best 
situation?
    Secretary Mnuchin. Again, it is completely hypothetical but 
sometimes it is easier to buy things that are broken and 
sometimes it is easier to buy things that are fixed. I can't 
comment on hypotheticals.
    Mr. Meeks. OK, you don't want to comment on it, well let me 
not give you a hypothetical. Let me give you a fact. This 
country, when President Obama was the President, was in deep 
debt and was losing hundreds of thousands of jobs a month and 
was in serious problem and the worst financial crises since the 
Great Depression.
    That was the situation of this country when Barack Obama 
was the President or became the President of the United States 
in 2008. Fact; fact, not hypothetical. When the stable genius 
became the President, and that is what he calls himself--self 
proclaimed stable genius. This country, because over one 
hundred months ago we were gaining jobs--that is 8 years ago; 
moving forward in the right direction creating jobs. What 
situation do you think is better for a President of the United 
States?
    Secretary Mnuchin. I--
    Mr. Meeks. Not a hypothetical. That is a fact unless you 
can deny that fact. Mr. Stable Genius denies all the time 
different facts. Now, let us move forward because I am 
concerned about what I saw today at NATO and at the G7 because 
you would agree that we are more interconnected today as a 
world than ever before, is that not correct? That is not a 
hypothetical either, is it? Or isn't it a fact that we are more 
interconnected as a world today, Mr. Secretary?
    Secretary Mnuchin. More relative to when?
    Mr. Meeks. To any other time in our history.
    Secretary Mnuchin. I don't know if we are more, we are 
interconnected.
    Mr. Meeks. With technology, are you denying with technology 
today and the way that our trade system works and all of the 
things that are moving around the world and how fast things 
are, we are not more interconnected today than we were ever?
    Secretary Mnuchin. Again we are interconnected so I am 
happy to answer other questions?
    Mr. Meeks. So when were we more interconnected?
    Secretary Mnuchin. More is a relative issue. I don't know 
if we are--
    Mr. Meeks. Are you a stable genius, Mr. Secretary?
    Secretary Mnuchin. Am I a stable genius? I am stable and I 
won't refer to myself as a genius one way or another.
    Mr. Meeks. I am just trying to find out because I know that 
sometimes working for stable geniuses is--I would like to know 
how that is. Does the stable genius--and I am not--it is not 
words that I have used, it is the words that he said he is. He 
said he is a stable genius. Does he listen to you because I am 
listening to some of my colleagues ask a lot of the things 
especially around tariffs we agree upon. We agree that we are 
losing jobs.
    We agree that there are scenarios that are worrying all of 
us, Democrats and Republicans and I am hearing you saying some 
of the kinds of things, and some of the Administration, and 
some of the people around him might be saying the same thing. 
So I am wondering whether or not the President, when you are in 
those rooms, is he listening to you or because he is a stable 
genius he just does whatever the heck he wants to do without 
listening to your advice. Does he listen to your advice?
    Secretary Mnuchin. Yes, I can assure you that the President 
listens to my advice. He is the President. Sometimes he follows 
my advice and sometimes he doesn't which I respect, but I would 
not be in this job if I did not think he listens to my advice 
and I couldn't be happier with the economic plan we are on.
    Chairman Hensarling. Time of the gentleman has expired. The 
Chair now recognizes the gentleman from California, Mr. Royce, 
Chairman of the House Foreign Affairs Committee.
    Mr. Royce. Thank you very much Chairman and Mr. Secretary, 
thank you for being with us. The President offered a laudable 
goal at the G7 meeting in Quebec when he challenged our leaders 
to get to no tariffs, no barriers. It has been reported, the 
German automobile makers are open to the idea of zero tariffs; 
that would certainly be a win if we could de-escalate with 
Europe on that basis of zero tariffs between us and them.
    But we have seen little talk elsewhere of this as the 
endgame and instead what we see is a two front trade war; one 
with China, which frankly is not playing by the rules, and 
another with our close economic allies in the E.U., Canada, and 
such and our domestic industries in agriculture are being 
threatened. On the list of targets are bourbon, bikes, blue 
jeans, and even Mr. Poliquin's beloved Maine lobsters. So could 
we do a reposition in a different direction here because zero 
tariffs, for example, if we looked at autos, would be a victory 
for free trade and fair trade and maybe get us in a position 
where our allies are on the same page.
    And when we talk to our allies in the E.U. and our largest 
export market, Canada, are we reiterating zero tariffs as the 
goal? I would think that might be a first and second option in 
order to try to advance a way to get us together.
    Secretary Mnuchin. We are advocating no tariffs, no tariff 
barriers, no subsidies; it is a package altogether. We are 
advocating growing exports for U.S. companies so they can 
compete fairly and if we have fair trade, we will increase 
exports significantly and we won't have the outsized trade 
imbalance that we have.
    Mr. Royce. And I think that outcome would also give us a 
position with our allies where if we can set high standards, we 
can then maybe do something collectively to discuss the problem 
with Beijing's lack of following the rules. But the other thing 
I wanted to ask you, and this is something that Blaine 
Luetkemeyer brought up and he and Steve Pearce and I have 
talked about. It is this fact that criminal organizations are 
infamous for using anonymous shell companies, both foreign and 
domestic, to open bank accounts to launder money, to perpetrate 
fraud, and frankly now to finance terrorism.
    And this is an area where the United States, frankly, and 
Kenya, have not been not front and center in terms of doing 
something about beneficial ownership. There was a 2016 
financial action task force report that found the U.S. had an 
absence of any measures to ensure that there was adequate, 
accurate, and timely information on the beneficial ownership. 
Would you agree that this is a vital issue where we should work 
together and work in a bipartisan way to move something 
quickly?
    Secretary Mnuchin. I would indeed and I actually just wrote 
that down. We have to figure out this beneficial ownership in 
the next 6 months. I don't want to be coming back here next 
year and don't have this solved, so we need to work with 
Congress on a bipartisan basis on this.
    Mr. Royce. Thank you, Mr. Secretary. And last, in recent 
months, the Administration has twice raised concerns about 
recent legislative action on international insurance matters.
    First was in a memo from the Department of Justice raising 
constitutional concerns that H.R. 4537 would, in their words, 
contravene the President's exclusive authority over the conduct 
of diplomatic relations.
    I will just share with you, I am concerned that such 
actions would limit the flexibility of the Treasury Department 
to lead international negotiations on financial insurance 
standards and potential future covered agreements, and I think 
the results of that could be quite negative.
    And I just ask if you share those concerns.
    Secretary Mnuchin. I am going to follow up with you on the 
specifics of those offline, but thank you.
    Mr. Royce. Thank you very much, Mr. Secretary. And, Mr. 
Chairman, I yield back.
    Chairman Hensarling. Gentleman yields back, the Chair now 
recognizes the gentleman from Massachusetts, Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman, and the Ranking Member. 
Mr. Treasurer, thank you for being here. I want to follow up on 
Mr. Barr's line of questioning about sanctions. And obviously 
as a result of the President's withdrawal from the JCPOA, we 
are going to have to--well, you are going to have to 
reinstitute sanctions against those companies, banks, and 
countries that continue to do business with Iran.
    So--and that includes some of our closest allies, our 
national security partners, and countries that are cosigners of 
that agreement, including Great Britain, Germany, France, the 
E.U., Russia, and China.
    Earlier in your testimony, you said you have frequent 
conversations with China. Is China going to reinstitute the ban 
on importing Iranian oil to China?
    They are the largest single purchaser of Iranian oil right 
now. Have they agreed to join our sanctions?
    Secretary Mnuchin. Again, I think it would be inappropriate 
for me to comment on the specifics--
    Mr. Lynch. I think it would be entirely appropriate.
    It is the ball game, right here.
    Secretary Mnuchin. But I will tell you--
    Mr. Lynch. If the largest single purchaser of Iranian oil 
is not part of this deal, then those sanctions are meaningless.
    Secretary Mnuchin. What I was going to say is I think it 
would be inappropriate for me to comment on specifics of a 
conversation. But what I will tell you, it is our intent to 
enforce sanctions on Iran related oil against everybody 
including China.
    Mr. Lynch. Right, and so we are in the middle of a trade 
war with China, I am asking you whether they are going to join 
us.
    Secretary Mnuchin. Again, we intend to enforce sanctions on 
them, on Russia, on Europe, and others against Iranian oil.
    Mr. Lynch. Wait a minute, the sanctions against Iran is 
going to raise the value of Russian oil. So by withdrawing from 
the JCPOA, you are helping Russia. There goes your sanctions 
against Russian oil.
    This is going to be a windfall for Russia, they are going 
to do much better now because they will be a much important 
source of oil in that region. So they are going to, I am sure, 
be the big winner and I think the American consumer with higher 
gas prices will be the big loser, quite honestly.
    I think that is the natural consequences of that. Now, 
Treasury, and importantly, OFAC, the Office of Foreign Asset 
Control, is the Department within Treasury that is really 
keenly responsible for this, although obviously you are going 
to have to work with Secretary Pompeo in State Department to 
reinstitute these sanctions.
    Secretary Mnuchin. That is correct and we have already 
activated that plan.
    Mr. Lynch. OK. In terms of having--first of all, you only 
have about 200 people up at OFAC. They are very, very 
hardworking but with all this extra work, I am very concerned 
whether you have the resources to do this. You just lost your 
top three people that do the sanctions work. They just left, 
they just quit. So your reassurances to Mr. Barr, I don't think 
are well-founded.
    The other problem is, on State Department--so we have to 
work with the host countries to make sure that the sanctions 
are observed. So it would be ideal if we had an ambassador in 
Saudi Arabia, for example. But we don't have one. None has been 
nominated. We don't have an ambassador or a nominee--the 
President hasn't even nominated anybody. Nobody in Saudi 
Arabia. We have no Ambassador in Turkey. I was just there a 
couple of weeks ago.
    I was in Jordan a couple of weeks ago, we don't have an 
ambassador in Jordan. We don't have an ambassador in Egypt, I 
was there like 3 weeks ago. Mexico, you would think we would 
need an ambassador to Mexico with everything we have going on 
with the immigration at the border, plus NAFTA. You think we 
might get an ambassador to Mexico? Qatar, another key country.
    Australia, Azerbaijan, another key source and we are going 
to try to shut down oil shipments, they would be good people to 
talk to. We don't have an ambassador in Qatar, Australia, 
Azerbaijan, Georgia, Somalia, Libya, Tajikistan, Panama, 
Venezuela. All key countries if we are going to ask people to 
join us in these sanctions. You just said earlier that you have 
weekly meetings with the President. Ask him to pick a few of 
these 20 or so countries and appoint an ambassador so that your 
Treasury personnel, OFAC--they do a wonderful job, very 
hardworking people, can actually work with--and your Treasury 
liaisons, you need a few more of those. You have some members 
over there, some Treasury liaisons that work with FinCEN that 
are handling four and five countries in the Middle East.
    We have a lot of work to do and I don't buy the 
reassurances that these sanctions are going to go like you 
think they are.
    Chairman Hensarling. Time of the gentleman has expired. The 
Chair now recognizes the gentleman from New Mexico, Mr. Pearce, 
Chairman of our Terrorism and Illicit Finance Subcommittee.
    Mr. Pearce. Thank you, Mr. Secretary. Thank you for being 
here. Thank you, Mr. Chairman. So the discussion on the oil is 
one that is especially timely. The U.S. is just right now in 
the next month or so in the position of overtaking Saudi Arabia 
as the number two producer. We will surpass Russia in the very 
near future. And all of that is occurring because Republicans 
actually put into a bill, in December 2015, the ability to 
export our oil for the first time in 40 years.
    That has allowed an unprecedented expansion into fields 
that were before probably not really economic. So again, I 
compliment you on the stances of the Administration with regard 
to energy. That energy revolution is taking place in my home 
county and the county right next to it, so that many of the 
entry level workers are making 100,000 bucks. So the 
Administration's policies of the Tax Cuts and Jobs Act along 
with this energy export is revolutionizing the world market on 
oil.
    And if we will continue to allow that export, then we are 
going to replace a lot of those foreign countries who have had 
free range in the export market. So again, Mr. Secretary, I 
appreciate that. My main questions have to do with CDD and its 
implementation. You are aware of the TIF Subcommittee's 
discussions on beneficial ownership. Mr. Royce just mentioned 
those.
    When the CDD rule was implemented and banks began to say, 
``We don't know exactly how to respond to this'' and so they 
were being told, ``OK, we have a couple of facts out but really 
no guidance.'' Is there any idea of when we will have more 
specific guidance on the CDD rule?
    Secretary Mnuchin. I don't have the specifics of that but I 
will look into it and get back to you.
    Mr. Pearce. OK. Now, when Director Blanco was here in front 
of the committee a couple months ago, he said that really they 
weren't worried too much about compliance right now in the CDD 
rule, that it was implementation. Is that a full agency 
position or is it just him trying to manage the affairs under 
his purview? Is that a broader directive or something that he 
is just working out?
    Secretary Mnuchin. I think you should know it is a 
multiagency issue but that is not a directive from me.
    Mr. Pearce. OK, that was what I was trying to come up with. 
Now, again, you just mentioned that your full intent is to get 
back with us in the next 6 months and try to figure out in a 
bipartisan way if we can accelerate that time, if we could 
accelerate the meeting. We really have the BSA reform bill 
ready to go except for this one piece and we keep bouncing back 
and forth between the two sides on that.
    As we in the country really don't have our minds clearly 
made up, we see the effects of not having the beneficial 
ownership and we then become one of the key places that shell 
companies come to operate because they know that we are in 
conflict on this. The other side worries about too much 
information in the hands of the government. Have you wrestled 
with this any at all in your approach to it? Are you still 
leaving that to the FinCEN level to try to work it out?
    Secretary Mnuchin. No, I have been actively involved in 
discussions and I am going to ask the chairman to set up a 
meeting with the appropriate people on the committee. As I have 
said, there are different solutions. There is not a perfect 
solution. But I do believe we need to solve this and move on.
    Mr. Pearce. I would agree wholeheartedly. It penalizes 
legitimate businesses when the shell companies can come in and 
operate and launder money. Right now the oil field has a lot of 
companies come in and they compete mercilessly with cash that 
is not generated from legitimate operations. And it takes away 
from the strength of the local business community.
    Now, when you testified before us about a year ago, you 
said about 50 percent of your time was used on cybercrime and 
cyber terrorism financing. Is that still true? Is it still the 
pushing wave?
    Secretary Mnuchin. It is.
    Mr. Pearce. It's something that we wrestle with in the TIF 
Subcommittee. We just plan to continue to work with you on it. 
Again, appreciate your leadership. It has always been steady 
and Sigal has just been good to work with and so the stability 
of the agency is something that I appreciate from my 
perspective. The rising wage market, rising employment markets, 
those are things that all of America is in awe of right now.
    The growth rate projected by the Atlanta Fed last month is 
phenomenal. So again, Mr. Secretary, thanks for your work. 
Yield back.
    Chairman Hensarling. Gentleman yields back. Chair now 
recognizes the gentleman from Georgia, Mr. Scott.
    Mr. Scott. Thank you very much. Welcome, Mr. Secretary. Mr. 
Secretary, the people of this Nation are very worried. They are 
very concerned about this trade war. Make no mistake about it. 
Both Democrats and Republicans are very much worried about it. 
Now I really want you to listen very carefully to me, because 
there is no State that could be so devastatingly impacted on 
this than my beloved State of Georgia.
    Let me explain to you how. Let's take the fact that poultry 
for example--Georgia is the leading producer of poultry in the 
world. And according to our National Chicken Council and 
leading chicken producers like Tyson's Food, they have informed 
me that in 2014, for example, U.S. chicken exports to Mexico, 
one of our most important markets alone, totaled $800 million.
    But during the same period, Mr. Secretary, Brazil's exports 
went up from $50 million to $200 million. If we continue to put 
up these trade barriers in Mexico, it is clear as a bell to 
anybody looking at this that they will take even more of the 
market, leaving American chicken farmers and producers out in 
the cold.
    Let us go to another one. Let us take aluminum for example. 
In Georgia, we have massive users of aluminum, manufacturers. 
And it is not just Georgia, but all across the Nation. 
Imagine--go into a grocery store and just look at how much of 
our food, our beverages are contained in aluminum cans. Can you 
imagine the impact that will have? I want to go to another 
point, our pecans. Did you know that half of the pecan 
production in Georgia is exported to China, in which we are in 
the middle of? And Georgia produces one third of all the pecans 
in the United States.
    I want you to have that, I want you to recognize Georgia. I 
want you to tell the President how damaging this will be to 
Georgia businesses, Georgia farmers, Georgia manufacturers, and 
not only that, to the employees, because when the aluminum 
manufacturers come in, that is going to be a one to 18 ratio in 
loss of jobs.
    Mr. Secretary, let me just ask you this. My question is 
this, to you, are you prepared, are you ready to be the one who 
will take full responsibility as the Treasury Secretary in 
charge when Georgia and this Nation inevitably enters into this 
high inflationary rate?
    Who's going to pay for this increase? It is the Georgian 
American consumers going to do that. What about the loss of 
jobs in manufacturing? It is going to be the American people.
    You say well the economy's moving on all cylinders. I agree 
with you, but what I am curious about is the cavalier attitude 
this Administration has of the loss of jobs, of the impact on 
this. The side effects while we are riding on this sugar high. 
And I want to just ask you this question, are you ready to 
assume full responsibility of the downside when the darkness 
comes? Are you ready to take full responsibility?
    Secretary Mnuchin. I am, and I share your concerns, and as 
I have said, we are not taking this lightly. We are monitoring 
all these specific issues carefully. We are concerned about the 
job losses on the areas that you have impacted.
    Mr. Scott. And you understand a real outside impact this is 
going to have on our people in Georgia? I want to make sure, 
because we are going to be paying close attention. Now, in the 
Senate, someone mentioned this, but the Senate passed a 
resolution 88 to 11, the resolution was largely symbolic.
    But it said that there may be and should be an expanded 
Congressional role in overseeing the tariff decisions. And I am 
concerned do you support this?
    Secretary Mnuchin. I do not.
    Mr. Scott. Very good. Thank you, sir.
    Chairman Hensarling. Time of the gentleman has expired. 
Chair now recognizes the gentleman from Oklahoma, Mr. Lucas, 
former chairman of the House Agricultural Committee.
    Mr. Lucas. Thank you, Mr. Chairman. Mr. Secretary, I want 
to raise with you one capital requirement rule that has been 
the subject of this committee's scrutiny. Mr. Luetkemeyer has a 
bill, of which I and others are co-sponsors, which would offset 
for purposes of capital rules, any client margin that is posted 
to a clearing member.
    This idea was a recommendation of your department's first 
report in 2017 and has been discussed in Europe as a regulatory 
change. As this hearing is about international issues, I would 
call to your attention a recent CFTC report stating that the 
market share of U.S. banks in terms of futures options 
positions has decreased 10 percent in the last 5 years compared 
to European banks.
    While I do think this fact points to a competitive 
imbalance between us and the Europeans, I am more concerned 
about the health of clearing for derivatives.
    If these data are correct, some capital rules might be 
hindering the laudable goal and policy of clearing that 
Congress mandated in 2010. And it will not help markets if 
capital rules encourage participants to go elsewhere for 
derivatives clearing.
    Given that, do you think that the SLR rule needs to be 
tweaked to offset client margin and would such a change make 
sense for purposes of helping clearing in the United States?
    Secretary Mnuchin. It's something we are discussing with 
the regulators as you have outlined.
    Mr. Lucas. Thank you, Mr. Secretary. And could we turn for 
just a moment, since trade seems to be the topic of discussion 
here, and I represent an ag and energy district, and in both 
situations, we produce more in my region and generally of those 
products than we can consume in the United States, thinking of 
natural gas as well as certain ag matters.
    The situation that we find ourselves in that the President 
and the Administration are trying to address both with China 
and the rest of the world would seem to me to be something that 
has evolved not in the last few months or days or weeks, but 
literally the positions of our predecessors in Congress and 
previous Administrations starting after the Second World War.
    Give the world an opportunity to do business with the 
United States, encourage economic development, capitalism and 
democracy will follow. Now the Europeans have a strong economic 
system. From the ashes of the Second World War, they created 
it. And a strong politically democratic system, a democracy 
patterns there.
    Our friends on the other side of the Pacific, while they 
seem to have understood that communism was not the best 
economic model and have adopted capitalism, some might even say 
the old mercantilist version of capitalism.
    They have not made the political steps forward that perhaps 
our predecessors have hoped for, but is it fair to say that 
what the Administration is trying to do now is, in general, 
reset the trade field for the entire planet in a more equitable 
fashion?
    Secretary Mnuchin. That is absolutely correct, free and 
fair trade.
    Mr. Lucas. The old days of giving everyone else advantages 
in order to help them develop, to create a more stable and 
peaceful world--that stage is now gone and it is time to make 
sure we are treated fair and equitably. Right, Mr. Secretary?
    Secretary Mnuchin. That is correct.
    Mr. Lucas. And when you reorder the entire world, it is not 
a simple process. Correct, sir?
    Secretary Mnuchin. Definitely not.
    Mr. Lucas. The battle will be politically and economically 
challenging? So staying the course is something we need to do?
    Secretary Mnuchin. It is. Thank you.
    Mr. Lucas. That said, I was a young wheat farmer when 
President Carter did the embargo against the Russians, which 
also led to our boycotting the 1980 Olympics, using agriculture 
for a political tool on some other issue.
    But in all industries in the United States that depend on 
trade, this is not using us as a tool for some other political 
goal; this is trying to achieve the survival of those 
industries for the long haul. Correct, Mr. Secretary?
    Secretary Mnuchin. It is about economic fairness, as you 
have outlined.
    Mr. Lucas. Thank you, Mr. Secretary.
    Yield back, Mr. Chairman.
    Chairman Hensarling. Gentleman yields back.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green, Ranking Member of our Oversight and Investigation 
Subcommittee.
    Mr. Green. Thank you, Mr. Chairman. I thank the witness for 
appearing as well.
    I would like to visit with you about something a little bit 
closer to home, if I may. The CRA, the Community Reinvestment 
Act, was enacted in 1977. It was enacted because of redlining, 
which impacted poor people and minority people, for the most 
part. There is now some talk of reforming the CRA to some 
extent. And it has been recorded that there is a desire to 
expand the definition of community development.
    I am concerned about this, Mr. Secretary, because I have a 
good many constituents who believe that the CRA should be 
strengthened to aid more poor people. It seems that there is 
the possibility of adding business lending, some aspects of 
business lending to the CRA such that banks can get credit for 
business lending.
    Tell me, where are we currently on the CRA and this 
reformation that may take place?
    Secretary Mnuchin. First of all, I am going to suggest that 
Mr. Otting comes to visit you to get your views on this. I 
firmly believe that this is something that we should take a new 
look at because I think CRA can help communities much more so 
than it does. And this is something I was personally involved 
in from running a bank. I think that banking has changed, and I 
think we need to figure out how CRA really can help 
communities. And I am going to suggest he comes and speaks to 
you about that.
    Because I can assure you, our desire in changing CRA is not 
about weakening CRA in any way; it is about making it more 
effective for communities, and making sure that the benefits go 
to the communities.
    Mr. Green. I appreciate what you just shared with me, and I 
look forward to the visit. But I do have to indicate this, Mr. 
Secretary, a lot of the push is coming from the banks. And the 
banks are back, the banks are doing quite well, they are making 
record profits, $167 billion annually over the last 3 years. 
Profits are up 135 percent since Dodd-Frank became the law. 
Business lending is up 80 percent since Dodd-Frank became the 
law, and the big banks will receive a $15 billion windfall in 
2018 as a result of the tax bill.
    So I am concerned that we are overemphasizing paperwork and 
the notion that the bureaucracy is creating a loss in some way 
for banks. Banks are doing quite well. And my concern is this, 
if we change the CRA such that business lending becomes a means 
by which banks will be able to acquire additional credits, that 
may harm the lending to poor people, which is what the CRA was 
envisioned as a means of helping by way of dealing with the 
redlining that was taking place.
    So I welcome the visit, but I have to ask you this, before 
you enact whatever these changes are, I would like to visit 
with you, Mr. Secretary. You are where the buck will stop. I 
would like to have an audience with you so that you can know 
more about how this will impact my constituents. And, by the 
way, I speak for a good many people who are not speaking on 
this subject; people across the length and breadth of this 
country who depend on banks being fair. So I beg that you and I 
would have an opportunity to meet and discuss this.
    I am not a person who needs a lot of time; I am fairly 
pithy and concise. I don't deal in small talk. I go right to 
the point. So I think that it would be beneficial for us to 
have this meeting.
    Secretary Mnuchin. Mr. Green, I would be more than happy to 
meet with you, and, again, I can give you my personal assurance 
that this is actually an issue that I have asked the regulators 
to look at because of my personal concern and experience, that 
the money is not going into the communities where it should be. 
This is not an effort that is being driven by the banks to 
avoid CRA; this is about, in my mind, and we look forward to 
working with you, how would banks better service communities.
    Mr. Green. Thank you, Mr. Chairman. I yield back.
    Chairman Hensarling. Time of the gentleman has expired.
    The Chair now recognizes the gentleman from Florida, Mr. 
Ross.
    Mr. Ross. Thank you, Chairman.
    And, Mr. Secretary, thank you for being here, and thank you 
for your service to this country. I will tell you, since you 
have taken office, we have, as a committee and as a Congress, 
tried to give you tools to do better for our economy, to do 
better for our consumers. Tax law, we did a little banking-lite 
to open up some capital in the community banks and reduce their 
regulation.
    There's a lot more we would like to do, but we are running 
out of time. And there is a lot you can still do in the 
Department of Treasury, especially when it comes to housing 
finance. We can't forget what happened in 2007 and 
unfortunately, we have not been able to prevent statutorily a 
recurrence of what may happen in a housing bubble. And I would 
love to see credit risk transfers being implemented from the 
private sector to release some of that burden that the 
government now has in backing these mortgages.
    But yet, we are moving slow. And so we have to rely on you. 
And in public remarks earlier this year, Craig Phillips, one of 
your counselors, stated, ``the Department of Treasury is fully 
committed to the successful implementation of the Single 
Security Initiative being undertaken by the FHFA, Fannie Mae 
and Freddie Mac.''
    I understand that taxpayers have sunk nearly $1 billion 
into this effort, and I would be interested in your perspective 
on things, where things stand with this effort.
    Secretary Mnuchin. It is being implemented. It is something 
we support, but more broadly I would just say I also support--
we need GSE (government-sponsored enterprise) reform. This is 
something I am determined and the next Congress should be a 
major focus of ours.
    Hopefully on a bipartisan basis, but we can't just leave 
these things sitting the way are as they have been.
    Mr. Ross. And which is why we are relying on your 
department, I think, to do as much as they possibly can, 
including the common securitization platform that compliments 
this that allows for the implementation of this.
    Do you think that platform, the common securitization 
platform, should be available to all market participants, not 
just Fannie and Freddie?
    Secretary Mnuchin. My strong preference is as part of GSE 
reform that we create a system of competition that if other 
people wanted to compete with the GSEs they could. But 
obviously that is dependent upon certain changes to 
legislation.
    Mr. Ross. We have to make. And it is your understanding 
that there's plenty of capacity in the market to take some of 
that, is there not, from the GSEs?
    Secretary Mnuchin. I believe there is, but again, we need 
an overall solution to this.
    Mr. Ross. And just for guidance, are there any other 
principles that you think are important we should be following 
in order to do in effect of GSE reform?
    Secretary Mnuchin. Again, I have said that as part of this, 
if there is either an explicit on an implicit guarantee, my 
preference is if there is a need for that, there is an explicit 
and the Government is paid and taxpayers are compensated.
    Mr. Ross. And I think that is reality in government and 
insurance anymore unfortunately. But as a last back stop is 
where we are trying to get government to be when it comes to 
the guaranteeing.
    Today there are about half as many companies that are going 
public than they did 20 years ago. In your opinion, why is 
that? Is it lack of access to capital, regulatory burdens?
    Secretary Mnuchin. I think it is regulatory burdens, and 
that is something we look forward to working with you on.
    Mr. Ross. Excellent, and one of the things I want to just 
close by saying is that we have probably the best system of 
regulation when it comes to insurance with State regulators.
    And under your direction through FIO (Federal Insurance 
Office), we are negotiating with the International Association 
of Insurance Supervisors. I think it is important that we deal 
from a position of strength and that we assert our ability to 
regulate on behalf of consumers, on behalf of capital 
requirements and solvency requirements so that we are not 
influenced unduly by foreign markets when it comes time to 
reaching our deals with the IAIS.
    And for that, if you have any comments, I would appreciate 
that. Otherwise, I will yield back the balance of my time.
    Secretary Mnuchin. I think we agree with you and we are 
comfortable where we are and we will be unduly influenced.
    Mr. Ross. Thank you. Mr. Chairman, I yield back.
    Chairman Hensarling. Gentleman yields back. Chair now 
recognizes the gentleman from Missouri, Mr. Cleaver, Ranking 
Member of our Housing and Insurance Subcommittee.
    Mr. Cleaver. Thank you, Mr. Chairman. Last week, I had a 
meeting in Higginsville, Missouri, town of 5,000 people in my 
Congressional district in Missouri. I had a meeting of farmers, 
standing room only, we couldn't get anybody else in there in 
the center.
    Not one person in there believed that this tariff move by 
the President is good for them. Every three rows of soybeans 
that grows in Missouri goes to China. But I don't blame the 
President for this.
    I may be the only person in the country, I don't blame the 
President. And I told them this. I blame Congress. We have 
allowed over the last 30 years, the President, whomever was the 
occupant in the White House, to gradually take the 
constitutional responsibility of Congress.
    From the War Powers Act of 1972, we went onto this--for 
example, the President shouldn't have the authority to do this, 
because as the law--the 232, the Tax Expansion Act requires 
that there is a 270 day period during which we are supposed to 
be studying the issue and the President is supposed to be 
waiting on us to do that. But because the founders never 
envisioned a compliant Congress and so what has happened, the 
presidents just snatched power. I know if we could almost 
breakdown because of anger when President Obama stood up at the 
state of the union and said he would sign no earmarks.
    He doesn't have that power, he doesn't have that power. The 
constitution gives the power of the purse to the Congress, and 
we are just constantly giving more and more and more and on 
something as critical as this whole tax issue, we are just 
saying to the President of the United States, in spite of the 
fact that there's legislation that would prohibit it or give 
direction to him, they will do whatever he wants to do, and we 
are going to sit here.
    Now, having said that, Secretary, do you believe that in 
spite of my farmers going crazy, Kansas City Southern world 
headquarters is in my district, Kansas City's Southern 
Railroad, which means they go south through Kansas down through 
Texas and into Mexico, and they are extremely concerned and 
frustrated.
    So are you saying all these people are just misguided and 
they will be OK next week?
    Secretary Mnuchin. I don't want to in any way imply that 
they are misguided, because again, I understand the impact that 
this is having on specific areas, especially the farmers which 
I think are being unfairly targeted.
    And as I said, it is a major focus of ours to make sure 
that we can compete fairly and we are very focused on these 
trade issues, as you have outlines. But I understand the 
issues.
    Mr. Cleaver. Do you think that these trade wars have ever 
worked? Discuss Smoot-Hawley, 1930. Did that work?
    Secretary Mnuchin. Again, I would just say, I don't think 
we are in a trade war. We are in a situation of trade disputes, 
OK, these are not trade wars. And we are very focused, as I 
said, on the NAFTA issue, which is renegotiating an old 
agreement.
    We are very focused on the China issue which is very 
complicated as you have outlined in fair trade.
    Mr. Cleaver. OK, so if I hit Al Green with my fist, we are 
not really in a fight, we are in negotiations? We hit China, 
China hit us back. That is not a war, a fight?
    Secretary Mnuchin. No, I wouldn't say we are in a fight at 
all. And matter of fact, the President has specifically 
commented on his relationship with President Xi and how they 
are helping us with North Korea and other areas.
    And again, as I have just said, I don't think in any way we 
are in a fight with Canada and Mexico, quite the contrary. We 
are very focused on these agreements, and I am going down to 
Mexico tomorrow as a sign of the importance of that.
    Mr. Cleaver. Do you also agree then that Smoot-Hawley, 
based on economist, your people that you would respect, agree 
that it was the Smoot-Hawley Act of 1930 that created less 
confidence in the markets, which contributed to the length of 
the collapse of the world economy, which happened, actually, 
back in 1929, a few months earlier. That that did not 
contribute?
    Secretary Mnuchin. I think it wasn't the only issue, but it 
did contribute and that is why I said we are monitoring this 
very carefully.
    Mr. Cleaver. Thank you.
    Chairman Hensarling. Time of the gentleman has expired. The 
Chair now recognized the gentleman from North Carolina, Mr. 
Pittenger.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Again, thank you, Mr. Secretary, for being with us today. 
Really want to appreciate, of course, your strong work and 
support for our FIRRMA legislation to reform CFIUS.
    Of particular note, I would like to publicly thank 
Assistant Secretary Heath Tarbert for his great work in 
brokering this with multiple agencies and committees, 
individuals in the House and Senate. He did an incredible job. 
So thank you to him, please.
    Mr. Secretary, are there any aspects or concerns that you 
have of the current legislation that would create a loophole or 
other manner in which it could be exploited by an adversarial 
interest?
    Secretary Mnuchin. I am sorry, you are referring to the 
current CFIUS or you are talking about FIRRMA?
    Mr. Pittenger. FIRRMA--the FIRRMA bill as we are 
negotiating it between the House and Senate.
    Secretary Mnuchin. All right. First of all, thank you for 
thanking us on the work of FIRRMA. I would like to thank the 
House and Senate for the enormous bipartisan support. And as I 
have emphasized to the chairman and leadership on both sides, 
we want to get this passed as part of the NDAA. This is very, 
very important to the Treasury and our role of CFIUS.
    Mr. Pittenger. Yes, sir. Are there any aspects of it that 
you would favor or be concerned about or at the end of the day, 
the final legislation that you feel like needs to more clearly 
or focus address on any issues that remain outstanding?
    Secretary Mnuchin. Again, we are very happy with the 
legislation. I think there are some slight differences between 
the House and the Senate version.
    And I actually had the opportunity to meet with the 
chairman before this morning's testimony, and I think we are 
going to work together and with the conferees on trying to get 
this done quickly.
    Mr. Pittenger. Yes, sir. Thank you very much. Mr. 
Secretary, following the President's trip last year to Riyadh, 
to meet with the Arab and Muslim countries, some 55 or so 
countries; from that, I recall an announcement of an anti-
terrorism financing center to be set up in Riyadh. Do you have 
any further information on that or what has happened following 
that announcement?
    Secretary Mnuchin. Sure. I have a lot of information on 
that because we are the focus of that at Treasury. That was a 
major focus of ours for the President's trip. I actually had 
the pleasure of signing the MOU (memorandum of understanding).
    On my trip last year, it was a major focus. I went to Saudi 
Arabia and saw the opening of the center. I will be going back, 
I believe in October, and I have committed on an annual basis 
to go back. We have issued the first sanctions jointly out of 
the TFTC (Terrorist Financing Targeting Center), and this is 
one of our major priorities at Treasury.
    Mr. Pittenger. Thank you, sir. As well, would you have any 
comments that you could make, referencing the MOU with Qatar, 
given the concerns we had in the past regarding the complicit 
role that Qatar had with harboring known financiers or funding 
for kidnapping or other foundations that were utilized, that 
there was the State Department MOU, which I have read, that 
would encourage Qatar to be more engaged with us in our 
oversight?
    Secretary Mnuchin. I can't comment on past activities, but 
I can comment on current activities.
    Mr. Pittenger. Yes, sir.
    Secretary Mnuchin. I think they have made significant 
progress. We are working with them very closely. They are part 
of the TFTC. We have also had bilateral discussions. I have met 
with them recently on an ongoing basis, and we are very focused 
on working on terrorist financing with them.
    Mr. Pittenger. Yes, sir. Do you see any remaining concerns 
in terms--do you feel like they have fully turned the corner?
    Secretary Mnuchin. Again, I want to be careful in what I 
say on this. There is always more work to do. But they have 
made very significant efforts in the right direction.
    Mr. Pittenger. Just changing the focus a little bit, now. 
In reference to 2155, could you give me some idea of the role 
that Treasury will play in terms of the implementation of that?
    Secretary Mnuchin. We are going to be actively involved--
just checking the number. We are going to be--
    Mr. Pittenger. I am sorry.
    Secretary Mnuchin. Because I always refer to it as FIRRMA. 
I apologize. We are going to be actively involved. We have 
already started working on drafting regulations. We have a team 
of people that are ready to implement this immediately.
    So I would hope that as soon as this is passed in the early 
fall, we can begin implementing this. We are going to work with 
Congress on additional funding. But, again, this is one of the 
top priorities at Treasury, and this is critical to close holes 
in CFIUS that we need, particularly around joint ventures and 
in other areas.
    Mr. Pittenger. At the end of the day, we don't want to look 
back, two or 3 years from now, and see that we have not done 
the full job. Thank you.
    Chairman Hensarling. Time of the gentleman has expired. The 
Chair now recognizes the gentlelady from Wisconsin, Ms. Moore, 
Ranking Member of our Monetary Policy and Trade Subcommittee.
    Ms. Moore. Thank you so much, Mr. Chairman.
    And Mr. Secretary, again, let me say welcome to you and 
welcome to the committee. Let me get right to it. Our chairman 
here referred to the economic miracle of the tax cuts. And I 
just want to say that the only time that income inequality has 
been greater than it is now is upon the dawn and advent of the 
Great Depression. So income inequality is not a good thing for 
our economy and other people's economy.
    So before I go on to talk about that a little bit more, I 
just want to refer back to the things that I talked about in my 
opening statement, the universal service fund.
    There are many, many, many more poor people who have fallen 
out of the middle class because of the bifurcation of benefit 
from that tax bill. And so despite the declarations that people 
are better off we have seen wages not stay flat but actually 
fall.
    So this notion that we have less unemployment but flat 
wages or lower wages that we are having bonuses given out. 
Walmart is a good example, was up there. They gave $400 million 
of bonuses to its employees and then simultaneously laid off 
10,000 people. So this notion that Joe Sixpack is better off is 
not something that is provable.
    Having said that, there are more poor people and so I am 
just very concerned about the Universal Service Fund. And even 
though Brad Bailey responded to my letter, very short. He did 
not really--he was very unresponsive to my requests about how 
you all intend and plan on administering the Universal Service 
Fund to make sure that it retains its purpose.
    And so I will be asking you offline to do that. Now I want 
to go back to the economic miracle here, because of course when 
we implemented the tariffs, that was a double hit. I grew up in 
the neighborhood where Harley Davidson has its international 
headquarters in Milwaukee, Wisconsin.
    And I am just in--the President to start picking on my 
little hometown company, and I am just wondering why he was so 
surprised. Given the structure of the tax bill, I just want to 
know why you are surprised. They had their corporate rate 
lowered from 35 percent to 21 percent.
    Then, of course, they repurchased $15 million of their 
shares valued at nearly $700 million. It incentivized them to 
do that. The repatriation of tax benefits to corporations, 
rewarded people for bad behavior.
    They laid off workers in Cleaver's district, 800 workers, 
but they are going to hire 400 new ones in Thailand. Why is the 
President surprised, since we had a tax bill that incentivized 
not raising wages? Why are you surprised? Why is the President 
surprised by Harley?
    Secretary Mnuchin. I--again, I would beg to differ. But I 
think the tax bill actually encouraged significant investment 
and that is--
    Ms. Moore. But it didn't happen. Walmart--
    Secretary Mnuchin. There absolutely has. In Wisconsin, 
there's a tremendous amount of jobs coming into Wisconsin as a 
result of the tax bill and as the result of new facilities new 
facilities that are available--
    Ms. Moore. Oh, Foxconn?
    Secretary Mnuchin. Yes.
    Ms. Moore. Oh yes, well Foxconn is going to be a $4 billion 
cost to the taxpayers. It's what I call socializing the costs 
and privatizing the profits. It is bigger than our doggone 
State budget. What we are giving as an incentive, so that dog 
don't hunt, quite frankly.
    The math doesn't work out, Mr. Secretary of Treasury.
    Secretary Mnuchin. Again, I am not going to comment on the 
State numbers, which again I wasn't--
    Ms. Moore. Right, they are my State.
    Secretary Mnuchin. My understanding is that the State's 
analysis was quite well thought out--
    Ms. Moore. No, I read the State analysis, and it is going 
to cost more than we are going to benefit. The--and so I am 
trying to understand why the President is surprised that this 
tax bill didn't trickle down into wages, but just became a way 
to buy back shares of stockholders and didn't trickle down to 
Joe Six Pack.
    Secretary Mnuchin. I--again we would be happy to follow up 
with your office and show you wage growth, which we have 
already seen and anticipate more.
    Chairman Hensarling. Time of the gentlelady has expired, 
the Chair now declares a recess for 15 minutes.
    [Recess.]
    Chairman Hensarling. The committee will come to order. The 
Chair now recognizes the gentleman from Illinois, Mr. Hultgren.
    Mr. Hultgren. Thank you Mr. Chairman. Mr. Secretary, good 
to see you, thank you for being here. Honestly, from the bottom 
of my heart, thank you for your work. I am so encouraged as I 
travel around my district in Illinois of the optimism that the 
Chairman talked about of this new growth that we are seeing of 
opportunity for everybody.
    And that when we have an economy, markets that are working 
and growing, that there is this wonderful spiral of optimism 
that we see happening out there, and I just want to thank you.
    I know it is a big commitment, it is tough even to be a 
part of something like this, and yet I just want you to know I 
appreciate your work and appreciate the work that you and 
President Trump and others have done to get this economy 
growing again, to lower unemployment, and to raise hope and 
optimism.
    So with that, just want to say thank you so much. I do have 
a lot of questions and concerns, as many others have, of 
tariffs, and thank you for listening on that. I want to talk 
about other things, if that is all right. I understand that the 
Treasury Department has been doing a lot of thinking about how 
technology is disrupting the financial services industry.
    Some people call it FinTech, which I believe is partly 
attributable to how quickly the options for how consumers 
access financial products and services is changing. I think it 
is fair to say that depository institutions have been forced to 
grapple with a lot of new regulation in the wake of Dodd-Frank 
that has made it difficult to compete with non-depositories.
    However, I also believe that it is best products and 
services should be successful. So one, do you believe that 
there is an unlevel playing field for depository institutions 
and non-depository institutions when it comes to their ability 
to adapt and innovate?
    And wondered when the Treasury Department would publish the 
report outlining some of its policy views on how technology is 
disrupting financial services, including any recommendations 
around the availability of a Federal charter?
    Secretary Mnuchin. So we should be coming out with the 
FinTech report shortly, I have had an opportunity to review a 
draft of it, and it is just going through final review. Look, I 
would say, like any legacy industry or any regulated industry, 
there are good things that occur and developments outside in 
the FinTech world, and there are concerns. And we want to 
strike the right balance between both of those.
    Mr. Hultgren. Thank you. The United States participates in 
the Basel Committee on Banking Supervision and International 
Association of Insurance Providers. I have been critical of 
some of the standards established by this group, and other 
international bodies because of their inapplicability to our 
financial system, especially for smaller financial institutions 
and insurance providers.
    I wonder, do you believe these international standard-
setting bodies provide value to the global financial system, 
and then as a global leader in financial services, banking, 
insurance, and capital markets what do you believe the role of 
the United States should be in such international standard-
setting bodies?
    Secretary Mnuchin. I think in general they do provide value 
because we do need to be careful and make sure we have 
consistency and deal with issues. On the other hand, so I think 
our role is both a leadership in that we provide leadership in 
the financial markets, but also to make sure our companies are 
represented in our industries fairly.
    Mr. Hultgren. Thank you. The Treasury Department includes 
Federal Insurance Office, recently FIO has been involved with 
the establishment of covered agreement with the European Union 
among other things. I wonder if you have any concerns with the 
amount of independence this office has, how should we institute 
prudent oversight and accountability of the file director 
without undermining his or her ability to effectively represent 
the views of the Treasury Department in the United States?
    Secretary Mnuchin. I am not concerned about the 
independence; we have worked closely with that area and been 
actively involved in the covered agreements.
    Mr. Hultgren. Great. Since you last testified before our 
Committee, Director Mick Mulvaney also sat in the same chair 
that you are sitting in and expressed his support for turning 
the Consumer Financial Protection Bureau (CFPB) into a 
bipartisan commission. I asked my friend, Mick, who was a 
classmate of mine, coming in to Congress if he still believes a 
Commission provides greater certainty to market participants 
and consumers?
    And he testified, he said, I still believe that. And that I 
was a co-sponsor of that bill when I was here. I wonder if you 
support turning the CFPB into bipartisan commission, why or why 
not? And what steps the Treasury Department is taking through 
its work with Congress to turn the bureau in to a bipartisan 
commission, if they are doing that at all?
    Secretary Mnuchin. I do share his view; we are not taking 
any steps on pursuing that at the moment more because it would 
need bipartisan support.
    Mr. Hultgren. Again, Secretary, thank you for your work. I 
have a few seconds I would yield back to the Chairman.
    Chairman Hensarling. Gentleman yields back.
    The Chair now recognizes the gentleman from Maine, Mr. 
Poliquin.
    Mr. Poliquin. Thank you Mr. Chairman, very much, thank you, 
Mr. Mnuchin, for being here, again, appreciate it very much. Up 
in the great State of Maine, sir, where you would likely need 
to go on vacation this year because we are vacation land, it is 
a great stress-free environment that I am sure your wife would 
enjoy also.
    But our economy is doing quite well, Mr. Mnuchin. We have 
about 2.8 percent unemployment, there are thousands more jobs 
and we have workers available, our paychecks are getting 
bigger, and it is easier to change jobs if you don't like the 
one you have now.
    One of the problems we have had, sir, in our great State is 
the export of our young adults, because we didn't have an 
economy that was conducive to the employment they want, and now 
we have some of our young adults being able to come back home. 
So, I am thrilled about this. Now, this didn't happen by 
accident; it is because taxes are lower, and workers and 
employers can keep more of their own money since they are able 
to invest and create more jobs, more opportunities for our 
young adults, and it is because regulations are also lower, at 
the State and Federal levels. So this whole war on jobs is 
over.
    Now, thank you for your support in getting us there, first 
of all, Mr. Mnuchin. Second of all, I am really concerned about 
our small savers and investors throughout rural Maine, a nurse 
in Lewiston or a teacher in Bangor who is trying to save for 
his or her retirement, or maybe their kids' education through a 
529 plan.
    And when you deal with increasing regulations and cost, for 
any business in particular, in this case a pension manager, a 
retirement manager it means that the rate of return for that 
saver is going to be lower and the nest egg is going to be 
smaller.
    So you, sir, are the Chairman of FSOC. You have a 
tremendous amount of influence on that 10 member panel. I think 
it would be incredibly helpful if you were able to lead an 
effort, or support an effort at FSOC to give certainty when it 
comes to the rules and the guidelines that oversee non-bank 
asset managers who manage retirement funds for thousands and 
thousands of small savers in Maine.
    Because if you can avoid the unnecessary burden of being 
designated by FSOC as a SIFI, then you can avoid all these 
expensive regulations that are unnecessary, build up the nest 
egg for these small savers in Maine and elsewhere. Do you think 
that is a good idea, and can I get your commitment from you, 
Mr. Mnuchin, that you will help us down that path? Yes?
    Secretary Mnuchin. Yes.
    Mr. Poliquin. Good, I want to make sure we all heard that. 
Thank you very much. Do you have any timeframe within which 
this great staff behind you, and others over at U.S. Treasury, 
will get to this project?
    Secretary Mnuchin. We will follow up with your office 
promptly and talk to you about that.
    Mr. Poliquin. I appreciate that very much, thank you, sir. 
I am also guessing that you attribute our strong economy 
throughout the country, and better paying jobs and fatter 
paychecks--because of the lower taxes, and less regulatory 
environment in the country, is that correct, sir, in our 
economy?
    Secretary Mnuchin. That is correct.
    Mr. Poliquin. Do you think it is a good idea, Mr. Mnuchin, 
that Congress should work toward certainty when it comes to the 
tax code for individuals and small businesses to make those 
lower taxes permanent so our economy can continue to grow and 
give more opportunities to our kids?
    Secretary Mnuchin. I do, and that is something we are 
already talking to Chairman Brady about, and the President is 
very focused on.
    Mr. Poliquin. Wonderful. Last, sir, I introduced a bill 
this Congress, the Iranian Leadership Transparency Act, H.R. 
1638, and 6 months ago when you were here, sir, we discussed it 
a little bit. This simply requires the United States Treasury 
to post on its website in several different languages including 
English of course, and the three languages used in Iran, to 
make sure the world and the Iranian people can see the type of 
wealth that has been built up among the 70 or 80 Iranian 
political and military leaders, so they can see how they are 
being ripped off in order to promote the interests of these 
mullahs that chant, death to America.
    Can I agree with you, or do we agree with each other that 
it is good, it is better for there to be more transparency for 
the world to see how this small group of political and military 
leaders whose suppressing their citizens in the country of 
Iran?
    Secretary Mnuchin. In general I support full transparency 
as it relates to the specifics, and us publishing that, that is 
something I want to talk to my group about and speak to you 
about.
    Mr. Poliquin. I really appreciate that because that did 
pass this Committee and the house flew with a big bipartisan 
vote, and we greatly appreciate that support. Thank you very 
much, Mr. Secretary, for being here, I appreciate your candid 
answers.
    Secretary Mnuchin. Thank you.
    Mr. Poliquin. Thank you, Mr. Chairman, I yield back.
    Chairman Hensarling. Gentleman yields back.
    Chair now recognizes the gentleman from Arkansas, Mr. Hill.
    Mr. Hill. Thank you, Chairman, appreciate the Secretary 
being with us today, thanks for your forbearance for all of our 
questions, and also appreciate your consistent voice and 
leadership on the success of the tax cuts, bill, and the 
regulatory reforms that the Treasury's been at the forefront 
of.
    One thing I have heard I might say from a lot of my 
regulative financial institutions in Arkansas, that they like 
the appointees that are in the oversight. They like the S. 2155 
which repealed some of the aspects of Dodd-Frank.
    But they are still not necessarily seeing a change in the 
exam process or the impact of turning the Administration from a 
regulatory burden point of view. I would interpret that from a 
tailoring point of view. So I think that might be something in 
your FSOC capacity when you are talking to your colleagues you 
may want to consult on.
    Also, speaking of the tax bill and regulation I think you 
are aware that some foreign banks who we want to attract the 
United States and set up intermediate holding companies here 
and prosper in America lending money here and serving clients 
in America, are put at a disadvantage potentially by the tax 
code and those who have the regulatory obligation of having a 
TLAC or a total loss absorbency capacity, regulatory 
requirements are in conflict some with the tax bill on how we 
tax dividends from foreign companies. Are you aware of this 
conflict?
    Secretary Mnuchin. I am extremely aware of this and we are 
working on specifics. We understand the conflict between the 
tax bill and the regulatory environment.
    Mr. Hill. Good. I know you are in the right spot with the 
domestic finance and tax expertise to try to sort through how 
best--I hope you will bring it to the Legislative Branch if we 
need to take action on a resolution.
    Secretary Mnuchin. We are hoping that we can fix it without 
legislation, but if we can't, we will definitely come back and 
address it.
    Mr. Hill. Good. Thank you. You also referenced to an 
earlier question about the GSEs and I share your concern. That 
is a something that in my long career in the public and private 
sector I have been focused on. I can remember David Maxwell 
when he was the CEO of Fannie Mae testifying to the Senate 
Banking Committee when I was a staffer about the essential 
nature that if Fannie Mae did not diversify its revenue sources 
it would go out of business, and that was back in 1983.
    And I raise that issue because of while we all want to 
reform the GSE's, I noted that the FHFA has permitted the GSEs 
to engage in a number of new activities, a host of pilot 
programs which go well beyond their traditional secondary 
mortgage market role, and that is while the ghost of David 
Maxwell echoed in my head.
    Don't you think that they ought to be focused on their core 
mission of secondary mortgage market to low and moderate income 
homeowners and not be allowed to go off and do things like 
competing with the private sector and potentially purchase 
mortgage service rights financing or private mortgage 
insurance. Are you aware they are submitting these pilot 
programs?
    Secretary Mnuchin. I am aware of it and generally I agree 
with you without commenting on every specific one. But yes, I 
think they should stay to their core business.
    Mr. Hill. Thank you. I want to echo the comments of my 
Chairman. You know on the trade issue, there is no doubt that 
the Constitution enumerates the power that article 1 is 
responsible for regulating commerce between foreign nations, 
that is clear. And over the years since the 1930's, we have 
delegated under our oversight tariff setting parameters and 
certain other negotiating parameters to the Executive Branch 
and I think that is why you see the questions that Secretary 
Ross got in the Senate and that you are getting today.
    We all have farm customers that are concerned about soybean 
prices and we have intermediate goods manufacturers concerned 
about the steel imports and aluminum imports. I hope you will 
be a voice for moving these discussions along quickly and also 
suggest ways other than a blanket across-the-board imposition 
of 232 tariffs under national security purposes, there are 
other ways to stop transshipments and other ways to be dumping 
steel and aluminum. And I would have preferred you going 
directly to China, to the point, and using 301 on steel and 
aluminum rather than the national security angle. Any comment 
on that?
    Secretary Mnuchin. I would just say as I said before, we 
are monitoring all these markets, soybeans, steel, aluminum, 
and everything else and we are looking at using 301 
appropriately.
    Mr. Hill. Thank you. I appreciate you. Mr. Chairman.
    Mr. Hultgren [presiding]. The gentleman from Arkansas 
yields back. The gentleman from Pennsylvania, Mr. Rothfus is 
recognized for 5 minutes.
    Mr. Rothfus. Thank you Mr. Chairman. Secretary, I have 
previously expressed concerns about the financial stability 
board's designation of U.S. insurers as systemically 
significant.
    These designations have typically proceeded domestic 
determinations and it is especially troubling that the FSOC has 
historically appeared to act as a rubber stamp to the FSB. I 
understand that the FSB is currently reevaluating its approach 
to systemic risk and is considering shifting to an activities 
based approach.
    What is the U.S. position on using an activities-based 
approach to systemic risk as opposed to designated individual 
companies?
    Secretary Mnuchin. We absolutely support that; that is 
something we are shifting toward at FSCO as well and part of 
the reason why they are looking at it is because of discussions 
with us.
    Mr. Rothfus. I understand that you are traveling to Mexico.
    Secretary Mnuchin. Yes.
    Mr. Rothfus. I want to encourage you in your conversations 
with them about the importance of developing their economy down 
there, because the fact is we have a horrific drug problem 
here. And if you talk to the Mexican officials they believe 
that we're responsible because there is a demand-side part of 
the equation. The fact of the matter is they have not produced 
an economy down there where people are having the kinds of jobs 
that would keep them gainfully employed.
    So I continue to watch the situation in Mexico with alarm. 
The impunity down there, the more than 1,000,000 people have 
been killed, very few prosecuted on that. So I encourage you in 
your talks with them.
    While we are talking about Latin America though, illicit 
financial networks continue to facilitate drug, human, and 
weapons trafficking throughout Latin America. Groups like 
Hezbollah are especially active in places like the tri-border 
region in Venezuela.
    This not only poses a threat to our national security and 
regional stability, it also enables bad actors across the 
continent to flood places like Western Pennsylvania with deadly 
drugs. What is the Treasury Department doing to target illicit 
financial networks in Latin America, including working with 
countries individually any leverage that we might have to 
organizations like the IMF or world bank.
    Secretary Mnuchin. I can assure you it is a big focus of 
ours. There is more work to do, but it is a big focus.
    Mr. Rothfus. Are there specific groups or States that 
Treasury has prioritized in Latin America?
    Secretary Mnuchin. Again, I am happy to go through with you 
privately. There are a whole bunch of different areas that we 
are focused on there.
    Mr. Rothfus. I want to thank you for your hard work on tax 
reform. Just 6 months after enactment, the American people are 
already seeing the benefits of this transformative law. Tens of 
millions of American workers are receiving bigger paychecks 
under the new withholding tables, four million workers have 
received bonuses, raises or expanded benefits, and over one 
million new jobs have been created.
    For the first time in many years, there are more job 
openings than job seekers. This is bringing workers who were 
pushed to the sidelines during the previous Administration back 
into the labor force. The Tax Cuts and Jobs Act coupled with 
historic regulatory reform has once again made our country the 
land of opportunity.
    The Tax Cuts and Jobs Act also established a program that 
will ensure that the benefits of our booming economy reach 
areas that have historically been overlooked, the Opportunity 
Zones Program.
    My district in Western Pennsylvania has several designated 
opportunity zones including tracks in Beaver Falls, Midland, 
Johnstown, and Aliquippa. These are strong communities that can 
once again thrive thanks in part to the attractive tax 
incentives offered for Opportunity Zone investments.
    Can you provide an update on the implementation process for 
the Opportunity Zones program?
    Secretary Mnuchin. I am glad you have asked about that, 
because actually it is one of the most important parts of the 
tax plan that gets the least amount of attention. I think it is 
enormously powerful.
    We have obviously been working with all the States on 
designations of Opportunity Zones, we have actually also 
traveled across the country in meeting with investors and other 
groups promoting this.
    So this is something the treasury is very actively involved 
with, actually on my way to Puerto Rico next week, on my way to 
the G20, all of Puerto Rico is an Opportunity Zone. So 
something we are very excited about promoting.
    Mr. Rothfus. Can you give us an idea of when we might see 
any final regulations that might be required to implement this?
    Secretary Mnuchin. I think you are going to see regulations 
soon and again, people will be able to invest in it. We have 
had very specific conversations with many investors about it.
    Mr. Rothfus. Do you care to put some parameters around 
soon, can I push you a little bit?
    Secretary Mnuchin. Soon is this year.
    Mr. Rothfus. Great. Is there anything that Congress can be 
doing to help facilitate this process?
    Secretary Mnuchin. No, I think we are all set, thank you.
    Mr. Rothfus. Now that the U.S. has withdrawn from the Iran 
deal, we have the opportunity to use additional sanctions to 
change the hostile behavior of the Iranian government. How does 
the Administration intend to apply sanctions going forward to 
achieve the desires result?
    Secretary Mnuchin. Again, we are going to snap back all of 
the Iran nuclear sanctions, which are going in place, and we 
will continue to roll out non-nuclear sanctions as we have in 
the past.
    Chairman Hensarling. Gentleman's time has expired. The 
gentleman from Texas, Mr. Williams is recognized for 5 minutes.
    Mr. Williams. Thank you, Mr. Chairman, and, Mr. Secretary, 
thank you for being here and thank you for your candid 
testimony today. We appreciate that this morning and for your 
dedication to our country.
    But this Congress and the Trump Administration are keeping 
the promises that they made to the American people, promises 
like rolling back regulations and reforming the tax code to 
make businesses more competitive and put more money in the 
pockets of hardworking Americans.
    Unemployment is low, economic growth is high, and consumer 
confidence is skyrocketing. These are just a few examples of 
the United States' prosperous new trajectory under Republican 
leadership and under your leadership.
    While these are promising signs, I share some of the 
concerns we have heard today from my colleagues regarding the 
impact of tariffs on American jobs and businesses. Tariffs are 
a cost directly passed on to the consumer and risk damaging 
effects on the historic gains that we have made over the past 2 
years, and I look forward to working with you and our trade 
representatives and the President to combat unfair trade 
practices, safeguard American jobs and promote free trade.
    So, Mr. Secretary, as you are aware, I am a car dealer. We 
have talked about that. And members in both chambers of 
Congress are having difficulty understanding why we have 
imposed 232 tariffs on our allies.
    And we should be acting in unison to prevent China's 
economic nationalism. We have also managed to impose tariffs on 
washing machines from South Korea, a time when we need a united 
front against Kim Jong-un, and soon we may be alienating Japan 
as well through national security tariffs against auto imports.
    So my question is can you describe in detail the expected 
end game for these trade actions and what is the specific 
timeframe you expect for these policies to achieve their 
desired effect?
    Secretary Mnuchin. I think the end game is that we are 
focused on having free and fair trade for American companies 
and making sure that American companies can compete fairly. And 
as I have said, I put them in three buckets.
    One bucket is NAFTA, Canada and Mexico, which are a big 
priority. That is something we are very focused on. The other 
is the E.U., the President was just in Europe having direct 
discussions with European leaders.
    He is going to meeting with the E.U. later in the month. 
And the third is China, which unfortunately many of our talks 
have broken down and they have reciprocated with tariffs.
    But again, I think our objectives are pretty clear.
    Mr. Williams. Another question, now that the Administration 
has withdrawn from the JCPOA, how will U.S. sanctions bring 
about the behavioral change in Iran required for a long term 
suspension of the country's enrichment activities?
    Secretary Mnuchin. I think we are already beginning to see 
the impacts, so we have seen many companies already announce 
that they are going to be withdrawing from their investments 
there, I think we expect that the Iranian oil shipment will 
decrease significantly.
    We are already having conversations with our allies about 
cutting their purchases. So I think we are beginning to see a 
tremendous impact.
    Mr. Williams. And last, can you comment on Treasury's use 
of sanctions as a tool to cut off the flow of funds into North 
Korea's weapons program and how can we pressure countries such 
as China to do more and take a tougher stand against North 
Korea's weapons program?
    Secretary Mnuchin. I think the sanctions have been very 
effective, and I think that is a major reason why they have 
come to the table to negotiate and agreed to give up nuclear 
weapons.
    And as I mentioned earlier, China has been a very important 
part of cooperating with us on that.
    Mr. Williams. And I just want to close by saying thank you 
for being here, appreciate your effort, that of the President 
and speaking somewhat from main street small business, let us 
keep what we are doing--business is good. Thank you a lot.
    Mr. Hultgren. Gentleman from Texas yields back, the 
gentleman from Minnesota, Mr. Emmer is recognized for 5 
minutes.
    Mr. Emmer. Thank you, Mr. Chair. Thank you, Mr. Secretary, 
for being here and sitting through this rather long hearing. 
Mr. Secretary, you have talked about the importance of initial 
public offerings (IPOs) as a means of creating capital.
    You have done that before this committee during your last 
two visits. We have expressed our concerns, many of which you 
share with the overall reduction or lackluster performance of 
IPOs compared to historical trends. For its part, the committee 
continues to move legislation to build on the success of 
efforts like the JOBS Act to enhance capital formation.
    Earlier this week the House unanimously adopted the Main 
Street Growth Act, which will allow for the creation of 
specialized venture exchanges to encourage small and emerging 
companies to go public and help them generate the investor 
attention and capital they need to be successful.
    Encouraging more companies to participate in an IPO is one 
thing, but encouraging small, early stage companies to go this 
route is especially important. Based on your experience in the 
financial sector, can you speak to why it is so important for 
new and emerging companies to go public, how these new early 
stage entrants make our markets more dynamic and help business 
and everyday Americans alike?
    Secretary Mnuchin. Despite the fact that there is an 
abundance of private capital right now for early stage 
companies, the IPO market has always been critical and public 
financing that is what has made all of our companies very 
successful, access to the most liquid capital markets in the 
world to grow and raise capital.
    And we look forward to working with you on it.
    Mr. Emmer. Thank you. I understand the treasury is--and I 
think Mr. Hultgren and others may have referred to your 
upcoming reports, so I apologize because we come and go.
    But I understand you are getting ready to release your 
fourth and final report on financial innovation, in accordance 
with the President's 2017 Executive Order.
    I have been taking a closer look at how advances in 
financial technology can be used to help entrepreneurs start a 
business and improve the way they operate or enhance their 
access to capital. I think you were asked, but I wasn't clear, 
and again, I was coming and going, can you give us a timeframe 
first on when you expect that report to be out?
    Secretary Mnuchin. As I mentioned, I have just recently 
reviewed a draft of the report, so I would hope it comes out in 
the next 30 days.
    Mr. Emmer. All right, and again I don't mean to cover old 
ground, but I just want to be clear, because one of the 
statistics that I found very concerning of late is that the 
percentage of Americans under 30 years of age that own a 
private year business is at a 24 year low, having fallen to 
just 3.6 percent.
    This figure, as recent as 2010, stood at 6.1 percent, and 
its peak stood at over 10 percent in 1989. You commented a 
little bit earlier, or at least you were asked, about the 
FinTech issue. Is the draft you reviewed, and I didn't hear it 
clearly, is that going to be covered in that draft?
    Secretary Mnuchin. Yes, a lot of those issues will be 
addressed.
    Mr. Emmer. OK, wonderful. Last, I want to ask you, you are 
no stranger to the complexity of the Bank Secrecy Act and the 
Anti-Money Laundering Regulatory Structure. Last summer, when 
you testified before this committee, Representative Luetkemeyer 
asked about ways to improve the regulatory harmonization of our 
BSA/AML system.
    The committee has been working on legislation to encourage 
Treasury to take a more prominent role in coordinating BSA/AML 
policy and implementation, which I believe most of our 
financial institutions and entities support.
    As this committee and this Congress continue to work on 
this issue, are there any additional efforts underway at 
Treasury to improve regulatory harmonization among the other 
Federal regulators when it comes to our BSA/AML regulatory 
structure?
    Secretary Mnuchin. Yes, we have a team that is working on 
that now, so both a team at Treasury in our TFI area, FinCEN, 
they are working with the OCC (Office of the Comptroller of the 
Currency), the Fed, and others, so that is actively underway.
    Mr. Emmer. And do you anticipate they will put out some 
type of report? Obviously they will report to you, but will we 
have an opportunity to see what the recommendations and 
suggestions are and will we play a role--
    Secretary Mnuchin. I am not sure it will be a form of a 
report, but we will make sure we communicate back to you in 
terms of us putting out some type of guidance or general 
comments along this.
    Mr. Emmer. Excellent, I will look forward to that. Thank 
you for your time, sir. I yield back.
    Mr. Hultgren. The gentleman from Minnesota yields back. The 
gentleman from Michigan, Mr. Trott, is recognized for 5 
minutes.
    Mr. Trott. Thank you Chairman, thank you, Mr. Secretary for 
your time today and all of your tremendous work on our economy 
and job growth, it is just amazing. One of the benefits of 
going toward the end of the batting order is I get to listen to 
all of my colleagues and take license to respond to some of 
them.
    So for the record, I do consider you to be a stable genius.
    Secretary Mnuchin. Thank you, I take that.
    Mr. Trott. Please take it as a compliment.
    Secretary Mnuchin. The fact that I lasted this long means 
by definition, I am.
    Mr. Trott. For the record, Mr. Meeks is misguided when he 
suggests you go back and admonish the President to fill the 
Ambassadorships. The real problem we all know is the Senate. 
There are 569 bills that have been passed out of the House that 
are dead in the Senate, and I, for one, am happy they are going 
to have to be here in the month of August to get some work 
done, and hopefully they will confirm a few Ambassadors.
    Mr. Scott from Georgia suggested that his State would be 
the most hard hit State by the trade war. I take issue with 
that, my State of Michigan no doubt will suffer the most if the 
trade war ends badly. Here's my concern, and I spent 30 years 
in business, did a lot of deals, found working collaboratively 
rather than a scorched earth approach was much more productive.
    And when you consider the President's comments in Quebec, 
his comments yesterday in Brussels, the comments about the 
wall, I worry that it is going to be difficult to reform NAFTA 
in a way that won't end up hurting my State, the State of 
Michigan.
    By the way, my district has the largest number of Ford 
Motor employees of any districts in the country. And so I would 
just like your thoughts, you said you have been to Canada, you 
are going to Mexico. I would like to have some insight from you 
on how you address some of the bluster from the President, 
which again China's a whole different story, you said it is 
complicated, so we will talk about China another day.
    But with respect to our allies, I would like to know we are 
going to end up in a good place, particularly as it relates to 
my State of Michigan.
    Secretary Mnuchin. Yes, I am cautiously optimistic, but I 
expect we are going to end up in a good place, and that is a 
major priority of Ambassador Lighthizer and the entire economic 
team.
    Mr. Trott. I think the rhetoric though, just to be more 
specific--I think when you look at Prime Minister Trudeau, for 
example, after Quebec, I think it makes it more difficult for 
him to reach a fair and free trade agreement with the United 
States.
    Because if he does, in the politics in this country, I 
think he will be lambasted. So for whatever that is worth, I 
think there's a time and place for tough rhetoric. I do worry 
as it relates to trade and our allies. In response to Mr. Ross, 
you suggested that in the next Congress, housing finance reform 
would be a priority. And I am glad to hear that, because I do 
worry that we are moving toward more relaxed underwriting 
guidelines that could allow history to repeat itself. With 
respect to Fannie and Freddie, you had mentioned in your 
earlier comments that you would like to see a bipartisan 
solution.
    That would be great. It has been very elusive for this 
Congress to come up with a bipartisan solution on housing 
finance reform, 10 years in the making perhaps. So assuming 
that is not possible, which is not a big leap of faith, would 
you support in the 116th Congress a more simple approach, which 
is just to get Fannie and Freddie out of the second mortgage 
market and to get them out of the refinance market?
    Refinance loans represent two-thirds of Fannie and 
Freddie's portfolio, that alone would significantly over time 
diminish the Government's role in housing finance.
    Secretary Mnuchin. Again, I want to be careful of specific 
comments, but I don't support them getting out of the refi 
market broadly. I think that refi loans are underwritten 
properly, and there should be certain limitations on cash out 
and other things.
    But rates go down and homeowners want to refinance, I don't 
think they should be penalized.
    Mr. Trott. But again if rates go down and they have a good 
credit score and they refinance and then property values drop, 
then the government essentially can be exposed again.
    Secretary Mnuchin. Again, without getting into all of the 
details, I think that the problem that Fannie and Freddie had 
was really a result of poor underwriting standards and buying 
many loans, sub-prime loans and other things that they never 
should have been purchasing.
    So I think that there is a prudent solution. My preference 
is we do this through Congressional action, if not, we will 
look at administrative options.
    Mr. Trott. Thank you, last question. The Orderly 
Liquidation Authority outlined in Title 2 of Dodd-Frank 
continues to be a concern, because I believe it to be a license 
for FDIC to use taxpayer dollars at Treasury to bail out banks.
    Will you--you think that should be a priority in the next 
Congress, to try and revisit that process so that we can come 
up with a better solution?
    Secretary Mnuchin. I think there are recommendations we 
have made on that, and we would be happy to work with you and 
others if there's a desire to move forward on that.
    Mr. Trott. Thank you, Mr. Secretary. I yield back.
    Chairman Hensarling [presiding]. Gentleman yields back, the 
Chair now recognizes the gentleman from North Carolina, Mr. 
Budd.
    Mr. Budd. Thank you, Mr. Chairman.
    And thank you, Secretary Mnuchin, for being here. It is 
good to see you again. I want to start by commending you for 
your role in implementing and promoting the Tax Cuts and Jobs 
Act. As many of us have thanked you, I want to continue in 
that.
    We are growing at 3 percent. Some would say even more. And 
I know I speak for a number of us gathered here today, that we 
appreciate the role you played in that.
    But since this is a hearing on the state of international 
financial systems, I wanted to switch from H.R. 1 and move to 
some questions that are of importance to me and many in the 
American insurance industry.
    Mr. Secretary, we operate under a State-based system of 
regulation. The U.S. insurance market has long been one of the 
largest insurance systems in the world. In fact, more than half 
of the world's 50 largest insurance markets are U.S. States.
    North Carolina's market, for example, the State I hail 
from, is bigger itself than the entire markets of Belgium, 
Sweden, Denmark, and Finland. Yet, U.S. officials have been 
engaging in overseas negotiations that would ultimately import 
European-style capital standards for U.S. companies and their 
policyholders on Main Streets across America.
    This is why I co-sponsored and voted to pass Chairman 
Duffy's International Insurance Standards Act on Tuesday, to 
protect our companies here at home from being harmed by 
European-centric regulation.
    So, Mr. Secretary, would you agree that the U.S. system of 
State-based insurance regulation works well? That it is well-
capitalized, solid for the most part, and that it is important 
for the Treasury Secretary to defend that system from the 
intrusion of both Federal and foreign regulation?
    Secretary Mnuchin. I do.
    Mr. Budd. So at the risk of sounding like my high school 
English teacher a bit, would you care to elaborate? If you care 
to share a little more on that?
    Secretary Mnuchin. In general, we very much support the 
State-based system. It works. It has worked well. There are 
certain issues that, again, do require some Federal 
intervention and oversight.
    But this is a system that works. It is not broken and we 
don't need to change it. And we need to make sure that U.S. 
companies that do international business can operate 
appropriately, and that is the reason to participate in the 
international forums. But we are not looking to change the 
system.
    Mr. Budd. Very good. Thank you for that. So just to point 
out, from many on the committee's perspective, one reason that 
we passed Duffy-Heck is because we feel like U.S. interests 
aren't being represented well overseas. If that is the case, 
then Congress will step in, in a bipartisan fashion, as 
referenced by this week's unanimous vote.
    So switching briefly to another topic, Mr. Secretary, some 
have called for Congressional action to improve and expand upon 
existing information-sharing tools between financial 
institutions and government authorities, as well as among 
financial institutions in cases of suspected money laundering 
and terrorist financing, including changes to the scope of 
liability safe harbors and the types of information that may be 
shared.
    Can you please discuss Treasury's relationship with the 
private sector to enhance and facilitate counterterrorist 
financing objectives?
    Secretary Mnuchin. We work very closely with the private 
sector. It's very important to--I think I mentioned in the 
past, terrorist financing is a major priority of the department 
and a major priority of mine, and I think we have a very good 
collaborative effort with the private sector.
    Mr. Budd. So although Congress--just to follow up on that--
although Congress intended Section 314(b) of the PATRIOT Act to 
allow banks to share information on illicit financial activity 
between themselves, banks have felt constrained by the rules 
interpreting that statute.
    So is it time to readdress this issue, in allowing banks to 
better share such information with appropriate safeguards, I 
would add?
    Secretary Mnuchin. That is a specific issue that we are 
working with them on, yes.
    Mr. Budd. Thank you. Would you be supportive of legislation 
that achieves that objective?
    Secretary Mnuchin. I would, but we would want to make sure 
we work with you on the specifics of that.
    Mr. Budd. Absolutely, and thank you. And, again, thank you 
again for being here.
    Mr. Chairman, I yield back.
    Chairman Hensarling. Gentleman yields back. The Chair now 
recognizes the gentlelady from Utah, Mrs. Love.
    Mrs. Love. Thank you, Mr. Chairman.
    And thank you, Secretary, for being here today. I just want 
to be very clear that the questions that you are getting today, 
I usually go into my district and ask them what questions they 
would like me to ask of the secretary. So just know that these 
are coming from people who have genuine concerns.
    You are before Congress today--and forgive me, also, if you 
have answered some of these questions. I need to make sure I 
get some of these on record. So you are here before Congress 
today to report on the status of international financial 
systems including the U.S. involvement in the International 
Monetary Fund.
    In its recent World Economic Outlook, the IMF expressed 
concerns that the prospect of trade restrictions and counter-
restrictions threatened to undermine confidence and derail 
global growth prematurely. Do you share those concerns?
    Secretary Mnuchin. I don't. And I would just comment, 
although I support the IMF, I also question some of their 
projections on the U.S. economy as well.
    Mrs. Love. OK. Back in May 20th, you were quoted as saying 
that tariffs were on hold. Yet, less than 7 weeks later, new 
tariffs on Chinese goods went into effect and were immediately 
met by retaliatory tariffs by China.
    Clearly, other people in the Administration weren't as 
interested in keeping things on hold. In the meantime, I heard 
a lot of concern from many different people in Utah, industries 
in Utah, about the negative impacts that they are already 
seeing from the uncertainty and the new tensions in our trading 
relationships.
    Just yesterday, I actually had a small business owner from 
my district come to my office--Utah Metal Works which recycles 
metal and sends about 40 percent of its business overseas.
    They are suffering from uncertainty and they want to see an 
agreement be reached. Not just the President beating up on 
trading partners. At the end of the day, they want to see some 
results, that it is not going to impact their consumers.
    So do you know what the end goal is? Is there a master 
plan? I am trying to figure this out. We are answering 
questions of our constituents, and it is very difficult to try 
and figure out what the strategy is.
    We know what the end goal is. But do you know what the 
strategy is? Do you know if there is, like, a master plan?
    Secretary Mnuchin. First, let me say, the tariffs were on 
hold. We were close to having an agreement. We couldn't reach 
an overall agreement and that is why the President decided not 
to keep them on hold.
    As it relates to a master plan, it is pretty simple. We 
have told China. We have given them a long list of issues. I 
think the answer is, we want to make sure that they open up 
their markets and that they treat our companies fairly so that 
we can increase exports.
    I think you know, they buy about $130 billion of our goods, 
we buy about $500 billion of their goods. There is a huge 
opportunity, if our countries can compete fairly, to increase 
exports significantly. So the master plan is for them to open 
up.
    Mrs. Love. The Federal Reserve, said last week, right 
before the new tariffs on China imports were imposed, that the 
possibility of a trade war has forced some companies to put on 
hold their investment plans.
    So we now find ourselves in a situation where the 
uncertainty over global trade policy is causing businesses to 
scale back or postpone their capital spending plans, plans that 
were incentivized by what we did in Congress in terms of 
implementing the new tax law.
    And tariffs, on the other hand, we all know, are really 
attacks on the consumers. And it will hit American businesses 
and consumers. It seems like one hand is contradicting what the 
other hand is doing, and they are not working.
    What are you doing with the Administration to ensure our 
trade policies don't undermine that growth that we are seeing, 
that positive growth that we are seeing in our businesses and 
that we are experiencing?
    Secretary Mnuchin. Let me first say tariffs are sometimes 
paid by the consumer and sometimes they are paid by the seller 
and absorbed by the seller. So I don't believe they are 
necessarily always a tax that is passed on.
    I would also just say that the President is very focused on 
economic growth, this is something that he campaigned on. From 
the beginning, we have been focused on regulatory relief, 
taxes, and trade, and I can assure that we are not going to do 
anything that is going to jeopardize the great growth of the 
economy, although I recognize there are certain areas in 
certain markets that have been targeted, that we need to be 
careful and sensitive to.
    Mrs. Love. You do recognize that uncertainty does hurt our 
economy, and it really makes it difficult for people to invest, 
so--
    Secretary Mnuchin. I recognize--
    Mrs. Love. Just the uncertainty is--anyway, I implore that 
you would work to end this thing soon. Thank you.
    Chairman Hensarling. Time of the gentlelady has expired, 
the Chair wishes to inform members that votes on the floor are 
imminent and for agreement with our witness, he will be 
released no later than 1:15. Currently I expect to clear three 
more members.
    Gentleman from Georgia, Mr. Loudermilk, is now recognized.
    Mr. Loudermilk. Thank you Mr. Chairman and thank you Mr. 
Secretary for spending a good part of your day with us. I know 
this is probably not the most entertaining nor the most 
productive thing you could be doing today, but it is very 
important for us, it is very important for our republic to do 
this.
    Real quickly, just one issue I want to touch on, and it is 
something that I am hearing when I go back to Georgia, 
especially from local banks and credit unions, is the FinCEN 
customer due diligence rule. And most of them feel that a part 
of it is very intrusive and burdensome.
    And they are still unclear on a lot of the compliance, and 
they find it very difficult to implement because of the lack of 
clarity. And if I can, I would like to share just a few 
anecdotes of some of the things that I have been told recently 
by these banks.
    One of the most common frustrations is that FinCEN has been 
very vague in telling banks what to do if a new customer wants 
to open an account, but can't provide the required information. 
They say the OCC has indicated they shouldn't even open the 
account in that case, and that FinCEN has provided no guidance 
on the issue.
    Another one is if an existing customer wants to open a new 
account but is unable to provide the required information or 
refuses to do so, should the bank terminate the entire 
relationship or just not open the new account, since the rule 
went into effect on May 11th.
    If the bank closes all the accounts, is that frowned upon 
as de-risking by the regulators? So they get caught in this no 
win situation. But if they do open the account, many times they 
feel they are in violation of the regulation.
    And so this has resulted in significant delay for a lot of 
the customers. Another problem is when a customer opens a new 
account, then 2 weeks later they want to get a debit card, and 
a month later they want to enroll in online banking.
    The banks don't know, do they have to fill out the forms 
again for each one of those events? Some banks have used forms 
that simply certify that the beneficial ownership hasn't 
changed, but bank examiners say that is not acceptable.
    Another main concern is that banks are now having to ask 
people, who have been their customers for years, even decades, 
for this information. The customers don't understand why their 
bank is asking them, and now they think that the bank no longer 
trusts them and it hurts the foundation of the bank's 
relationship with the customer.
    An example, a long-time customer simply changes their 
address, nothing else is changed other than their new address. 
The new beneficial ownership forms have--do they have to be 
completed? This also applies to routine renewals of lines of 
credit, certificate of deposits, et cetera.
    And the last one, the rule is also causing issues for 
accounts that may not have clear beneficial owners, such as 
accounts for class reunions, civic organizations, school clubs, 
and churches. In one case, a child was recently diagnosed with 
cancer and the school did a fundraising campaign to help the 
family.
    The mother worked at the school and was a customer of the 
bank, but the bank turned her away because they were afraid of 
getting the beneficial ownership questions wrong. So my 
question is, I am sure you are aware of these problems. And 
since FinCEN currently does not have any plans to issue formal 
guidance for the CDD rule, what would you suggest that banks do 
to get clarity on these specific issues?
    Secretary Mnuchin. You have asked some very good questions, 
many of which I am not going to answer the specifics of, but I 
will follow up with FinCEN and the OCC and others, because as I 
have said before, I am a big fan of proper regulation, but I am 
also a big fan of proper guidance so that they can follow the 
regulation.
    And I think you have raised a bunch of issues. I will say 
as a broad comment, customer due diligence is very important. 
We need to have banks know their customer, and we need to get 
this right between what is particularly on small banks a big 
burden and the customer in making sure we have the information.
    I have been a customer who has to provide this stuff and I 
know it is quite difficult, and many of the minor changes we 
should make sure that the banks know how to deal with these 
issues.
    Mr. Loudermilk. OK, and I thank you and I look forward to 
your response on these in a little more detail. Mr. Chairman, I 
yield back.
    Chairman Hensarling. Gentleman yields back, there is a vote 
pending on the floor a little over 10 minutes. The Chair 
expects to clear two more members, but restrict them to 3 
minutes. The gentleman from Ohio, Mr. Davidson, is recognized 
for 3 minutes.
    Mr. Davidson. Thank you Chairman. Mr. Secretary, thank you 
very much for your testimony today. And as CDD has been 
discussed extensively, I appreciate your sentiment that perhaps 
a heavy hand of government isn't necessary and perhaps the 
presumption might resemble the way we treat the Second 
Amendment more than the way that we treat other things, where 
everyone's held liable to provide information, subject to 
criminal penalties if they don't.
    I don't think we need to find new ways to make more people 
criminals. We do need to get after the terrorism and illicit 
finance that is out there. And I think that is the sentiment 
that unites us. The approach has us fairly divided, so I really 
look forward to any way to collaborate on CDD or beneficial 
ownership more broadly.
    I really appreciate the emphasis you have given as 
Secretary to terrorism and illicit finance, and we saw that 
marginalize and take a backseat under the previous 
Administration. Without going into any of the details in this 
setting, are Operations Cassandra and Reciprocity back on the 
table now?
    Or is there--what is the status of those efforts?
    Secretary Mnuchin. The things are being considered.
    Mr. Davidson. So you are still assessing whether to pursue 
those investigations?
    Secretary Mnuchin. I want to be careful on commenting on 
the specifics.
    Mr. Davidson. OK, thank you. We have talked a lot about 
trade, and there has been a lot of attention given to trade 
deficits. And, mercantilism emphasized the importance of trade 
deficits, and of course under mercantilism we were largely 
using gold to settle current accounts. And gold can be hoarded, 
so there was an idea that it was a zero-sum game.
    Today, we don't have that. We have something consumable, 
the petro dollar, basically the premise for our currency. And 
it is consumed, so people don't hoard it. Trade deficits are 
commonly misunderstood as a zero-sum game.
    Are you confident that the dialog that is being had today, 
as we negotiate with our allies and with our competitors, 
strategic competitors in the marketplace, that we are focused 
on free, fair, reciprocal trade and not a more mercantilist 
zero-sum idea?
    Secretary Mnuchin. I am completely. But in many of the 
cases where we have the trade deficits, it is because there are 
unfair trade practices in place.
    Mr. Davidson. There are certainly unfair trade practices. 
Prior to coming to Congress, I was a manufacturer and have been 
on the receiving end of many of those unfair trade practices.
    However, the deficit is largely attributable to the current 
account balance. So we have the free flow of goods and 
services, but we also have the free flow of capital. Could you 
address the idea that, in reality, the only likely way for us 
to decrease our deficit is to enter into a recession?
    Secretary Mnuchin. No. I don't agree with that at all. But 
we can follow up on that.
    Chairman Hensarling. Time of the gentleman has expired. The 
Chair now recognizes the gentlelady from New York, Ms. Tenney, 
for 3 minutes. She will be the last member recognized before we 
dismiss the witness.
    Ms. Tenney. Thank you, Mr. Chairman.
    And thank you, Secretary Mnuchin, for being here. And I 
always get to be last. So you get to be--just a little 
commentary and some quick questions.
    I do appreciate the President's position, and your position 
on realigning our global markets and making sure that anyone 
who has access to the greatest marketplace in the world, the 
U.S., does it in a fair and reciprocal way.
    Although I am concerned, and I am just going to express 
this because I know you have answered it--a little bit about 
what is happening in New York State in my rural district, where 
dairy is one of the number one industries.
    And we contend that we think that Canada has violated Class 
7 pricing. I know there are some differences of opinion on 
that. I would like to--and obviously, New York State, we have 
trouble with an oppressive tax-and-spend regime in Albany that 
has made it really difficult for our dairy farmers to survive.
    But also another area is in crops and particularly hay and 
that, again, gets back to where we are going with the trade and 
the tariffs and the ability of Canada and other border 
countries to be able to dump agricultural products on the U.S.
    And I just hope that, I know you have answered some of 
these things, but I just want to bring those to light because 
they are happening in New York State and I want to be sure you 
are aware of those.
    Also, I am sure the President, and comments made by my 
colleagues on the other side, is delighted that he is occupying 
some rent-free space in their head because they are reading his 
Twitter account with regularity.
    So I thought that was amusing. But I do happen to think 
that you are a stable genius, and I do think the President's 
geopolitical and political instincts are proving to be, maybe 
true.
    So I want to get to something beyond that, and a little bit 
back and maybe a deeper dive into the idea of Iran sanctions 
and the Iranian state model.
    And I know going through, just quickly, we know you have 
highlighted a little of this. But the waiver on the Islamic 
Republic of Iran broadcasting, that actually expires, those 
sanctions expire today.
    Do you believe it is in the best interest of our Nation to 
allow them to expire, and would you be willing to reinstate 
those sanctions in light of the Administration's policies 
toward Iran and the fact that OFAC has already placed the IRIB 
under direct general sanctions? Would that be something you 
could support as of today?
    Secretary Mnuchin. Again, I would rather you follow up with 
us privately and I get your views because it sounds like you 
have an opinion on this. So I would like you to share it with 
us privately.
    Ms. Tenney. Thank you. Yes. I know it is something that is 
headlining today, and it is happening and the past 
Administration was pursuing waivers and I just want to know 
where we are going to go today.
    We know that some of the resources that have been used 
under the former JCPOA, were used for terrorist means. So I 
appreciate you getting back to us.
    And thank you again. I am running out of time, but thank 
you again for your great work and the Tax Cuts and Jobs Act 
have been a difficult process, but have been a godsend for my 
region and I have yet to go to a business, small, medium or 
large, that hasn't praised the tax cuts and talked about new 
jobs, raises and bonuses for their employees, and especially 
their middle-income taxpayers. Thank you so much for that.
    Chairman Hensarling. Time of the gentlelady has expired. I 
would like to thank our witness for his testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    This hearing stands adjourned.
    [Whereupon, at 1:12 p.m., the committee was adjourned.]

                            A P P E N D I X



                             July 12, 2018
                             

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