    [Senate Hearing 115-212]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 115-212

        COMBATING MONEY LAUNDERING AND OTHER FORMS OF ILLICIT FINANCE:
    ADMINISTRATION PERSPECTIVES ON REFORMING AND STRENGTHENING BANK SECRECY
                                ACT ENFORCEMENT

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

                                    HEARING

                                   BEFORE THE

                                  COMMITTEE ON
                       BANKING,HOUSING,AND URBAN AFFAIRS
                              UNITED STATES SENATE

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 SECOND SESSION

                                       ON

     EXAMINING WAYS TO MODERNIZE THE UNITED STATES' ANTI-MONEY LAUNDERING
    AND COUNTERTERRORIST FINANCING REGIME AND EXPLORING WAYS TO STRENGTHEN
      THE ENFORCEMENT AND INTEGRITY OF THE U.S. FINANCIAL SYSTEM IN A NEW
                               TECHNOLOGICAL ERA

                                   __________

                                JANUARY 17, 2018

                                   __________

      Printed for the use of the Committee on Banking, Housing, and Urban
                                    Affairs

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                    Available at: http: //www.govinfo.gov /

                                  __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    29-913 PDF                  WASHINGTON : 2019

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                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                          MIKE CRAPO, Idaho, Chairman

    RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
    BOB CORKER, Tennessee                JACK REED, Rhode Island
    PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
    DEAN HELLER, Nevada                  JON TESTER, Montana
    TIM SCOTT, South Carolina            MARK R. WARNER, Virginia
    BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
    TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
    MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
    DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
    THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
    JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
    JERRY MORAN, Kansas                  DOUG JONES, Alabama

                         Gregg Richard, Staff Director

                     Mark Powden, Democratic Staff Director

                          Elad Roisman, Chief Counsel

            John O'Hara, Chief Counsel for National Security Policy

                   Sierra Robinson, Professional Staff Member

                     Elisha Tuku, Democratic Chief Counsel

                   Colin McGinnis, Democratic Policy Director

                           Dawn Ratliff, Chief Clerk

                         James Guiliano, Hearing Clerk

                          Shelvin Simmons, IT Director

                              Jim Crowell, Editor

                                      (ii)

                                C O N T E N T S

                                  ----------

                          WEDNESDAY, JANUARY 17, 2018

                                                                       Page

    Opening statement of Chairman Crapo..............................     1

    Opening statements, comments, or prepared statements of:
        Senator Brown................................................     2

                                   WITNESSES

    Statement of Sigal Mandelker, Under Secretary, Terrorism and
      Financial Intelligence, Department of the Treasury.............     4
        Prepared statement...........................................    34
        Responses to written questions of:
            Chairman Crapo...........................................    47
            Senator Brown............................................    49
            Senator Sasse............................................    54
            Senator Menendez.........................................    64
            Senator Perdue...........................................    66
            Senator Warner...........................................    69
            Senator Cortez Masto.....................................    71
    M. Kendall Day, Acting Deputy Assistant Attorney General,
      Criminal Division, Department of Justice.......................     6
        Prepared statement...........................................    38
        Responses to written questions of:
            Chairman Crapo...........................................    85
            Senator Brown............................................    85
            Senator Sasse............................................    93
            Senator Tillis...........................................   100
            Senator Warner...........................................   102
            Senator Cortez Masto.....................................   104

                  Additional Material Supplied for the Record

    Report: ``Trends in Bank Secrecy Act/Anti-Money Laundering
      Enforcement,'' submitted by the Congressional Research Service.   111

                                     (iii)

        COMBATING MONEY LAUNDERING AND OTHER FORMS OF ILLICIT FINANCE:
    ADMINISTRATION PERSPECTIVES ON REFORMING AND STRENGTHENING BANK SECRECY
                                ACT ENFORCEMENT

                                  ----------

                          WEDNESDAY, JANUARY 17, 2018

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 10:10 a.m., in room SD-538, Dirksen
    Senate Office Building, Hon. Mike Crapo, Chairman of the
    Committee, presiding.

                OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

        Chairman Crapo. The hearing will come to order.
        This morning, the Committee will receive testimony from
    Treasury and Justice Department witnesses on the potential for
    modernization of the United States anti-money laundering and
    counterterrorist financing regime. We look forward to hearing
    the Government's views on strengthening enforcement and
    protecting the integrity of the U.S. financial system in a new
    technological era.
        The Committee held a hearing with industry stakeholders on
    this same topic last week. A clear bipartisan interest in
    modernizing the BSA/AML regime emerged from that hearing.
        The hearing highlighted significant interest in several
    areas: beneficial ownership, information sharing, technology,
    and BSA reporting requirements. The hearing also highlighted
    the need to work with bank examiners to ensure that AML
    compliance is not just a ``check-the-box'' exercise.
        There seems to be space to improve information and
    coordination between industry, regulators, and law enforcement.
    The breadth of each of these areas merit further consideration
    and discussion.
        For example, today's technology promises new ways to catch
    criminals and facilitate compliance. But technology also poses
    challenges for law enforcement, such as the rise of
    cryptocurrencies and their potential to facilitate sanctions
    evasion and perhaps other crimes.
        I appreciate the strong interest in this topic from my
    Banking Committee colleagues and others in the Senate. As this
    Committee looks deeper into the potential for reforms or
    modernization of the broader U.S. counter threat financing
    space, all stakeholders' interests must be critically examined
    to assure that financial institutions, among a myriad of other
    stakeholders, can work effectively with the Government to
    efficiently provide information that results in a ``high degree
    of usefulness'' to combat crime and terrorism.
        The Committee, in doing its work on this shared policy
    goal, must also be ever mindful of the potential for creating
    any new or different set of unintended consequences that may
    lead to inefficiencies and undue burdens.
        Clearly, the United States cannot afford to allow criminals
    and terrorists to move illicit funds in furtherance of their
    criminal objectives.
        At the same time, during last week's hearing, Mr. Baer
    shared an example of a community banker with a $100 million
    bank and three branches. This bank had seven AML compliance
    officers and only four lending officers. We cannot let AML
    compliance weigh disproportionately on the costs of community
    banks.
        I look forward to working with my colleagues in helping to
    find a bipartisan path forward to a modernized, reformed BSA/
    AML regime that works for law enforcement, industry, and other
    stakeholders.
        Under Secretary Mandelker and Mr. Day, I am eager to hear
    your thoughts today. Your testimony will help set the stage for
    taking BSA/AML compliance and enforcement into the future.
        Senator Brown.

                   STATEMENT OF SENATOR SHERROD BROWN

        Senator Brown. Thank you, Mr. Chairman, and we both welcome
    Senator Moran to the Committee. Welcome, Jerry. Nice to see
    you. The Chairman appropriately introduced you earlier.
        Senator Moran. I can almost see you from here.
        [Laughter.]
        Chairman Crapo. Patience.
        Senator Brown. Thanks for calling this important hearing as
    a follow-up to our session last week as we begin to consider
    ideas to strengthen and reform our money-laundering and illicit
    finance laws.
        I am pleased that today we will hear Administration views,
    including from Treasury Under Secretary for Terrorism and
    Financial Intelligence Mandelker, welcome, and Deputy Assistant
    Attorney General Day from the Criminal Division, welcome. They
    will both, I am sure, provide important law enforcement and
    counterterrorism perspectives.
        As I noted last week, we should keep in mind that we are
    operating against a backdrop where in recent years some of the
    world's largest banks and their foreign partners continue to
    run afoul of these laws. In some cases they had inadequate
    anti-money-laundering oversight and compliance regimes. In
    others, banks willfully and persistently violated U.S. bank
    secrecy, sanctions, and anti-corruption laws.
        Though some have tried to minimize them, these were not
    simply paperwork missteps or administrative errors. In fact,
    the GAO concluded last year that over recent 6 years,
    approximately $12 billion was collected in fines, penalties,
    and forfeitures from financial institutions for violations of
    the Bank Secrecy Act, the Foreign Corrupt Practices Act, and
    the U.S. sanctions requirements--including $5 billion
    specifically assessed for Bank Secrecy Act violations.
        Some of these banks violated U.S. anti-money-laundering and
    sanctions laws by knowingly facilitating illegal financial
    transactions for rogue regimes in Iran and Sudan and Libya and
    Syria and Burma, and in some cases for trying to conceal this
    activity by repeatedly stripping relevant information from
    transaction records. Some conducted transactions with
    individuals or entities affiliated with terrorist organizations
    and drug cartels directly in violation of U.S. law. Many
    violated the law for several years. I encourage my colleagues
    to read a sampling of these Deferred Prosecution Agreements on
    these banks; some will make your hair stand on end.
        These are not victimless crimes. In addition to
    strengthening, for example, interdiction of the supply of drugs
    like fentanyl coming into the country through initiatives like
    my INTERDICT Act signed into law by the President last week, we
    also must cutoff the traffickers' money supply. Money
    laundering on behalf of drug cartels has a direct line to the
    opioid epidemic in my State, where Sinaloa cartel actors have
    been active, destroying thousands of families. Eleven people a
    day, more than any other State, die in my State. Every single
    day 11 people die.
        Human traffickers exploiting the misery of runaways here or
    recruiting young women from overseas with promises of
    legitimate work in the United States use our financial system
    to launder their profits.
        That is why these laws are so critical: they protect the
    integrity of our financial system; they provide critical
    intelligence to law enforcement to combat crime.
        Even so, as last week's hearing made clear, we want to
    assess whether there are ways to responsibly update and
    strengthen the current anti-money-laundering framework,
    including through new measures to require beneficial ownership
    information when companies are formed in the United States,
    shedding once and for all the U.S. reputation for being a haven
    for anonymous shell companies. That must end.
        Broadening information sharing may make sense, but there
    were good reasons that such sharing was limited to terrorism
    and money-laundering cases after 9/11. Important questions
    about privacy protections must be answered before considering
    any expansion.
        And as we heard from witnesses last week, we should focus
    on sharpening suspicious activity reporting and bolstering
    efforts by law enforcement to give banks better guidance on
    what to look for, instead of on substantially raising currency
    reporting thresholds. Questions have been raised, including on
    how to enable banks to make better use of artificial
    intelligence, while retaining room for critical human
    judgments.
        I know today's two distinguished Government witnesses have
    thought deeply for years about these issues. We welcome you
    both and look forward to hearing your perspectives.
        Thank you.
        Chairman Crapo. Thank you, Senator Brown.
        First, we will receive testimony from the Honorable Sigal
    Mandelker, who is the Under Secretary for Terrorism and
    Financial Crimes at the U.S. Department of Treasury. Following
    her, we will hear from Mr. Kendall Day, who is the Acting
    Deputy
    Assistant Attorney General for the Criminal Division of the
    U.S. Department of Justice.
        Under Secretary Mandelker, you may please proceed. I do
    remind the witnesses to try to follow the 5-minute clock that
    you have in front of you so we have time for questions and to
    remind our Senators to follow your own 5-minute clocks when it
    is time for your questions.
        Please proceed.

     STATEMENT OF SIGAL MANDELKER, UNDER SECRETARY, TERRORISM AND
           FINANCIAL INTELLIGENCE, DEPARTMENT OF THE TREASURY

        Ms. Mandelker. Thank you. Thank you, Chairman Crapo,
    Ranking Member Brown, and distinguished Members of the
    Committee. As the Under Secretary for Treasury's Office of
    Terrorism and Financial Intelligence, I am honored to once
    again appear before you today to discuss the critical work that
    we at TFI are doing to safeguard the United States and
    international financial systems.
        The offices that I lead are tasked, as you know, with using
    our financial intelligence, expertise, and powerful economic
    authorities to combat terrorist financing, money laundering,
    weapons proliferators, rogue regimes, human rights abusers,
    cyber criminals, and other illicit finance and national
    security threats to the United States and in the international
    financial system to our allies.
        TFI is actually the only office in the world that houses
    these unique authorities under one roof, and we are proactively
    integrating our authorities and expertise across components,
    deploying the best tools suited to each challenge and achieving
    significant impact.
        The foundation of our economic authorities is a strong and
    robust anti-money-laundering/combating the financing of
    terrorism regime, and one of my top priorities as Under
    Secretary is to ensure that the AML/CFT framework remains
    strong and effective. Such a regime keeps illicit actors out of
    the financial system and allows us to track and target those
    who try to slip through. And that is exactly what we have been
    doing against a wide array of law enforcement and national
    security priorities.
        Just as an example, we have been laser-focused on using our
    unique economic tools to identify and disrupt North Korea's use
    of covert representatives as well as front and trade companies
    to disguise, move, and launder funds that finance its weapons
    programs.
        We are also targeting Iran's use of deceptive financial
    practices to generate revenue. As just one example, in
    November, we sanctioned an IRGC Quds Force network involved in
    a large-scale scheme to counterfeit bank notes to support its
    destabilizing activities.
        In the past year, we have imposed sanctions, issued
    financial advisories, and undertaken diplomatic engagements to
    counter human rights abusers and the corrupt across the globe.
    Just last month, we sanctioned human rights abusers and corrupt
    actors under an Executive order that builds on the Global
    Magnitsky Act, which was passed by Congress just over 1 year
    ago.
        We are also using our other economic tools and authorities,
    such as using geographic targeting orders and exercising other
    authorities against transnational criminal organizations, cyber
    criminals, human-trafficking networks, and other law
    enforcement priorities. And we are taking a hard look, as you
    are, at the Bank Secrecy Act and the broader AML/CFT regime.
        We need to continuously upgrade and modernize our system,
    which was a statutory and regulatory construct that was
    originally adopted in the 1970s, and make sure that we have the
    right framework in place to take us into the 2030s and beyond.
        In particular, we have to make sure that financial
    institutions are devoting their resources toward high-value
    activities and are encouraged to innovate with new technologies
    and approaches so that we in law enforcement are able to better
    address these threats. And we are working closely with our law
    enforcement and regulatory partners in this effort.
        In recent years, financial institutions have been more
    proactive in their AML/CFT efforts, building sophisticated
    internal financial intelligence units, improving their ability
    to identify customers and monitor transactions by experimenting
    with new technologies, and working together to share
    information. We think these are good developments. These
    initiatives advance the BSA's underlying purpose and have been
    instrumental in assisting our efforts to identify and disrupt
    key streams of financing by illicit actors, including just as
    an example North Korea.
        We have also been working with the financial community to
    understand their perspectives and achieve our shared
    objectives. They are on the front lines, detecting and blocking
    illicit financing streams, combating financial crimes, and
    managing risk.
        Deploying our tools for maximum impact also requires
    proactive dialogue and information sharing with financial
    institutions. Enhancing public-private partnerships that reveal
    and mitigate vulnerabilities is a top priority of ours. That is
    why last month we launched FinCEN Exchange, a new public-
    private information-sharing program led by FinCEN.
        FinCEN Exchange is bringing law enforcement, financial
    institutions, and FinCEN together to facilitate greater
    information sharing between the public and private sectors on
    issues like cases, typologies, and threats. This effort enables
    the private sector to better identify risks and provides FinCEN
    and law enforcement with critical information to disrupt money
    laundering and other financial crimes.
        I want to thank the Committee for its leadership and
    support, both of which are truly essential to combating the
    threats that we face and ensuring our continued success. I look
    forward to working with this Committee on AML/CFT improvements
    and with other Members of Congress as we seek to fulfill our
    shared responsibilities to keep Americans safe and secure.
        Chairman Crapo. Thank you.
        Mr. Day.

     STATEMENT OF M. KENDALL DAY, ACTING DEPUTY ASSISTANT ATTORNEY
           GENERAL, CRIMINAL DIVISION, DEPARTMENT OF JUSTICE

        Mr. Day. Thank you, Senator. Chairman Crapo, Ranking Member
    Brown, and Members of the Committee, thank you for the
    opportunity to discuss our Nation's anti-money-laundering laws,
    including the Bank Secrecy Act.
        The Department of Justice draws upon the resources and
    expertise of various components to combat money laundering,
    including the Criminal Division's money-laundering and asset
    recovery section, the U.S. Attorneys' Offices, the Federal
    Bureau of Investigation, the Drug Enforcement Administration,
    and other prosecution and investigating components and
    agencies. We work with partners across the country and around
    the globe to pursue complex, sensitive, multi-district, and
    international money-laundering and asset recovery
    investigations and cases. We devote significant resources to
    this problem because money laundering facilitates some of the
    most serious and significant threats to our security and our
    safety.
        Transnational criminal organizations, kleptocrats, cyber
    criminal groups, terrorists, drug cartels, and alien smugglers
    alike must find ways to disguise and use their illicit
    proceeds. Money laundering, which best estimates peg at more
    than $2 trillion annually, is a global problem, but the threat
    it poses to the United States is acute and specific. Here we
    enjoy some of the deepest, most liquid, and most stable markets
    in the world. Those features of the U.S. financial system
    attract legitimate trade and investment, foster economic
    development, and promote confidence in our markets and in our
    Government. Those advantages--transparency, liquidity, and
    stability--also attract criminals. Through vigorous anti-money-
    laundering enforcement, we protect those hallmarks of our
    financial system, and we safeguard our citizens from the harms
    wrought by the underlying criminal conduct.
        Unfortunately, however, criminals frequently seek to thwart
    or evade our efforts by exploiting gaps and vulnerabilities in
    the existing laws and regulations. As you are aware, the
    pervasive use of front companies, shell companies, nominees,
    and other means to conceal the beneficial owners of assets is
    one of the great loopholes in this country's anti-money-
    laundering regime. We constantly see bad actors using these
    entities to disguise the ownership of the dirty money they
    derive from their criminal activities.
        The Bank Secrecy Act imposes a range of obligations on
    financial institutions, including reporting suspicious
    activity, performing customer due diligence, preventing
    transactions that involve the proceeds of criminal activity,
    and establishing effective anti-money-laundering programs.
    These requirements play a critical role in law enforcement's
    fight against money laundering. Effectively, they mean that
    financial institutions are often the front line of our Nation's
    efforts to prevent and detect such activity. Ensuring the
    ability of financial institutions to detect, investigate, and
    report illicit financial activity is of critical importance to
    law enforcement and the U.S. Government's fight to combat money
    laundering and prevent terrorist financing.
        Compliance with the Bank Secrecy Act is fundamental to
    protecting the security of financial institutions and the
    integrity of the financial system as a whole. In most cases
    financial institutions seek to do the right thing, implementing
    effective anti-money-laundering programs to detect and prevent
    money laundering through the U.S. financial system. In some
    cases, however, financial institutions have willfully failed to
    implement effective anti-money-laundering programs or failed to
    document suspicious transactions. In recent years the
    Department of Justice has resolved numerous anti-money-
    laundering and sanctions-based violations with major financial
    institutions, demonstrating that those institutions still
    struggle to create and incentivize anti-money-laundering and
    sanctions compliance programs.
        The effectiveness of our current anti-money-laundering
    regime merits continued discussion among law enforcement,
    industry, and Congress as we strive to detect, target, and
    disrupt illicit financial networks that threaten our country. I
    am pleased to be with you talking about these important issues,
    and I thank the Committee for holding this hearing today to
    bring attention to the threat that money laundering poses to
    our financial system and our national security.
        I will be pleased to take the Committee's questions. Thank
    you very much.
        Chairman Crapo. Thank you to both of you.
        My first question is just to ask each of you to very
    briefly, if you could, tell me if there are reforms to our
    system that are gaining attention in your offices, of things in
    your office or in your work that you and your colleagues
    believe need to be fixed or changed. Ms. Mandelker?
        Ms. Mandelker. Thank you, Mr. Chairman. So what I can tell
    you is there are reforms and then there are actions that we can
    take independent of any legislative reforms, such as----
        Chairman Crapo. Yes, and I am referring to legislative
    fixes.
        Ms. Mandelker. Understood. So I do think that this is a
    very important time to take a look at the BSA framework that
    was stood up again in the 1970s. We have to look to see whether
    or not our reporting requirements are sufficiently meeting our
    needs. We have to look to make sure that we have a system in
    place that is harnessing all those financial crimes analysts
    that are sitting in the financial institutions and are very
    much on the front lines of what we are trying to accomplish
    through their reporting.
        So we are taking a very hard look at that framework. We are
    looking at the thresholds. We are looking at the examination
    process. I think it is very important to study these issues
    carefully, to engage in conversations with law enforcement
    about what has been useful to them, what has been most useful,
    what has not been as useful so that we are getting the
    information that we need from the financial institutions in the
    right way, in the right form, and also so that we are
    incentivizing the financial institutions to prioritize work
    that is of high value to us.
        I know that there was a lot of discussion, just as an
    example, about the examination process, so we need to take a
    look at the examination process and make sure, again, that it
    is tailored toward incentivizing the banks to do the difficult
    work of analyzing potential illicit activity in a way that is
    going to be more productive for us.
        Chairman Crapo. Rather than checking the box.
        Ms. Mandelker. That is right.
        Chairman Crapo. Thank you. Mr. Day?
        Mr. Day. Thank you, Chairman. I think in addition to the
    issues that Under Secretary Mandelker mentioned, I would like
    to flag beneficial ownership. That is an issue that continues
    to present challenges for law enforcement because it is no
    secret that one of the ways criminals try to obscure their
    conduct is by hiding behind shell companies and front
    companies.
        Law enforcement has to devote enormous resources and time
    to piercing the corporate veil and amassing the evidence
    necessary to figure out who stands behind these companies and
    who is actually benefiting from the illicit financial flows. So
    that is another area that I think is ripe for consideration
    legislatively.
        Chairman Crapo. Well, thank you. And I appreciated the
    written testimony you both provided, and we will look forward
    to further information from you on helping to achieve these
    objectives as we move forward with legislative efforts here.
        Back to something that you both referenced, there was a lot
    of discussion in our last hearing about this check-the-box
    notion, that we have an army of analysts out there, but the
    question that seemed to come through to me in the last hearing,
    or one of them was: Are they just, you know, mathematically
    looking at numbers and checking boxes as they report
    transactions? Or are they trying to analytically identify what
    is risky or dangerous behavior and help you find that? Could
    you both address the--do you see the objective that we want to
    get at and the objective we want to avoid? Could you address
    that for me?
        Ms. Mandelker. I want to just start by saying that we have
    a cadre of examiners that we work with that are in the Federal
    banking agencies that are, of course, very devoted and
    dedicated to make sure that financial institutions are
    complying with their AML/CFT obligations.
        At the same time, I think that now is a very good
    opportunity to have a discussion with the Federal banking
    agencies that are conducting these exams to make sure that they
    are understanding what our priorities are from the Treasury
    Department, from law enforcement, to make sure that we are
    incentivizing financial institutions in the right way to devote
    their very substantial resources toward the high-value threats,
    toward identifying AML/CFT risks.
        And so I have begun that process. We are discussing this
    very issue with the Federal banking agencies, and you will be
    hearing more from us on that front. I think this is a very
    important time to have that conversation.
        Mr. Day. Thank you, Mr. Chairman. I will say that the
    information we get from the existing regime is very helpful to
    law enforcement. Our job fundamentally is all about identifying
    crimes,
    catching criminals, putting them in jail. And we often initiate
    investigations based on that reporting as well as, if we have a
    preexisting investigation that started with other information,
    further an investigation with the intelligence we are able to
    glean from that reporting.
        So I think that is very true, there is opportunity to
    consider this issue. It is just it should be done with an eye
    toward preserving what is already good about the system.
        Chairman Crapo. Thank you.
        Senator Brown.
        Senator Brown. Thank you, Mr. Chairman.
        Secretary Mandelker, let me start with you. I am sure you
    are familiar with the recent Clearing House Association report
    on these issues. One Clearing House recommendation is to have
    FinCEN's BSA oversight authority over large banks delegated to
    Federal banking agencies over 20 years ago returned to FinCEN.
    But it seems clear FinCEN does not have the bandwidth to make
    such a radical change.
        My questions are these, connected to that: Do you know what
    this change would require in terms of additional Federal
    funding and personnel? Why would we redo a system, an oversight
    system, that has worked reasonably well and put in place the
    kind of centralized examination teams suggested by the Clearing
    House when bank examiners already have extensive expertise and
    experience with these large entities on BSA issues and have
    been doing this job successfully for years? Tell us what you
    think.
        Ms. Mandelker. So I cannot tell you exactly what the
    numbers would look like if that authority--if we were to take
    back that authority. What I can tell you is that it is, again,
    very important, as we are with our partners charged with
    safeguarding the financial system, it is very important that we
    have continued conversations with the Federal banking agencies,
    with those examiners, so that they understand what law
    enforcement's priorities are and so that we continue to have an
    active discussion about how they are executing those
    responsibilities. So that is where our focus is, and, of
    course, we also have responsibility not just with respect to
    banks, but we have other responsibilities when it comes to
    executing our oversight responsibilities with money service
    businesses, in the virtual currency space, among a wide variety
    of areas. So we are very mindful of how we allocate our
    resources to make sure that we are not undertaking duplicative
    efforts.
        Senator Brown. Thank you.
        Mr. Day, as recently as last September, in its quarterly
    report to the court on HSBC's Deferred Prosecution Agreement,
    which stemmed from the bank's unlawful moving of hundreds of
    millions of dollars for Mexican drug cartels and other AML
    violations, DOJ wrote the following: ``The monitor has observed
    that HSBC is continuing to work toward the implementation of a
    reasonably effective and sustainable AML and sanctions
    compliance program.'' But despite progress in certain areas,
    the monitor had still identified ``significant control
    deficiencies.'' It also noted that HSBC has successfully
    implemented a majority of the monitor's recommendations but has
    not implemented others. Even so, last month DOJ agreed to
    terminate its Deferred Prosecution Agreement with HSBC.
        Has the monitor certified with no conditions or
    qualifications that HSBC has complied with the letter and the
    spirit of its obligation to effectively implement a sound AML
    compliance program? That is the first question. Second, if so,
    how do you reconcile that with recent statements by the monitor
    that HSBC still has those control deficiencies I mentioned, it
    has not implemented all the monitor's recommendation? Why
    didn't DOJ simply extend the term of the DPA, as it has done
    with other DPAs in the past?
        Mr. Day. Thank you, Senator, for that question. I think it
    is important to highlight the Department's--the lens through
    which we view this type of conduct. Our role in this area is
    really to prosecute willful violations of the Bank Secrecy Act,
    so, in other words, when a financial institution understands
    its obligations and persists in choosing another course of
    conduct they know does not satisfy the law, that was the reason
    behind the initial deferred prosecution that we brought in
    2012.
        Since then, though, as we have reported to the court in
    regular filings, including the ones you mentioned, the bank had
    not engaged in that type of misconduct; rather, they had gone
    about a very lengthy process of taking the monitor's
    recommendations and implementing them. That is the lens that we
    have to apply when we are deciding whether or not to apply an
    additional sanction, extend a Deferred Prosecution Agreement,
    or let that document rest as it was originally intended.
        So I cannot really comment about the specifics that are not
    public in that process, but I think that lens, the fact that
    the Department's perspective is focused on willful criminal
    violations and things that might fall short of that do not come
    to the Department's attention, can help explain why we take the
    steps in that case or any other.
        Senator Brown. But that lens, does that lens suggest
    allowing an incompleteness in complying? Because it seems that
    you acknowledge many ways they complied, some ways they did
    not. How does this encourage them to comply where they have
    fallen short?
        Mr. Day. Yes, Senator, so their obligations under the
    Deferred Prosecution Agreement they did comply with. Whether or
    not they at any given moment have satisfied all the monitor's
    recommendations is a different issue, but their obligations
    under the Deferred Prosecution Agreement are do not engage in
    any further violations of the law, implement a remedial program
    that at a given point satisfies the concerns the monitor has,
    even if it is not by an exact date. Those are the obligations,
    and that is why, because they had satisfied those obligations
    to the Government's satisfaction, we did not extend the DPA or
    take further action.
        Senator Brown. OK. Thank you.
        Chairman Crapo. Senator Sasse.
        Senator Sasse. Thank you. Thanks to you both for being
    here, and thanks for really good written testimony. It was
    helpful.
        Mr. Day, can you break down the $2 trillion number? What do
    we know by business type--type of crime business I mean--by
    geography, et cetera?
        Mr. Day. So I do not have those figures at hand, although I
    am happy to go back and see if we can further parse that
    figure. What I can say is that a substantial portion of it does
    impact the United States literally hundreds of millions of
    dollars. Part of that is because of the centrality of our
    financial system, right? Those strengths that I talked about
    attract criminals who wish to launder their proceeds, even if
    they did not generate them here in the United States.
        Senator Sasse. So I would love to get any follow-up
    information on that. Thanks. I think your numbers say $300
    billion is U.S. and $2 trillion is the global number, and I
    think tax evasion is not in that universe.
        Of the $1.7 trillion--I know these are broad estimates, but
    setting aside the $300 billion that is in the United States and
    is going to use our financial system, of the $1.7 trillion
    outside the United States, does a third of it, most of it, does
    it touch the U.S. financial system somehow?
        Mr. Day. So I hesitate to give precise figures in part
    because I would need to go back and see if we have got any
    better data on that. But, yes, a large amount that is not
    included in the $300 billion would touch the U.S. financial
    system through U.S. dollar clearing or other services that our
    financial system provides essentially to the global economy.
    And that is why we have to be so vigilant in protecting against
    money-laundering crimes.
        Senator Sasse. And so I guess--and this is for both of you
    two, not just you, Mr. Day. But I guess one thing I am trying
    to understand is the suspicious activity reports, we are not
    reading most of them, right? That is not your fault. It is that
    there is a huge flood of these things. Do we have anything like
    red zone statistics to have a kind of theory of the world and
    where the money-laundering crime is? And then where do we get
    reports, and how much of it ends up being aligned with the
    kinds of stuff we are trying to prevent? We would like to
    prevent, you know, all $2 trillion of illicit funds, but do we
    know that there is high-yield data that you are getting versus
    stuff that ends up just being noise in the system?
        Ms. Mandelker. So that is exactly what we are studying, you
    know, as we undertake this effort to examine whether or not we
    need to change these thresholds. What I can tell you is, yes,
    we get a lot of data, and there are review teams that are
    stationed all over the country who really take a very careful
    look at these SARs.
        We also use technology, of course, to analyze the data so
    that while not every SAR may be reviewed, it certainly is
    targeted for analysis, which has been extraordinarily helpful.
    But as we continue our review, I am happy to share with you
    what we are learning.
        Senator Sasse. Thanks. My team and I would love to not
    formally send you a letter on that but just learn your after-
    action reports. That would be really helpful.
        Could you also walk us through a typical case, either as an
    agent or a field manager, where you used financial intelligence
    such as the suspicious activity reports and then ultimately
    catch criminals? What is the modal type of investigation that
    leads to successful prosecution?
        Mr. Day. I will give you an example, but I should say that
    there is no necessarily prototypical way because it is so
    useful. This type of information to prosecutors and agents can
    be used in a variety of ways. One way is to start a case. So,
    in other words, as Sigal mentioned, there are teams that
    regularly look through, setting criteria, the system to try to
    determine are there new financial crimes occurring in their
    district that they need to initiate an investigation into. In
    other instances, we might have started an investigation based
    on a cooperating witness or some completely
    independent source of information. Then we go query the Bank
    Secrecy Act system that includes the SAR data in order to
    further the investigation, to learn more about what other
    things are these potential defendants into that we need to
    investigate. So it really is a very wide universe precisely
    because it is so useful to law enforcement.
        Senator Sasse. I think lots of Americans would have a sense
    of how a drug cartel would need to use the financial system to
    launder their money. But in a case like human trafficking, give
    us an example of how a case would unfold where you get
    information and where does it yield something. Why and how are
    they abusing our system?
        Mr. Day. Sure. So human trafficking or really almost any
    other crime is all motivated by financial gain. So there has to
    be a way for the criminals, if they are going to engage in the
    crime, to use the proceeds that they glean from that, and that
    involves bringing the proceeds into the financial system; if
    they are successful, laundering those proceeds so that they can
    use them to purchase goods, reinvest in the criminal
    enterprise, create additional harms to the community.
        So often the financial data is useful because it allows us
    to see the full human-trafficking network or other criminal
    networks, because the money goes out to the different parts of
    the network or it comes in from the different parts of the
    network that generate the illicit proceeds. It has to come in
    and be redistributed.
        Senator Sasse. I am at time, but I will follow up with you
    both off-line. I would like to ask some specific questions
    about how we target specific organizations like MS-13, for
    example. So thanks.
        Chairman Crapo. Thank you.
        Senator Reed.
        Senator Reed. Well, thank you, Mr. Chairman, and thank you
    both for your excellent testimony.
        At page 5 of your testimony, Mr. Day, you say that one of
    the money-laundering threats is the purchase of real estate and
    other assets. And I understand, Secretary Mandelker, that there
    is a program in the Department of Treasury where you have
    identified certain areas of the country, and you are looking at
    these acquisitions of above a certain value and doing so
    through the title insurance companies. Can you explain how that
    is working?
        Ms. Mandelker. So we are using our geographic targeting
    order, which is an authority that was given to us by the
    Congress and expanded over the summer to extend to wire
    transactions. Essentially, what we are doing is we are telling
    the title insurance companies that they have to report to us
    who the beneficial owners are involved in transactions
    involving high-end real estate, in all-cash type of real
    estate, again, high-end real estate transactions.
        Senator Reed. Right.
        Ms. Mandelker. And then, of course, we are analyzing that
    data. We have already issued an advisory, which was a result
    not only of the data that we analyzed when we first issued the
    geographic targeting orders, but we also thought that it was
    very important to highlight to the real estate industry some of
    the red alerts, some of the risks that they should be
    identifying when they are taking in and working on this
    business.
        Senator Reed. And you have the legal authority, there is no
    question about the legal authority for you to do this.
        Ms. Mandelker. It is a legal authority that the Congress
    gave to us, yes.
        Senator Reed. One of the difficulties is finding who the
    ultimate beneficial owner is, so how insistent are you with
    these--it seems to me that title insurance companies typically
    do not do that, so how effective is this in terms of actually
    discovering the ultimate beneficial owner rather than the first
    phase of several phases of ownership?
        Ms. Mandelker. Again, they are required by law and required
    by our order to report that information to us, and we have been
    able to gather a great deal of information as a result.
        Senator Reed. Is that information available to the Congress
    and the public?
        Ms. Mandelker. That is not information that is available to
    the public. We are analyzing--it is submitted to us----
        Senator Reed. It is available to us, though?
        Ms. Mandelker.----pursuant to the Bank Secrecy Act
    authorities.
        Senator Reed. But it is available to us?
        Ms. Mandelker. We would be happy to work with you on any
    requests.
        Senator Reed. What type of beneficial owners trigger a
    response by the Treasury? Is it someone who has a criminal
    activity? Is it someone who has been sanctioned by the United
    States Government? What is the red line in terms of the
    beneficial owner is bad or good?
        Ms. Mandelker. Senator, that is really going to depend on
    the investigation. Of course, it is not just Treasury that is
    looking at the information that comes in through the Bank
    Secrecy Act and the SAR reporting. It is also a cadre of law
    enforcement agents all over the country that are taking a very
    careful look at it. Any particular economic authority that we
    deploy in connection with SAR activity or other information we
    receive in a variety of sources about illicit activity, again,
    what we decide to do with depend on the----
        Senator Reed. Have you made a referral to the Justice
    Department yet for enforcement action in any of these real
    estate transactions?
        Ms. Mandelker. Again, that information is likewise
    available to law enforcement through the Bank Secrecy Act. So
    as with all of the BSA data that comes into the Treasury
    Department, law enforcement has full access to any information.
    And, of course, we work closely with them to the extent they
    need our assistance to analyze the data.
        Senator Reed. I know Mr. Day wants to respond. I have one
    other question. Would you want a quick response, Mr. Day, now?
    And then I will go back to the Secretary.
        Mr. Day. Only to add that law enforcement is excited about
    the potential and is starting to see some of the fruits of this
    effort, because, remember, if you are talking about money
    laundering into real estate, you are talking a very large
    dollar money-laundering transaction. So those are big-time
    cases we need to bring.
        Senator Reed. All right. Switching gears slightly, your
    sanction activities against the North Korean regime, are you in
    any way able to impede the remissions that are paid by North
    Korean workers in Russia or other places?
        Ms. Mandelker. Senator, to the extent that we can use our
    sanctions authorities to target that kind of activity, we have
    done so. We have had designations connected to laborers. Of
    course, as you know, there are U.N. Security Council
    resolutions in place that specifically address, among other
    sources of revenue, laborers, and we expect that those
    countries will abide by their U.N. Security Council resolution
    obligations. And, of course, we continue to pressure them to do
    so.
        Senator Reed. But, unilaterally, are we pursuing them
    aggressively in terms of identifying any type of transmission
    mechanism and disrupting it?
        Ms. Mandelker. We continue to pursue North Korea's sources
    of revenue on a wide variety of fronts.
        Senator Reed. Thank you very much. Thank you.
        Chairman Crapo. Senator Tillis.
        Senator Tillis. Thank you, Mr. Chair. Thank you both for
    being here.
        Madam Secretary, I had a question for you. It relates to
    some of the questions that I had in the hearing a couple of
    weeks ago. You have mentioned a couple of times that you think
    the financial institutions are engaged in a number of high-
    value activities, and I think that is a good thing. But when
    you see some of the numbers--Bank of America is headquartered
    in North Carolina--when you see 800 people focused on that, I
    have got to believe there are some low-value activities that
    are going on there, too. If you take a look at the fines, I
    think the GAO issued a report back in 2016 that said since
    2009, $5.1 billion in penalties I guess have been paid by the
    financial institutions.
        What work have we done to look at, you know, with that sort
    of exposure out there, how much of their work could actually be
    dedicated to doing nothing more to make sure they are compliant
    and not subject to a penalty versus focusing their resources on
    the higher-value activities that I think we all need to do?
    What are we looking at to try and make an objective assessment
    about the current status?
        Ms. Mandelker. Thank you, Senator. So, again, we do this in
    very close coordination with our regulatory partners and our
    law enforcement efforts. I do think we need to make sure that
    those resources are carefully calibrated toward producing the
    kind of financial crimes analysis that we need that really
    feeds into the cases that we are able to bring to tackle the
    threats, the money-laundering threats that we face. So we are,
    again, taking a very careful look at how we are incentivizing
    the banks to target their resources and efforts to the kinds of
    activities that provide higher value to us, and we are talking
    to the Federal banking regulators about that. We are talking to
    law enforcement about it as well.
        Senator Tillis. This is only conceptual. I am not offering
    this up as necessarily--thematically, it is more along the
    lines of offer them a bounty to identify bad actors versus
    subject them to a
    penalty for not necessarily getting the paperwork right. It is
    just, I think, a mentality that we should look at.
        Mr. Day, I had a question for you, and it relates to
    Secretary Mnuchin recently announcing that he is going to have
    a working group on digital currencies, and that kind of skates
    into the money-laundering lanes. If we are going to start
    looking at how to do a better job here and establish a working
    group, it seems that it would be helpful to have DOJ at the
    table since at the end of the day everything you put into place
    would be with the goal of ultimately having a successful
    prosecution. What is your view of that? And, Madam Secretary,
    you can weigh in as well.
        Mr. Day. I agree, but I should say, just as my colleague
    Sigal said, we already have a very good, robust working
    relationship, and so I fully expect--I saw that announcement as
    well, but I----
        Senator Tillis. So whether or not you sit on the working
    group, you feel like you will have adequate input into the
    process, Madam Secretary?
        Ms. Mandelker. I do not have any question. We actually do
    sit in working groups with the Department of Justice very
    specifically focused on virtual currencies. In fact, in a
    previous iteration, I supervised the section of the Justice
    Department that was focused on cryptocurrency and virtual
    currency. So we have a robust relationship. Of course, we need
    to work very much in concert with each other as we identify and
    regulate and enforce our laws to counter illicit uses of
    virtual currency.
        Senator Tillis. I had a couple of questions that I think
    add on to where Senator Sasse was going. If it is a $2 trillion
    aggregate market, $300 billion in the United States, does that
    mean if we solve our whole problem, we have still got an 80
    percent problem to deal with out there? In other words, how do
    we go about this? I understand that we have to deal with our
    back yard, but how are we going about this to where we have
    just simply not made it an unfavorable jurisdiction but
    fundamentally the same activity is going to occur?
        Ms. Mandelker. Actually, we already do a great deal of work
    with our international partners in a wide variety of areas. So
    just as an example, we sit as the Vice President of the
    Financial Action Task Force, which is an international body
    that is focused on making sure that countries all over the
    world have the same kinds of standards that we do when it comes
    to AML/CFT regimes. We also work very closely with law
    enforcement and other agencies all over the world on tackling
    the threats at the Treasury Department. We likewise do that in
    the context of the G-7 and the G-20. I engage and I have a team
    of people at the Treasury Department who engage with our
    partners, again, all over the world to make sure that we are
    aggressively tackling illicit financing that is coming through
    the U.S. system and also that resides elsewhere.
        Senator Tillis. Madam Secretary, is the Treasury going to
    be on point to define other stakeholders and really set the
    priority? I always talk about the tip of the spear because we
    have got different people who are looking at--or different
    agencies who may be looking into this issue. Is Treasury at the
    tip? Are they going to kind of coordinate, engage the
    stakeholders, and be the one that the industry looks to for
    guidance going forward, and certainty?
        Ms. Mandelker. So we already do that. We have--among the
    mechanisms in which we engage with the private sector, we
    also--we chair the Bank Secrecy Act Advisory Group, which is an
    entity that brings together law enforcement, our interagency
    partners, as well as a wide spectrum of entities in the
    financial sector. So that is something that we do. It is
    something we will continue to do in that venue and in other
    fora as well.
        Senator Tillis. Thank you. Sorry I went over, Mr. Chair.
        Chairman Crapo. Thank you.
        Senator Tester.
        Senator Tester. Thank you, Mr. Chairman. I want to thank
    both the witnesses for being here today.
        Kind of going on with that, other countries that are
    tackling this issue, how effective have they been, number one?
        Ms. Mandelker. It is really going to depend on the country.
    It is something that, again, we monitor very carefully. So
    within, just as an example, the context of the FATF, the FATF
    conducts evaluations of other countries' AML/CFT regimes, and
    we play a very important role in that area. And where countries
    are not living up to their standards--Iran is a perfect example
    of that--we push very heavily to make sure that there are
    consequences to not having an AML/CFT regime in place that
    meets our standard.
        Senator Tester. All right. And of the money laundering that
    is done worldwide, can you give me any estimate how much of it
    is done in this country?
        Ms. Mandelker. I think Mr. Day spoke to that already.
        Senator Tester. Fine. Go ahead. Shoot quickly then.
        Mr. Day. Sure. Roughly $300 billion I believe is----
        Senator Tester. And what is that a percentage of the total?
        Mr. Day. So the best estimates I have seen are more than $2
    trillion globally on an annual basis.
        Senator Tester. OK. So when it comes to money laundering in
    this country, is most of it done through the largest
    institutions, or is it done through regional or community
    banks?
        Mr. Day. I do not think you can actually pinpoint exactly
    where. The safe answer is criminals will go wherever they can
    with their illicit proceeds, so it happens at global financial
    institutions, national, regional, small banks.
        Senator Tester. Got you.
        Mr. Day. And even nonbanks like brokerage houses.
        Senator Tester. But you--and it is OK if you do not, I
    guess, but you do not know if most of it is going through the
    big guys or the small guys or the regional guys? I know I get
    it. They will go to the weakest link in the fence. But,
    currently, where is most of it happening?
        Mr. Day. It all depends on the case. That is a very case-
    specific question.
        Senator Tester. OK.
        Mr. Day. Sometimes it goes to the biggest institutions.
    Sometimes it does not. It just depends on how the criminals put
    together their----
        Senator Tester. So what I hear you say--unless I do not
    understand this issue properly myself. What I hear you say, of
    that $300 billion that is being laundered here, it is pretty
    much equal between small, medium, and large?
        Mr. Day. I would not want to put a percentage on it. I
    really do not know, Senator.
        Senator Tester. I do not want to be--but isn't that
    important to know? Isn't it important to know where the dough
    is going and how it is being laundered so that you can make the
    regulation fit the risk?
        Mr. Day. Well, you know, Treasury can speak to this even
    better than Justice, but the Bank Secrecy Act is a risk-based
    approach, and so you are exactly right. We are focused on
    identifying the largest risks, and we are constantly
    reevaluating and fine-tuning and training our investigative
    resources where we think is the largest threat.
        Senator Tester. OK.
        Mr. Day. But it would be a mistake to think of it as just
    happening in----
        Senator Tester. No, no. I am not saying that. I am just
    saying as we look at this from 30,000 feet, you are going to
    put the resources where most of the problems are having, and if
    you do not know where those problems are, that is a bit
    disturbing for me.
        Mr. Day. Well, I do not mean to suggest we do not know
    where those problems are. It is just that we never rest on our
    laurels in the sense that where the problems are today is not
    where they will be tomorrow.
        Senator Tester. I have got it. But today you cannot even
    tell me where the laundering----
        Mr. Day. Not as a percentage basis.
        Senator Tester. All right. Is there technology out there
    that can be--that you guys are recommending for banks of any
    size, but particularly the smaller ones, to be able to utilize
    to protect themselves?
        Mr. Day. So the Justice Department would not play that
    role.
        Senator Tester. Who does? Anybody?
        Mr. Day. I do not know if a regulator does or not.
        Ms. Mandelker. We do not recommend a particular vendor or
    type of technology for any particular kind of financial
    institution. We do provide guidance and training to----
        Senator Tester. OK. That is good, Sigal. So where do they
    go? Where do they go to get the information so they know where
    the threats potentially are coming from to be able to protect
    themselves and the consumers ultimately?
        Ms. Mandelker. I think there are a variety of places that
    they go. Of course, there is a whole AML/CFT compliance
    industry out there, of course, that they can talk to. But we
    are----
        Senator Tester. And where are they getting their
    instruction from?
        Ms. Mandelker. What we are focused on, Senator, is making
    sure that we are providing financial institutions of all types
    and sizes with critical information to help them identify risks
    and typologies. That is why, for example, in this initiative,
    FinCEN Exchange, which I mentioned at the beginning, we are
    going to be--we are going to and we have in the past, frankly--
    talking to not just the big banks but also local, regional,
    community banks so that we can help them build their system,
    their red alerts, their algorithms to identify critical risk.
    And I think that kind of information is really critical to
    achieving the strong and effective regime that we want.
        Senator Tester. OK. We will have a few more for the record.
        Senator Tester. Thank you, Mr. Chairman.
        Chairman Crapo. Thank you, Senator.
        Senator Kennedy.
        Senator Kennedy. Thank you, Mr. Chairman. Thank you both
    for being here.
        Can we agree that you and your agencies could not do your
    job without the cooperation of our private sector financial
    institutions?
        Ms. Mandelker. The cooperation that we receive from
    financial institutions is critical to doing what we are trying
    to accomplish, which is to have a strong and effective regime.
        Senator Kennedy. In fact, it is mandated, is it not?
        Ms. Mandelker. Absolutely.
        Senator Kennedy. OK. How much do American financial
    institutions spend every year complying with the mandates?
        Ms. Mandelker. I am sure those figures are available. I do
    not have them before me. I think Clearing House, for example,
    might be able to provide you with some of those numbers. But it
    is a significant amount. There are a lot of resources that the
    banks, financial institutions, and other entities regulated by
    the Bank Secrecy Act are devoting to compliance.
        Senator Kennedy. Was it in the hundreds of millions?
        Ms. Mandelker. Again, I do not have those numbers, but they
    are substantial.
        Senator Kennedy. You have never looked at the cost?
        Ms. Mandelker. Again----
        Senator Kennedy. Have either of you ever looked at the
    cost?
        Mr. Day. I do not have those figures either, Senator.
        Senator Kennedy. OK. What is the dollar amount of money
    laundering that you stop every year?
        Mr. Day. I do not have those figures in front of me, but it
    is also significant, both in terms of actual money that is
    being laundered that we seize and forfeit, as well as conduct
    that we are able to prevent and deter from the prosecutions we
    bring. But I do not have a precise figure for you.
        Senator Kennedy. Do you know, Madam Secretary?
        Ms. Mandelker. So I cannot give you a number. What I can
    tell you is that we use a number of different economic
    authorities to stop illicit money from coming into this system.
    That is what we use our designations for. For example, we are
    sending out the message that if you are going to try--not only
    if you are a designated entity and you have money in the United
    States----
        Senator Kennedy. I get it. I am sorry to interrupt----
        Ms. Mandelker.----but your money is not welcome.
        Senator Kennedy.----but I have only got 5 minutes.
        Ms. Mandelker. Yes.
        Senator Kennedy. Don't you think it would make sense at
    some point to say, OK, here is the cost and here is the
    benefit? Is there anybody in your agencies that do that?
        Ms. Mandelker. Absolutely, Senator. I think that is a very
    important endeavor, and as we decide what rules and regulations
    roll out----
        Senator Kennedy. Can you get me that information?
        Ms. Mandelker.----in the future, we undertake that kind
    of--those kinds of exercises.
        Senator Kennedy. Can you get me that information?
        Ms. Mandelker. Again, some of that information is resident
    within the financial institutions in terms of what costs that
    they----
        Senator Kennedy. Yes, ma'am, but can you get it for me?
        Ms. Mandelker. I can provide to you what information we
    have. I do not know that I have an assessment of the total
    costs----
        Senator Kennedy. General, can you get it for me?
        Mr. Day. Senator, I do not know either that the Justice
    Department--remember, I guess our role is more narrow. We are
    ultimately focused on prosecuting----
        Senator Kennedy. I am going to take that as a no.
        Mr. Day. I am happy to take back any----
        Senator Kennedy. Yeah, if you could just ask, pretty
    please.
        Mr. Day. Of course.
        Senator Kennedy. This is our second hearing, and I have
    learned a lot, but I still have not heard what changes you are
    recommending. I understand we need to have more conversations.
    Tell me in the 2 minutes I have with specificity what changes
    you are recommending that we make, General.
        Mr. Day. Beneficial ownership is a problem we need to fix.
        Senator Kennedy. Do you have a suggestion on how we fix
    beneficial ownership?
        Mr. Day. We need to gather information about----
        Senator Kennedy. But in terms of a bill.
        Mr. Day. We do not have any proposed legislation, no, but
    we are more than happy to engage with you or your staff.
        Senator Kennedy. Well, I am engaging. Can you send to me
    with specificity the changes you need to make, you are
    recommending we make in beneficial ownership?
        Mr. Day. I would be happy to take that back, and there are
    some----
        Senator Kennedy. OK. Anything else?
        Mr. Day.----increased penalties for bulk cash smuggling.
        Senator Kennedy. OK.
        Mr. Day. So that is right now subject to a 5-year statutory
    maximum.
        Senator Kennedy. Can you send that to me with some
    specificity?
        Mr. Day. I would be happy to take that back, but increased
    statutory maximums.
        Senator Kennedy. OK. Anything else?
        Mr. Day. There are some additional tweaks to the money-
    laundering statutes that we would be----
        Senator Kennedy. All right. Can you send me those tweaks?
        Mr. Day. Yes, sir.
        Senator Kennedy. Madam Secretary, how about you,
    specificity?
        Ms. Mandelker. We would be happy to work with your staff.
    What I can tell you is--but I also want to, as I mentioned
    already, this is something that we have to do carefully, and we
    have to make sure that any fixes that we propose are supported
    by the analytics.
        Senator Kennedy. I want to be careful, and I appreciate all
    that. But what I am asking is at some point you have got to go
    from 30,000 feet to the ground. Are you ready to send to us
    with specificity suggested changes in the acts that we should
    make and why?
        Ms. Mandelker. Again, Senator, we are studying that issue
    very carefully. I want to make sure----
        Senator Kennedy. You are not ready? I mean, I am not trying
    to be rude.
        Ms. Mandelker. I understand.
        Senator Kennedy. This is the second hearing that we have
    sat through, and I have learned a lot, and I appreciate it. But
    I am ready--I understand the global perspective. I am kind of
    ready to get down out of La La Land down into the nuts and
    bolts. How do we fix the problem, and what is it going to cost?
        Ms. Mandelker. And, again, Senator, we are getting into the
    nuts and bolts. I want to make sure that whatever changes we
    recommend, those changes are supported by the data, the
    analytics, and the law enforcement community to make sure that
    we are doing this----
        Senator Kennedy. OK. When do you think you will have that?
        Ms. Mandelker. I cannot give you a timeframe, but I am
    happy to have further discussions about it.
        Senator Kennedy. Within 6 months?
        Ms. Mandelker. I would hope that we could have some
    recommendations within 6 months.
        Senator Kennedy. Three months?
        Ms. Mandelker. Again, you know, I want to make sure that we
    are doing this carefully, that any changes we are making are
    made--or we are recommending are made in very close cooperation
    with the law enforcement community, because it----
        Senator Kennedy. Well, I would just respectfully ask you,
    let us get down to it. OK?
        Ms. Mandelker. I appreciate that request.
        Senator Kennedy. You are raising problems. Let us look for
    solutions, and if you cannot tell us how to solve them, then
    point us in the right direction. And if you could get me that
    cost-benefit analysis, that would be--I will send you both a
    fruit basket. OK?
        Thank you, Mr. Chairman.
        Chairman Crapo. Thank you.
        Senator Warner.
        Senator Warner. Thank you, Mr. Chairman. Let the record
    show that this is the second of one of these hearings. I have
    stayed until the end, and I am the last guy talking. Let me,
    first of all----
        Chairman Crapo. Duly noted.
        Senator Warner.----commend my friend, the Senator from
    Louisiana, for once again asking common-sense, practical,
    bottom-line questions. And I actually think this is one of
    those rare areas where, you know, I do not think there is a
    difference, Democrat and Republican, in terms of how we
    approach this. So I would love to work with you on beneficial
    ownership. I think we need to look at areas where we could use
    technology. I think we heard in the last hearing, for example,
    literally tens of thousands of SARs reports, we do not really
    know how to sort through them, so how do we do this in a
    technology-friendly way that still protects consumer
    information?
        I still think we have got a lot of work to do on
    cryptocurrencies to get ahead of this, and I think we have also
    heard both in this hearing and the other that, you know, a lot
    of the money laundering may have moved from traditionally
    through the banks particularly into real estate, and there is
    work there. So I appreciate very much the Senator's questions.
    I would look forward to those answers as well. But if the
    Administration cannot come up with some ideas, I think you and
    I and Members of this Committee and the leadership of the
    Chairman could.
        Let me try to drill down on a couple of these. At the last
    hearing, I raised the issue around cryptocurrencies and what we
    are doing, and I know Senator Tillis raised the issue that
    Secretary Mnuchin has got a working group. But when we see just
    the notion that China said they were going to look a little bit
    more into this, and we saw a huge drop in value, for example,
    on one of these cryptocurrencies, on bitcoin, in the last
    couple weeks, do you feel like you have all the tools you
    need--and this is an area that is happening--moving so quickly.
    Do you have the tools you need and the technology analysis you
    need to make sure that we get ahead not just with bitcoin but
    any kind of blockchain-related technology to do this right?
        Ms. Mandelker. So this is an area of high focus for us,
    and, in fact, I think it is an area where the Treasury
    Department, in close coordination with our law enforcement
    partners, has been ahead of the game globally, and I will just
    walk you through some of the efforts that we have----
        Senator Warner. Fairly quickly, because I have got a series
    of questions.
        Ms. Mandelker. Sure.
        Senator Warner. Unless the Chairman wants to give me a
    couple extra minutes since I waited so long.
        Ms. Mandelker. And I would be happy to provide more
    information in another setting. But just as an example, in 2014
    FinCEN issued guidance identifying virtual currency exchangers
    and administrators as entities that are regulated under the
    BSA. So those entities are now required, among other things, to
    file SARs. They are subject to examinations by FinCEN and the
    IRS, which we have been conducting. We have had enforcement
    actions. Both the Treasury Department and the Justice
    Department have gone after virtual currency----
        Senator Warner. Madam Secretary, could you get me that
    list? Again, because I want to get a couple more questions in.
        Ms. Mandelker. Yes, happy to do so.
        Senator Warner. I would love to see it and share it with
    the full Committee.
        Senator Warner. Again, talking about SARs, for example, one
    of the things that appears is we have got this massive amount
    of information, and it would seem to me that there may be
    technology tools we could use that could show patterns that
    might not otherwise be evident. How do we do that and also a
    way where we protect--an issue Senator Warren and I have worked
    on--personal consumer financial information? How do we get that
    balance right between being able to see patterns but still
    protect consumers' information?
        Ms. Mandelker. So just in terms of detecting patterns, we
    have efforts underway to make sure that we are using technology
    to analyze the vast amount of information that is in the BSA.
    In fact, I have a council of folks at the Treasury Department
    that I have recently stood up who are working very
    collaboratively together to make sure that we are appropriately
    using the tools that we have and that we are identifying other
    areas or other tools that we can deploy to make sure that,
    again, we are detecting patterns, trends. And a lot of what we
    are able to obtain using those kinds of tools and analysis feed
    into authorities, the economic authorities that we use, the
    Justice Department authorities, but we also then loop that
    information back out into the financial sector.
        Senator Warner. If you could, again, get us a little more
    background on that.
        Ms. Mandelker. Happy to.
        Senator Warner. I have got a couple seconds left. You know,
    one of the issues I think we wrestle with as well is we have
    got to have strong anti-money-laundering procedures, but how do
    we get that right with also making sure that there are
    appropriate financial products for the underbanked, for
    example, the immigrant community that uses remittances a lot?
    Obviously, there is a ripe area for abuse, but there are wide
    swaths of our country that are underbanked that need to use
    these tools. How do you sort through and think through that
    notion?
        Ms. Mandelker. That is a very good question, and I think it
    is a complicated one. Again, I think it is important that we
    make sure that our financial institutions, including money
    services businesses, money transmitters, are appropriately
    regulated so that those avenues of transferring money are
    available and available in ways that are used licitly. And, of
    course, we also do outreach to those kinds of communities to
    make sure that they understand both the risks and the
    requirements that they have in place to have the kind of AML/
    CFT programs that we believe are appropriate.
        Senator Warner. Thank you, Mr. Chairman. I think there is a
    lot of work to be done here.
        Chairman Crapo. Thank you.
        Senator Donnelly.
        Senator Donnelly. Thank you, Mr. Chairman. And I want to
    thank the witnesses for being here.
        Mr. Day, in your testimony you highlight virtual currencies
    as an alternative to cash that criminals may use for illicit
    transactions. Cryptocurrencies such as bitcoin and ripple and
    ethereum provide anonymity and are lightly regulated, with
    limited AML controls. And this would be to both of you. To what
    extent do you believe criminal networks, terrorist groups, and
    rogue nations have utilized cryptocurrencies as a means for
    moving money? Mr. Day, if you would go first.
        Mr. Day. So we have seen criminal groups focus on digital
    currencies. There have been a number of prosecutions. Several
    years ago, the Justice Department prosecuted Liberty Reserve,
    and as Sigal mentioned, that was a coordinated effort where
    Treasury deployed anti-money-laundering authorities. At the
    same time we announced our prosecution, the estimates at the
    time were about $6 billion worth of money laundering through
    Liberty Reserve, so a very significant money-laundering
    problem, precisely because it offered anonymity to the
    criminals that were using it.
        More recently, the Justice Department has prosecuted a
    digital currency exchange service in the Northern District of
    California for failure to have anti-money-laundering controls,
    and it is a problem where we are going to continue to devote
    significant additional resources.
        We just hired a digital currency counsel whose job is to
    make sure that prosecutors and agents are up to speed on the
    latest evolving money-laundering threats in the digital
    currency space.
        Senator Donnelly. Ms. Mandelker?
        Ms. Mandelker. It is an area that we are tracking very
    carefully. We are concerned about the use of cryptocurrencies
    for illicit purposes all over the world, just as we are a
    number of other means that illicit actors use to transfer
    value.
        I think one area that we are working on but that we have to
    really hone in on is the fact that while in the United States
    we have regulations over these virtual currency exchangers and
    administrators, those kinds of regulations are lacking in many
    different regions of the world. And so we have to encourage
    other countries to do what we, Japan, Australia, and some
    others have done to make sure that those industries are
    appropriately----
        Senator Donnelly. And I guess that follows up on my next
    question, which was: How can law enforcement and Federal
    authorities minimize--or monitor these transactions? As you
    move forward, what is the most important thing you need to do
    to be able to have success in that area?
        Ms. Mandelker. So we are monitoring the transactions.
    Because we do have AML/CFT requirements here in the United
    States, we actually get a lot of SAR reporting from the virtual
    currency exchangers. But we also have to send the message,
    which we have done throughout the world, that to the extent
    these virtual currency exchangers are engaging in illicit
    activity, we are going to go after them.
        So just as a brief example, with the Justice Department we
    recently assessed a very significant monetary penalty of $100
    million against a virtual currency exchanger that was resident
    and principally operating in a foreign jurisdiction.
        Senator Donnelly. There have been a number of reports that
    the United States is among the easiest countries to create
    anonymous shell companies in. Anyone can legally open bank
    accounts. Anyone can buy property. As a result, criminal
    networks, corrupt dictators, and terrorists can move money
    through the United States as a legal business entity.
        I would like to know from both of you, what resources are
    available to you to identify the sources of illicit financing?
    And what
    difficulties are presented by these weak corporate transparency
    rules where, in effect, almost anything goes?
        Ms. Mandelker. So I just wanted to start by pointing out
    that FinCEN did issue a rule in 2016, the customer due
    diligence rule, that actually now requires financial
    institutions to get information about the actual persons that
    are behind their customer accounts. I think that is a very
    important development. That rule is going to go into effect in
    May, and I know a lot of financial institutions are already
    gathering and collecting that information.
        Of course, there has also been a lot of discussion about
    other mechanisms that we can put in place through legislation
    to gather additional beneficial ownership information, which is
    important in the context where you cannot just rely on the
    financial institutions to gather that kind of information.
        Senator Donnelly. Mr. Day?
        Mr. Day. Thank you, Senator, for your question on this
    issue. Law enforcement does view the lack of a systematic
    beneficial ownership regime in the United States as something
    that does cause us to expend a lot of additional time and
    effort in individual cases, piercing the corporate veil, trying
    to figure out who are the bad actors that are hiding these
    illicit proceeds. So we are able to do it through a lot of
    gumshoe traditional investigative work, but we would bring more
    cases more quickly with more impact if we had a better system
    in place to make that information available to law enforcement.
        Senator Donnelly. Thank you to both of you.
        Thank you, Mr. Chairman.
        Chairman Crapo. Thank you.
        Senator Cortez Masto.
        Senator Cortez Masto. Good morning, Under Secretary
    Mandelker, Mr. Day. Thank you for the conversation. A very
    important discussion we are having.
        One of the things I want to shift just a little, though,
    and you will appreciate this. Besides the financial
    institutions--I come from the State of Nevada, and gaming is
    considered like those financial institutions. Qualified casinos
    are subject to the Bank Secrecy Act, so I have a couple
    questions around gaming in general, because I know the
    organizations within my State, and across the country, have
    suggested that gaming operators would welcome a review of the
    BSA requirements, like everyone else that we are talking about
    today, and they look forward to this Committee's thoughtful,
    bipartisan review of the BSA requirements that takes into
    account the security imperative for robust anti-money-
    laundering efforts as well as the impact those requirements
    have on all industries.
        So one of the top priorities of the gaming industry is to
    eliminate the requirement that a detailed factual narrative is
    required when filing a suspicious activity report form for
    structuring situations. What are the pros and cons of such a
    change? And I am going to ask both of you to answer that
    question.
        Ms. Mandelker. As with any SAR reporting, we do receive a
    great deal of benefit from the narratives that are provided in
    the context of--by the gaming industry, by financial
    institutions, among other areas. I understand that there have
    been some discussions about whether or not resources are well
    spent when it comes to the structuring SARs. Of course, that is
    something that we will take into consideration and consider,
    and we welcome the thoughts of others in discussing----
        Senator Cortez Masto. You are willing to address it--listen
    to them and address some of the concerns, too?
        Ms. Mandelker. We are certainly happy to have a discussion
    with them.
        Senator Cortez Masto. OK. Mr. Day?
        Mr. Day. I would just second what Sigal said, which is the
    information that we glean from the narrative portion of a
    suspicious activity report can be very helpful in deciding to
    initiate a criminal investigation or furthering a preexisting
    case. So there probably is opportunity to at least discuss
    changes, but it should be, you know, at least leavened by the
    notion that there is a lot of benefit to law enforcement now,
    and what can we do to preserve that benefit going forward?
        Senator Cortez Masto. OK. And then the gaming industry and
    others have recommended--and I heard it at our last hearing--
    raising the currency transaction and suspicious activity
    reporting thresholds. Some have recommended increasing the rate
    roughly to about $60,000. Others say that is too high, but a
    lesser amount, from $5,000, $10,000, to $20,000 and $25,000,
    would be an improvement. Your thoughts on that, pros and cons?
    Or should we even be looking at that threshold amount?
        Mr. Day. Similar to the answer I gave a moment ago. There
    are crimes that do not involve a lot of money, and so I fear--
    or one potential disadvantage to raising the thresholds without
    substantial study, like Sigal is discussing, is that you risk
    losing visibility into those types of crimes. The classic
    example is the lone wolf terrorism example. That does not
    involve a lot of money and might not hit upon one of those
    thresholds, but might a lower threshold.
        So it is obviously an opportunity for us all to have this
    discussion and make sure the thresholds are correct or, if they
    need to be tweaked, what should they be. But it should be
    balanced against this need to maintain visibility into those
    types of criminal activity.
        Senator Cortez Masto. OK. And what I have heard constantly
    is the lack of communication. So I appreciate and applaud the
    launch of FinCEN Exchange. Can you talk a little bit more about
    that? And how will that draw in industry that is being
    regulated and the discussion that we are having today and how
    they can talk to you directly about some of the concerns and
    whether those concerns can be addressed or not?
        Ms. Mandelker. I would be happy to. So this is actually
    something that we had piloted in the past and now we are
    accelerating. So what we have been able to do in these settings
    is bring together financial institutions of all different types
    and sizes across the country and, among other things, have
    discussions with them on particular cases. So we will provide
    them with information that they can then use----
        Senator Cortez Masto. And this would include nondepository
    institutions, like gaming and others?
        Ms. Mandelker. Right now we are focused on the financial
    institutions, but we are happy to have discussions about
    whether or not we would want to use it in other settings as
    well.
        Senator Cortez Masto. OK.
        Ms. Mandelker. But we also are very focused on doing,
    through FinCEN Exchange and through our financial advisories,
    among other ways of communicating, is providing financial
    institutions with typologies. What are the kinds of activity
    that they should be alert for? How can they continue to
    sophisticate their algorithms based on what our priorities are,
    the threats that we are seeing that are most troubling? So it
    is a mechanism to make sure that we are really significantly
    enhancing the private-public information sharing that is, I
    think, going to be so critical to ensuring that we are getting
    the kind of data from the financial institutions that we need
    to continue to be all the more effective in safeguarding our
    system.
        Senator Cortez Masto. I appreciate that. And is DOJ
    involved in the FinCEN Exchange?
        Ms. Mandelker. Absolutely.
        Senator Cortez Masto. So it is everybody that is involved
    with FinCEN that would be part of it.
        Ms. Mandelker. Exactly.
        Senator Cortez Masto. OK, all the agencies.
        Ms. Mandelker. These would be meetings with FinCEN, with
    law enforcement, and with the financial----
        Senator Cortez Masto. I would hope you would open it up to
    nondepository institutions as well, as you well know, because
    they are regulated--particularly, if we really want to address
    anti-money laundering, go after and target, then we need to
    bring all of the regulated agencies in to have this
    conversation.
        One final thing. I do think that there needs to be more
    risk-based assessment, more targeted investigations, and
    everybody should be a part of that, not this check the box, ``I
    have done what I had to do,'' and pass this form on and up the
    ladder to somebody else. I think we have got a lot of
    opportunity here, both in the compliance departments that exist
    in all of the agencies that are regulated along with our law
    enforcement and our Treasury to really have a targeted approach
    and streamline it and be effective when we are trying to
    address money-laundering issues and stop money laundering. So
    thank you for the conversation today.
        Chairman Crapo. Thank you.
        Senator Warren.
        Senator Warren. Thank you, Mr. Chairman.
        So at the last hearing on this topic, I focused on a few
    areas where we could update our money-laundering laws to make
    life easier both for law enforcement and for small financial
    institutions, including making reporting requirements more
    sensible and making sure we know who owns American
    corporations.
        Today I want to focus on cracking down harder on the big
    banks that repeatedly violate anti-money-laundering laws. So
    think about Citigroup. Just this month, the OCC fined the bank
    $70 million for ignoring a 2012 order to beef up its anti-
    money-laundering controls. In May, Citi was fined by the Fed
    $97 million for letting Mexican drug cartels launder money
    through the bank. How many money-laundering operations are they
    assisting?
        And Citi is not the only one. Other big banks break the
    law. They get caught. And then they shrug off fines that barely
    dent their massive profits, while criminals and terrorists
    continue to move drug money and terrorist money all around the
    globe.
        Under Secretary Mandelker, are you confident that the
    biggest financial institutions in the world are doing enough to
    comply with anti-money-laundering laws?
        Ms. Mandelker. I think that there is a lot of effort within
    the financial institutions to make sure that they have----
        Senator Warren. I am not asking if there is a lot of
    effort. It is a really simple question. I am asking, do you
    think they are doing enough to comply with the anti-money-
    laundering laws?
        Ms. Mandelker. Again, I think that there are very
    substantial efforts underway within the financial institutions
    to comply with the laws. To the extent that they are not
    complying with the laws, of course, we are going to be focused
    on those both through our----
        Senator Warren. So let me ask it again. Do you think they
    are doing enough?
        Ms. Mandelker. Again, Senator, that is a very broad
    question, and it is difficult for me to make a generalization.
    I think we are very vigilant in monitoring and making sure that
    they are doing enough, and where they are not, we and the
    Justice Department have and will continue to use our
    authority----
        Senator Warren. Well, I am concerned about the fact that we
    keep going back at them repeatedly, which kind of sounds like
    it is not working. You know, I am very concerned that big banks
    will continue to allow money laundering because the business is
    profitable and the penalties for violating the law are weak.
        Let us take another example: HSBC. I think Senator Brown
    raised it. In 2012, the bank agreed to pay a fine of almost $2
    billion for letting Mexican drug cartels and a Saudi bank
    linked with al Qaeda to launder money for years. It also
    admitted to moving money for customers in Iran, Libya, Sudan,
    and Burma, all of which were subject to U.S. sanctions. That
    was the largest penalty ever under the Bank Secrecy Act, and
    you know what? It was about 4 weeks' worth of income for HSBC.
    The bank's CEO swore that the bank would fix the problems. But
    it did not.
        Last February, the court-imposed monitor told a judge that
    he had ``significant concerns'' about the bank's compliance
    program, and HSBC faces a new money-laundering investigation
    right now in the United Kingdom Still, the Department of
    Justice dismissed its case against the bank in December.
        So let me ask, Mr. Day, do you think the fine in the HSBC
    case worked? Did it get HSBC to start following the law?
        Mr. Day. I think there are a number of parts about that
    prosecution that cumulatively had their desired impact. When
    you think----
        Senator Warren. So--let me just stop. It had the desired
    impact. Then how can it be that a court-installed monitor
    refused to certify that HSBC's anti-money-laundering compliance
    program was working? And in November, the United States just
    opened a new investigation evidently based on new evidence of
    money laundering? I do not understand how you can say that
    worked.
        Mr. Day. So that was a Justice Department-installed
    monitor, and that is another way of, I guess, thinking about
    the Deferred Prosecution Agreement, is that it included a range
    of measures,
    including, for example, the decision by the Justice Department
    to impose a monitor to give us confidence that the various
    provisions of the agreement were being satisfied by HSBC.
        Senator Warren. Well, I am glad for you to have confidence,
    but I only want you to have confidence if it is actually
    working. And the monitor said it is not. So I am not clear how
    you can say that this is working.
        You know, let me just make the point because I am running
    out of time here, and I have one more quick question I want to
    ask. It is never going to work so long as the consequences are
    lame fines and no accountability for individuals at the bank
    who are responsible for the illegal conduct. I promise you that
    if HSBC executives had been hauled out in handcuffs and were
    sitting in jail after their violations in 2012, they would have
    gotten the procedures in place pretty darn fast to make sure
    that that bank was in compliance with the law.
        So I am over, but let me just ask a quick one. Mr. Day,
    doesn't the Bank Secrecy Act empower the Justice Department to
    go after individuals responsible for breaking the law?
        Mr. Day. Of course, Senator, and we are focused on bringing
    individual cases where the facts and the evidence merit such
    cases. And we have done so in the past and will continue to do
    so.
        Senator Warren. Well, if we want to stop money laundering,
    these giant banks really need to feel the penalties. And the
    people who are in charge who are making the decisions need to
    understand that if they are putting the American people at
    risk, they will go to jail. Until that happens, we are not
    going to fix anything here.
        Thank you, Mr. Chairman.
        Chairman Crapo. Thank you.
        And our final set of questions from Senator Van Hollen.
        Senator Van Hollen. Thank you, Mr. Chairman. I thank both
    of you for your testimony today, and I do just want to add to
    what both the Chairman and the Ranking Member said and you have
    said in your testimony earlier about the importance of getting
    to this beneficial ownership issue. I believe that is going to
    be a major focus of the Committee's efforts.
        Secretary Mandelker, when you were here for your nomination
    hearing, I asked you about FinCEN's geographic targeting order,
    and I think Senator Reed asked some questions regarding that.
    You did extend it to March 20th, I believe, of this year. Have
    you found that a useful tool? And I see that you did expand
    some of the geographic areas.
        Ms. Mandelker. Yes, we have found that it is a very
    valuable tool. It allows us the opportunity to get critical
    information to support our efforts and to support law
    enforcement's efforts.
        Senator Van Hollen. And do you have an expectation you will
    continue this beyond March 20th of this year?
        Ms. Mandelker. So I cannot--you know, as with any kind of
    tool, I cannot tell you what our forward plans are. We have
    extended that tool a number of times in the past.
        Senator Van Hollen. OK. Well, based on the past track
    record, I would hope that you would do that.
        I know Senator Warner asked some questions about
    cryptocurrency, and I did want to follow up on some of those.
    Did you see the Reuters report January 8th headlined,
    ``Cryptocurrency may be getting quietly channeled to North
    Korea University''? Did that hit your radar screen?
        Ms. Mandelker. I did not see that particular report, but I
    have seen similar reports linking cryptocurrency to the North
    Korean regime.
        Senator Van Hollen. Right, so I just want to follow up on
    that because I know we are all working hard on effective
    sanctions regimes and enforcement. A chief analyst at one of
    the South Korean cybersecurity firms, EST, was quoted in this
    article as saying that, ``With economic sanctions in place,
    cryptocurrencies are currently the best way to earn foreign
    currency in North Korea's situation. It is hard to trace and
    can be laundered several times.'' They specifically mention the
    13th largest cryptocurrency trader in the world, I guess
    Monero. Has that been on your radar screen? And what steps are
    you taking to make sure that North Korea cannot evade different
    sanctions regimes through use of cryptocurrency?
        Ms. Mandelker. So as you know, we are focused on illicit
    financing to North Korea in a wide spectrum of areas. Of
    course, cryptocurrency is one of them, but the North Korean
    regime has been able to finance itself through a number of
    different mechanisms, including through the financial system.
    So to put cryptocurrency to the side, we have to remain
    vigilant in making sure that North Korea is not using the
    international financial system, as they have repeatedly in the
    past, to finance their weapons program. So cryptocurrency, of
    course, will be an effort of focus for us, but as is the many
    different ways in which the North Korean regime has been able
    to buildup to the place where we find ourselves today.
        Senator Van Hollen. Absolutely. I think we have got to make
    sure we cover all of those sources of financing. It appears
    that to the extent that we are more successful at shutting down
    conduits through the normal financial system, they may turn to
    these cryptocurrencies, increasingly do that.
        So with respect to these exchanges for cryptocurrencies, do
    you think that they should be held to the same standards as we
    do banks?
        Ms. Mandelker. So here in the United States they are. They
    are subject to the same AML requirements that--they are
    characterized under our laws as a ``money transmitter,'' and so
    they are required to have an AML/CFT regime. We do examine
    them, just as we examine other financial institutions. We have
    brought enforcement actions not just here in the United States
    but also against a virtual currency exchanger overseas. We
    assessed a $100 million penalty over the summer, and the
    Justice Department has brought even stronger penalties against
    those kinds of exchangers.
        I think the real vulnerability that we all have to address
    is that while we have regulatory authorities in place here in
    the United States and we do enforce those authorities, we need
    other countries to do the same. So countries like Japan and
    Australia are very much in line with us in regulating virtual
    currency exchangers, but we have a focused effort on
    encouraging other, many different countries to make sure they
    have the regime in place to keep this type of currency from
    being manipulated and used by illicit actors.
        Senator Van Hollen. Got it. And that brings me to my last
    question, which I know Senator Tillis raised earlier, and other
    Members of the Committee, which is we are doing our best to
    defend our own financial system, and encourage others through
    international efforts that you testified about earlier. What at
    the end of the day is our--are we looking at tools to make sure
    that we strengthen penalties and the costs for those overseas
    that are not complying with our efforts? Because we can do
    everything we can here, but if you have got, as others have
    said, 75 percent of these money-laundering efforts going on
    overseas, we are just plugging one hole out of a whole lot of
    them. So what is the plan going forward to make sure we use our
    leverage in the financial system to make sure that other people
    are complying?
        Ms. Mandelker. Absolutely. So as I just mentioned, for
    example, in the virtual currency space we brought an
    enforcement action against a virtual currency exchanger that
    was resident overseas. A lot of the work that we do is focused
    on these kinds of cross-border illicit transactions, and I know
    many of the cases, just as an example, the Justice Department
    brings, I know from my days at the Justice Department and just
    looking at the work that they are doing now, there is a very,
    very big focus on bringing criminal penalties against illicit
    actors no matter where in the world that they operate. We do
    that. We do that through FinCEN, OFAC, and the Justice
    Department does it as well.
        Senator Van Hollen. And you have all the authorities that
    you think you need to do that effectively now?
        Ms. Mandelker. Yes.
        Senator Van Hollen. OK. Thank you.
        Thank you, Mr. Chairman.
        Chairman Crapo. Thank you, Senator.
        For those Senators who want to ask questions for the record
    following the hearing, they will be due by January 24th, and
    our witnesses, I ask you, as you get follow-up questions, to
    respond promptly.
        Senator Menendez. Mr. Chairman, if I may?
        Chairman Crapo. Well, that was close. We will give you your
    5 minutes.
        Senator Menendez. Thank you very much. This is important.
    Especially as someone who has been one of the architects of our
    sanctions, I would like to hear some of the answers to some of
    these questions. So thank you both for your appearance.
        As someone who has been the architect of sanctions laws
    impacting Iran and Russia and North Korea, I understand how
    important it is to prevent criminals and sanctioned individuals
    from anonymously accessing the financial system. Therefore, it
    is critical that we improve beneficial ownership information to
    understand exactly who benefits in a legal entity, and I think
    there has been some discussion about that from what I gathered
    before, and ensure that information is quickly available to law
    enforcement.
        In May, Treasury's new customer due diligence requirements
    for financial institutions are going to go into effect. There
    has been some testimony here about the nature of that in terms
    of banks having to identify and verify beneficial owners owning
    25 percent or more of a legal entity as well as an individual
    on the management team. Some witnesses expressed concern about
    Treasury's implementation of these regulations. Some suggested
    that if there is not an actual 25 percent or more stake, there
    would be no one to list as a beneficial owner.
        Ms. Mandelker, can you address these concerns and provide
    some additional detail on how Treasury plans to implement this
    new regulation?
        Ms. Mandelker. Well, again, as you mentioned, Senator, the
    rule is going to go into effect in May. I know a lot of
    financial institutions have been taking steps underway to make
    sure that they are complying with the rule.
        In addition to the 25 percent beneficial ownership mandate,
    companies are also going to have to identify a controlling
    person that is resident within a particular entity. So it is
    not just the ownership trigger. It is also the controlling
    person that needs to be identified.
        Senator Menendez. So whether or not it is sufficient to
    establish 25 percent, the controlling person will have to be
    identified?
        Ms. Mandelker. A control person will have to be identified
    as well.
        Senator Menendez. Do you think that that will give you the
    breadth and scope necessary to make sure that we know who is
    the beneficial entity?
        Ms. Mandelker. I think it is a very important step. Of
    course, that is information that is going to go to the banks,
    so it is a requirement that the banks identify and verify who
    the beneficial owners are and who a controlling person is. And,
    of course, to the extent--and it will have the ability to
    obtain information as necessary and in the right circumstances
    from the banks.
        Senator Menendez. All right. Let me follow up on both
    Senator Warner's and Senator Donnelly's questions on
    cryptocurrencies. I am interested in your view on the use of
    virtual currencies by foreign sovereign states, like Russia and
    Venezuela, to evade sanctions. In recent months both Venezuela
    and Russia have expressed interest in state-backed virtual
    currencies. In December, Venezuelan President Maduro announced
    he is launching a virtual currency backed by the nation's oil
    reserves for the explicit purpose--this is what he stated--or
    circumventing sanctions imposed by the United States.
        Now, perhaps lack of technological sophistication will
    delay or hamper this plan, but we know full well that Maduro
    will use every tool at his disposal to perpetuate his
    authoritarian objectives, so it is critical that we understand
    the risk here.
        Do you believe that the Treasury Department is monitoring
    these developments? And do you have the technical tools and
    enforcement mechanisms to combat the use of cryptocurrencies to
    evade U.S. sanctions?
        Ms. Mandelker. So we are monitoring the developments. As I
    am sure you are aware, we have had a very active portfolio in
    the context of what Venezuela is doing. In addition to a very
    strong Executive order that the President issued in August, we
    have also been designating individuals who have enabled the
    Maduro regime and committed what we think are a variety of
    different types of offenses.
        When it comes to the resources and tools to make sure that
    we are monitoring virtual currency and cryptocurrency, we do
    have a dedicated team of individuals at Treasury who have the
    expertise to monitor these activities very carefully and
    closely. We are regulating this industry, which is very
    important. We are examining virtual currency exchangers along
    with the IRS----
        Senator Menendez. So my question is--OK, so now I
    appreciate and am glad to hear that you are monitoring it, but
    do you believe you have the tools and mechanisms necessary in
    place to combat the use of cryptocurrencies to evade U.S.
    sanctions?
        Ms. Mandelker. We do have tools and authorities in place to
    make sure that we are staying very much on top of this
    burgeoning industry.
        Senator Menendez. Nothing that you need?
        Ms. Mandelker. At this time, no, Senator.
        Senator Menendez. OK. Fair enough. Glad to hear that.
        Finally, I am sure you are aware that FinCEN issued
    guidance in 2014 to clarify Bank Secrecy Act expectations and
    set the rules of the road for banks and financial institutions
    seeking to provide services to legitimate marijuana-related
    businesses in States that have legalized, and what I have
    heard, including from New Jersey institutions for which medical
    marijuana is legalized and now the State is considering the
    possibility of passing--legalizing the essence of recreational
    marijuana, is that there is a concern that, according to the
    Pew Charitable Trust, since the guidance was issued, the number
    of banks and credit unions serving businesses in the industry
    has more than tripled to nearly 400. Regardless of my views on
    this, if it is going to be legal in any State, I think it
    should be bankable and transactionable and we should be able to
    have eyes on it and understand revenues and how the money is
    flowing.
        FinCEN's guidance has been critical to alleviating some of
    the public safety risks as well in terms of accumulation of
    large quantities of cash at dispensaries and businesses. And I
    worry that any steps to walk back this guidance only serves to
    undermine public safety.
        So can you commit that this guidance is going to stay in
    place?
        Ms. Mandelker. We are reviewing the guidance in light of
    the Attorney General's recent decision to revoke a Justice
    Department memorandum on this issue. What the guidance did was
    it provided guidance to financial institutions with respect to
    what kinds of SARs they should file in different circumstances.
    The laws with respect to the Controlled Substances Act, of
    course, remain on the books. Those have not undertaken any
    changes. That would have to be done by the Congress.
        Senator Menendez. But when you are saying you are
    reviewing, does that mean that you find a conflict with FinCEN
    having the standards for banking transactions in States where
    the law permits these sales to take place or uses to take
    place, and that you see there is a conflict that would lead you
    to say, no, you cannot bank them anymore?
        Ms. Mandelker. I am not suggesting that there is a conflict
    or not a conflict. The guidance remains in place, and we are
    taking a look at it in light of the Justice Department's----
        Senator Menendez. Well, would you let us know if you move
    to change it?
        Ms. Mandelker. Yes, of course we would let you know.
        Senator Menendez. Thank you, Mr. Chairman, for your
    courtesy.
        Chairman Crapo. Thank you. And that is the last
    questioning. I have already given instructions on follow-up
    questions from Senators, and, again, I urge the witnesses to
    respond. I am sure we will be engaging with you as we move
    forward on this issue.
        Thank you for testifying today, and that concludes our
    hearing.
        [Whereupon, at 11:46 a.m., the hearing was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material supplied for the record follow:]
                     PREPARED STATEMENT OF SIGAL MANDELKER
     Under Secretary, Terrorism and Financial Intelligence, Department of
                                  the Treasury
                                January 17, 2018
    Introduction
        Chairman Crapo, Ranking Member Brown, and distinguished Members of
    the Committee, as the Under Secretary for Treasury's Office of
    Terrorism and Financial Intelligence (TFI), I am honored to appear
    before you today to discuss the critical work that TFI does to
    safeguard the United States and international financial systems.
        The offices I lead are tasked with deploying our financial
    intelligence, expertise, and economic authorities to combat terrorist
    financing, money laundering, weapons proliferators, rogue regimes,
    human rights abusers, and other national security threats to the United
    States and our allies.
        In 2004, Congress and the executive branch had the tremendous
    vision to combine under one roof a broad range of powerful economic
    tools, including sanctions, anti-money laundering (AML) measures,
    enforcement actions, foreign engagement, intelligence and analysis, and
    private sector partnerships, among others. We are the only country that
    combines these economic authorities within one office, which has proven
    invaluable in combating some of the most serious illicit finance and
    national security threats we face today.
        Terrorist groups such as ISIS, al Qaeda, Hezbollah, and others seek
    to infiltrate the financial system to finance their activities and
    threaten our national security.
        Rogue regimes in Iran, North Korea, and Venezuela continue to
    assault the integrity of the financial system, including by using
    deceptive financial practices to advance their corrupt, criminal, or
    terrorist aspirations. Russia continues to occupy Crimea and
    destabilize Ukraine, in violation of international norms of
    sovereignty.
        These regimes, and many more, engage in human rights abuses and
    corruption, putting their own interests above the well-being of their
    people. That is why we are also targeting human rights abusers and the
    corrupt through authorities like the Global Magnitsky Human Rights
    Accountability Act. Simply put, the United States will not allow our
    financial system to be compromised by human rights abusers and corrupt
    actors who exploit innocent people around the world.
        Transnational criminal organizations, drug kingpins, cyber
    criminals and others likewise seek out vulnerabilities in the global
    financial system, including by looking to use emerging technologies
    such as virtual currencies to launder their ill-gotten gains and
    advance their malicious enterprises.
        These and other malign actors cannot operate without funding.
    Cutting off their access to the financial system requires calibrating
    our economic tools in strategic and complementary ways. TFI integrates
    our authorities and expertise across components, deploying the tools
    best suited to each challenge and achieving significant impact. The
    foundation of our economic authorities is a strong and robust anti-
    money laundering/combating the financing of terrorism (AML/CFT) regime.
        Many of our efforts to identify and disrupt terrorist financiers,
    weapons proliferators, rogue regimes, and other illicit finance threats
    depend on financial institutions implementing the laws and regulations
    designed to protect the financial system. Financial intelligence
    reported to us by financial institutions serves as a key component of
    our efforts to target illicit actors.
        One of my top priorities as Under Secretary for TFI is to ensure
    that the AML/CFT framework remains strong and effective. My testimony
    today will focus on both the threats that we face and the efforts we
    are undertaking to strengthen the AML/CFT framework in order to counter
    those challenges.
    Threats to Our Financial System
        We bring enormous economic power to bear against an array of law
    enforcement and national security threats. Below are just a few of the
    challenges we have been combating.
        For example, North Korea uses covert representatives as well as
    front and trade companies to disguise, move, and launder funds that
    finance its weapons programs. The regime's illicit financial activity
    is not just conducted in dollars, nor is it limited to a handful of
    jurisdictions. Once a North Korean trade or financial representative
    successfully accesses a nation's financial system, illicit funds can
    flow indirectly through global banks, who may be unwittingly conducting
    currency clearing operations for North Korea.
        We are laser-focused on detecting and disrupting these networks as
    part of the Administration's strategy to impose maximum pressure on
    North Korea. We are
    deploying the full range of our economic authorities to combat the
    North Korean threat. Treasury has a cadre of analysts, including in the
    Office of Intelligence and Analysis (OIA) and the Financial Crimes
    Enforcement Network (FinCEN), who are mapping out these networks so
    that we can target and disrupt them.
        There are now six North Korea-related executive orders, in addition
    to robust congressional authorities, that we use to target key North
    Korean financial middlemen and others who support the regime. Over the
    last year, Treasury's Office of Foreign Assets Control (OFAC)
    designated over 100 individuals and entities related to North Korea as
    part of our concerted effort to pressure the regime. Our recent action
    under Section 311 of the USA PATRIOT Act against Bank of Dandong, a
    Chinese bank facilitating North Korean money laundering and sanctions
    evasion, highlights our resolve to target key nodes of financial
    support for North Korea.
        We are also warning financial institutions both here and abroad
    about the deceitful ways in which North Korea abuses the international
    financial system. In November 2017, FinCEN issued an advisory to alert
    financial institutions about North Korea's attempts to use front
    companies to launder money and evade sanctions. This information helps
    the private sector detect and report such activity, which in turn
    supports our efforts to target those persons and entities that help the
    regime fund its weapons program.
        Our focus on depriving North Korea of its ability to earn and move
    revenue through the international financial system means that we must
    work with other countries to achieve this goal. Not only do we work
    bilaterally with key partners to coordinate our domestic sanctions
    programs, the Secretary, myself, and others within TFI engage with
    leaders across the world to stress the importance of implementing
    United Nations Security Council Resolutions (UNSCRs). We also work
    bilaterally with governments and through the Financial Action Task
    Force (FATF) and the G7 Financial Experts Group to ensure that
    countries have the regulatory framework in place to detect and freeze
    assets linked to North Korea. I raise these concerns in virtually every
    engagement I have with my foreign counterparts and with many financial
    institutions, and will do so again in my upcoming trip to Asia next
    week.
        Iran is another rogue regime that seeks to subvert the financial
    system. It is the leading state sponsor of terrorism and finances
    terrorist groups such as Hezbollah and Hamas, the brutal regime of
    Bashar al-Assad, and a host of Shi'a militant groups in Bahrain, Iraq,
    Syria, and Yemen.
        Like North Korea, Iran uses deceptive financial practices to
    generate revenue. As just one example, in November, we sanctioned an
    Islamic Revolutionary Guards Corps-Qods Force (IRGC-QF) network
    involved in a large-scale scheme to counterfeit Yemeni bank notes to
    support its destabilizing activities. This network employed deceptive
    measures to circumvent European export control restrictions and
    procured materials to print counterfeit bank notes potentially worth
    hundreds of millions of dollars.
        In addition to Iran's financing of terrorism and other
    destabilizing activities, the IRGC has an extensive presence in Iran's
    economy, including in the energy, construction, mining, and defense
    sectors. In our engagements both here in the United States and abroad,
    we have made clear that companies doing business in Iran face
    substantial risks of transacting with the IRGC or IRGC-linked entities.
        This risk is heightened by the lack of transparency in the Iranian
    economy, which is one of the least transparent in the world. Indeed,
    Iran is on the FATF's blacklist precisely because it has failed to
    address such systemic deficiencies in its controls to combat terrorist
    financing and money laundering. This has led the FATF to highlight for
    the past decade the terrorist financing risk emanating from Iran and
    the threat that it poses to the international financial system. Thus
    far, Iran has failed to fulfill its commitments to the FATF in
    addressing its weak controls.
        We will continue to take action to protect the international
    financial system and to combat Iran's relentless campaign to support
    terrorism, destabilize the region, and abuse its own people. Over the
    last 2 weeks, OFAC designated 19 individuals and entities in connection
    with serious human rights abuses and censorship in Iran, and for
    assisting designated Iranian weapons proliferators. As Secretary
    Mnuchin stated when announcing last week's sanctions, the United States
    will not stand by while the Iranian regime continues to engage in human
    rights abuses and injustice.
        In Venezuela, the Maduro regime's systematic destruction of
    democracy, as well as its endemic corruption, also pose a threat to the
    international financial system. Under Maduro, embezzlement, graft, and
    fraud have become the regime's de facto economic policy, aimed at
    maintaining the loyalty of the security apparatus to keep Maduro and
    his cronies in power. In August 2017, the President issued an Executive
    order carefully calibrated to deny the Maduro dictatorship a critical
    source of financing to maintain its illegitimate rule and protect the
    U.S. financial system from complicity in Venezuela's corruption and in
    the impoverishment of the Venezuelan people, while still allowing for
    the provision of humanitarian assistance.
        In September, FinCEN issued an advisory to alert financial
    institutions of widespread public corruption in Venezuela and the
    methods that senior political figures and their associates may use to
    move and hide proceeds of their ill-gotten gains, at the grave expense
    of the Venezuelan people. Combined with our powerful sanctions, this
    advisory put financial institutions on watch for possible illicit fund
    flows.
        Endemic corruption also undermines the U.S. and international
    financial systems, perpetuating violent conflict and damaging economic
    markets. In the past year, we have imposed sanctions, issued financial
    advisories, and undertaken diplomatic engagements to counter corruption
    across the globe. Building on the Global Magnitsky Act, which Congress
    passed just over 1 year ago, the President signed an Executive order on
    December 20, 2017, declaring a national emergency with respect to human
    rights abuses and corruption globally and enabling Treasury to impose
    financial sanctions on malign actors engaged in these activities.
        In this Executive order, the President imposed sanctions on 13
    serious human rights abusers and corrupt actors, and OFAC
    simultaneously imposed sanctions on an additional 39 affiliated
    individuals and entities under the newly issued Order. Since this
    action, we have seen public reports regarding the notable impact of
    these sanctions, with some of the designated individuals being cutoff
    from lucrative business arrangements, while others face investigation
    by their home governments.
        TFI has also been deploying its authorities against transnational
    criminal organizations, fraud, cybercriminals, human trafficking
    networks, and other law enforcement priorities in which our economic
    tools have had a meaningful impact. In recent years, for example, we
    have issued geographic targeting orders (GTOs) aimed at combating tax
    refund fraud and sophisticated trade-based money laundering schemes
    orchestrated by drug trafficking networks and their money launderers.
        To mitigate the money laundering vulnerabilities associated with
    luxury real estate, in 2016 we issued GTOs to identify the beneficial
    owners behind shell companies used to pay all-cash for high-end
    residential real estate in certain U.S. cities. In 2017, following the
    enactment of the Countering America's Adversaries through Sanctions
    Act, FinCEN revised the GTOs to capture a broader range of transactions
    and include transactions involving wire transfers. The information
    gathered from the GTOs supports law enforcement and helps inform our
    broader approach to mitigating the money laundering vulnerabilities in
    the real estate sector.
    Strengthening the AML/CFT Framework
        As we employ our economic tools to address these challenges, we
    must continue to increase the transparency and accountability in the
    financial system, which underpins much of our economic statecraft. A
    strong and effective AML/CFT framework keeps illicit actors out of the
    financial system, and allows us to track and target those who
    nonetheless slip through. This framework must address the evolving
    forms of illicit finance threats that we face.
        As such, we are taking a hard look not only at the Bank Secrecy Act
    (BSA) but also at the broader AML/CFT regime. We need to continuously
    upgrade and modernize our system--a statutory and regulatory construct
    originally adopted in the 1970s--and make sure that we have the right
    framework in place to take us into the 2030s and beyond.
    Incentivizing Innovation
        In particular, we must make sure that financial institutions are
    devoting their
    resources toward high value activities and are encouraged to innovate
    with new technologies and approaches. In recent years, for example,
    financial institutions have become more proactive in their AML/CFT
    approach, in some cases building sophisticated internal financial
    intelligence units devoted to identifying strategic and cross-cutting
    financial threats. Financial institutions have been improving their
    ability to identify customers and monitor transactions by experimenting
    with new technologies that rely on artificial intelligence and machine
    learning. Institutions are also working together to share information
    on suspicious activities, enabling them to identify and report activity
    that would not otherwise be visible or concerning to a single
    institution.
        We laud and encourage these innovations. These initiatives advance
    the BSA's underlying purpose. We are working closely with our
    counterparts at the Federal Banking Agencies (FBAs) to discuss ways to
    further incentivize financial institutions to be innovative in
    combating financial crime. We have also been speaking with many in the
    financial community to understand their perspectives.
    Public-Private Partnerships
        Deploying our tools for maximum impact requires proactive dialogue
    and information sharing with financial institutions. They are on the
    front lines, detecting and blocking illicit financing streams,
    combating financial crimes, and managing risk. The safeguards employed
    by the private sector, and the information reported about terrorist
    financiers, weapons proliferators, human rights abusers and
    traffickers, and cyber and other criminals, help prevent malign actors
    from abusing our financial system.
        Enhancing public-private partnerships that reveal and mitigate
    vulnerabilities is one of our top priorities. To make these
    partnerships work, we are arming the private sector with information
    that enhances their ability to identify and report suspicious activity.
    We have also been issuing advisories to warn financial institutions
    about illicit finance risks.
        I have heard from my outreach with financial institutions here and
    abroad how this information helps them better prioritize targets and
    utilize their limited resources. That is why last month I announced the
    launch of FinCEN Exchange, a new public-private information sharing
    program led by FinCEN.
        FinCEN Exchange brings financial institutions, FinCEN, and law
    enforcement together to facilitate greater information sharing between
    the public and private sectors.
        Information sharing should be a two-way street. As part of FinCEN
    Exchange, we are convening regular briefings--at least once every 6-8
    weeks--with law enforcement, FinCEN, and financial institutions to
    exchange targeted information on priority illicit finance threats. In
    close coordination with law enforcement, our goal is to provide
    information to support specific matters through Section 314(a) of the
    USA PATRIOT Act and other authorities, and also to provide financial
    institutions with broader typologies to help them identify illicit
    activity. These types of exchanges enable the private sector to better
    identify risks and provide FinCEN and law enforcement with critical
    information to disrupt money laundering and other financial crimes.
        I have seen firsthand the immense value of this public-private
    partnership. Information provided by financial institutions in
    connection with public-private briefings has helped us map out and
    target weapons proliferators, sophisticated global money laundering
    operations, human trafficking and smuggling rings, and corruption and
    trade-based money laundering networks, among others. This also creates
    a positive feedback loop in which we can share with the broader
    financial community the typologies learned from these exchanges,
    enabling other financial institutions to identify and report similar
    activity.
        Through FinCEN Exchange, we are increasing public-private
    information sharing, which will include financial institutions of all
    types and sizes across the country.
        We are also discussing BSA reform with the private sector,
    including in the Bank Secrecy Act Advisory Group (BSAAG). The BSAAG,
    chaired by FinCEN, is comprised of members from financial institutions,
    trade groups, and State and Federal regulators and law enforcement. The
    topics addressed in the BSAAG include identifying metrics for
    determining effective financial reporting, streamlining the reporting
    of money laundering ``structuring'' transactions, and more efficient
    ways for
    industry to report cash transactions.
    Promoting Information Sharing Among Financial Institutions
        Public-private partnerships are even more effective when financial
    institutions share information with each other. Money launderers are
    sophisticated. They move across borders and financial institutions, and
    financial institutions are better able to keep pace and effectively
    combat them when they communicate with each other.
        Some institutions have started forming consortia to share
    information more
    dynamically under Section 314(b) of the USA PATRIOT Act, which provides
    safe harbor for financial institutions to voluntarily share information
    related to money laundering or terrorist activities. We are highly
    encouraged by, and supportive of, the private sector's willingness to
    engage in this type of exchange. By working together, these groups of
    financial institutions are directly assisting our efforts to identify
    and disrupt streams of financing for North Korea and other top illicit
    finance threats.
    Evolving Threats
        Part of our effort to update the AML/CFT regime includes staying
    ahead of evolving threats. We lead the world in mitigating the illicit
    finance risks of emerging technologies, such as the use of virtual
    currencies. We stand at the regulatory and supervisory forefront of
    this emerging industry. Currently, the United States, Japan, and
    Australia are among the few countries regulating virtual currency
    payments/exchange activities, including in particular decentralized
    convertible virtual currency, for AML/CFT purposes.
        To ensure that virtual currency providers and exchangers know the
    rules and follow them, FinCEN has prioritized engagement with--and
    examination of--these entities, focusing both on the approximately 100
    that have registered with FinCEN as money transmitters as required, as
    well as those that have not. As part of the examination process,
    FinCEN, working with delegated Internal Revenue Service (IRS)
    examiners, has recommended virtual currency providers and exchangers
    take certain actions to improve their compliance activities.
        The effectiveness of this structure depends on compliance by the
    regulated entities, and so we aggressively pursue virtual currency
    exchangers and others who do not take these obligations seriously. In
    July 2017, for example, FinCEN assessed a $110 million fine against
    BTC-e, an internet-based, foreign-located money transmitter that
    exchanges fiat currency as well as the convertible virtual currencies
    Bitcoin, Litecoin, Namecoin, Novacoin, Peercoin, Ethereum, and Dash. At
    the time of our action, it was one of the largest virtual currency
    exchanges by volume in the world and facilitated transactions involving
    ransomware, computer hacking, identity theft, tax refund fraud schemes,
    public corruption, and drug trafficking. FinCEN also assessed a fine
    against Russian national Alexander Vinnik, one of the operators of BTC-
    e, for his role in the violations.
        This action sends a very powerful message that we will hold
    accountable virtual currency exchangers that violate our AML laws,
    wherever they are located. We will do so in conjunction with our law
    enforcement partners and foreign counterparts.
        We understand that the European Union is finalizing its amendments
    to its anti-money laundering directive, which will put in place a
    requirement for EU members to regulate virtual currency exchangers, a
    significant step. Even with these advancements, there is still a major
    gap in regulating these entities globally and we are actively engaged
    with other countries, bilaterally and multilaterally, to encourage them
    to apply international AML/CFT standards to virtual currency payments.
        We also prioritize increasing the transparency of shell companies
    in the U.S. financial system. To that end, we have strengthened one of
    the fundamental components of our AML/CFT regime: customer due
    diligence. Treasury's customer due diligence rule, which takes effect
    this May, requires covered financial institutions to identify and
    verify the identity of the beneficial owners of companies at the time
    of account opening. We look forward to working with Congress on the
    important issue of enhancing the transparency of beneficial owners.
        As we call upon the private sector to enhance its systems, we at
    TFI are doing the same. Financial intelligence is central to our
    efforts to combat the national security threats I outlined above. As
    such, I have directed my staff to work innovatively on employing new
    tools to analyze and use information more effectively. Last month, I
    established a Technology Council, which, among other things, is
    implementing new technologies to further enhance our analytic
    capabilities.
    Conclusion
        I am grateful for this Committee's leadership and support, both of
    which are essential to combating the threats we face and ensuring the
    continued success of TFI. I look forward to working with this Committee
    and other Members of Congress as we seek to fulfill our shared
    responsibility to keep Americans safe and secure. I look forward to
    your questions.
                                     ______

                      PREPARED STATEMENT OF M. KENDALL DAY
    Acting Deputy Assistant Attorney General, Criminal Division, Department
                                   of Justice
                                January 17, 2018
        Chairman Crapo, Ranking Member Brown, and Members of the Committee.
    Thank you for the opportunity to discuss our Nation's anti-money
    laundering (AML) laws. They constitute one of the pillars of our
    national security strategy, while also serving as a critical element of
    our transparent and robust financial system.
        As economies and financial systems become increasingly global, so
    too do the criminal organizations and other bad actors who attempt to
    exploit them. Transnational criminal organizations, kleptocrats,
    cybercriminal groups, terrorists, drug cartels, and alien smugglers
    alike must find ways to disguise the origins of the proceeds of their
    crimes so that they can use the profits without jeopardizing their
    source. These criminal actors and their illicit proceeds--which best
    estimates peg at more than $2 trillion annually are a global problem.
    But this is a global problem with acute and specific effects here in
    the United States, where we enjoy some of the deepest, most liquid, and
    most stable markets in the world. Those features of the U.S. financial
    system attract legitimate trade and investment, foster economic
    development, and promote confidence in our markets and in our
    Government. Those same advantages, however, also attract criminals and
    their illicit funds as they seek to launder their proceeds to enjoy the
    fruits of their crimes, or to promote still more criminal activity.
        One of the most effective ways to deter criminals and to stem the
    harms that flow from their actions--including harm to American citizens
    and our financial systems--is to follow the criminals' money, expose
    their activity, and prevent their networks from benefiting from the
    enormous power of our economy and financial system. Identifying and
    disrupting illicit financial networks not only assists in the
    prosecution of criminal activity of all kinds, but also allows law
    enforcement to halt and dismantle criminal organizations and other bad
    actors before they harm our citizens or our financial system. More
    broadly, money laundering undermines the rule of law and our democracy
    because it supports and rewards corruption and organized crime,
    allowing it to grow and fester. Our efforts to combat money laundering
    thus directly affect the safety and security of the American public,
    and the stability of our Nation.
        The Department of Justice (Department), in coordination with our
    colleagues from other agencies--one of whom is here today--as well as
    our international law enforcement partners, has had numerous recent
    successes in thwarting criminals who sought to move, hide, or otherwise
    shelter their criminal proceeds using the U.S. financial system.
    Despite our successes, criminals continue to exploit gaps and
    vulnerabilities in existing laws and regulations to find new methods to
    conduct their illicit transactions and abuse and weaken our financial
    system and economy, causing real harm to our country and its citizens.
    Thus, it is imperative that domestic and international law enforcement,
    policymakers, regulators, and industry continue to work together to
    implement and enforce strong AML laws to detect, target, and disrupt
    illicit financial networks that threaten our country.
    I. Background
        Crime is big business. The U.N. Office on Drugs and Crime estimates
    that annual illicit proceeds total more than $2 trillion globally. Here
    in the United States, proceeds of crimes, excluding tax evasion, were
    estimated to total approximately $300 billion in 2010, or about 2
    percent of the overall U.S. economy at the time. Of that $300 billion,
    drug trafficking sales in the United States generate an estimated $64
    billion annually. Fraud, human smuggling, organized crime, and public
    corruption also generate significant illicit proceeds.
        For any illegal enterprise to succeed, criminals must be able to
    hide, move, and access the proceeds of their crimes. And they must find
    ways to do so without jeopardizing their ongoing criminal activities.
    Without usable profits, the criminal activity cannot continue. This is
    why criminals resort to money laundering.
        Money laundering involves masking the source of criminally derived
    proceeds so that the proceeds appear legitimate, or masking the source
    of monies used to promote illegal conduct. Money laundering generally
    involves three steps: placing illicit proceeds into the financial
    system; layering, or the separation of the criminal proceeds from their
    origin; and integration, or the use of apparently legitimate
    transactions to disguise the illicit proceeds. Once criminal funds have
    entered the financial system, the layering and integration phases make
    it very difficult to track and trace the money.
    II. Specific Money Laundering Threats
        Criminals employ a host of methods to launder the proceeds of their
    crimes. Those methods range from well-established techniques for
    integrating dirty money into the financial system, such as the use of
    cash, to more modern innovations that make use of emerging technologies
    to exploit vulnerabilities. Some of the more well-known methods of
    money laundering are described below.
        Illicit cash. Cash transactions are particularly vulnerable to
    money laundering. Cash is anonymous, fungible, and portable; it bears
    no record of its source, owner, or legitimacy; it is used and held
    around the world; and is difficult to trace once spent. Additionally,
    despite its bulk, cash can be easily concealed and transported in large
    quantities in vehicles, commercial shipments, aircrafts, boats,
    luggage, or packages; in special compartments hidden inside clothing;
    or in packages wrapped to look like gifts. Criminals regularly attempt
    to smuggle bulk cash across the United States' borders using these and
    other methods.
        Cash-intensive sources of illicit income include human smuggling,
    bribery, contraband smuggling, extortion, fraud, illegal gambling,
    kidnapping, prostitution, and tax evasion. Drug trafficking, however,
    is probably the most significant single source of illicit cash.
    Customers typically use cash to purchase drugs from street-level drug
    dealers, who in turn use cash to purchase their drug supply from mid-
    level distributors. Mid-level distributors purchase drugs from
    wholesalers using cash, and wholesalers often make payment to their
    suppliers in cash. Mexican drug trafficking organizations responsible
    for much of the United States' drug supply commonly rely on multiple
    money laundering methods, including bulk cash smuggling, to move
    narcotics proceeds across the U.S.-Mexico border into Mexico.
        Trade-based money laundering. Drug trafficking organizations also
    use money brokers to facilitate trade-based money laundering. In
    complex trade-based money laundering schemes, criminals move
    merchandise, falsify its value, and misrepresent trade-related
    financial transactions, often with the assistance of complicit
    merchants, in an effort to simultaneously disguise the origin of
    illicit proceeds and integrate them into the market. Once criminals
    exchange illicit cash for trade goods, it is difficult for law
    enforcement to trace the source of the illicit funds.
        This particular method of money laundering harms legitimate
    businesses. For example, the U.S. Department of Treasury's (Treasury)
    National Money Laundering Assessment (2015) notes that transnational
    criminal organizations may dump imported goods purchased with criminal
    proceeds into the market at a discount just to expedite the money
    laundering process, putting legitimate merchants at a competitive
    disadvantage.
        Illicit use of banks. U.S. banks handle trillions of dollars of
    daily transaction volume. Most Americans use depository financial
    institutions--such as commercial banks, savings and loan associations,
    and credit unions--to conduct financial transactions. Those who do not
    have access to these institutions, or who choose not to use depository
    financial institutions, may conduct financial transactions using money
    services businesses such as money transmitters, check cashers, currency
    exchangers, or businesses that sell money orders, prepaid access
    devices, and traveler's checks. Some money services businesses
    themselves may also engage the services of depository financial
    institutions to settle transactions. Banks may also hold accounts with
    other banks, including foreign banks, to facilitate domestic and cross-
    border transactions. For example, some banks establish correspondent
    relationships with other banks to enable them to conduct business and
    provide services to clients in foreign countries without the expense of
    establishing a presence in those foreign countries.
        The sheer volume of business that banks handle on a daily basis
    exposes them to significant money laundering risks. In fact, in most
    money laundering cases, criminals employ banks at some point to hold or
    move illicit funds.
        Because they play such a significant role in the U.S. financial
    system, financial institutions are often the front line in AML efforts.
    Compliance with the Bank Secrecy Act and sanctions laws is fundamental
    to protecting the security of financial institutions and the integrity
    of the financial system as a whole. These laws impose a range of
    obligations on financial institutions, including filing of transaction
    reports, reporting suspicious activity, performing customer due
    diligence, preventing transactions that involve the proceeds of crimes,
    and establishing effective AML programs.
        Effective AML programs play a critical role in the fight against
    criminal activity. For example, effective AML programs help financial
    institutions detect efforts to launder illicit proceeds, which can, in
    turn, prevent those funds from ever entering the U.S. financial system.
        Accurate and timely suspicious activity reporting can be a critical
    source of information for law enforcement investigations. Further,
    domestic collection of AML information improves the United States'
    ability to respond to similar requests from foreign law enforcement for
    investigative assistance, thus increasing our ability to fight
    financial crime on the global stage.
        The Bank Secrecy Act's requirements are designed to help ensure
    that banks avoid doing business with criminals. However, criminals
    frequently seek to thwart or evade these requirements. For example,
    criminals may structure cash deposits to avoid threshold reporting
    requirements, or seek out complicit merchants who will accept their
    illicit proceeds without reporting the transactions. Criminals may also
    misuse correspondent banking services to further their illicit
    purposes. Because U.S. banks may not have a relationship with the
    originator of a payment when they receive funds from a correspondent
    bank, banks may face additional challenges in evaluating the money
    laundering risks associated with those transactions. When criminals
    successfully deploy these techniques, they are one step closer to
    ``cleaning'' their illicit proceeds--with significant consequences for
    our financial system.
        Obscured beneficial ownership. Increasingly, sophisticated
    criminals seek access to the U.S. financial system by masking the
    nature, purpose, or ownership of their accounts and the sources of
    their income through the use of front companies, shell companies, or
    nominee accounts. Front companies typically combine illicit
    proceeds with lawful proceeds from legitimate business operations,
    obscuring the source, ownership, and control of the illegal funds.
    Shell companies typically have no physical operations or assets, and
    may be used only to hold property rights or financial assets. Nominee-
    held ``funnel accounts'' may be used to make structured deposits in
    multiple geographic locations and corresponding structured withdrawals
    in other locations. All of these methods obscure the true owners and
    sources of funds. And without truthful information about who owns and
    controls an account, banks may not be able to accurately analyze
    account activity and identify legitimate (or illegitimate)
    transactions.
        Misuse of money services businesses. While many money services
    businesses engage in legitimate business activities, they, too, can
    serve as a means for criminals to move money. Although money services
    businesses have customer verification requirements above certain
    thresholds and other Bank Secrecy Act obligations, individuals who use
    money services businesses may do so in a one-off fashion, without
    establishing an ongoing relationship that banks maintain with their
    customers, which can make it more difficult to identify money
    laundering. While money services businesses are subject to Bank Secrecy
    Act compliance requirements, some money services businesses fail to
    register with the proper authorities, making it more likely that AML
    violations at those money services businesses go undetected.
        Prepaid access cards. Prepaid access cards, also known as stored
    value cards, may be used as an alternative to cash. Prepaid access
    cards provide access to funds that have been paid in advance and can be
    retrieved or transferred through an electronic device such as a card,
    code, serial number, mobile identification number, or personal
    identification number. They function much like traditional debit or
    credit cards, and can provide portable and absent regulation,
    potentially anonymous ways to access funds.
        Prepaid access cards may be used by criminals in a variety of ways.
    Criminals can direct Federal or State tax authorities to issue
    fraudulent tax refunds on prepaid debit cards. Drug traffickers,
    meanwhile, may convert drug cash to prepaid debit cards, which they may
    then use to purchase goods and services or send to drug suppliers,
    where they can use the cards to withdraw money from a local ATM.
        Virtual currencies. Virtual currencies offer yet another
    alternative to cash. Criminals seek to use virtual currencies to
    conduct illicit transactions because they offer potential anonymity,
    since virtual currency transactions are not necessarily tied to a real
    world identity and enable criminals to quickly move criminal proceeds
    among countries. Some of those countries, unlike the United States, do
    not currently regulate virtual currencies and therefore have limited
    oversight and few AML controls.
        Purchase of real estate and other assets. Criminals may also
    convert their illicit proceeds into clean funds by buying real estate
    and other assets. Foreign government officials who steal from their own
    people, extort businesses, or seek and accept bribery payments, in
    particular, have used this method to funnel their illicit gains into
    the U.S. financial system. Recent investigations and prosecutions have
    revealed that corrupt foreign officials have purchased various U.S.
    assets to launder the proceeds of their corruption, from luxury real
    estate and hotels to private jets, artwork, and motion picture
    companies. The flow of kleptocracy proceeds into the U.S. financial
    system distorts our markets and threatens the transparency and
    integrity of our financial system. For example, when criminals use
    illicit proceeds to buy up real estate, legitimate purchasers--
    businesses and individuals--are foreclosed from buying or investing in
    those properties. Moreover, kleptocracy erodes trust in Government and
    private institutions, undermines confidence in the fairness of free and
    open markets, and breeds contempt for the rule of law, which threatens
    our national security.
        Those are only a few of the methods criminals use to launder ill-
    gotten gains through the U.S. financial system. New methods are always
    being devised, as the criminal underworld seeks to take advantage of
    emerging technologies and to outpace the development of new detection
    and investigation tools by law enforcement.
    III. The Department's Efforts to Combat the Threat
        To keep pace with and disrupt the evolving threats of money
    laundering, the Department draws on the full complement of its law
    enforcement tools. The Criminal Division's Money Laundering and Asset
    Recovery Section (MLARS) leads the Department's AML efforts. MLARS
    works in parallel with U.S. Attorneys' Offices around the country,
    other Government agencies, and domestic and international law
    enforcement colleagues to pursue complex, sensitive, multi-district,
    and international money laundering and asset forfeiture investigations
    and cases. MLARS' Bank Integrity Unit, for example, investigates and
    prosecutes criminal cases involving financial institutions and their
    employees or agents who violate Federal criminal statutes, including
    the Bank Secrecy Act, the Money Laundering Control Act, and economic
    and trade sanctions authorized by the International Emergency Economic
    Powers Act and the Trading with the Enemy Act. MLARS' Money Laundering
    and Forfeiture Unit investigates and prosecutes professional money
    launderers who provide their services to criminal organizations, such
    as Mexican drug cartels, and, in partnership with U.S. Attorneys'
    Offices, litigates criminal and civil forfeiture cases.
        In addition--and as part of its efforts to fight global corruption
    and money laundering on the international stage--MLARS leads the
    Department's Kleptocracy Asset Recovery Initiative. Large-scale
    corruption by foreign government officials who steal from their people
    and seek to invest those funds in the U.S. financial system erodes
    citizens' trust in Government and private institutions alike,
    undermines confidence in the fairness of free and open markets, and
    breeds contempt for the rule of law. When kleptocracy is allowed to
    take root, organized criminal groups and even terrorists are soon to
    follow. Accordingly, this initiative seeks to protect the U.S.
    financial system from the harmful effects of large flows of corruption
    proceeds, and, whenever possible, to return stolen or illicit funds for
    the benefit of the citizens of the affected countries.
        Also instrumental in the Department's AML efforts are the Criminal
    Division's Fraud Section, Computer Crimes and Intellectual Property
    Section, Narcotic and Dangerous Drug Section, and Organized Crime and
    Gang Section; the Tax Division; the Civil Rights Division's Human
    Trafficking Prosecution Unit; and their U.S. Attorneys' Office
    partners. These prosecutors lend critical expertise in the predicate
    offenses involved in money laundering. They work in tandem with a host
    of domestic law enforcement partners--among them, the Federal Bureau of
    Investigation (FBI); the DEA; the Bureau of Alcohol, Tobacco, Firearms
    and Explosives (ATF); the Department of Homeland Security, U.S.
    Immigration and Customs Enforcement-Homeland Security Investigations
    (HSI); U.S. Secret Service; and the Internal Revenue Service-Criminal
    Investigations (IRS-CI)--as well as State, local, tribal, and
    international law enforcement partners. Agents investigate a range of
    financial fraud schemes, including health care fraud, false claims for
    Federal income tax refunds, and identify theft and other internet-
    related schemes. They also investigate drug trafficking organizations
    and organized crime groups responsible for alien smuggling, extortion,
    illegal gambling, prostitution, and racketeering, among other crimes.
        In July 2017, for example, Attorney General Jeff Sessions and the
    Department of Health and Human Services (HHS) announced the largest-
    ever healthcare fraud enforcement action by the Medicare Fraud Strike
    Force. Investigating agencies included the FBI, and HHS-Office of the
    Inspector General, with the assistance of the DEA, U.S. Department of
    Defense-Office of Inspector General-Defense Criminal Investigative
    Service, and State Medicaid Fraud Control Units. The Criminal
    Division's Fraud Section, with its strike force partners, led a series
    of coordinated actions that charged 412 defendants across 41 Federal
    judicial districts with crimes stemming from their participation in
    health care fraud schemes involving $1.3 billion in false billings.
        Interagency task forces, including those that fall under the
    umbrella of the Organized Crime Drug Enforcement Task Forces program,
    similarly play a critical role in the Department's investigation and
    prosecution of the money laundering of drug traffickers. They draw upon
    the resources of Federal, State, local, and tribal law enforcement
    partners to identify, target, and dismantle drug trafficking
    organizations that seek to launder illicit drug proceeds through the
    U.S. financial system.
        U.S. law enforcement wields a number of powerful tools in the fight
    against criminals who engage in money laundering:
        First and foremost, criminal money laundering charges are of course
    essential to the Department's efforts to disrupt and dismantle criminal
    organizations' financial networks. Federal prosecutors have secured, on
    average, more than 1,200 Federal money laundering convictions each
    year, and have successfully investigated and prosecuted complex,
    global, and high-value money laundering cases.
        For example, in June 2017, MLARS and the U.S. Attorney's Office for
    the Eastern District of New York secured the guilty plea of Jorge Luis
    Arzuaga, a private banker formerly employed by several Swiss banks on
    money laundering conspiracy charges stemming from the distribution and
    receipt of millions of dollars of bribes paid to high-ranking soccer
    officials. Arzuaga furthered the bribery conspiracy by opening a bank
    account in the name of a shell company ostensibly established on behalf
    of a sports marketing company, when in fact, the true beneficial owner
    of the account was a high-ranking soccer official. In exchange for
    facilitating more than $25 million in bribe payments to the soccer
    official through this account, Arzuaga received more than $1 million in
    bonus payments.
        In 2016, moreover, MLARS and the U.S. Attorney's Office for the
    Southern District of California successfully prosecuted a drug
    trafficking and money laundering organization based primarily in
    Tijuana and Culiacan, Sinaloa, Mexico. The organization smuggled
    cocaine, heroin, methamphetamine, and marijuana from Mexico to the
    United States for distribution and arranged for the proceeds to be
    smuggled from the United States to Mexico, where a portion was
    laundered through money exchange houses in Culiacan and Tijuana. The
    remaining currency was sent back to the United States, deposited at
    banks, and wire transferred to bank accounts controlled by the
    organization in Mexico. The total amount laundered by the organization
    is believed to have exceeded $100,000,000. That figure included
    approximately $45,000,000 wired from U.S. bank accounts to accounts in
    Mexico and at least another $28,000,000 smuggled through Southern
    California ports of entry into Mexico.
        Criminal charges against financial institutions complicit in money
    laundering are likewise a component of the Department's AML strategy.
    In considering how a criminal enterprise was able to move illegal
    proceeds through the financial system, prosecutors and agents
    necessarily ask: Were the criminals just lucky, or did a financial
    institution fail to implement an effective AML program? Today's
    investigations often look at which companies processed the payments,
    which banks held the relevant accounts, whether any automated alerts or
    Suspicious Activity Reports were (or should have been) filed in
    connection with the movement of funds, and who served as the financial
    advisors, the tax preparers, and the accountants. In appropriate cases,
    prosecutors have brought actions against financial institutions for
    criminal violations of the Bank Secrecy Act and anti-fraud statutes.
        For instance, in 2017, a global money services business admitted to
    criminal violations, including willfully failing to maintain an
    effective AML program and aiding and abetting wire fraud, through
    agreements with the Department, the Federal Trade Commission, and four
    U.S. Attorneys' Offices. Specifically, the money services business
    admitted to processing payments between 2004 and 2012 for fraudsters
    who posed as family members in need or who had promised prizes or job
    opportunities and directed victims of their scams to send money through
    the business. Some of the money services business's employees were
    complicit in the schemes, processing the fraud payments in return for a
    cut of the proceeds. And the money services business knew of the
    agents' involvement, yet failed to take corrective action against them.
        Beyond criminal charges, civil penalties and forfeiture are
    additional tools in the Department's AML efforts. Civil forfeiture
    gives law enforcement the ability to go after what criminals value
    most--the money and property motivating their crimes--and to remove the
    proceeds of crime and other assets used to perpetuate criminal
    activity. It is a critical tool when prosecutors have no jurisdiction
    over culpable persons but have jurisdiction over property obtained
    through their criminal activity because it is located in the United
    States.
        The Department also uses targeted financial sanctions in
    conjunction with criminal and civil prosecutions. The Department works
    closely with Treasury and other agencies to impose financial sanctions
    where appropriate-measures that are particularly useful when criminals
    have evaded arrest or are otherwise outside the jurisdiction of the
    United States. For example, Treasury's Office of Foreign Assets Control
    (OFAC) may level significant economic sanctions against individual drug
    traffickers under the Foreign Narcotics Kingpin Designation Act, and
    against transnational criminal organizations under Executive Order
    13581. Section 311 of the USA PATRIOT Act authorizes Treasury, through
    its Financial Crimes Enforcement Network (FinCEN), to require domestic
    financial institutions and agencies to take certain special measures
    against foreign jurisdictions, foreign financial institutions, classes
    of international transactions, or types of accounts of primary money
    laundering concern. Special measures include, among other actions,
    enhanced recordkeeping and reporting requirements, the collection of
    beneficial ownership information, or prohibitions on banks from opening
    or maintaining in the United States any correspondent account or
    payable-through account for or on behalf of a foreign financial
    institution. Such economic sanctions can help freeze money launderers'
    financial accounts, block their U.S. properties, and deny them access
    to the U.S. financial system.
        Forfeiture and sanctions authorities have been deployed in a number
    of recent money laundering prosecutions. In August 2017, the Department
    announced the filing of two complaints seeking the imposition of a
    civil money penalty and the civil forfeiture of more than $11 million
    from companies that allegedly facilitated financial transactions for
    North Korea. These companies did so by brokering the sale of North
    Korean coal, transferring the proceeds of those sales to front company
    accounts, and using those front companies and the coal proceeds to
    purchase goods and services for North Korea. The complaints allege that
    the front companies
    supported OFAC-sanctioned North Korean entities, including North Korean
    military and North Korean weapons programs--direct threats to our
    national security.
        In 2016, the Department announced the filing of criminal charges
    and civil forfeiture actions against four Chinese nationals and a
    China-based trading company for conspiring to evade U.S. economic
    sanctions and violating the Weapons of Mass Destruction Proliferators
    Sanctions Regulations (WMDPSR). Simultaneously, OFAC imposed sanctions
    on the defendants for their ties to the government of North Korea's
    weapons of mass destruction proliferation efforts. The defendants used
    front companies to facilitate prohibited transactions through the
    United States on behalf of a sanctioned entity in North Korea with ties
    to sanctioned weapons of mass destruction proliferators.
        Similarly, in the Liberty Reserve case in 2013, the Department's
    filing of criminal charges against the web-based money transfer system
    was coupled with regulatory action by Treasury. FinCEN announced that,
    in coordination with the unsealing of the criminal indictment, Liberty
    Reserve had been named as a financial institution of primary money
    laundering concern under Section 311, effectively blocking its access
    to the U.S. financial system.
        Civil forfeiture has also been critical to the success of the
    Kleptocracy Asset Recovery Initiative, which has seized or restrained
    $3.5 billion worth of corruption proceeds to date and has filed
    complaints seeking the restraint of assets in a range of other high-
    profile matters. These include actions seeking to recover more than
    $1.7 billion in assets allegedly associated with a Malaysian sovereign
    wealth fund, more than $850 million allegedly related to bribe payments
    made by the world's sixth-largest telecommunications company and other
    firms, and more than $140 million allegedly obtained through corrupt
    oil contracts awarded by Nigeria's former Minister for Petroleum
    Resources. These cases demonstrate that the Department will not let
    corruption undermine and destabilize our markets, the rule of law, or
    democracy.
        In the Malaysia matter--the largest single action ever brought
    under the Initiative--the Department filed a complaint in 2016 to
    forfeit and recover assets associated with an international conspiracy
    to launder more than $4.5 billion stolen from the country's sovereign
    wealth fund, known as 1Malaysia Development Berhad, or 1MDB. The
    Malaysian government created 1MDB to promote economic development
    through international partnerships and foreign direct investment, with
    the ultimate goal of improving the lives of the Malaysian people.
    However, corrupt 1MDB officials treated this public trust as a personal
    bank account.
        Between 2009 and 2015, those corrupt officials and their associates
    took more than $4.5 billion from the development fund in four phases.
    These funds were laundered through a complex web of opaque transactions
    and fraudulent shell companies with bank accounts in countries around
    the world, including Switzerland, Singapore, Luxembourg, and the United
    States. The funds were then used to purchase approximately $1.7 billion
    in assets that the Department seeks to recover, including a $261
    million, 350-foot yacht; a $35 million jet; masterpieces by Van Gogh,
    Picasso, and Monet; and a motion picture company that used the funds to
    finance, among other things, the production of the films ``The Wolf of
    Wall Street,'' ``Daddy's Home,'' and ``Dumb and Dumber To.'' MLARS and
    the U.S. Attorney's Office in Los Angeles filed civil complaints
    targeting assets that, according to court documents, were
    misappropriated and diverted by Malaysian officials and their
    associates from 1MDB. In June 2017, the Department announced additional
    steps to forfeit and recover assets, bringing the total assets subject
    to forfeiture in this case to more than $1.7 billion. If the United
    States is successful in court, we will forfeit this more than $1.7
    billion in property, liquidate it, and, ultimately, return as much as
    possible to the citizens of Malaysia.
    IV. Challenges in Pursuing and Prosecuting Money Laundering Cases
        Notwithstanding the Department's many successes, Federal
    prosecutors and investigators continue to face significant challenges
    in bringing to justice those who threaten our financial system and
    national security by laundering the proceeds of their crimes.
        A. Opaque Corporate Structures
        The pervasive use of front companies, shell companies, nominees, or
    other means to conceal the true beneficial owners of assets is one of
    the greatest loopholes in this country's AML regime. Except in very
    narrow circumstances, current Federal laws do not require
    identification of beneficial owners at account opening. Although banks
    are required to obtain certain types of customer account information
    during the account-opening process, those requirements do not address
    the conduct of bad actors who make misrepresentations to banks to
    achieve their illicit purposes.
        The Financial Action Task Force (FATF), the inter-governmental body
    responsible for developing and promoting policies to protect the global
    financial system against money laundering and other threats,
    highlighted this issue as one of the most critical gaps in the United
    States' compliance with FATF standards in an evaluation conducted last
    year. FATF noted that the lack of beneficial ownership information can
    significantly slow investigations because determining the true
    ownership of bank accounts and other assets often requires that law
    enforcement undertake a time-consuming and resource-intensive process.
    For example, investigators may need grand jury subpoenas, witness
    interviews, or foreign legal assistance to unveil the true ownership
    structure of shell or front companies associated with serious criminal
    conduct. Moreover, the failure to collect beneficial ownership
    information also undermines financial institutions' ability to
    determine which of their clients pose compliance risks, which in turn
    harms banks' ability to comply with their legal obligation to guard
    against money laundering.
        A recent case involving Teodoro Nguema Obiang Mangue, the Second
    Vice President of Equatorial Guinea, highlights the challenge of
    successfully prosecuting money laundering schemes when parties have
    concealed the true ownership of bank accounts and assets. In that case,
    Nguema Obiang reported an official government salary of less than
    $100,000 a year during his 16 years in public office. Nguema Obiang,
    however, used his position and influence to amass more than $300
    million in assets through fraud and corruption, money which he used to
    buy luxury real estate and vehicles, among other things. Nguema Obiang
    then orchestrated a scheme to fraudulently open and use bank accounts
    at financial institutions in California to funnel millions of dollars
    into the United States. Because U.S. banks were unwilling to deal with
    Nguema Obiang out of concerns that his funds derived from corruption,
    Nguema Obiang used nominees to create companies that opened accounts in
    their names, thus masking his relationship to the accounts and the
    source of the funds brought into the United States. The Department
    ultimately reached a settlement of its civil forfeiture actions against
    assets owned by Nguema Obiang. However, the Department needs effective
    legal tools to directly target these types of fraudulent schemes and
    protect the integrity of the U.S. financial system from similar
    schemes.
        The Treasury Department's recent Customer Due Diligence Final Rule
    (CDD rule) is a critical step toward a system that makes it difficult
    for sophisticated criminals to circumvent the law through use of opaque
    corporate structures. Beginning in May 2018, the CDD rule will require
    that financial institutions collect and verify the personal information
    of the beneficial owners who own, control, and profit from companies
    when those companies open accounts. The collection of beneficial
    ownership information will generate better law enforcement leads and
    speed up investigations by improving financial institutions' ability to
    monitor and report suspicious activity, and will also enable the United
    States to better respond to foreign authorities' requests for
    assistance in the global fight against organized crime and terrorism.
        Important as it is, however, the CDD rule is only one step toward
    greater transparency. More effective legal frameworks are needed to
    ensure that criminals cannot hide behind nominees, shell corporations,
    and other legal structures to frustrate law enforcement, including
    stronger laws that target individuals who seek to mask the ownership of
    accounts and sources of funds.
        B. Evidence Collection Involving Foreign Entities
        The assistance of our interagency and international partners is an
    important element of the Department's success in its AML efforts.
    Because money often moves across multiple countries in the global
    economy, U.S. law enforcement depends on the cooperation of foreign
    counterparts to aggressively investigate money laundering cases
    touching the United States. Domestic and international law enforcement
    partners must work together to obtain evidence and to trace, freeze,
    and seize assets wherever they are located. The ability to pursue
    investigative leads in transnational criminal investigations and
    terrorist financing cases using foreign bank records is vital to
    successful AML efforts on the international stage.
        Recent cases reinforce this need. The Department's 2017 complaints
    against the companies that sought to help North Korea circumvent the
    U.S. sanctions--noted above--allege that sanctioned North Korean
    entities were able to send financial transactions in U.S. dollars
    through U.S. correspondent banks without detection and thereby avoided
    being blocked under the WMDPSR program. In these and similar cases,
    foreign bank records may be of great benefit in demonstrating
    potentially illicit conduct.
        Under the existing authority in Title 31 U.S.C.  5318(k), however,
    foreign banks are not required to produce records in a manner that
    would establish their authenticity and reliability for evidentiary
    purposes. The statute also does not contain any anti-tip-off language,
    meaning that banks who receive subpoenas could disclose the subpoenas
    to account holders or others, thereby compromising an ongoing
    investigation. The only sanction provided under current law is the
    closure of the correspondent account, which, in most cases, will not
    result in the production of the records, and may in fact impede law
    enforcement investigations. There is no procedure to seek to compel
    compliance with subpoenas to foreign banks, nor any explicit authority
    to impose sanctions for contempt. Finally, the current statute provides
    that no effort can be taken by the Attorney General or the Secretary of
    Treasury to close the correspondent account or a foreign bank when the
    foreign bank has brought proceedings to challenge enforcement of the
    subpoena.
        C. Practical Problems in Prosecutions of Money Laundering Cases
        Several specific areas of the current legal framework have in
    practice served as loopholes or obstacles in the investigation and
    prosecution of money laundering cases.
        For instance, current law in at least two Federal circuits may
    prevent the Government from pursuing money laundering charges under
    Section 1957 in cases in which some or all of the illegal proceeds were
    moved through accounts that mask the source of funds by commingling
    illegal proceeds with the proceeds of legitimate businesses. Supreme
    Court precedent requiring proof that a defendant knew not only that
    cash was being transported in secret, but that the cash was being
    transported in secret specifically to conceal its criminal nature, has
    created an enforcement gap when it comes to charging certain culpable
    intermediaries, like couriers or persons who agree to engage in
    transactions or transportation as directed for cash, with concealment
    money laundering. Prosecutors are hampered in pursuing entities like
    check cashers, which do not transmit money, because the money
    laundering statutes govern unlicensed money transmitting businesses, as
    opposed to the broader category of unlicensed money services
    businesses. This may present challenges for bringing cases against
    emerging technologies that fall within the broader category, but not
    the narrower one. On these and other points, there remains room for
    streamlining and updating our money laundering laws to enhance the
    Department's efforts to combat money laundering.
    V. Conclusion
        I thank the Committee for holding this hearing today and bringing
    attention to the threat that money laundering poses to our financial
    system. In conjunction with our domestic and international law
    enforcement partners, the Department looks forward to working with
    Congress in the global fight against money laundering.

      RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN CRAPO FROM SIGAL
                               MANDELKER

    Q.1. During our recent hearings, the Committee heard the BSA
    regulators being criticized for taking a ``check-the-box''
    approach to compliance. How can we encourage regulators and
    examiners to allow more innovative approaches to BSA/AML
    compliance that go beyond a ``check the box'' exercise? How can
    we encourage regulators and examiners to allow more innovative
    approaches? What are the obstacles and challenges here?

    A.1. Treasury is taking a hard look at both the Bank Secrecy
    Act (BSA) and the broader AML/CFT regime. We need to
    continuously upgrade and modernize our system--a statutory and
    regulatory construct originally adopted in the 1970s--and make
    sure that we have the right framework in place to take us into
    the 2030s and beyond. In particular, we must make sure that
    financial institutions are devoting their resources toward high
    value activities and are encouraged to innovate with new
    technologies and approaches. In recent years, for example,
    financial institutions have become more proactive in their AML/
    CFT approach, in some cases building sophisticated internal
    financial intelligence units devoted to identifying strategic
    and cross-cutting financial threats. Financial institutions
    have been improving their ability to identify customers and
    monitor transactions by experimenting with new technologies
    that rely on artificial intelligence and machine learning.
        We encourage these innovations. These initiatives advance
    the BSA's underlying purpose. We are working closely with our
    counterparts at the Federal Banking Agencies (FBAs) to discuss
    ways to further incentivize financial institutions to be
    innovative in combating financial crime, including through the
    examination process. We have also been speaking with many in
    the financial community to understand their perspectives.

    Q.2. Moving forward, it is important to hear the voices of all
    stakeholders in the BSA/AML compliance space. In your
    testimony, you noted that Treasury uses the Bank Secrecy Act
    Advisory Group (BSAAG) to communicate with the private sector
    and provide guidance. Please provide formal recommendations
    from the BSAAG.

    A.2. The Bank Secrecy Act Advisory Group (BSAAG) provides a key
    forum for Treasury to receive feedback on Bank Secrecy Act
    requirements from a broad, diverse representation of the
    financial industry, law enforcement, and regulatory
    communities. As such, BSAAG generally does not provide
    consensus formal recommendations, but rather provides a forum
    for Treasury to understand views from different impacted
    constituencies in order to balance diverse stakeholder needs.
    In addition to BSAAG, we regularly
    engage with financial institutions through a variety of forums,
    including the FinCEN Exchange, outreach efforts, and other
    engagements. We value the importance of proactive dialogue and
    information sharing with financial institutions. The safeguards
    employed by the private sector, and the information reported
    about terrorist financiers, weapons proliferators, human rights
    abusers and traffickers, and cyber and other criminals, help
    prevent malign actors from abusing our financial system.

    Q.3. The Clearing House report on ``A New Paradigm: Redesigning
    the U.S. AML/CFT Framework to Protect National Security and Aid
    Law Enforcement'' includes an assertion that ``the examination
    and enforcement regimes for the Bank Secrecy Act have
    incentivized financial institutions to exclude (or ``de-risk'')
    accounts from any customer, industry, or country that has
    relatively higher potential to engage in criminal activity.''
    We need to ensure a fair and proper regulatory framework that
    balances the policy goals of stopping criminals while not
    overburdening banks and causing the unintended consequences of
    unbanking small, main street businesses.

       LWhat is Treasury currently doing to address de-
            risking?

       LMoving forward, how do we ensure our policy
            approaches do not create incentives to de-risk?

    A.3. Protecting the integrity of the U.S. financial system and
    preventing its use for criminal purposes is of paramount
    importance. It is our responsibility at Treasury and within the
    law enforcement community to detect and prevent illicit use of
    the U.S. financial system. Financial institutions play a
    critical role in safeguarding the international system from
    abuse by illicit actors, which at times includes making risk-
    based decisions about with whom, where, and how they conduct
    business.
        At the same time, we take concerns about de-risking
    seriously. We value the importance of preserving access to the
    U.S. financial system to support economic growth, financial
    inclusion, and financial transparency while continuing to
    enforce U.S. laws and regulations. Financial inclusion and
    financial transparency are complementary and mutually
    reinforcing objectives. Keeping legitimate transactions in the
    regulated financial systems improves financial transparency.
    Treasury has worked with the Federal regulators to issue
    guidance and clarify the importance to financial institutions
    of implementing risk-based approaches that assist in preventing
    overcorrections that might exclude legitimate banking
    customers.
        In the last few years, Treasury has led the U.S.
    Government's efforts related to de-risking. These efforts have
    included Treasury-led engagements and dialogues with
    stakeholders from the public sector and industry, in addition
    to Treasury's ongoing open line of communication with U.S.
    financial institutions. Further, Treasury's work on this issue
    involves close coordination with global bodies and multilateral
    organizations, including the Financial Action Task Force, the
    Financial Stability Board, the World Bank, and the IMF.
        Treasury recognizes that financial institutions' decisions
    on whether and how to maintain customer relationships are
    driven by multiple factors, including: profitability and
    business strategy motives; current global economic conditions;
    and real concerns about suspicions of illicit financial
    activity, including money laundering and the financing of
    terrorism.
        An important way to ensure financial inclusion while
    increasing transparency is by making sure financial
    institutions are devoting the resources they have to high value
    activities. As discussed in my testimony, financial
    institutions have been improving their ability to identify
    customers and monitor transactions by experimenting with new
    technologies that rely on artificial intelligence and machine
    learning. We laud and encourage these innovations, which
    advance the underlying purposes of the BSA. We are working
    closely with our counterparts at the Federal Banking Agencies
    to discuss ways to further incentivize financial institutions
    to be innovative in combating financial crime.
                                    ------

      RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM SIGAL
                               MANDELKER

    Q.1. Can you describe from your previous experience in the
    Department of Justice and your current position with Treasury
    the role that BSA-generated financial intelligence plays in
    counterterrorism and other law enforcement investigations--in
    developing investigative leads, sharpening focus on certain
    criminal players and their banks, or otherwise?

    A.1. I know from my prior experience at the Justice Department
    and in my current role that financial intelligence is a vital
    source for law enforcement, counterterrorism, and other
    national security investigations, as we work to follow the
    money used by illicit actors. This includes our investigations
    related to North Korea, terrorist financing, drug trafficking,
    fraud, tax evasion, cybercrime, corruption, sanctions evasion,
    among other areas. We work closely with Federal, State and
    local law enforcement across the country to provide access to
    FinCEN's data to support their investigative efforts including
    those who are part of SAR Review Teams and financial crime task
    forces. This includes SAR Review Teams covering the 94 Federal
    judicial districts, as well as 55 task forces led by IRS-CI. In
    the last 5 years, regulatory and law enforcement partners, and
    FinCEN's Intelligence Division made over 10 million queries of
    the FinCEN database.
        Two recent examples that highlight the importance of BSA
    data include weapons proliferation and cyber threat
    investigations. On the former, law enforcement used a high
    volume of financial intelligence from 7 different financial
    institutions with a transaction value totaling over $17.7
    billion in a multi-year investigation into a criminal
    organization moving hundreds of millions of U.S. dollars to
    support foreign nuclear and ballistic missile programs. Foreign
    authorities took action against several of the targets, while
    the United States is prosecuting others.
        Similarly, a multi-year, multi-agency investigation, led by
    IRS-CI, focused on several targets selling narcotics on the
    dark web and distributing them throughout the United States
    through the U.S. Postal Service. BSA reporting by six different
    financial institutions included over 2.5 million in
    transactions and provided details of the financial and personal
    information of the subjects of the investigation and the use of
    Bitcoins to conceal the illicit proceeds. The targets were
    arrested, indicted, and pled guilty to various drug and money
    laundering charges. This was the first case in this
    particular Midwest district where money laundering charges were
    approved based on Bitcoin transactions.

    Q.2. What financial intelligence tools are currently most
    useful to prosecutors, sanctions overseers and others who
    combat money laundering, and where do we need to strengthen
    Treasury's and DOJ's tool kit?

    A.2. Treasury has broad access to financial intelligence tools
    and related data as well as information systems and facilities
    to conduct its mission. Our Office of Intelligence and
    Analysis, one of the 16 U.S. Intelligence Community agencies,
    provides expert analysis of financial networks and illicit
    actors, identifying key nodes that enable us to take disruptive
    action and build impactful strategies. Likewise, FinCEN
    continually collects and analyzes BSA and other financial
    intelligence, including information provided by Geographic
    Targeting Orders, Foreign Financial Agency rules, and the BSA,
    and works closely to support law enforcement. Treasury uses
    this information to inform our strategies, effectively deploy
    our tools, ensure our actions are calibrated for maximum
    impact, and measure our effectiveness and inform follow-on
    strategies and actions. For example, the Office of Foreign
    Assets Control (OFAC) uses this information to inform our
    sanctions targeting, and to track, trace, and disrupt illicit
    financial flows. Likewise, FinCEN uses this information in
    actions it takes pursuant to section 311 of the USA PATRIOT
    Act.
        I defer to my colleagues at the Department of Justice as to
    their views on what tools or resources are most useful and
    needed to strengthen their toolkit.

    Q.3.a. Current law allows bank information-sharing only in
    cases of terrorism or money laundering. Some have advocated for
    expanding banks' ability to share information, and to broaden
    the current liability safe harbor to cover a range of other
    suspected violations of law. Others--including witnesses who
    have come before the Committee--have sounded an alarm about the
    need to strengthen privacy safeguards around bank-to-bank
    information-sharing, particularly where an individual's access
    to financial services may be at risk if negative but inaccurate
    information on them gets into the system, as with inaccurate
    credit reporting.
        With this in mind, what additional steps do you think are
    needed to ensure that expanding information-sharing among banks
    doesn't put customers at greater risk of data theft, or of
    unjustified exclusion from the financial system because of
    inaccurate information being shared?

    A.3.a. Effective information-sharing between financial
    institutions is a critical element of our fight against illicit
    financing. Money launderers are sophisticated. They move across
    borders and financial institutions, and financial institutions
    are better able to keep pace and effectively combat them when
    they communicate with each other.
        Some institutions have started forming consortia to share
    information more dynamically under Section 314(b) of the USA
    PATRIOT Act, which provides safe harbor for financial
    institutions to voluntarily share information related to money
    laundering or
    terrorist activities. We are supportive of the private sector's
    willingness to engage in this type of exchange. By working
    together, these groups of financial institutions are directly
    assisting our efforts to identify and disrupt streams of
    financing for North Korea and other top illicit finance
    threats.
        We also recognize the critical issues of data protection
    and
    privacy. We believe existing controls on SAR confidentiality
    and information-sharing sufficiently protect the privacy
    interests of
    consumers and would not be significantly degraded if
    information-sharing was expanded. Greater information-sharing
    among financial institutions is expected to improve financial
    institutions' risk management processes overall. Better risk
    management is an important element in combating the de-risking
    phenomenon.

    Q.3.b. In particular, should we consider implementing a system
    of redress or information correction for such individuals, and
    if so how would you envision that process working?

    A.3.b. Creating systems for individuals to access and correct
    information connected with a financial institution's compliance
    with its SAR obligations could undermine the purpose of SAR
    confidentiality and Congress's explicit prohibition of
    notifying ``any person involved in the transaction that the
    transaction has been reported.'' (31 U.S.C. 5318(g)(2)). SAR
    confidentiality is a foundational element of the BSA framework.
    Without SAR confidentiality, financial institutions may be less
    open in what they report, omitting information critical to
    national security or public safety. Further, a SAR is just one
    part of a broader investigation and law enforcement does not
    rely exclusively on a SAR when building a case.

    Q.4.a. As financial institutions have sought to comply with
    Know Your Customer (KYC) rules and other important protections
    against terrorist financing, in recent years many have opted to
    shed accounts of customers with personal or commercial links to
    parts of the world where it can be difficult to ascertain the
    final recipient of a financial transaction--an especially
    important concern to Somali communities in Ohio and elsewhere.
    Whether we are talking about family remittances, or funds
    transfers for humanitarian purposes, this de-risking has
    presented hurdles to efforts to get resources to some of the
    most at-risk populations on Earth. I worked for many months
    with your predecessor Under Secretary Adam Szubin to address
    these issues.
        Can you describe Treasury's current efforts to mitigate
    this problem, and to provide technical assistance to Somalia's
    central bank to strengthen their control systems?

    A.4.a. Treasury recognizes the importance of remittances to the
    Somali economy and to the many American citizens whose families
    depend on the flow of these funds. Estimates indicate that
    between 25 to 40 percent of Somalia's GDP comes from
    remittances from abroad, with the single largest source of this
    money coming from the United States. Despite banking access
    challenges, we understand that remittances continue to Somalia.
        However, we have seen a number of terrorist financing cases
    from the United States to Somalia involving companies that
    provide remittances to Somalia, which presents an ongoing and
    serious terrorist financing risk. In addition, Somalia's weak
    regulation and supervision of financial institutions and the
    continuing lack of security and governance in many regions
    elevate the risk of money transfer to Somalia. We carry out
    regular engagement with external stakeholders, including
    financial institutions, remittance
    companies, representatives of the Somali-American community,
    Federal banking agencies, the Somali government, and technology
    firms to better understand the drivers of the bank risk
    aversion toward money transmitters serving the Somalia corridor
    and potential ways to mitigate the risks related to the
    transfer of funds to Somalia.
        Treasury is also engaged in technical assistance and
    outreach to enhance the regulation and supervision of financial
    institutions, including money transmitters, in Somalia. The
    development of a well-regulated and supervised financial system
    in Somalia will reduce the risks of fund flows to and from
    Somalia and reduce banks' risk aversions related to fund
    transfers and Somalia. Treasury's primary effort is a multi-
    year capacity-building program sponsored by the Department of
    State and run by Treasury's Office of Technical Assistance
    (OTA) to support the Central Bank of Somalia (CBS) in
    strengthening its capacity to supervise the banking sector. To
    date, OTA has conducted eight training sessions for the CBS on
    the regulation and supervision of commercial banks and expects
    to conduct another session this summer. Due to security
    conditions in Somalia, to date the training seminars have been
    held at the Kenya School of Monetary Studies in Nairobi, Kenya.
    Treasury also participates in the World Bank-led Somalia
    Remittances Stakeholders Advisory Council, a forum for
    engagement and coordination of work on this issue, which
    includes the Somali government. Finally, Treasury has provided
    assistance in other areas on an ad hoc basis. For example, last
    year we gave the Somali government advice on the drafting of
    financial provisions of a new counterterrorism law, following
    similar work on their anti-money laundering laws, to help them
    create a legal framework for regulating and supervising
    financial institutions. This program led to the completion of
    onsite supervisory exams of the largest money transmitters in
    Somalia in 2018, among other improvements, which we hope will
    improve the long term outlook for both safeguarding the
    financial system from abuse and promoting financial inclusion.

    Q.4.b. How can U.S. banks better ensure compliance with
    important protections against terrorism, while still enabling
    the flow of legitimate family remittances, and the legitimate
    work of charities and humanitarian organizations abroad?

    A.4.b. Remittances, and the money transmitters that many
    senders use, play an essential role in financial inclusion.
    However, the unfortunate reality is that money transmitters
    have been abused in the past by human traffickers, drug
    traffickers, fraudsters, and even terrorists.
        Treasury recognizes and strongly supports the essential
    role of charities and humanitarian organizations in communities
    worldwide. Nonetheless, charities and humanitarian
    organizations delivering critical assistance in conflict zones
    abroad have been, in some cases, exploited by terrorist
    organizations and their support networks in the past. As a
    result, for money transmitters, Treasury has helped develop
    international standards on AML/CFT that help to mitigate the
    risks of funds transfers. We have also worked at the Financial
    Action Task Force (FATF) to improve the standards relating to
    supervision of financial institutions, including those that
    provide money transfer services, and engaged with charities so
    they can better understand the terrorist financing risk and
    appropriate, risk-based mitigation measures. More broadly, we
    have worked both domestically and at the FATF to convey the
    importance of both safeguarding the financial system from abuse
    and promoting financial inclusion.

    Q.5.a. The Panama Papers and other similar document leaks
    revealed the widespread systematic use of shell corporations by
    wealthy bad actors seeking to not only evade lawful tax
    collection, but also to facilitate all kinds of financial
    crime.
        How would you characterize the urgency of the threat to the
    U.S. financial system posed by anonymous shell companies, and
    by the lack of a coherent national framework for identifying
    beneficial ownership at the point of company formation?

    A.5.a. There is no question that vulnerabilities exist in
    corporate formation without the disclosure of beneficial
    ownership information. Illicit actors may more easily hide
    illicit funds and avoid detection through business entities
    because the true owner is masked. The collection of beneficial
    ownership information is critical both at the time of account
    opening and when a company is being incorporated. FinCEN's
    Customer Due Diligence (CDD) rule, which is set to be
    implemented by covered financial institutions in May 2018,
    requires those institutions to identify and verify the identity
    of the beneficial owners of their legal entity customers. This
    change will assist financial institutions in managing risks and
    law enforcement in pursuing criminals who launder illicit
    proceeds through legal entities. This is an important step
    forward.
        We are committed to further increasing the transparency and
    accountability in our financial system, and we look forward to
    working with Congress to support legislation that addresses
    this issue.

    Q.5.b. Can you give us concrete examples you have seen in your
    work of bad actors using shell companies for money laundering,
    terror finance and other illicit purposes?

    A.5.b. U.S. companies with hidden beneficial owners have been
    used by arms dealers, narco-traffickers, proliferators of
    weapons of mass destruction, and facilitators of massive health
    care and mortgage frauds, among other abuses. Viktor Bout, a
    Russian arms dealer used at least 12 companies incorporated in
    the United States to carry out his arms dealing. In February
    2017, Tareck El Aissami, the current Venezuelan executive vice
    president was designated pursuant to the Foreign Narcotics
    Kingpin Designation Act by the Office of Foreign Assets Control
    (OFAC) for playing a significant role in international
    narcotics trafficking, and his frontman, Samark Lopez Bello,
    was designated for providing financial and material support to
    El Aissami. Five companies blocked by OFAC in Florida were used
    to hold real estate and other assets in Lopez Bello's name.
    These cases illustrate the importance of obtaining and
    verifying beneficial ownership information both at the time of
    company formation and account opening, so that we can be even
    more effective in countering these threats.

    Q.5.c. Can you give us a sense of the scope of entities and
    persons you think we ought to have in mind, beyond the banking
    sector, when contemplating an update to our current anti-money
    laundering framework and its underlying authorities, including
    with respect to beneficial ownership?
        Who should we be looking at that we are not currently
    regulating--real estate firms, escrow agents, company formation
    lawyers, others?

    A.5.c. We are constantly working to maintain our understanding
    of the money laundering risks that exist in different sectors.
    One sector we continue to monitor is real estate. Starting in
    2006, we have published assessments of the money laundering
    risks in the real estate sector. In 2012, to address our
    assessment of money laundering vulnerabilities, FinCEN extended
    BSA coverage to resident mortgage lenders and originators.
    Currently, we continue to collect information and assess the
    risks in this sector. FinCEN has issued Geographic Targeting
    Orders (GTOs) that focus on all-cash luxury residential real
    estate purchases by legal entities. The GTOs require U.S. title
    insurance companies in seven metropolitan areas to identify the
    natural persons behind the companies used to buy high-end real
    estate when certain forms of payment are used.
        In 2017, following the enactment of the Countering
    America's Adversaries through Sanctions Act, FinCEN revised the
    GTOs to capture a broader range of transactions and include
    transactions involving wire transfers. FinCEN is analyzing the
    findings from the GTOs to understand the extent of the
    vulnerability associated with the misuse of legal entities to
    acquire real estate and whether additional regulation should be
    considered. Based partially on findings from the GTO, on August
    22, 2017, FinCEN issued an advisory to financial institutions
    and real estate firms and professionals highlighting risks in
    the real estate industry, including the use of shell companies
    to reduce transparency in transactions. In March 2018, FinCEN
    extended the GTO in response to the useful information that we
    have been receiving under the new authority to include wire
    transfers, and we continue to define methods to address the
    vulnerabilities of this sector. Although real estate
    professionals do not currently have an obligation to report
    suspicious activity to FinCEN, FinCEN is using FinCEN
    advisories and industry outreach to encourage real estate
    professionals to report voluntarily.
                                    ------

      RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE FROM SIGAL
                               MANDELKER

    Q.1.a. In your testimony you referenced the Treasury
    Department's ongoing evaluation of when anti-money laundering
    (AML) measures, particularly Suspicious Activity Reports
    (SARs), are most helpful to law enforcement.
        Has the Treasury Department identified information from
    SARs or other AML measures that are consistently valuable for
    law enforcement purposes? If so, what?

    A.1.a. We know through our own analysis that SARs and other BSA
    data are a vital source of financial intelligence for law
    enforcement investigations of North Korea, terrorist financing,
    drug trafficking, fraud, tax evasion, cybercrime, and sanctions
    evasions, among other crimes. I am committed to better
    understanding the value of individual elements of the SAR data
    to inform our overall view of changes that may be necessary to
    modernize the BSA. To that end, Treasury is issuing an RFP to
    conduct a thorough, data-driven analysis of BSA reporting
    requirements to inform its decisionmaking processes. We would
    be pleased to brief the Committee and its Members as that
    analysis progresses.

    Q.1.b. Has the Treasury Department identified information from
    SARs or other AML measures that are consistently not valuable
    for law enforcement purposes? If so, what?

    A.1.b. See above.

    Q.1.c. Does the Treasury Department expect to recommend
    altering the reporting requirements for SARs or other AML
    measures? Do you expect that any of the changes will require
    legislative authorization?

    A.1.c. As discussed in my testimony, I am taking a careful look
    at the current regulatory and statutory construct surrounding
    the BSA and AML/CFT regime, which was originally adopted in the
    1970s. Treasury is prepared to pursue changes, whether
    regulatory or statutory in nature, upon completion of our
    analysis. However, it is premature to predict any specific
    changes at this time.

    Q.1.d. Will you commit to keeping me informed of any
    conclusions reached by the Treasury Department regarding the
    scope of AML measures such as SARs?

    A.1.d. Yes. Treasury would be happy to brief the Committee and
    its Members as our analysis progresses.

    Q.2.a. I'd like to understand better the law enforcement
    context for the United State's efforts to fight money
    laundering.
        Does the U.S. financial system substantially--even if
    inadvertently--facilitate human trafficking?

    A.2.a. Human traffickers, like other criminals, move their
    illicit proceeds using a number of methods and vectors: through
    cash movements, through trade, and through the U.S. and global
    financial system. Human traffickers are often particularly
    difficult to stop because their fund transfers tend to be very
    low-value and their networks are often small and/or
    decentralized.
        Treasury is engaged in both domestic and international
    efforts, to combat human traffickers and their illicit flows.
    FinCEN published an advisory on human trafficking to assist
    financial institutions in identifying the movement of human
    traffickers' funds and supports law enforcement investigations
    that use financial intelligence generated as a result of this
    advisory. In 2017, FinCEN launched a human trafficking project
    with their global counterparts through the Egmont Group of
    FIUs. The human trafficking project team applies existing, as
    well as new approaches/processes/tools for enhanced bilateral
    information sharing to produce actionable information and
    disrupt the financial movement related to human trafficking
    across borders.
        We continue to use our intelligence capabilities to
    identify and track the activities of human traffickers. This
    includes information from the intelligence community as well as
    data made available through the Bank Secrecy Act and the USA
    PATRIOT Act.
        In addition, OFAC works to designate human traffickers and
    other transnational criminal organizations pursuant to
    Executive Order 13581 (Blocking Property of Transnational
    Criminal Organizations). For example, on April 18, OFAC
    designated Syrian national Nasif Barakat and the Barakat
    Transnational Criminal Organization (TCO) pursuant to Executive
    Order 13581. The Barakat TCO is a human smuggling organization
    based in Homs, Syria, that facilitates the smuggling of Syrian
    and Lebanese nationals to the United States border using a
    variety of travel routes. Since 2013, the Barakat TCO has
    facilitated the smuggling of hundreds of individuals to the
    Southwest border of the United States.

    Q.2.b. Last, Treasury's Office of Terrorist Financing and
    Financial Crimes (TFFC) is leading U.S. involvement in a global
    typology study of the problem at the Financial Action Task
    Force. If so, how?

    A.2.b. See above.

    Q.2.c. What about terrorism, such as organizations like
    Hezbollah?

    A.2.c. The U.S. Government's efforts to counter the financing
    of terrorism (CFT) are focused on disrupting the monetary and
    material support terrorist groups need to sustain themselves
    and to plot and carry out attacks against innocent civilians.
    This approach focuses on the interrelated objectives of (1)
    cutting off terrorists and terrorist organizations from their
    sources of revenue and (2) denying them access to the
    international financial system so they cannot use their money.
        Given Hezbollah's global presence, our efforts to cutoff
    financing for Hezbollah have focused on imposing costs on its
    main financier--Iran--as well as taking actions within Lebanon.
    These actions include constraining Hezbollah financially
    through extensive cooperation with Lebanese authorities and
    banks, centering on its procurement agents, facilitators, and
    financiers in Europe, Latin America, Asia, and the Middle East,
    including by identifying and sanctioning Hezbollah's Iranian
    sponsors, and enabling law enforcement and foreign partner
    actions.
        Treasury has demonstrated a relentless commitment to
    targeting Hezbollah, designating over 120 Hezbollah-linked
    individuals and entities, including 13 individuals and entities
    as recently as February 2, 2018, and using Section 311 of the
    USA PATRIOT Act to identify as entities of primary money
    laundering concern three Lebanese financial institutions
    engaged in illicit activity.
        Treasury has also targeted Hezbollah's supporters,
    including Iran, which is the largest state sponsor of
    terrorism. We have sanctioned over 100 targets in the Middle
    East, Africa, Asia, and Europe in connection with the Islamic
    Revolutionary Guard Corps and Iran's support for terrorism,
    ballistic missile programs, human rights abuses, censorship,
    cyberattacks, counterfeiting, and transnational criminal
    activity.

    Q.2.d. What about drug cartels and violent gangs such as MS-13?

    A.2.d. As noted in the 2015 National Money Laundering Risk
    Assessment published by Treasury, the size and diversity of our
    financial sector makes our system attractive to drug cartels
    and gangs looking for ways to move and store their illicit
    proceeds. Treasury oversees a number of efforts to combat TCOs
    and also actively provides support to law enforcement efforts
    to identify, target, and dismantle this activity. Using all-
    source intelligence analysis and in partnership with law
    enforcement, Treasury maps out the financial networks of
    cartels and uses its unique authorities to combat those
    threats. This includes personnel from FinCEN, with access to
    unique datasets of BSA and PATRIOT Act-derived information, and
    the Office of Intelligence Analysis.
        In addition, OFAC works continuously to target and
    designate TCOs and their facilitators under its unique
    authorities, including E.O. 13581 and the Foreign Narcotics
    Kingpin Designation Act. For instance, on December 22, 2017,
    OFAC designated the ``Thieves-in-Law'' TCO, a crime syndicate
    operating in Russia, Europe, and the Unites States, along with
    10 associated individuals and two entities for their
    involvement in serious transnational criminal activities,
    including money laundering, extortion, robbery and bribery.
    Likewise, on April 18, 2018, OFAC designated Syrian national
    Nasif Barakat and the Barakat TCO pursuant to Executive Order
    13581. The Barakat TCO is a human smuggling organization based
    in Homs, Syria, that facilitates the smuggling of Syrian and
    Lebanese nationals to the United States border using a variety
    of travel routes. Since 2013, the Barakat TCO has facilitated
    the smuggling of hundreds of individuals to the Southwest
    border of the United States.
        In addition to its contribution of intelligence, FinCEN
    also acts through its role as a regulator to impose and
    supervise AML/CFT obligations in the United States that help to
    narrow vulnerabilities that criminals use. FinCEN has published
    advisories to help financial institutions detect and stop
    criminal activity and used its authority under the USA PATRIOT
    Act to take 311 actions against institutions and jurisdictions
    that criminals use to launder money.

    Q.2.e. How can law enforcement officials use anti-money
    laundering tools to target specific groups such as MS-13 or
    Hezbollah?

    A.2.e. Treasury actively uses its existing authorities and
    engages with foreign partners to create a hostile operating
    environment for Hezbollah by denying Hezbollah access to the
    U.S. and international financial systems, disrupting and
    exposing its activities around the world, and isolating the
    group from its support network.
        OFAC has designated more than 120 Hezbollah-linked
    individuals and entities, including 13 individuals and entities
    as recently as February 2, 2018, pursuant to our
    counterterrorism authorities and authorities to counter the
    Assad regime. OFAC uses its sanctions authorities to
    aggressively target Hezbollah leadership, operatives, and
    facilitators around the world. We have also aggressively
    targeted Hezbollah's financiers and commercial investors as
    well as key procurement networks. These actions are often
    conducted jointly with law enforcement in order to ensure an
    effective whole-of-Government approach to countering Hezbollah.
    Treasury has also targeted Hezbollah's supporters, including
    Iran, which is the largest state sponsor of terrorism. We have
    sanctioned over 100 targets in the Middle East, Africa, Asia,
    and Europe in connection with the Islamic Revolutionary Guard
    Corps and Iran's support for terrorism, ballistic missile
    programs, human rights abuses, censorship, cyberattacks,
    counterfeiting, and transnational criminal activity.
        FinCEN has also used Section 311 of the USA PATRIOT Act to
    identify Lebanese financial institutions that facilitate money
    laundering activities as foreign financial institutions of
    primary money laundering concern. This included the Lebanese
    Canadian Bank (2011), Rmeiti Exchange (2013), and Halawi
    Exchange (2013). These actions served to further expose
    Hezbollah's involvement with and benefiting from illicit
    activities.
        In December, Treasury participated in a workshop on law
    enforcement approaches to countering Hezbollah. The workshop
    was hosted by Interpol and more than 25 governments
    participated in this session, along with Europol. This session
    built on a similar workshop that Treasury hosted in May, where
    participants from over 20 governments discussed approaches to
    combating Hezbollah's financial, commercial, and procurement
    activities and how financial information and measures can
    support law enforcement action. FinCEN is also providing direct
    support to law enforcement officials focused on gang-related
    activity such as that pertaining to MS-13.

    Q.2.f. Are there particular criteria of suspiciousness
    associated with transactions conducted for the benefit of
    groups such as MS-13 or Hezbollah?

    A.2.f. Treasury uses financial intelligence to map the networks
    of organizations such as Hezbollah and create typologies for
    specific underlying activities of individual actors or
    transaction types. By doing so, we understand that Hezbollah
    receives the majority of its funding, estimated at $700 hundred
    million annually, from Iran, as well as millions of dollars
    from a global network of supporters and businesses, many of
    which transact through the international financial system.
    Hezbollah also uses a global network of companies and brokers
    to procure weapons and equipment and launder funds, many of
    which Treasury has publicly identified and designated. For
    example, Hezbollah-affiliated individuals and companies
    facilitate commercial investments on behalf of Hezbollah.
        Types of activities include individual commercial investors
    and fund managers, organized fundraising from diaspora
    communities, donations from individual diaspora supporters, and
    networks to transfer funds and launder money. Procurement
    activities identified include purchase of weapons and military
    equipment and purchase of technologies, including electronics
    for communications, surveillance, and weapons development.
    These networks have historically operated in the Middle East,
    West Africa, and South America.

    Q.2.g. Can you walk me through a typical case where law
    enforcement officials used financial intelligence, such as
    suspicious activity reports, to fight terrorism or
    transnational criminal organizations such as MS-13?

    A.2.g. Financial intelligence is a regular component of all law
    enforcement investigations. Multiple law enforcement agencies
    use Bank Secrecy Act reporting, FinCEN analytical reports, and
    other financial intelligence to initiate and support criminal
    investigations. FinCEN regularly publishes examples of how
    Federal, State, and local law enforcement use the financial
    intelligence that FinCEN collects. In one example, BSA reports
    from 26 financial institutions assisted law enforcement in
    uncovering a criminal network in the United States and Canada
    with proceeds of $100 million to $300 million annually. Law
    enforcement liaised with fraud investigators at several banks
    to investigate suspected money laundering activity being
    conducted through a series of businesses and trust accounts
    located in several countries. This investigation, supported by
    financial intelligence, identified a major money launderer for
    a transnational organized crime syndicate known as the Black
    Axe Group. Working closely with foreign and domestic law
    enforcement partners, authorities arrested and indicted the
    targets on various money laundering, fraud, and conspiracy
    charges. Several suspects pled guilty, while others were
    convicted at trial.

    Q.3.a. I'd like to understand better how technological
    innovation is transforming the fight against money laundering
    and how Government policy can help or hurt these efforts. In
    the healthcare context, I hear about how researchers have used
    machine learning and artificial intelligence to identify
    diseases and predict when they will occur, using data points
    that humans would have never put together.
        How have financial institutions or law enforcement
    officials been able to use of similar techniques to identity
    money laundering and how much more progress can be made in this
    front?

    A.3.a. Technological innovation holds great promise for both
    financial institutions and Government agencies. We have
    recently been engaged in extensive outreach with the financial
    community to better understand trends in this area as well as
    identify any appropriate changes to the AML regulatory
    framework to better encourage the use of technological
    advances.

    Q.3.b. Outside of AI and machine learning, how can recent
    FinTech innovations such as blockchain fight money laundering?

    A.3.b. At Treasury, we are exploring ways to work more closely
    with financial institutions, in particular to foster innovation
    or leverage financial or regulatory technology (FinTech/
    RegTech) to fight money laundering. Treasury has been
    conducting extensive outreach with financial institutions and
    innovators in the FinTech/RegTech space to solicit their
    perspectives and suggestions.
        The financial services sector continues to drive a range of
    innovations in FinTech that could help combat money laundering.
    Blockchain is being applied in fields as diverse as finance,
    health care, and logistics. FinTech startups have promoted the
    use of blockchain, and large financial institutions in a
    variety of partnerships and consortia are actively exploring
    this technology. These groups continue to test different
    blockchain implementations that could have varying implications
    for AML/CFT programs. For example, blockchain could allow
    financial institutions to more effectively share data and allow
    better identification of suspicious activity spread across many
    institutions through a real-time distributed ledger. Such a
    system could create a much larger dataset spanning
    participating institutions that would allow AI and machine
    learning technologies to be even more effective.

    Q.3.c. How much does bitcoin, blockchain, and other crypto-
    currencies facilitate money laundering?

    A.3.c. Virtual currency payments present money laundering,
    terrorist financing, and sanctions evasion risks that must be
    assessed and mitigated. Absent effective regulation and
    supervision, virtual currencies are vulnerable to abuse by
    illicit actors because they may provide for anonymity by users,
    instantaneous and borderless reach, and irrevocable settlement,
    and because they may not require the involvement of an
    institution or intermediary, and lack decentralized records. We
    remain concerned about its use by illicit actors, such as
    Venezuela and terrorist organizations. For this reason, we are
    making it a top priority to encourage global regulation of
    virtual currency, including through efforts at the G-20 and
    during our term as President of the FATF beginning in July
    2018.

    Q.3.d. How can law enforcement officials best stop this newer
    form of money laundering?

    A.3.d. Treasury closely tracks digital currency financial
    services-particularly virtual currency payments products and
    services and related technology innovations, and aggressively
    targets bad actors who exploit them for illicit purposes. We
    also work in close partnership with law enforcement officials,
    including collaboration with law enforcement officials on
    dozens of cases at all levels, and we have seen that
    traditional investigative techniques combined with expert
    knowledge and appropriate tools can be highly effective in
    detecting and prosecuting this type of money laundering.
        Critical to Treasury's efforts are the regulatory framework
    and enforcement authorities we have in place to govern the use
    of digital currencies or other emerging payments systems.
    Through FinCEN, Treasury regulates convertible virtual currency
    exchangers as money transmitters and requires them to abide by
    a range of Bank Secrecy Act obligations. Virtual currency
    businesses are subject to comprehensive, routine AML/CFT
    examinations, just like U.S. financial institutions. Treasury
    also leverages its enforcement authorities to target illicit
    actors who do not meet their AML/CFT responsibilities. Further,
    OFAC uses sanctions in the fight against rogue regimes and
    criminal and other malicious actors abusing digital currencies
    and emerging payments systems as a complement to exiting tools,
    including diplomatic outreach and law enforcement authorities.
        The development of digital fiat currencies by rogue regimes
    such as Venezuela further present money laundering, terrorist
    financing, sanctions evasion, and other illicit finance risks
    that must be assessed and mitigated. We are focused on
    providing industry as well as law enforcement partners detail
    and clarity to help them in their respective compliance and law
    enforcement efforts. To that end, we regularly issue FAQs,
    advisories, and guidance on key sanctions and AML developments,
    including related to virtual currency. Recently, we issued
    additional guidance on virtual currency and on prohibited
    sectoral transactions in our Venezuela program. Additionally,
    the President issued an Executive order that prohibits, as of
    the effective date of the order, all transactions related to,
    provision of financing for, and other dealings in, by a U.S.
    person or within the United States, any digital currency,
    digital coin, or digital token, including the Venezuelan Petro
    on or after January 9, 2018.
        We also convey our expectations through enforcement
    actions. Each of our actions, whether by FinCEN, OFAC, or other
    departments, provides an opportunity for industry to gain
    insight into our compliance and enforcement priorities and
    often demonstrate our close cooperation with interagency and
    law enforcement partners. In the last year, for example,
    Treasury has pursued actions against a number of non-U.S.
    companies and individuals for violating U.S. laws related to
    economic sanctions and money laundering, many of which occurred
    in conjunction with our DOJ and law enforcement partners.
    FinCEN assessed a $110 million fine against BTC-e, an internet-
    based virtual currency exchanger located outside the United
    States, which did substantial business in our country.
        We are also making it a top priority to encourage global
    regulation of virtual currency, including through efforts at
    the G-20 and during our term as President of the FATF.

    Q.4.a. I'd like to discuss Today, around 2 million Suspicious
    Activity Reports (SARs) are filed each year. While every SAR
    used to be read by law enforcement officials, that is no longer
    the case today. Financial institutions often complain that they
    rarely, if ever, receive feedback from law enforcement
    officials on the utility of any particular suspicious activity
    report that they file. This lack of feedback loops increases
    the burdens on financial institutions, who continue to file
    SARs that are of little utility to law enforcement officials.
    It also prevents financial institutions from developing better
    analytical tools to more precisely discern between the signal
    and the noise.
        What percentage of SARs are actually read by someone in law
    enforcement?

    A.4.a. FinCEN automatically searches the filings it receives,
    targeting specific risks and challenges to support law
    enforcement, as well as analyze them for patterns and trends.
    FinCEN has created business rules and various automated tools
    that search every filing and assist analysts and law
    enforcement in identifying those records that are related to or
    may be associated with open cases or support pattern or trend
    analysis to identify subjects or areas of interest. The
    greatest value in SAR data is often not found in a single SAR,
    but in the aggregation of this critical information that can
    demonstrate connections, patterns, and trends. That said, there
    are more than 10,000 FinCEN Query users who conduct more than
    30,000 searches each day whose investigations and analysis are
    augmented by these technological tools.
        Financial intelligence, including SARs, serves as a vital
    resource for law enforcement investigations of North Korea,
    terrorist financing, drug trafficking, fraud, tax evasion,
    cybercrime, and sanctions evasion among other things. Federal,
    State, and local agencies have access to FinCEN's database,
    this includes SAR Review Teams covering the 94 Federal judicial
    districts, as well as 55 task forces led by IRS-CI.
        As an example of how law enforcement uses data, over 24
    percent of IRS-CI's investigations are initiated from (not just
    supported by) a BSA source.

    Q.4.b. How often do financial institutions receive feedback
    from law enforcement officials as to the utility of their SAR
    filing?

    A.4.b. Law enforcement is better suited to respond to a
    specific question about feedback they are providing to
    financial institutions. However, the Treasury Department
    actively encourages greater law enforcement feedback to
    financial institutions through initiatives such as FinCEN's Law
    Enforcement Awards program to recognize successful
    investigations and provide greater feedback on these success
    stories to the financial industry. We have also recently
    launched FinCEN Exchange, an initiative led by FinCEN that
    brings law enforcement together with financial institutions to
    facilitate greater information sharing between the public and
    private sharing. As I discussed in my testimony, FinCEN
    Exchange convenes regular briefings to exchange targeted
    information on priority illicit finance threats and uses our
    authorities under Section 314(a) of the USA PATRIOT Act to
    provide financial institutions with broader typologies to help
    them identify illicit activity.

    Q.4.c. Some have proposed reducing the number of SARs and CTR
    filings because they are often superfluous and are never read.
    Others argue that this poses risks, because investigating minor
    infractions may still lead to significant law enforcement
    successes. How should we resolve this conflict?

    A.4.c. We know through our own analysis that SARs and other BSA
    data are a vital source of financial intelligence for law
    enforcement investigations of North Korea, terrorist financing,
    drug trafficking, fraud, tax evasion, cybercrime, and sanctions
    evasions, among other crimes. We also need to ensure that
    financial institutions are devoting their resources toward high
    value activities. I am committed to better understanding the
    value of individual elements of the SAR data to inform our
    overall view of changes that may be necessary to modernize the
    BSA. To that end, Treasury is issuing an RFP to conduct a
    thorough, data-driven analysis of BSA reporting requirements to
    inform its decisionmaking processes. We would be pleased to
    brief the Committee and its Members as that analysis
    progresses.

    Q.4.d. How could regulators (1) set up better feedback loops
    between financial institutions and law enforcement officials
    that could help financial institutions better identify money
    laundering; and (2) empower financial institutions to act upon
    their improved ability to distinguish between useful and
    superfluous reports, including by filing fewer unnecessary
    SARs, without fearing regulatory consequences for doing so?

    A.4.d. I believe that public-private information sharing is
    critical to enhancing our ability to safeguard the financial
    system and combat illicit financing activity. For that reason,
    we recently launched FinCEN Exchange. FinCEN Exchange is a
    public-private information sharing program in which FinCEN, in
    consultation with law enforcement as appropriate, provides
    information to financial institutions to efficiently focus
    their resources on priority areas. This
    information sharing provides financial institutions with better
    insight into the Government priorities and, in some cases, how
    the Government utilizes information received from financial
    institutions. Another key element is to foster responsible
    innovation to better harness technological innovation.

    Q.4.e. Would a better feedback loop system exist if financial
    institutions employed more people with security clearances? If
    so, what, if anything, can the Federal Government do to
    facilitate this?

    A.4.e. We are happy to consider the matter and review it in
    consultation with our law enforcement partners.

    Q.5. Often, financial institutions will de-risk by refusing to
    serve customers that could be involved in illegal activity. As
    financial institutions start to share more information with
    each other, this practice could become more prominent and
    potential criminals could more frequently lose access to the
    United States' financial system altogether.

    Q.5.a. Are there instances in which de-risking is actually
    unhelpful for law enforcement purposes, because it drives these
    criminals underground and makes it more difficult to track
    them?

    Q.5.b. At the moment, do the regulators that evaluate and
    enforce financial institutions compliance with our Federal
    money laundering take this into account?

    Q.5.c. Are there promising ways to increase cooperation between
    financial institutions, regulators, and law enforcement
    officials, so that financial institutions can make a more
    informed decision about when and how to de-risk?

    Q.5.d. Would financial institutions need to hire more employees
    with a top security clearance and/or a law enforcement
    background for this coordination to be effective?

    A.5.a.-d. Protecting the integrity of the U.S. financial system
    and preventing its use for criminal purposes is of paramount
    importance. It is our responsibility at Treasury and within the
    law enforcement community to detect and prevent illicit use of
    the U.S. financial system. Financial institutions play a
    critical role in safeguarding the international system from
    abuse by illicit actors, which at times includes making risk-
    based decisions about with whom, where, and how they conduct
    business.
        At the same time, we take concerns about de-risking
    seriously. We value the importance of preserving access to the
    U.S. financial system to support economic growth, financial
    inclusion, and financial transparency while continuing to
    enforce U.S. laws and regulations. Financial inclusion and
    financial transparency are complementary and mutually
    reinforcing objectives. Keeping legitimate transactions in the
    regulated financial systems improves financial transparency.
    Treasury has worked with the Federal regulators to issue
    guidance and clarify the importance to financial institutions
    of implementing risk-based approaches that assist in preventing
    overcorrections that might exclude legitimate banking
    customers.
        In the last few years, Treasury has led the U.S.
    Government's efforts related to de-risking. These efforts have
    included Treasury-led engagements and dialogues with
    stakeholders from the public sector and industry, in addition
    to Treasury's ongoing open line of communication with U.S.
    financial institutions. Further, Treasury's work on this issue
    involves close coordination with global bodies and multilateral
    organizations, including the Financial Action Task Force, the
    Financial Stability Board, the World Bank, and the IMF.
        Treasury recognizes that financial institutions' decisions
    on whether and how to maintain customer relationships are
    driven by multiple factors, including: profitability and
    business strategy motives; current global economic conditions;
    and real concerns about suspicions of illicit financial
    activity, including money laundering and the financing of
    terrorism.
        In terms of resource requirements within the financial
    institutions, I believe that we can be most effective in
    combating illicit finance and protecting the integrity of the
    banking system by making sure that financial institutions are
    devoting the resources they have to high value activities. As
    discussed in my testimony, financial institutions have been
    improving their ability to identify customers and monitor
    transactions by experimenting with new technologies that rely
    on artificial intelligence and machine learning. We laud and
    encourage these innovations, which advance the underlying
    purposes of the BSA. We are working closely with our
    counterparts at the Federal Banking Agencies to discuss ways to
    further incentivize financial institutions to be innovative in
    combating financial crime.
                                    ------

     RESPONSES TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM SIGAL
                               MANDELKER

    Q.1.a. As we contemplate our current anti-money laundering
    system, it's critical that we also understand the unintended
    consequences of various policies. In a report issued last
    April, the World Bank found that for the first time in recent
    history, remittance flows to developing countries declined for
    two straight years. Last July, the Financial Stability Board
    issued a report which found that the number of correspondent-
    banking relationships fell in all regions between 2011 and
    2016. Hardworking men and women throughout the United States,
    including many in my home State of New Jersey, use remittances
    to send critical economic support to their families abroad. In
    the United States and elsewhere, however, we've seen reports
    that certain banks are terminating the accounts of nonbank
    payment providers that offer these critical financial services
    to consumers. In many cases, we've seen banks end outright
    their relationships with firms, market segments, or countries
    that are viewed as higher risk, instead of analyzing risks on a
    case-by-case basis. The net impact of this behavior across
    multiple countries could have staggering effects on financial
    inclusion.
        What are your views on the causes of this de-risking trend?

    A.1.a. Protecting the integrity of the U.S. financial system
    and preventing its use for criminal purposes is of paramount
    importance. It is our responsibility at Treasury and within the
    law enforcement community to detect and prevent illicit use of
    the U.S. financial system. Financial institutions play a
    critical role in safeguarding the international system from
    abuse by illicit actors, which at times includes making risk-
    based decisions about with whom, where, and how they conduct
    business.
        At the same time, we take concerns about de-risking
    seriously. We value the importance of preserving access to the
    U.S. financial system to support economic growth, financial
    inclusion, and financial transparency while continuing to
    enforce U.S. laws and regulations. Financial inclusion and
    financial transparency are complementary and mutually
    reinforcing objectives. Keeping legitimate transactions in the
    regulated financial systems improves financial transparency.
    Treasury has worked with the Federal regulators to issue
    guidance and clarify the importance to financial institutions
    of implementing risk-based approaches that assist in preventing
    overcorrections that might exclude legitimate banking
    customers.
        In the last few years, Treasury has led the U.S.
    Government's efforts related to de-risking. These efforts have
    included Treasury-led engagements and dialogues with
    stakeholders from the public sector and industry, in addition
    to Treasury's ongoing open line of communication with U.S.
    financial institutions. Further, Treasury's work on this issue
    involves close coordination with global bodies and multilateral
    organizations, including the Financial Action Task Force, the
    Financial Stability Board, the World Bank, and the IMF.
        Treasury recognizes that financial institutions' decisions
    on whether and how to maintain customer relationships are
    driven by multiple factors, including: profitability and
    business strategy motives; current global economic conditions;
    and real concerns about suspicions of illicit financial
    activity, including money laundering and the financing of
    terrorism.
        An important way to ensure financial inclusion while
    increasing transparency is by making sure financial
    institutions are devoting the resources they have to high value
    activities. As discussed in my testimony, financial
    institutions have been improving their ability to identify
    customers and monitor transactions by experimenting with new
    technologies that rely on artificial intelligence and machine
    learning. We laud and encourage these innovations, which
    advance the underlying purposes of the BSA. We are working
    closely with our counterparts at the Federal Banking Agencies
    to discuss ways to further incentivize financial institutions
    to be innovative in combating financial crime.

    Q.1.b. What can FinCEN and the banking regulators do to
    encourage banks to conduct case-by-case analysis as opposed to
    wholesale termination of relationships with various market
    segments?

    A.1.b. Treasury has been heavily engaged on the issue of de-
    risking over the last few years, including by focusing on
    encouraging that banks make decisions that effectively assess
    and manage risk on an individual, rather than indiscriminate
    basis. This is one of the reasons why we encourage financial
    institutions to share appropriate information under the Section
    314(b) program, thereby allowing financial institutions to make
    better-informed risk decisions on individual customers.
        To help improve the overall supervisory environment, we
    have taken an active role in supporting efforts to improve
    multi-State and State-Federal supervisory coordination, notably
    through State coordination vehicles like the multi-State Money
    Service Business examination Task Force and the Conference of
    State Banking Supervisors online system for streamlined data
    reporting. We have also worked to promote State-Federal
    coordination vehicles like the Federal Financial Institutions
    Examination Council and the 2014 Money Remittances Improvement
    Act. De-risking related work is also a major focus area at the
    Bank Secrecy Act Advisory Group.
                                    ------

      RESPONSES TO WRITTEN QUESTIONS OF SENATOR PERDUE FROM SIGAL
                               MANDELKER

    Q.1.a. Secretary Mandelker, Treasury is tasked with overseeing
    the BSA regime and it has subsequently delegated aspects of
    that authority--notably BSA exam authority--to various
    regulatory agencies.
        How is Treasury ensuring that regulators' evaluations of
    financial institution AML programs are consistent with
    Treasury's view of what makes our country more secure?

    A.1.a. Treasury is working with its counterparts in the Federal
    Financial Institutions Examination Council (FFIEC) to ensure
    Treasury's principles for an effective AML framework are
    integrated into their exam practices. I meet with the heads of
    the regulatory agencies to ensure that we are working closely
    together to make the exam process as effective and impactful as
    possible, and incorporates key law enforcement and national
    security priorities. Treasury also participates in regular
    calls with FFIEC counterparts, coordinates and cooperates on
    enforcement actions, and provides training and guidance to
    examiners through a variety of mechanisms, including through
    updates to the FFIEC AML exam manual. We also engage in a
    similar fashion with the SEC and CFTC and frequently engage
    with groups of State regulators.

    Q.1.b. More generally, how do you oversee these industries?

    A.1.b. While Treasury has delegated aspects of its exam
    authority to other Federal functional regulatory agencies, we
    retain the ability to examine financial institutions as needed.
    We partner with the IRS on examinations of financial
    institutions that are not under the jurisdiction of the Federal
    banking agencies, the SEC or the CFTC and often lead the
    examinations of virtual currency exchangers. We receive
    statistical information and reports of examination related to
    significant BSA deficiencies as well as referrals from
    examiners when significant BSA compliance issues are identified
    in examinations.
        As part of a robust enforcement program, we also
    independently investigate and take enforcement action against
    financial institutions subject to the BSA. In addition to
    holding individuals and companies accountable, enforcement
    actions ensure that companies and financial institutions of all
    types and sizes understand their obligations and take them
    seriously. They serve as cautionary tales to inform the broader
    community about the risks of engaging in prohibited activity.

    Q.1.c. As of today, what 2017 or 2018 AML/CFT exam priorities
    has the Treasury Department communicated to regulators?

    A.1.c. I have been meeting with the heads of the regulatory
    agencies to discuss our priorities and work with them to be
    sure that the examination process reflects those priorities.
    FinCEN also meets monthly with the delegated supervisors to
    discuss areas of concern and examination focus related to BSA/
    AML. These meetings are excellent opportunities for FinCEN, as
    an expert on the money laundering risks facing financial
    institutions, to engage and discuss priority areas with the
    delegated examiners that have expertise in the operations and
    risks specific to their covered entities. Also, FinCEN will
    communicate money laundering risks for a specific institution
    or geographic area to the appropriate regulator to incorporate
    in an institution's upcoming examination. The specific
    recommendations Treasury makes to its examiners are highly
    sensitive and not appropriate to discuss publicly.

    Q.1.d. Could you please reference any memoranda or other
    evidence of that communication?

    A.1.d. The referrals that Treasury makes to its delegated
    examiners often contain information that is law enforcement
    sensitive or considered confidential supervisory information.
    Treasury takes very seriously protecting information that is
    law enforcement sensitive to prevent any impact on ongoing
    investigations that often involve matters of national security.
    Additionally, Treasury and other regulatory agencies rely on
    the protection and nonpublication of confidential supervisory
    information as that ensures a high-level of candor between the
    financial institutions and Treasury. Institutions would less
    readily share information if there were concerns that it could
    be made public.

    Q.2. Secretary Mandelker, in your testimony you noted that
    Treasury uses the Bank Secrecy Act Advisory Group (BSAAG) to
    communicate with the private sector and provide guidance.

    Q.2.a. Could you describe the membership of the group? Who sits
    on the board and how is it selected?

    A.2.a. The BSAAG is a statutorily mandated advisory group that
    consists of representatives from Federal and State regulatory
    and law enforcement agencies, financial institutions, and trade
    groups with members' subject to the requirements of the Bank
    Secrecy Act. Once per year, FinCEN solicits nominations from
    the public for BSAAG membership in the Federal Register. In
    making selections for membership, FinCEN will seek to
    complement current BSAAG members in terms of affiliation,
    industry, and geographic representation.

    Q.2.b. Were there actionable results this group has produced?

    A.2.b. In the last few years, BSAAG member suggestions have
    contributed to several actions taken by FinCEN, including:

       LInformation Sharing between the Government and
            Financial Institutions: BSAAG discussions on the
            importance of two-way, iterative information informed
            FinCEN pilot information sharing sessions over the past
            few years that evolved into the recently announced
            FinCEN Exchange program.

       LInformation Sharing Between Financial Institutions:
            BSAAG feedback informed FinCEN actions to streamline
            the 314(b) information sharing process by creating a
            more user-friendly
            registration process and one-click renewal, and
            informed FinCEN's guidance on information sharing
            related to money laundering predicate offenses.

       LFinCEN Advisories: BSAAG feedback informed
            improvements to FinCEN advisories to better communicate
            actionable
            information and regulatory expectations. BSAAG feedback
            was particularly instrumental in FinCEN's development
            of an advisory on establishing a Culture of Compliance
            that highlighted general principles illustrating how
            financial institutions and their leadership may improve
            and strengthen compliance with the BSA.

    Q.3.a. Secretary Mandelker, as a follow-up to the previous
    question, the BSAAG has a statutory mandate to provide the
    Treasury Secretary with ``advice on the manner in which'' BSA
    and certain Internal Revenue Code reporting requirements
    ``should be modified to enhance the ability of law enforcement
    agencies to use the information provided for law enforcement
    purposes.''
        In the last few years, what formal recommendations has this
    group made on modifications to BSA reporting requirements to
    enhance its utility to law enforcement?

    A.3.a. Given its broad, diverse representation of the financial
    industry, law enforcement, and regulatory communities, BSAAG
    generally does not provide consensus formal recommendations,
    but rather provides a forum for Treasury to understand views
    from different impacted constituencies in order to balance
    diverse stakeholder needs. As noted in my testimony, current
    topics under
    discussion within the BSAAG include identifying metrics for
    determining effective financial reporting, streamlining the
    reporting of money laundering ``structuring'' transactions, and
    more efficient ways for industry to report cash transactions.

    Q.3.b. Did Treasury either fully or partially adopted any of
    the recommendations?

    A.3.b. Although the BSAAG does not produce formal
    recommendations, ongoing discussions within BSAAG are directly
    contributing to Treasury's perspectives regarding potential
    modifications in reporting requirements, including potential
    opportunities to streamline the reporting of money laundering
    ``structuring'' transactions, and more efficient ways for
    industry to report cash transactions.

    Q.4. Secretary Mandelker, in the previous hearing on BSA/AML,
    there was agreement amongst industry experts that regulators
    have imposed ``check-the-box'' AML/CFT compliance requirements
    on banks. I understand that some of this is driven by the
    Federal Financial Institutions Examination Council's (FFIEC)
    BSA/AML Examination Manual.

    Q.4.a. Historically, how involved has Treasury been in writing
    the exam manual given it is published by the FFIEC?

    A.4.a. Treasury had considerable input into the scoping and
    review of the first iterations of the manual and has since been
    working collaboratively with the banking agencies with respect
    to further updates. I have emphasized the importance of this
    effort during my meetings with the regulatory agencies and am
    ensuring Treasury's in-depth involvement in further development
    of the manual.

    Q.4.b. Is the exam manual consistent with Treasury's AML/CFT
    priorities?

    A.4.b. Treasury is working with its counterparts in the FFIEC
    to ensure that Treasury's principles for an effective AML
    framework are integrated into the updated manual.

    Q.4.c. According to press reports, the manual is currently
    being updated as it was last published in 2014. Will the public
    be given the opportunity to comment on it?

    A.4.c. The manual is published by the FFIEC. Treasury defers to
    the FFIEC member agencies on the decision to open the manual to
    public comment.
                                    ------

      RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER FROM SIGAL
                               MANDELKER

    Q.1. What is the most effective action a consumer can take to
    protect against identity theft if the consumer's information
    has been compromised? Please include a detailed description of
    the differences between credit freezes, credit locks, and fraud
    alerts, including how long each takes to activate and de-
    activate and the relative benefits and drawbacks of each.

    A.1. We defer this question to our colleagues in the CFPB or
    Federal Trade Commission.

    Q.2. Many States have laws requiring credit bureaus to provide
    credit freezes.
        Can you describe what these laws generally require and
    discuss whether it is appropriate for Congress to create a
    Federal standard?

    A.2. We defer this question to our colleagues in the CFPB or
    Federal Trade Commission.

    Q.3.a. I'm interested in the ways in which technology can aid
    AML compliance efforts.
        What are some of the innovative technologies that you've
    seen that hold some promise for either the Government or the
    private sector?

    A.3.a. Financial institutions have been quite proactive over
    the last few years in their AML/CFT approach, in some cases
    building sophisticated internal financial intelligence units
    and experimenting with new technologies that rely on artificial
    intelligence and machine learning to identify strategic and
    cross-cutting financial threats. The Treasury Department lauds
    and supports these innovations and is exploring how innovative
    technology could potentially be used to improve the
    effectiveness and efficiency of the AML/CFT regime. We are
    engaging the private sector to better understand the potential
    of new and emerging technologies to support both private sector
    compliance and smarter, more effective Government regulation
    and supervision. These technologies include digital identity
    solutions, which could potentially facilitate compliance with
    Bank Secrecy Act requirements for customer identification and
    verification for onboarding and transaction monitoring and
    better enable law enforcement to identify, track, and target
    those who abuse the financial system and to trace and recover
    illicit proceeds.
        Another promising area may be the emergence of innovative
    regulatory technology solutions that leverage big data, complex
    algorithms, and artificial intelligence/machine learning to
    strengthen transaction monitoring and suspicious transaction
    reporting while reducing compliance costs. We are paying close
    attention to these and other new technologies in the AML/CFT
    space, including their potential use by Government to advance
    regulatory, supervisory, and law enforcement activities. In
    this regard, we will continue to engage the private sector to
    make sure that the regulatory regime keeps up with evolving
    technology and most effectively supports public and private
    efforts to achieve our shared objective of protecting the
    financial system from abuse.

    Q.3.b. What are the barriers to either the Government or the
    private sector adopting these technologies?

    A.3.b. We encourage financial institutions to innovate with new
    technologies and approaches to better target their resources
    toward high-value activities, while protecting the financial
    system from abuse. To help us better understand emerging
    technologies of relevance to our AML/CFT mission and the
    potential barriers to private sector adoption, Treasury staff
    is currently engaged in outreach to the private sector.
    Treasury is also working closely with our counterparts at the
    Federal Banking Agencies to discuss ways to further incentivize
    financial institutions to be innovative in combating financial
    crime.

    Q.3.c. What can we be doing as legislators to ensure that we
    promote technological innovation in this sector?

    A.3.c. We encourage Congress to continue outreach to the
    private sector to stay abreast of technological solutions that
    can improve efficiency of the financial system, enhance
    consumer choice, and protect the U.S. financial institutions.
    We do not have any recommendations at this time related to
    legislation and technological innovation.

    Q.4. One proposal for modernizing the AML compliance regime
    involves increased information sharing among private sector
    entities.
        Is there a way to increase private sector information
    sharing while protecting consumer financial information?

    A.4. All information sharing by private sector financial
    institutions for AML purposes is already protected by Federal
    privacy laws such as the Gramm-Leach-Bliley Act, the Fair
    Credit Reporting Act, and the Right to Financial Privacy Act
    (for sharing with the Federal Government), by Federal laws such
    as the Federal Trade Commission Act that can be used to protect
    privacy interests, and in many cases by State privacy laws as
    well. While any expansion of information sharing for AML
    purposes would have to take into account the requirements of
    this existing privacy framework, the framework would operate to
    protect from misuse the information that was in fact shared.

    Q.5. The regulatory definition of ``financial institution'' has
    been expanded several times over the years, both by the
    Financial Crimes Enforcement Network rulemaking and by
    legislation by Congress.
        Should the definition of financial institutions be expanded
    to include other sectors? If so, which sectors?

    A.5. We assess risks and vulnerabilities of the United States
    and international financial system on an ongoing basis. We are
    constantly assessing whether specific gaps could be remedied by
    expanding the definition of the term ``financial institution.''

    Q.6. Could these changes be made via FinCEN rulemaking or
    should legislation be passed?

    A.6. The statutory definition of ``financial institution''
    under the BSA, 31 U.S.C. 5312(a)(2), includes a wide variety of
    entities touching all the major nodes of the international
    financial system. In
    addition, this provision gives the Secretary of the Treasury
    the authority to designate by regulation as financial
    institutions for
    purposes of the BSA any other agency or business that performs
    activities similar to, related to, or a substitute to any of
    the activities engaged in by enumerated financial institutions.
    The Secretary is also authorized to designate as a financial
    institution any other business whose cash transactions have a
    high degree of usefulness in criminal, tax, or regulatory
    matters. This rulemaking authority has been delegated to
    FinCEN, and as noted above, Treasury continuously assesses
    whether specific gaps can be remedied by expanding the
    definition of financial institution.

    Q.7. In August 2017, FinCEN issued an advisory encouraging real
    estate brokers to share information with them that could be
    helpful in AML efforts, while noting they are not required to
    do so under current law.
        How do we increase information sharing between real estate
    brokers and FinCEN?

    A.7. Although real estate professionals do not currently have
    an obligation to report suspicious activity to FinCEN, we are
    using FinCEN advisories and industry outreach to encourage real
    estate professionals to report voluntarily. The advisory issued
    in August 2017, was not directed exclusively at real estate
    brokers but any person ``involved in real estate closings and
    settlements,'' a group identified by Congress as ``financial
    institutions'' for purposes of the BSA. (31 U.S.C.
    5312(a)(2)(U)). In that advisory, FinCEN outlined specific
    vulnerabilities and typologies applicable to real estate
    transactions. An example of industry outreach includes Treasury
    participation in a conference hosted by the National
    Association of Realtors in November 2017. Treasury served on a
    panel to educate real estate agents about the money laundering
    risks and vulnerabilities in their sector and to encourage
    industry to report suspicious activity voluntarily to FinCEN
    under a safe harbor provision. Treasury will continue to engage
    in this type of outreach.
                                    ------

      RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM
                            SIGAL MANDELKER

    Q.1. Gaming and tourism are some of Nevada's top sectors. In my
    State, our gaming operators employ thousands of hard-working
    Nevadans, and the industry as a whole domestically supports 1.7
    million jobs across 40 States. Qualified casinos, like
    financial institutions, are also subject to Banking Secrecy Act
    requirements. Organizations within my State have suggested that
    gaming operators would welcome a review of BSA requirements.
    They look forward to this Committee's thoughtful, bipartisan,
    review of BSA requirements that takes into account the security
    imperative for robust anti-money laundering efforts, as well as
    the impact those requirements have on depository and
    nondepository regulated entities. I wanted to follow up on my
    question in the Committee about the pros and cons of
    eliminating the requirement that a detailed factual narrative
    is required when filing a Suspicious Activity Report (SAR) form
    for structuring situations. In your responses, you mentioned
    that useful information is found in the detailed factual
    narrative more generally which I understand but wonder how
    useful this information is for structuring situations.
        What are the pros and cons of eliminating the factual
    narrative for just structuring situations?

    A.1. Eliminating the SAR narrative for certain structuring
    cases could significantly hamper important investigations. For
    example, if a financial institution files transactional
    information but does not include other related suspicious
    activity that may exist in the narrative, there is a risk that
    such additional and important information would not be
    available to law enforcement during the course of an
    investigation.
        There are some significant investigations (in both
    financial institutions and law enforcement) that were triggered
    by simple structuring activity, where subsequent investigations
    that drew on the SAR narrative led to the discovery of more
    serious crimes. Eliminating the SAR narrative would hamper such
    investigations. Further, even if the narrative is not highly
    detailed, it could still help identify a network of individuals
    where law enforcement may have been previously unaware.
        We also recognize that financial institutions expend
    tremendous amounts of resources each year on investigations and
    SARs for possible structuring transactions and that eliminating
    the narrative requirement would reduce these costs. Financial
    institutions would also have greater flexibility to utilize
    existing resources on more risk-relevant investigations that
    may be of higher interest to law enforcement.
        We continue to look at this issue carefully and look
    forward to working with Congress on this topic.

    Q.2. I wanted to follow up on my question about raising the
    Currency Transaction and Suspicious Activity Reporting
    thresholds. In the hearing, you mentioned concerns that small
    dollar amounts can be used for criminal activities so there are
    risks to raising the thresholds. Some recommend raising them to
    either inflation or a lesser amount--from $5,000/$10,000 for
    suspicious activity reports and $20,000 or $25,000 for currency
    transaction reports.
        Please expand on what we should consider if the threshold
    amounts for CTRs and SARs were increased.

    A.2. As part of a broader risk-based review of the efficacy and
    value of the current AML/CFT regime, we are evaluating the
    suspicious activity report (SAR) and currency transaction
    report (CTR) requirements, including reporting thresholds. In
    conducting this review, we are defining and measuring the value
    both quantitatively and qualitatively of the data derived
    through BSA reporting requirements.
        We have identified some initial concerns, especially from
    our law enforcement partners, that significant increases in the
    respective thresholds could reduce the amount of valuable
    financial intelligence available to Treasury, law enforcement,
    and other key
    domestic and international partners. For example, FinCEN
    recently reviewed CTR filings to assess how much of that
    financial intelligence we might lose if the threshold were
    doubled to approximately $20,000. In that circumstance, FinCEN
    would lose over 60 percent of CTR-based financial intelligence
    on which FinCEN and law enforcement, in particular, currently
    rely to support investigations and analysis. The more the
    threshold is increased, the more data would be potentially
    lost. For example, increasing the threshold to $30,000 would
    result in a loss of close to 80 percent of currently provided
    data--in this case the type of data points that enable the
    identification of illicit networks and the initiation or
    expansion of investigations. In addition, it is important to
    consider how changing practices can highlight the
    suspiciousness of a cash transaction, even in low amounts. For
    example, because customers often rely on wire transfers instead
    of cash deposits and withdrawals, a cash deposit of $10,000 can
    be a valuable source of information.
        The value of the reporting that could be lost as a result
    of threshold increases is not simply a reduction in the number
    of SARs, CTRs, FBARs or other required BSA reporting. This
    reporting has significant tactical value that supports, among
    other efforts, existing law enforcement and sanctions
    investigations or provides new leads and information to start
    those efforts. This reporting also provides significant
    strategic value, ranging from studies of trends to
    identification of typologies associated with new illicit
    finance schemes, such as crypto-currencies, that are used to
    develop and implement risk mitigation responses. Financial
    reporting also supports operations, including through the
    sharing of information with international partners to support
    efforts related to terrorist financing, proliferation
    financing, political corruption, drug or human trafficking,
    human rights abuses and corruption, and many other important
    illicit finance and national security issues.
        We continue to conduct a broader and deeper data-driven
    analysis of BSA reporting requirements to inform decisionmaking
    processes and recommendations. As we review the factors
    discussed above we may need to focus our attention on the
    relative value of the SARs and CTRs being filed, instead of
    merely on thresholds. We will also continue to discuss the
    threshold issue and BSA value with law enforcement and other
    relevant stakeholders within the BSAAG and other fora to
    consider their input.

    Q.3. In 2014, FinCEN issued an advisory with human trafficking
    red flags, to aid financial institutions in detecting and
    reporting suspicious activity that may be facilitating human
    trafficking or human smuggling.
        Do you think institutions are taking advantage of those red
    flags, in order to better assess whether their banks are being
    used to finance human trafficking?

    A.3. Based on feedback received from our engagement with
    stakeholders, we do believe that financial institutions have
    benefited from relying on the red flags identified in the
    advisory to better assess such activity. In fact, according to
    FinCEN's internal metrics, the advisory focused on human
    trafficking red flags is one of its most viewed advisories.

    Q.4.a. Secretary Mandelker, I believe the FinCEN Exchange is a
    great idea.
        Following up on my question, will you provide similar
    occasional briefings for nondepository entities that also
    comply with BSA/AML?

    A.4.a. We created FinCEN Exchange to provide a range of
    financial institutions with additional information about
    priority issues on a more regularized and frequent basis. In
    the past, FinCEN has invited nonbank financial institutions to
    similar discussions when it believes that the financial
    institution may have information relevant to an issue specific
    briefing or other ability to support the law enforcement
    priorities within the scope of the particular engagement. Such
    exchanges are important and we will work with our law
    enforcement partners to provide briefings for nondepository
    entities.

    Q.4.b. Would you commit to hosting briefings at least bi-
    annually for gaming establishments, money services businesses,
    currency exchanges and others that are not currently included
    in FinCEN Exchange events?

    A.4.b. We envision robust participation in FinCEN Exchange by a
    variety of private sector entities. The invitation list of
    participating private sector entities for a particular briefing
    will be driven by the specific illicit finance or national
    security threat topic as prioritized by FinCEN and law
    enforcement.

    Q.5. In 2015, FinCEN signed a Memorandum of Understanding with
    the State Regulatory Registry/CSBS Board to obtain access to
    all State MSB licensing data contained in the Nationwide Multi-
    State Licensing System (NMLS).
        What has FinCEN learned from the MOU regarding MSB
    registration data about the scope and risks within the MSB
    sector? Has this information been shared with the IRS, State
    regulators and Congress? Could you share any analysis with my
    office?

    A.5. FinCEN has obtained information on money transmitter
    agents from the NMLS. FinCEN is using this data to identify
    higher risk agents that engage in MSB activity beyond their
    work as an agent and may need to be independently licensed.
    Under a new feature of NMLS and the ensuing data package,
    FinCEN will now also obtain information on transaction monetary
    volumes at the company and State-specific level, as well as
    volumes and destinations of transactions going to foreign
    jurisdictions. This will enhance FinCEN's ability to identify
    MSBs that need enhanced supervision of their money transmitting
    activities. FinCEN meets with State regulators regularly to
    discuss upcoming examinations and better ways to more
    effectively and efficiently manage the MSB sector.

    Q.6.a. Since the Money Remittances Improvement Act (MRIA)
    became law, FinCEN has worked with the IRS and State
    examination authorities to coordinate exam scheduling.
        How many States currently register in the NMLS system?

    A.6.a. According to the NMLS, there are 40 States managing
    their MSB licensing through NMLS. Of these States, at least 28
    mandate that MSBs use the NMLS system for registration and this
    number continues to grow.

    Q.6.b. What has been the impact of MRIA and the coordination
    that resulted from the passage of that law?

    A.6.b. The MRIA has improved FinCEN's collaboration and
    coordination with its State partners. As discussed in a prior
    answer, FinCEN uses information collected by the States through
    the NMLS system to partially evaluate potential risks in the
    MSB industry. FinCEN regularly communicates with the States on
    coordinating examinations and efficiencies in the supervision
    process. FinCEN has also coordinated directly with the States
    when crafting agreements between the State regulator and the
    institution to bring the institution into compliance.

    Q.6.c. Which States permit Money Services Businesses to share
    certain State exam findings with banks or credit unions?

    A.6.c. FinCEN is aware of certain States that allow financial
    institutions to share State examination findings based on
    specific conditions and consultations. However I would refer
    you to the Conference of State Bank Supervisors for more
    information on this issue.

    Q.7. I served as Attorney General of Nevada for 8 years. I know
    that investigations of organized crime, terrorist financing and
    money laundering rely on collaboration with leaders and
    governments of other nations.
        As the Under Secretary for Terrorism and Financial Crimes,
    how does your office collaborate with African nations to curb
    terrorist financing and money laundering?

    A.7. Treasury's Office of Terrorist Financing and Financial
    Crimes heads the U.S. delegation to the Financial Action Task
    Force Regional Style bodies in Africa. Through both the Eastern
    and Southern Africa Anti-Money Laundering Group and the Inter-
    Governmental Action Group Against Money Laundering in West
    Africa, we collaborate with African nations to strengthen their
    anti-money laundering and countering the financing of terrorism
    regimes. Further, through other multilateral fora and the World
    Bank/IMF bi-yearly Bank Fund meetings and other bilateral
    engagements, we also share information critical to stemming
    illicit financial flows. Finally, when discrete matters arise,
    we engage with local embassies on a bilateral basis on issues
    related to terrorist financing and money laundering.

    Q.8. Secretary Mandelker, Treasury's Office of Technical
    Assistance has been a critical resource to collaborate and
    strengthen other nations. I would like to better understand how
    the Office of Technical Assistance works.

    Q.8.a. Which nations did the Office of Technical Assistance
    serve in 2016 and 2017? How many nations requested assistance
    but have been denied?

    Q.8.b. Please detail why the assistance was denied: lack of
    U.S. funding, diplomatic considerations, another nation was
    better suited to provide the information, etc.?

    Q.8.c. Please provide annual OTA funding levels from 2010 until
    today?

    A.8.a.-c. Treasury's Office of Technical Assistance (OTA) falls
    under the Under Secretary for International Affairs. OTA
    provided the following information in response to your
    questions about its activities.
        Please see OTA's 2016 and 2017 Operating Plans (attached)
    for a complete list of OTA projects.
        In 2016 to 2017, OTA received 20 requests for assistance
    from jurisdictions that did not result in a new Treasury
    technical assistance engagement. There are many reasons that a
    request for assistance would not result in an engagement. Most
    commonly, OTA requires additional information prior to
    conducting an in-country needs assessment, such as more
    detailed information as to the type of assistance requested. If
    additional information is not received, OTA will not move
    forward with an in-country needs assessment.
        For those engagements that do proceed to an in-country
    needs assessment, OTA management may determine that there is
    insufficient commitment to reform and/or the counterparts are
    not positioned at the time of the assessment to use OTA
    assistance well. In these circumstances, OTA communicates
    necessary pre-conditions for OTA assistance to have the best
    opportunity for success. Pre-conditions vary, but can include
    the requesting jurisdiction committing additional resources to
    or hiring of additional staff at the counterpart agency or the
    need for a demonstration of political will to implement reform
    through the issuance of a decree or regulations.
        In rarer circumstances, OTA management may determine that
    other nations or international institutions are better
    positioned to provide the necessary technical assistance.

    Q.9. For years, Treasury relied on supplemental fund transfers
    from the State Department, USAID and other Government agencies.

    Q.9.a. How much did OTA receive from State and USAID in 2014,
    2015, 2016, and 2017?

    Q.9.b. How is the OTA working with the International Monetary
    Fund and the World Bank to prevent terrorist financing and
    money laundering?

    A.9.a.-b. Treasury's Office of Technical Assistance falls under
    the Under Secretary for International Affairs. OTA provided the
    following information in response to your questions about its
    activities.
    The chart below provides OTA's annual funding levels by source
    of funding from 2010 to 2017 (last complete fiscal year).

    The table below provides the funding OTA received from State
    and USAID from 2014 to 2017.

        OTA regularly coordinates its anti-money laundering/counter
    financing of terrorism assistance with other assistance donors
    and providers, including the International Monetary Fund (IMF)
    and the World Bank. This collaboration occurs both at
    headquarters in Washington, DC, and in the field with the goal
    of ensuring that assistance efforts are aligned and to prevent
    redundancy. OTA communicates with other providers about its
    current assistance efforts as well as prospects for future
    assistance. For example, in a country where more than one
    assistance provider may operate, these efforts prevent
    unnecessary overlap, identify synergies, and maximize
    absorptive capacity of recipient counterparts.
        For example, as part of OTA's holistic approach to engaging
    the full range of AML/CFT stakeholders, OTA usually seeks to
    work with supervisory as well as enforcement authorities. If
    the IMF plans to work with the banking sector supervisor to
    develop supervisory tools, OTA may seek to work in parallel
    with the supervisor of money remitters or may concentrate its
    activities on other parts of the framework, such as the
    financial intelligence and law enforcement authorities.
    Alternately, if the IMF concludes its supervision assistance
    with the drafting of a supervision tools such as an examination
    manual, OTA may provide follow-on assistance on the application
    and implementation of those tools.

    Q.10. Kenya's M-Pesa is an electronic system that captures
    every transaction. All M-Pesa customers must identify
    themselves with their original identification document. There
    is three-factor authentication: SIM card, ID and the PIN. The
    Central Bank of Kenya receives regular reports on transactions.
        What can we learn from Kenya and other nations about how to
    use mobile banking to provide access to financial services and
    also avoid terrorist and other forms of illicit financing?

    A.10. Kenya's M-Pesa mobile payments system is often cited as
    an example of how innovative financial products and services
    can leverage technology and new business models to support
    financial
    inclusion. M-Pesa demonstrates the importance of encouraging
    responsible, regulated innovation in the financial sector that
    includes robust digital identification built into the FinTech
    product/service. M-Pesa's use of three-factor authentication,
    including the use of mobile phone technology (SIM card and
    other cell phone data), to supplement official Government
    identity documentation for customer identification and
    verification, and for transaction authorization, helps combat
    fraud and protect against abuse by money launderers and
    terrorists and their financiers.

    Q.11. The Office of the Comptroller of the Currency mentioned
    in its 2018 Banking Operating Plan that financial institutions
    should not inadvertently impair financial inclusion. But, as of
    September 2017, the OCC has not identified any specific issues
    they plan to address. We know that de-risking has become
    epidemic in some communities, such as communities along the
    Southwest border, remittances providers serving fragile nations
    like Somalia and humanitarian groups. In your testimony, you
    mention Treasury's efforts to ensure humanitarian remittances
    reach Venezuela as you work to stem financial corruption in
    that nation.
        Please explain what steps the Treasury Department is taking
    in Venezuela to stabilize humanitarian remittances?

    A.11. We share your concern regarding the humanitarian and
    economic catastrophe in Venezuela. As part of our ongoing
    efforts to address this issue, Secretary Mnuchin hosted Finance
    Ministers from the Western Hemisphere, Europe, and Japan on
    April 19 to discuss the humanitarian situation, which has
    consequences that extend beyond Venezuela's borders,
    threatening regional stability and national security. Ministers
    reviewed population flows out of Venezuela to destination
    countries around the world, including a sharp acceleration in
    departures as Venezuelans flee the lack of security and
    economic opportunity. Ministers took note of the call by the
    United Nations High Commissioner for Refugees to assist
    countries in the region that are absorbing the Venezuelan
    outflow, to which Vice President Pence announced a significant
    United States contribution.
        Maduro and his regime have led Venezuela to ruin and are
    solely responsible for the immense human suffering occurring in
    Venezuela today. The Maduro regime has continued to undermine
    democracy, impoverish its citizens, and loot the country to
    line its pockets. Essential goods, such as food and medicine,
    have become increasingly scarce. During the meeting on
    Venezuela hosted by the Secretary, participants reviewed how
    the government's control over food distribution is a mechanism
    for social control and a vehicle for corruption. Participating
    countries agreed to strengthen international cooperation to
    curb Venezuelan corruption that is worsening the humanitarian
    situation.
        Over the last year, Treasury has taken a number of actions
    to counter the Maduro's regime assault on democracy and its own
    people. Since 2015, OFAC has designated over 50 current and
    former Government of Venezuela officials, including Maduro
    himself, and denied them access to the U.S. financial system.
    This year, we have announced the designation of eight
    individuals, including four current or former senior military
    officers on January 5 and four additional current or former
    officials on March 19. These designations shine a spotlight on
    current and former officials who continue to benefit from a
    corrupt system, even as Venezuela's citizens, economy, and
    constitutionally enshrined democratic institutions languish.
        On August 24, 2017, President Trump issued an Executive
    order which imposed a carefully calibrated set of prohibitions
    that deny the regime critical sources of financing, protect the
    U.S. financial system, and aim to shield Venezuelans from
    punishingly expensive debts. In addition, on March 19, the
    President issued an Executive order that prohibits all
    transactions related to and dealings in, by U.S. persons or
    within the United States, any digital currency, digital coin,
    or digital token, including the Venezuelan ``Petro'' and
    ``Petro-gold.'' The Petro is a desperate effort by a corrupt
    government to circumvent existing U.S. sanctions. At face
    value, the Petro is a scam ripe for exploitation by corrupt
    regime insiders seeking to defraud investors and ordinary
    Venezuelans.
        To aid financial institutions in identifying transactions
    that may be linked to Venezuelan corruption, FinCEN issued an
    advisory in September 2017 informing financial institutions of
    widespread public corruption in Venezuela and the methods
    senior Venezuelan political figures--as well as their
    associates and front persons--may use to move and hide
    corruption proceeds. Combined with our financial sanctions on
    debt and equity as well as our targeted designations, this
    advisory put financial institutions on watch for possible
    illicit fund flows.
        Our sanctions related to Venezuela are narrowly tailored to
    deny the Maduro regime access to critical sources of financing,
    but they do not otherwise prohibit financial transactions with
    Venezuela, including the provision of humanitarian remittances.
        To avoid any disruption to the provision of humanitarian
    goods to the Venezuelan people, OFAC issued a General License
    that authorizes all debt financing related to exports to
    Venezuela of agricultural commodities, food, medicine, and
    medical devices. OFAC routinely engages with the private sector
    and others to prevent confusion from hindering lawful activity,
    including with respect to humanitarian aid and remittances.

    Q.12. How will the Treasury Department work with the other
    banking regulators--OCC, FinCEN, FDIC, and the Federal
    Reserve--along with the IRS to help banks meet the banking
    needs of legitimate consumers and businesses that are at risk
    of losing access--or have already lost access?

       LHas Treasury been able to stem the decline in
            correspondent banking relationships that have limited
            financial access to many?

       LIf so, how?

       LIf not, what policies could restore and expand
            correspondent banking relationships?

    A.12. Protecting the integrity of the U.S. financial system and
    preventing its use for criminal purposes is of paramount
    importance. It is our responsibility at Treasury and within the
    law enforcement community to detect and prevent illicit use of
    the U.S. financial system. Financial institutions play a
    critical role in safeguarding the international system from
    abuse by illicit actors, which at times includes making risk-
    based decisions about with whom, where, and how they conduct
    business.
        At the same time, we take concerns about de-risking
    seriously. We value the importance of preserving access to the
    U.S. financial system to support economic growth, financial
    inclusion, and financial transparency while continuing to
    enforce U.S. laws and regulations. Financial inclusion and
    financial transparency are complementary and mutually
    reinforcing objectives. Keeping legitimate transactions in the
    regulated financial systems improves financial transparency.
    Treasury has worked with the Federal regulators to issue
    guidance and clarify the importance to financial institutions
    of implementing risk-based approaches that assist in preventing
    overcorrections that might exclude legitimate banking
    customers.
        In the last few years, Treasury has led the U.S.
    Government's efforts related to de-risking. These efforts have
    included Treasury-led engagements and dialogues with
    stakeholders from the public sector and industry, in addition
    to Treasury's ongoing open line of communication with U.S.
    financial institutions. Further, Treasury's work on this issue
    involves close coordination with global bodies and multilateral
    organizations, including the Financial Action Task Force, the
    Financial Stability Board, the World Bank, and the IMF.
        Treasury recognizes that financial institutions' decisions
    on whether and how to maintain customer relationships are
    driven by multiple factors, including: profitability and
    business strategy motives; current global economic conditions;
    and real concerns about suspicions of illicit financial
    activity, including money laundering and the financing of
    terrorism.
        An important way to ensure financial inclusion while
    increasing transparency is by making sure financial
    institutions are devoting the resources they have to high value
    activities. As discussed in my testimony, financial
    institutions have been improving their ability to identify
    customers and monitor transactions by experimenting with new
    technologies that rely on artificial intelligence and
    machine learning. We laud and encourage these innovations,
    which advance the underlying purposes of the BSA. We are
    working closely with our counterparts at the Federal Banking
    Agencies to
    discuss ways to further incentivize financial institutions to
    be innovative in combating financial crime.

    Q.13. Last year, the Countering Iran's Destabilizing Activities
    Act of 2017 (Public Law 115-44) was enacted. In Section 271, it
    required the Treasury Department to publish a study by May 1,
    2018, on two issues: 1. Somali Remittances. The law required
    Treasury to study if banking regulators should establish a
    pilot program to provide technical assistance to depository
    institutions and credit unions that wish to provide account
    services to money services businesses serving individuals in
    Somalia. Such a pilot program could be a model for improving
    the ability of U.S. residents to make legitimate funds
    transfers through easily monitored channels while preserving
    strict compliance with BSA. Sharing State Banking Exams. 2. The
    law also required Treasury to report on the efficacy of money
    services businesses being allowed to share certain State exam
    information with depository institutions and credit unions to
    increase their access to the banking system.

    Q.13.a. What is the status of this study?

    A.13.a. The Treasury Department submitted this report to
    Congress in fulfillment of its obligations under CAATSA on
    Friday, April 27, 2018.

    Q.13.b. Are you contacting other organizations in your
    research?

    A.13.b. Treasury contacted other governmental and multilateral
    bodies that have studied this problem, Federal banking
    agencies, and private sector financial institutions.

    Q.13.c. Which ones--or types of groups--have you met with?

    A.13.c. As noted above, these include other governmental and
    multilateral bodies that have studied this problem, Federal
    banking agencies, and private sector financial institutions
    with which we are engaging.

    Q.13.d. Will the Treasury Department meet the deadline of May
    1, 2018, to publish the report?

    A.13.d. Yes. The Treasury Department submitted this report to
    Congress in fulfillment of its obligations under CAATSA on
    Friday, April 27, 2018.

    Q.13.e. Anonymous incorporation is not difficult for
    criminals--virtually no States require corporate applications
    provide the identity of the corporation's ultimate owner. Law
    enforcement has said it needs to know the owners of firms in
    order to investigate financial crimes and terrorism.
        How should Congress and/or Treasury tailor these proposed
    requirements so as not to be overly burdensome on either
    incorporating entities or the States themselves?

    A.13.e. There is no question that vulnerabilities exist in
    corporate formation without the disclosure of beneficial
    ownership information. Illicit actors may more easily hide
    illicit funds and avoid detection through business entities
    because the true owner is masked. The collection of beneficial
    ownership information is
    critical both at the time of account opening and when a company
    is being incorporated. FinCEN's Customer Due Diligence (CDD)
    rule, which is set to be implemented by covered financial
    institutions in May 2018, requires those institutions to
    identify and verify the identity of the beneficial owners of
    their legal entity customers. For purposes of the CDD Rule,
    covered financial institutions are federally regulated banks
    and federally insured credit unions, mutual funds, brokers or
    dealers in securities, futures commission merchants, and
    introducing brokers in commodities, as defined in 31 CFR
    1010.605(e)(1). This change will assist financial institutions
    in managing risks and law enforcement in pursuing criminals who
    launder illicit proceeds through legal entities. This is an
    important step forward.
        We are committed to further increasing the transparency and
    accountability in our financial system, and we look forward to
    working with Congress to support legislation that addresses
    this issue.

    Q.13.f. Should Congress exempt any firm already regulated by
    Federal banking regulators and companies with over 20
    employees?

    A.13.f. We are aware of options in proposed legislation to
    allow for various business types and sizes to be exempt from
    reporting beneficial ownership information. We are reviewing
    the various legislative proposals and look forward to working
    with Congress on the issue of enhancing the transparency of
    beneficial owners.

    Q.13.g. Some argue that those types of companies are very
    unlikely to open bank accounts to hide or move criminal funds
    or to hold illegal assets, do you agree?

    A.13.g. We are aware of options in proposed legislation to
    allow for various business types and sizes to be exempt from
    reporting beneficial ownership information. Many business types
    and sizes can be used to hide or move illicit assets. We are
    reviewing the various legislative proposals and look forward to
    working with Congress on the issue of enhancing the
    transparency of legal entities by requiring the reporting of
    beneficial ownership information at the time of company
    formation.

    Q.13.h. Does the Treasury Department need legislation to issue
    regulations requiring corporations and limited liability
    companies formed in any State that does not already require
    ownership disclosure to file information about their beneficial
    ownership with Treasury as well?

    A.13.h. We are not aware of any Federal law that currently
    authorizes the Treasury Department to impose such a disclosure
    requirement on companies in general. Legislation granting
    Treasury the authority to impose such a disclosure requirement
    would be required.

    Q.13.i. What type of disclosure should be required: name,
    current address, non-expired passport or State-issued driver's
    license, identification of any affiliated legal entity that
    will exercise control over the incorporated entity, etc.?

    A.13.i. Access to unique identifiers of the beneficial owners
    of legal entities is crucial for law enforcement to investigate
    money laundering, terrorist financing, and other financial
    crimes. We look forward to working with Congress and law
    enforcement to propose identifiers that should be disclosed
    about the beneficial owners of legal entities during the
    incorporation process.

    Q.13.j. Should the rules require that beneficial owners be
    updated no later than 60 days after any change in ownership?

    A.13.j. It is important that beneficial ownership information
    be accurate and up-to-date to assist law enforcement in
    identifying the true owners of companies whenever that
    information changes.

    Q.13.k. Should the rules provide civil penalties for anyone who
    submits false or fraudulent beneficial ownership information,
    does not provide complete or updated information; and/or
    knowingly discloses subpoena, summons, or other requests for
    beneficial ownership information without authorization?

    A.13.k. Any legislation that requires the disclosure of
    beneficial ownership information at the time of company
    formation should have appropriate penalties. We are supportive
    of civil penalties for anyone who submits false or fraudulent
    beneficial ownership information; does not provide complete or
    updated information; and/or knowingly discloses subpoena,
    summons, or other requests for beneficial ownership information
    without authorization. We believe the availability of civil
    penalties provides a significant deterrent to individuals and
    companies providing false information.

    Q.14. Author and reporter David Cay Johnston reports in his
    book, The Making of Donald Trump, that public records show
    highly suspicious money from Russia is behind Trump's
    businesses. He alleges that ``over the past three decades, at
    least 13 people with known or alleged links to Russian mobsters
    or oligarchs have owned, lived in, and even run criminal
    activities out of Trump Tower and other Trump properties. Many
    used his apartments and casinos to launder untold millions in
    dirty money. Some ran a worldwide high-stakes gambling ring out
    of Trump Tower--in a unit directly below one owned by Trump.
    Others provided Trump with lucrative branding deals that
    required no investment on his part. Taken together, the flow of
    money from Russia provided Trump with a crucial infusion of
    financing that helped rescue his empire from ruin, burnish his
    image, and launch his career in television and politics.''

    Q.14.a. Please provide a list of convicted criminals who had
    business dealings with the Trump Corporation?

    A.14.a. It would not be appropriate for Treasury to comment on
    matters of potential investigative interest, or in a way that
    may confirm or deny the existence of such interest.

    Q.14.b. Please list the condominiums and their owners that the
    Federal Government seized from Russian emigres who were
    convicted of crimes such as money laundering, violence, etc.?

    A.14.b. The Department of the Treasury does not maintain this
    type of information.

    Q.14.c. What is the size of Russian mob money laundering in the
    United States? What do you recommend we do to limit money
    laundering from international and domestic organized crime
    syndicates?

    A.14.c. Although FinCEN supports law enforcement efforts to
    investigate Russian Organized Crime money laundering, and has
    conducted analysis of BSA filings related to this topic, FinCEN
    does not have an estimate of the extent of this activity from
    that data. Treasury continues to support increasing
    transparency for all kinds of financial vehicles, including
    shell companies, to limit money laundering from organized crime
    syndicates. Shoring up this vulnerability, as FinCEN is doing
    with the soon-to-be-effective Customer Due Diligence rule, will
    prevent the ease with which these syndicates can profit off of
    their illicit activity.

    Q.15. Like many corporate executives, President Donald Trump
    takes advantage of more corporate-friendly businesses laws.
    Analysis of his FEC filings finds he registered 659 businesses.
    Despite defining himself as a New Yorker, only 19 percent of
    his businesses are chartered in New York. Only 11 percent of
    his businesses were chartered in Florida where he has a second
    home. Instead, more than two-thirds of his corporations were
    chartered in Delaware (48 percent) or Nevada (23 percent).
    President-elect Donald Trump filed a Federal Election Committee
    (FEC) filing in July 2016 listing 515 corporations for which he
    serves on the Board of Directors. Of these, 263 of the
    corporations begin with ``Trump.'' A number of the other
    corporations contain some combination of his initials ``DT'' or
    ``DJT.'' 2 Quartz. ``A List of Everything Donald Trump Runs
    That Has His Name On It.'' Looking only at corporations which
    included ``Trump,'' which did not include another family member
    (i.e., his father or his children), and which could be
    reasonably determined to be one of Donald Trump's companies
    (i.e., excluding initialed companies and companies containing
    Trumpe, Trumpf, Trumpy, etc.), it seems: 315 companies are
    incorporated in Delaware. Of which, Trump self-reported as a
    board member of at least 182. The New York online corporate
    registry does not provide an immediately obvious status of the
    companies so we cannot analyze current versus dissolved
    corporations. One hundred forty-nine companies are incorporated
    in Nevada. Of which, only 15 are currently active. A few have
    been formally dissolved; however, the remainder are in a
    progressively permanent state of revocation for failure to keep
    up with filings and fees. Of the 15 active corporations, Trump
    self-reported as a board member of at least 9. One hundred
    twenty-nine companies are incorporated in New York. Of which,
    Trump self-reported as a board member of at least 60. The New
    York online corporate registry does not provide an immediately
    obvious status of the companies so we cannot analyze current
    versus dissolved corporations. Seventy companies are
    incorporated in Florida. Of which, 22 are currently listed as
    active. Of the active corporations, Trump self-reported as a
    board member of at least 3. Five companies are incorporated in
    Wyoming; only 1 is active.

    Q.15.a. Can you confirm that these figures about President
    Trump's business locations are accurate?

    A.15.a. Treasury does not generally maintain comprehensive
    corporate registry information and is not in a position to
    opine on the information presented in this question.

    Q.15.c. Have any of President Trump's current or former
    businesses been indicted or convicted for money laundering or
    other financial crimes?

    A.15.c. The Department of the Treasury does not maintain this
    type of information.
                                    ------

    RESPONSE TO WRITTEN QUESTION OF CHAIRMAN CRAPO FROM M. KENDALL
                                  DAY

    Q.1. There has been a lot of discussion around expanding
    information sharing authorities under Section 314 of the USA
    PATRIOT Act.
        How would you expand 314(b) authorities in a way that is
    both useful to all financial institutions and able to protect
    sensitive law enforcement information?

    A.1. Information sharing is crucial to law enforcement
    investigations and prosecutions. Financial institutions are
    often the first line of defense against money laundering, and
    the information they collect--on their own and as part of the
    314(b) process--can ultimately help law enforcement by
    providing critical leads in existing investigations and
    spurring new ones. These leads help law enforcement detect and
    deter criminal activity and, in some cases, may help law
    enforcement stop crimes in progress before they cause greater
    harm.
        Under the existing 314(b) authorities, financial
    institutions may share information with one another for
    purposes of identifying and reporting activities that may
    involve terrorist activity or money laundering. Statutory
    authority allowing information sharing on a broader range of
    activity would expand and enhance the information reported to
    law enforcement and give it greater insight into the financial
    activities of criminals. That, in turn, would strengthen our
    efforts to detect and deter criminal activity of all kinds.
        Existing 314(b) authorities already contain a number of
    important safeguards designed to protect sensitive law
    enforcement information, and these safeguards could be extended
    to any broadening of the activities covered by 314(b).
    Financial institutions that wish to participate in 314(b)
    sharing must first file a notice with the Department of the
    Treasury's (Treasury) Financial Crimes Enforcement Network
    (FinCEN). Before sharing information, institutions must also
    take reasonable steps to verify that other financial
    institutions have filed a notice under 314(b). In addition,
    financial institutions must establish and maintain procedures
    to safeguard the security and confidentiality of the shared
    information, and they may only use the information for specific
    purposes. Critically, 314(b) does not authorize participating
    financial institutions to share a Suspicious Activity Report
    (SAR) itself or disclose the existence of a SAR.
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM M. KENDALL
                                  DAY

    Q.1. During the hearing, I asked you whether the independent
    monitor installed as part of HSBC's 2012 deferred prosecution
    agreement (DPA) with DOJ had certified that HSBC had complied
    with the letter and spirit of its obligations under DPA. You
    provided a partial answer, stating only that HSBC generally
    complied with its obligations under the DPA. You described
    HSBC's
    satisfaction of all of the independent monitor's
    recommendations as ``a different issue.'' However, the DPA
    provides that ``HSBC Holdings shall adopt all recommendations
    in the [monitor's] report.'' (Unless the monitor signs off on
    an alternative proposed by HSBC, within 30 days, to meet the
    same purpose or objective). Thus, one of HSBC's obligations
    under the DPA is to implement the monitor's recommendations.
    HSBC cannot skirt this obligation without a ``determination''
    by the monitor or DOJ that some ``alternative proposal'' is
    appropriate. Accordingly, I have three further questions about
    HSBC's implementation of the monitor's recommendations:

    Q.1.a. Did the monitor certify that HSBC implemented and
    adhered to all his recommendations and other remedial measures
    specified in the DPA?

    Q.1.b. Did DOJ overrule any of the monitor's recommendations,
    or make a determination with respect to any of his
    recommendations that an alternative proposal was appropriate?
    If so, how many? Please provide the number of overruled
    recommendations, or determinations that an alternative proposal
    was appropriate, both as a raw quantity and as a percentage of
    all the monitor's recommendations.

    Q.1.c. For each overruled recommendation, or determination that
    an alternative proposal was appropriate, please explain (i) the
    nature and content of the recommendation, or alternative
    proposal; (ii) why DOJ overruled the recommendation, or
    determined that an alternative proposal was appropriate; and
    (iii) describe the alternative proposal(s) that DOJ allowed
    HSBC to implement instead, and whether each such alternative
    proposal has been fully and effectively implemented.

    A.1.a.-c. The U.S. Government Accountability Office has noted
    that some $5 billion in fines, penalties, and forfeitures was
    collected from financial institutions for violations of the
    Bank Secrecy Act (BSA) between 2009 and 2015. Those numbers
    underscore that the Department of Justice (Department) and
    other agencies do not hesitate to hold financial institutions
    accountable when they do not comply with their BSA and
    sanctions obligations. HSBC was one of a number of examples of
    such efforts.
        The Department has considered that, since the Department
    and HSBC entered into the 2012 Deferred Prosecution Agreement
    (DPA), HSBC worked to address the monitor's recommendations
    and, more broadly, strengthen its anti-money laundering (AML)
    program to avoid engaging in the types of willful criminal
    violations that led to the DPA. While the monitor's
    recommendations are a highly useful benchmark, the Department
    assesses the overall efforts of a company when exercising its
    discretion in deciding whether to extend a DPA or let it sunset
    as defined by its terms. Consistent with longstanding
    Department policy, we do not comment on the circumstances of
    individual cases. However, on April 5, 2018, we were pleased to
    provide a comprehensive briefing to your staff regarding DPAs.
    We hope this briefing was helpful in providing some background
    and context to address some of the issues raised by your
    questions above.

    Q.2. In your testimony you described BSA information as
    critical to DOJ efforts to combat crime and terrorism.

    Q.2.a. Can you describe in greater detail, from your experience
    in the Department of Justice's criminal division, the role that
    BSA-generated financial intelligence plays in counterterrorism
    and other law enforcement investigations--in developing
    investigative leads, sharpening focus on certain criminal
    players and their banks, or otherwise?

    A.2.a. Effective AML programs--including accurate and timely
    SARs--play a critical role in the fight against criminal
    activity, and often serve as an important source of information
    for law enforcement investigations into money laundering,
    terrorist financing, and other crimes. Prosecutors and agents
    routinely use the information generated by BSA filings,
    including SARs and Currency Transaction Reports (CTRs), on both
    a proactive and reactive basis. Law enforcement, for example,
    often uses SARs, CTRs, and other BSA reporting to identify the
    leads necessary to launch an investigation. Law enforcement
    also uses BSA reporting to obtain information on known targets
    and their illicit transactions to advance investigations
    already underway. Additionally, law enforcement and regulators
    rely on BSA information to identify broader trends and risks.
        Further, effective AML programs help financial institutions
    detect efforts to launder illicit proceeds, which can, in turn,
    prevent those funds from ever entering the U.S. financial
    system. Domestic collection of AML information also improves
    the United States' ability to respond to similar requests from
    foreign law enforcement for investigative assistance, thus
    increasing our ability to fight financial crime on the global
    stage.

    Q.2.b. What financial intelligence tools are currently most
    useful to prosecutors, sanctions overseers and others who
    combat money laundering, and where do we need to strengthen
    DOJ's tool kit?

    A.2.b. Because most criminals are motivated by financial gain,
    they must find ways to use the proceeds of their crimes. For
    the most sophisticated criminal actors and organizations--who
    are often generating substantial amounts in illicit proceeds--
    it is impractical, inefficient, and simply dangerous to move
    their money in hard currency. As a result, many criminals--and
    especially the most sophisticated among them--must bring their
    proceeds into the financial system in order to launder them.
    Successful introduction and laundering of illicit proceeds
    through the financial system allows criminals to purchase
    goods, reinvest in the criminal enterprise, or fund additional
    criminal conduct, all of which cause further harm to our
    communities--not just through the promotion of the underlying
    criminal conduct itself, but also through the distorting
    effects that criminal proceeds can have on our markets.
        Financial intelligence is critical to law enforcement's
    efforts to thwart these illicit money flows because it allows
    law enforcement to see the full criminal network. By reviewing
    information from SARs, CTRs, and other BSA reporting, for
    example, law enforcement may be able to trace money flowing to
    different parts of the network--those that generate the illicit
    proceeds and those used to redistribute them. Because this data
    is so essential to law enforcement's work, the Department
    believes that any proposals to alter such reporting
    requirements should take into account the significant value of
    this information and the effects--particularly the
    potential harms--such changes might have on law enforcement
    investigations and prosecutions.
        Other tools are also important to law enforcement's money
    laundering investigations and prosecutions. As this Committee
    is aware, the pervasive use of front companies, shell
    companies, nominees, or other means to conceal the true
    beneficial owners of assets is one of the greatest loopholes in
    this country's AML regime. The lack of beneficial ownership
    information can significantly slow investigations because
    determining the true ownership of bank accounts and other
    assets often requires that law enforcement undertake a time-
    consuming and resource-intensive process. For example,
    investigators may need grand jury subpoenas, witness
    interviews, or foreign legal assistance to unveil the true
    ownership structure of shell or front companies associated with
    serious criminal conduct. This process can take years--
    information obtained on a particular entity, for example, may
    show that it is a shell company owned by yet another shell
    company, requiring additional subpoenas or other information-
    gathering efforts. In some cases, law enforcement may not be
    able to determine the owners of illicit proceeds at all.
        Treasury's Customer Due Diligence Final Rule--and its
    requirement that financial institutions collect and verify the
    personal information of certain beneficial owners when the
    companies they own, control, or profit from open accounts--is a
    critical step that will make it more difficult for criminals to
    circumvent the law by using opaque corporate structures. But we
    must do more. Other steps are needed to ensure that criminals
    cannot hide behind nominees, shell corporations, and other
    legal structures to frustrate law enforcement. More effective
    legal frameworks would reduce the United States' vulnerability
    to criminals seeking access to our financial system, facilitate
    law enforcement investigations, and bring the United States
    into compliance with international AML and counter-terrorist-
    financing (CTF) standards. The Department looks forward to
    continued discussions with its interagency partners, Congress,
    and industry regarding stronger laws that target individuals
    who seek to mask the ownership of companies, accounts, and
    sources of funds, as well as proposals to require the
    collection and maintenance of beneficial ownership information.
        Another important law enforcement tool is the information
    it obtains from its foreign partners. Because money often moves
    across multiple jurisdictions in the global economy, U.S. law
    enforcement depends on the cooperation of overseas counterparts
    to obtain evidence and to trace, freeze, and seize assets
    wherever they are located. However, existing authorities do not
    fully address the complexities of these international
    investigations. Specifically, under the existing authority in
    31 U.S.C.  5318(k), foreign banks are not required to produce
    records in a manner that would establish their authenticity and
    reliability for evidentiary purposes. The statute also does not
    contain any anti-tip-off language, meaning that foreign banks
    who receive subpoenas from U.S. law enforcement could disclose
    the subpoenas to account holders or others, thereby
    compromising an ongoing investigation. The only sanction
    provided under current law is the closure of the correspondent
    account, which, in most cases, will not result in the
    production of the records, and may in fact impede law
    enforcement investigations. There is no procedure to seek to
    compel compliance with subpoenas to foreign banks, nor any
    explicit authority to impose sanctions for contempt. Finally,
    the current statute provides that no effort can be taken by the
    Attorney General or the Secretary of Treasury to close the
    correspondent account or a foreign bank when the foreign bank
    has brought proceedings to challenge enforcement of the
    subpoena. The Administration continues to discuss proposed
    amendments to address these problems, and looks forward to
    working with Congress on these issues.

    Q.3. The Panama Papers and other similar document leaks
    revealed the widespread systematic use of shell corporations by
    wealthy bad actors seeking to not only evade lawful tax
    collection, but also to facilitate all kinds of financial
    crime.

    Q.3.a. How would you characterize the urgency of the threat to
    the U.S. financial system posed by anonymous shell companies,
    and by the lack of a coherent national framework for
    identifying beneficial ownership at the point of company
    formation?

    A.3.a. The pervasive use of front companies, shell companies,
    nominees, and other means to conceal the beneficial owners of
    assets is one of the greatest loopholes in this country's AML
    regime. We consistently see bad actors using these entities to
    disguise the ownership of the dirty money derived from criminal
    conduct.
        Indeed, the Financial Action Task Force's (FATF) 2016
    review of our AML/CTF system highlighted this issue as one of
    the most critical gaps in the United States. The FATF rated the
    United States ``noncompliant'' on the FATF standard covering
    transparency and beneficial ownership of legal persons, noting
    the United States' ``generally unsatisfactory measures for
    ensuring that there is adequate, accurate, and updated
    information'' on beneficial ownership, as defined by FATF, that
    ``can be obtained or accessed by competent authorities in a
    timely manner.'' The result, FATF said, is that U.S. law
    enforcement authorities ``must often resort to resource-
    intensive and time-consuming investigative and surveillance
    techniques.''
        More effective legal frameworks are accordingly needed to
    ensure that criminals cannot hide behind nominees, shell
    corporations, and other legal structures to frustrate law
    enforcement. When law enforcement is able to obtain information
    on the identities of the persons who ultimately own or control
    these legal entities, it can better see the full network of
    criminal proceeds as bad actors try to bring money into our
    financial system. With proper law enforcement access to
    beneficial ownership information, the Department could bring
    more cases, more quickly, with more impact.

    Q.3.b. Can you provide the Committee with concrete examples you
    have seen of how bad actors use shell companies for money
    laundering, terror finance and other illicit purposes?

    A.3.b. Below are several illustrative examples of the use of
    shell or front companies to facilitate illicit conduct:

       LIn 2017, Ebong Tilong, the owner of a Houston home
            health agency, was sentenced by a U.S. District Judge
            in the Southern District of Texas to 80 years in prison
            for his role in a $13 million Medicare fraud scheme and
            for filing false tax returns. In November 2016, after
            the first week of trial, Tilong pleaded guilty to one
            count of conspiracy to commit healthcare fraud, three
            counts of healthcare fraud, one count of conspiracy to
            pay and receive healthcare kickbacks, three counts of
            payment and receipt of healthcare kickbacks, and one
            count of conspiracy to launder monetary instruments. In
            June 2017, Tilong pleaded guilty to two counts of
            filing fraudulent tax returns. According to the
            evidence presented at trial and his admissions to the
            tax offenses, from February 2006 to June 2015, Tilong
            received more than $13 million from Medicare for home
            health services that were not medically necessary or
            not provided to Medicare beneficiaries. In connection
            with his guilty plea to the tax offenses, Tilong
            admitted that to maximize his gains from the Medicare
            fraud scheme, he created a shell company to limit the
            amount of tax that he paid to the IRS on the proceeds
            that he and his co-conspirators stole from Medicare.

       LIn April 2018, Nicholas A. Borgesano, Jr. was
            sentenced to 15 years in prison and ordered to pay $54
            million in restitution in connection with a $100
            million compounding pharmacy fraud scheme. In November
            2017, Borgesano pleaded guilty in the Middle District
            of Florida to one count of conspiracy to commit
            healthcare fraud and one count of conspiracy to engage
            in monetary transactions involving criminally derived
            property. According to admissions made in his plea
            agreement, Borgesano owned and operated numerous
            pharmacies and shell companies that he and his co-
            conspirators used to execute a fraud scheme involving
            prescription compounded medications. The scheme
            generated over $100 million in fraud proceeds.
            Borgesano admitted that he disbursed proceeds of the
            fraud scheme through a variety of methods, including by
            check and wire transfer to co-conspirators' shell
            companies and through the purchase of assets. Seven
            other defendants previously pleaded guilty to
            conspiracy to commit health care fraud for their roles
            in the scheme. Real properties, vehicles, and a 50'
            Cigarette racing boat purchased with proceeds from the
            fraud scheme were forfeited as part of the sentencing
            of Borgesano and others. Those assets totaled over $7.6
            million.

       LIn August 2017, the United States filed two civil
            complaints in the U.S. District Court for the District
            of Columbia seeking the imposition of a civil money
            laundering penalty and to civilly forfeit more than $11
            million from companies that allegedly acted as
            financial facilitators for North Korea. One complaint
            seeks nearly $7 million associated with Velmur
            Management Pte. Ltd., a Singapore-based company, and
            the other seeks more than $4 million from Dandong
            Chengtai Trading Co. Ltd., a company in Dandong, China.
            The complaints allege that the companies have
            participated in schemes to launder U.S. dollars on
            behalf of sanctioned North Korea entities. According to
            the complaints, the companies participated in financial
            transactions in violation of the International
            Emergency Economic Powers Act, the North Korea
            Sanctions and Policy Enhancement Act of 2016, and
            Federal conspiracy and money laundering statutes. One
            of the complaints alleges that Velmur and Transatlantic
            Partners Pte. Ltd. laundered U.S. dollars on behalf of
            sanctioned North Korean banks that were seeking to
            procure petroleum products from a designated entity.
            According to the complaint, designated North Korean
            banks use front companies, including Transatlantic, to
            make U.S. dollar payments to Velmur. The second
            complaint alleges that Dandong Chengtai and associated
            front companies controlled by Chi Yupeng, a Chinese
            national, comprise one of the largest financial
            facilitators for North Korea.

       LIn 2016, Thomas Davanzo and Robert Fedyna were
            sentenced to 121 months and 135 months in prison,
            respectively, for their participation in a multi-State
            scheme to defraud biofuel buyers and U.S. taxpayers by
            fraudulently selling biofuel credits and fraudulently
            claiming tax credits. Both defendants were also ordered
            to forfeit ill-gotten gains from the conspiracy of over
            $46 million and other items to the Government,
            including gold coins, jewelry and Rolex watches,
            thoroughbred horses, vehicles, and properties. Davanzo
            and Fedyna operated several shell companies that were
            used to facilitate the scheme. As part of the scheme,
            Davanzo and Fedyna operated entities that purported to
            purchase renewable fuel, on which credits had been
            claimed and which was ineligible for additional
            credits, produced by their co-conspirators at Gen-X
            Energy Group (Gen-X), headquartered in Pasco,
            Washington, and its subsidiary, Southern Resources and
            Commodities (SRC), located in Dublin, Georgia. They
            then used a series of false transactions to transform
            the fuel back into feedstock needed for the production
            of renewable fuel, and sold it back to Gen-X or SRC,
            allowing credits to be claimed again. This cycle was
            repeated multiple times.

    Q.3.c. Can you give us a sense of the scope of entities and
    persons you think we ought to have in mind, beyond the banking
    sector, when contemplating an update to our current anti-money
    laundering framework and its underlying authorities?

    A.3.c. Money can be laundered in a wide variety of ways outside
    the financial sector. For example, company formation agents,
    investment advisors, real estate agents, lawyers, and other
    professionals can be exploited by criminal actors seeking to
    conceal or otherwise move illicit proceeds. These professionals
    may--knowingly or unknowingly--help disguise the identity of
    the criminal actors behind the movement of illicit funds. They
    may do this by helping the bad actors hide the true owners of
    asset. That, in turn, can significantly slow an investigation
    and sometimes grind it to a halt altogether.
        Lawyers and law firms, for example, routinely hold funds on
    behalf of clients to cover things like retainer payments. But
    when the funds are in limited amounts or held on a short-term
    basis, a dedicated client bank account can be cumbersome.
    Interest on lawyer accounts (IOLAs) allow lawyers to pool these
    funds on behalf of multiple clients. But IOLA accounts can
    present heightened money laundering risks because financial
    institutions do not have information on a law firm's many
    clients.
        The Department's ongoing civil asset forfeiture action to
    recover more than a billion dollars allegedly stolen from the
    Malaysian sovereign wealth fund, lMDB, demonstrates the ways in
    which bad
    actors may use other entities and persons, including lawyers,
    to facilitate money laundering. Our publicly filed complaint in
    that matter alleges that nearly $370 million in stolen funds
    was diverted by the defendants over a 7-month period in 2010
    from a 1MDB joint venture into an IOLA account held by a law
    firm in the United States. The money was then allegedly used by
    one of the defendants to fund his opulent lifestyle, including
    the purchase of luxury real estate, a Beverly Hills hotel, and
    a private jet, as well as the production of the movie ``The
    Wolf of Wall Street.'' In other words, $370 million passed
    through financial institutions where, unless the bank asked
    additional questions, the financial system saw these transfers
    as on behalf of the law firm--not on behalf of the underlying
    individual allegedly involved in the 1MDB scheme.
        In addition to highlighting the role of lawyers, the lMDB
    case also underscores how criminals use the real estate sector
    to launder and hide their ill-gotten gains. FinCEN has issued
    and expanded Geographic Targeting Orders (GTOs) in recent years
    focusing on the real estate sector to learn more about
    individuals who may be attempting to hide their assets and
    identity by purchasing residential properties with cash and/or
    through limited liability companies and other opaque
    structures. The Department looks forward to more discussions on
    additional steps that may be warranted to address the money
    laundering risks emanating from this sector.

    Q.3.d. Who should we be looking at that we are not currently
    regulating--real estate firms, escrow agents, company formation
    lawyers, others?

    A.3.d. Please see above.

    Q.4. As banks have racked up huge fines in recent years for
    skirting sanctions and violating money laundering regulations,
    the sector as a whole has begun to wake up to AML obligations
    in place for many years, and many have made big investments to
    strengthen compliance.

    Q.4.a. Do you believe that AML laws and regulations on the
    books now offer a sufficient deterrent to such behavior?

    A.4.a. In recent years, the Department has resolved numerous
    AML and sanctions-based violations with major financial
    institutions. These resolutions have involved Commerzbank,
    Citigroup, BNP Paribas, Standard Chartered, HSBC, UBS, RBS, and
    Barclays, to name just a few. While the Department believes
    these resolutions have a deterrent effect on willful
    violations, they also demonstrate that institutions still face
    challenges in creating and encouraging a culture of
    compliance--meaning, in some cases, financial institutions
    still struggle to see managing compliance risk as equally
    important as managing credit risk or liquidity risk.

    Q.4.b. Are there specific steps you would urge Congress to
    consider to strengthen the current regime?

    A.4.b. The Department supports continued discussion of methods
    to better target financial institution reporting, as that will
    increase efficiencies for both law enforcement and industry.
    However, financial institutions play a critical role in the
    fight against money laundering and terrorist financing;
    therefore, from a law enforcement perspective, any regulatory
    reform to existing reporting requirements for financial
    institutions must be done with caution, following careful
    analysis of the existing regime.
        For example, law enforcement relies extensively on SARs and
    CTRs in civil and criminal investigations and prosecutions,
    including those involving money laundering and terrorist
    financing. The Department uses the information contained in
    these filings--on both a proactive and reactive basis--to carry
    out investigations of specific individuals and entities and to
    identify leads, connect the dots, and otherwise advance
    investigations in their early stages. Law enforcement and
    regulators also use aggregated information from this reporting
    to identify trends and risks.
        Proposed increases in the monetary thresholds for SARs and
    CTRs would decrease filing, and correspondingly, reduce law
    enforcement's access to information. Such changes could also
    eliminate an array of data that provides critical leads and
    information for law enforcement when pursuing investigations
    and prosecutions. The Department believes that any proposals to
    alter such reporting requirements should accordingly take into
    account the significant value of this information and the
    effects--particularly the potential harms--such changes could
    have on law enforcement investigations and prosecutions.
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE FROM M. KENDALL
                                  DAY

    Q.1. Mr. Day, your testimony estimated that money laundering
    reaches around $2 trillion annually, $300 billion of which is
    in the United States and $64 billion of which is generated by
    drug trafficking sales. I'd like to get a further breakdown of
    this number.

    Q.1.a. Can you provide a geographic breakdown of where the
    money laundering takes place within the United States?

    A.1.a. Because money laundering is a necessary consequence of
    nearly all profit-generating crime, it can occur anywhere in
    the world. Moreover, criminals always work to exploit gaps and
    vulnerabilities in existing laws and regulations to find new
    ways to conduct illicit transactions. It is therefore difficult
    to say precisely how much money laundering takes place within
    the United States, and whether money laundering activity is
    concentrated in any particular geographic area.

    Q.1.b. Can you provide a more precise breakdown of where the
    money laundering generally takes place by criminal industry,
    beyond drug trafficking to also include fraud, tax evasion,
    human smuggling, organized crime or terrorist organizations
    such as Hezbollah, and public corruption?

    A.1.b. Treasury's National Money Laundering Risk Assessment
    (2015) (NMLRA) analyzed more than 5,000 law enforcement cases,
    financial reporting by U.S. financial institutions, and reports
    from across the Government and private sector to define key
    money laundering and terrorist financing risks to the United
    States. According to the NMLRA:

       LApproximately 20 percent of the estimated $300
            billion generated in illicit activity annually in the
            United States--$64 billion--is associated with drug
            trafficking.

       LFraud accounts for most financial crime in the
            United States. This includes healthcare fraud, identity
            theft, tax fraud, mortgage fraud, retail and consumer
            fraud, and security fraud, with healthcare fraud
            accounting for the largest dollar volume of fraud
            losses to the Federal Government--approximately $80
            billion annually.

       LDirect and indirect losses from identity theft
            totaled $24.7 billion in 2012.

       LThe Internal Revenue Service found $6.5 billion in
            attempted fraudulent tax refunds in 2010, and the
            Treasury Inspector General for Tax Administration found
            potentially $5.2 billion more.

    Q.2. You testified that a ``large amount that isn't included in
    the $300 [b]illion would touch the U.S. financial system . . .
    through U.S. dollar clearing or other services that our
    financial system provides . . . to the global economy.''
        Can you provide a more precise figure for how much money
    laundering annually at least touches the U.S. financial system?

    A.2. Little empirical evidence exists to determine precisely
    how much dirty money flows through the U.S. financial system.
    According to the U.N. Office of Drugs and Crime, however, best
    estimates show that criminal proceeds totaled $2.1 trillion in
    2009, and of that, close to $1.6 trillion was laundered. Given
    the size, sophistication, and stability of the U.S. financial
    system, and the number of products and services offered by U.S.
    financial institutions, bad actors continuously seek to launder
    their illicit proceeds through our financial system.

    Q.3. I'd like to understand better the law enforcement context
    for the United State's efforts to fight money laundering.

    Q.3.a. Does the U.S. financial system substantially--even if
    inadvertently--facilitate human trafficking?

    Q.3.b. If so, how?

    Q.3.c. What about terrorism, such as organizations like
    Hezbollah?

    Q.3.d. What about drug cartels and violent gangs such as MS-13?

    Q.3.e. How can law enforcement officials use anti-money
    laundering tools to target specific groups such as MS-13 or
    Hezbollah?

    Q.3.f. Are there particular criteria of suspiciousness
    associated with transactions conducted for the benefit of
    groups such as MS-13 or Hezbollah?

    Q.3.g. Can you walk me through a typical case where law
    enforcement officials used financial intelligence, such as
    suspicious activity reports, to fight terrorism or
    transnational criminal organizations such as MS-13?

    A.3.a.-g. Criminals will always work to exploit gaps and
    vulnerabilities in existing laws and regulations to find new
    methods to conduct their illicit transactions, whether those
    transactions are related to human trafficking, drug
    trafficking, terrorism, gang activity, and other crimes. New
    methods are always being devised, as the criminal underworld
    seeks to take advantage of emerging technologies and to outpace
    the development of new detection and investigation tools by law
    enforcement. Moreover, the United States has the deepest, most
    liquid, and most stable markets in the world. These features of
    the U.S. financial system bring many benefits, but they also
    attract criminals and their illicit funds. Criminals will
    continue to use every available money laundering method
    available to them, exploiting opportunities wherever they find
    them.
        To combat these criminals and criminal organizations, as
    well as their efforts to launder money through our financial
    system, law enforcement routinely relies on AML tools.
        Prosecutors and investigators use the information generated
    by BSA fillings, including SARs and CTRs, to identify the leads
    necessary to launch an investigation. They also use BSA
    reporting to advance investigations already underway. Moreover,
    law enforcement and regulators rely on BSA information to
    identify broader trends and risks. For criminal groups, this
    financial intelligence is particularly important because it
    allows law enforcement to see the full criminal network. By
    reviewing information from SARs, CTRs, and other BSA reporting,
    for example, law enforcement may be able to trace money flowing
    to different parts of the network--those that generate the
    illicit proceeds and those used to redistribute them.
        The Department, in coordination with our colleagues from
    other agencies and international law enforcement partners, has
    had numerous recent successes in thwarting criminals who sought
    to move, hide, or otherwise shelter their criminal proceeds
    using the U.S. financial system. Financial intelligence has
    played--and will continue to play--a critical role in many such
    prosecutions. Some examples of investigations and prosecutions
    that have relied on BSA data from financial institutions
    include the cases chosen by FinCEN for its annual ``Law
    Enforcement Awards.'' Summaries of the cases that won the award
    in 2017 can be found at https://www.fincen.gov/sites/default/
    files/2018-01/LE%20Awards%20
    2017%20FINAL%20May9%20cases.pdf.

    Q.4.a. I'd like to understand better how technological
    innovation is transforming the fight against money laundering
    and how Government policy can help or hurt these efforts. In
    the healthcare context, I hear about how researchers have used
    machine learning and artificial intelligence to identify
    diseases and predict when they will occur, using data points
    that humans would have never put together.
        How have financial institutions or law enforcement
    officials been able to use of similar techniques to identity
    money laundering and how much more progress can be made in this
    front?

    A.4.a. Technological innovations, including artificial
    intelligence, can be useful tools for financial institutions
    and other organizations in identifying patterns and detecting
    anomalies. These innovations have the potential to not only
    improve the detection of suspicious transactions and
    activities, but to allow for such detection with greater
    efficiency. It is important to note, however, that these
    sophisticated technological tools do not eliminate the need for
    human interaction and detection. Human instincts and analysis
    are vital in law enforcement's fight against all types of
    crime, including money laundering.
        The Department supports technological innovations that will
    enable financial institutions to better identify, prevent, and
    report on money laundering, terrorist financing, and other
    crimes. To better understand these innovations, and their
    potential implications for investigations and prosecutions of
    illicit finance, the Department routinely participates in
    discussions with Treasury, Federal banking regulators,
    financial institutions, and international partners on these
    topics.

    Q.4.b. Outside of AI and machine learning, how can recent
    FinTech innovations such as blockchain fight money laundering?

    A.4.b. As noted above, the Department routinely participates in
    discussions with regulators, the private sector, and foreign
    counterparts to better understand the potential implications of
    these fast-emerging technological innovations for the
    investigation and prosecution of money laundering and other
    crimes.

    Q.4.c. How much does bitcoin, blockchain, and other crypto-
    currencies facilitate money laundering?

    A.4.c. Criminals use cryptocurrencies to conduct illicit
    transactions because they offer potential anonymity, since
    cryptocurrency transactions are not necessarily tied to a real-
    world identity and enable criminals to quickly move criminal
    proceeds among countries. Virtual currencies thus offer an
    alternative to cash. The Department continues to see the use of
    bitcoin by criminals but has also noted an increase in the use
    of alternative cryptocurrencies. As with any criminal behavior,
    the Department can and does draw on its full complement of law
    enforcement tools to investigate and prosecute this activity,
    when supported by the evidence.
        As just one example, in 2013, the Government shut down
    Liberty Reserve, which allowed users around the world to send
    and receive payments using cryptocurrencies--and which was used
    by online criminals to launder the proceeds of Ponzi schemes,
    credit card trafficking, stolen identity information, and
    computer hacking schemes. Liberty Reserve's founder built and
    operated Liberty Reserve expressly to facilitate large-scale
    money laundering for criminals by providing them near-anonymity
    and untraceable financial transactions. In 2016, Liberty
    Reserve's founder pleaded guilty to money laundering charges
    and was sentenced to 20 years in prison.
        The Department announced in July 2017 that it had seized
    the largest criminal marketplace on the internet, AlphaBay.
    AlphaBay operated for over 2 years on the dark web and was used
    to sell deadly illegal drugs, stolen and fraudulent
    identification documents and access devices, counterfeit goods,
    malware and other computer hacking tools, firearms, and toxic
    chemicals throughout the world. AlphaBay operated as a hidden
    service on the ``Tor'' network, and utilized cryptocurrencies
    including Bitcoin, Monero, and Ethereum to hide the locations
    of its underlying servers and the identities of its
    administrators, moderators, and users. Based on law
    enforcement's investigation of AlphaBay, authorities believe
    the site was also used to launder hundreds of millions of
    dollars deriving from illegal transactions on the website.
        As illustrated by these examples, the laundering of illicit
    proceeds through cryptocurrencies knows no borders. And some
    countries, unlike the United States, do not currently regulate
    virtual currencies--and therefore have limited oversight and
    few AML controls. The assistance of our interagency and
    international partners is an important element of the
    Department's success in its AML efforts. Because money often
    moves across multiple countries in the global economy, U.S. law
    enforcement depends on the cooperation of foreign counterparts
    to aggressively investigate money laundering cases touching the
    United States. Domestic and international law enforcement
    partners must work together to obtain evidence and to trace,
    freeze, and seize assets wherever they are located.

    Q.4.d. How can law enforcement officials best stop this newer
    form of money laundering?

    A.4.d. Please see answer above.

    Q.5. I'd like to discuss Suspicious Activity Reports (SARs).
    Today, around 2 million SARs are filed each year. While every
    SAR used to be read by law enforcement officials, that is no
    longer the case today. Financial institutions often complain
    that they rarely, if ever, receive feedback from law
    enforcement officials on the utility of any particular
    suspicious activity report that they file. This lack of
    feedback loops increases the burdens on financial institutions,
    who continue to file SARs that are of little utility to law
    enforcement officials. It also prevents financial institutions
    from developing better analytical tools to more precisely
    discern between the signal and the noise.

    Q.5.a. What percentage of SARs are actually read by someone in
    law enforcement?

    A.5.a. Law enforcement relies extensively on SARs in civil and
    criminal investigations and prosecutions, including those
    involving money laundering and terrorist financing. The
    Department uses the information contained in these filings--on
    both a proactive and reactive basis--to carry out
    investigations of specific individuals and entities and to
    identify leads, connect the dots, and otherwise advance
    investigations in their early stages. Law enforcement and
    regulators also use aggregated information from this reporting
    to identify trends and risks. A key component of these efforts
    are SAR Review Teams, which cover all 94 Federal judicial
    districts. Through their review and analysis of SARs, these
    teams aim to prevent future terrorist attacks, disrupt and
    dismantle criminal enterprises, combat money laundering,
    strengthen the U.S. financial system through the enforcement of
    the BSA, facilitate interagency cooperation and information
    sharing, gather intelligence, and improve communications among
    law enforcement agencies and the financial community.

    Q.5.b. How often do financial institutions receive feedback
    from law enforcement officials as to the utility of their SAR
    filing?

    A.5.b. The Department cannot comment on open investigations,
    and therefore often cannot comment on the usefulness of any
    particular information shared by financial institutions with
    law enforcement. Moreover, a Federal statute prohibits the
    disclosure of certain information regarding grand jury
    subpoenas for financial institution records. However, the
    Department actively participates in Treasury's Bank Secrecy Act
    Advisory Group (BSAAG), which consists of representatives of
    Federal regulatory and law enforcement agencies, financial
    institutions and trade groups with members subject to the BSA's
    requirements. Through this group, Treasury obtains advice on
    the operation of the BSA, including the SAR process. The
    Department also supports further study of SARs, CTRs, and other
    reporting requirements, and believes that gathering data about
    these reports will enable Congress and the Administration to
    better assess whether to amend the existing regime.
        Further, Treasury's recently launched FinCEN Exchange
    program brings together law enforcement, financial
    institutions, and FinCEN in regular briefings--which the
    Department has attended--to facilitate information sharing on
    cases, typologies, and threats. This initiative will not only
    help financial institutions build their systems and algorithms
    to better identify risks and prioritize targets, but it will
    also help achieve our broader shared goal of a strong and
    effective AML regime. The FinCEN Exchange program is an
    addition to other efforts designed to foster cooperation
    between the public and private sectors, including the BSAAG.

    Q.5.c. Some have proposed reducing the number of SARs and CRT
    filings because they are often superfluous and are never read.
    Others argue that this poses risks, because investigating minor
    infractions may still lead to significant law enforcement
    successes. How should we resolve this conflict?

    A.5.c. Proposed increases in the monetary thresholds for SARs
    and CTRs would decrease filing, and correspondingly, reduce law
    enforcement's access to information. Such changes could also
    eliminate an array of data that provides critical leads and
    information for law enforcement when pursuing investigations
    and prosecutions.
        There are many crimes that do not involve the movement of
    significant amounts of money. One potential disadvantage of
    raising the CTR and SAR reporting thresholds without careful
    consideration and study of the existing data is that law
    enforcement may lose visibility into those crimes. The lone
    wolf terrorist is an apt example--those cases typically do not
    involve large transfers of money. Therefore, these transactions
    may not hit upon one of the CTR or SAR thresholds, were
    Congress to increase those thresholds. Figures from FinCEN, for
    example, show that 79 percent of CTR filings in 2017 were for
    amounts below $30,000--one of the thresholds that has been
    proposed. Increasing the $10,000 threshold for CTRs--also the
    current threshold for CMIRs at the borders--could thus reduce
    CTR filing significantly, hurting law enforcement's access to
    information regarding the use of cash.
    Increasing SAR reporting thresholds would similarly decrease
    SAR filings, leaving law enforcement with less information on
    suspicious activity generally.
        The Department supports continued discussion of methods to
    better target financial institution reporting, as that will
    increase efficiencies for both law enforcement and industry. At
    the same time, the Department believes that any proposals to
    alter such reporting requirements should take into account the
    significant value of this information and the effects--
    particularly the potential harms--such changes could have on
    law enforcement investigations and prosecutions.

    Q.5.d. How could regulators (1) set up better feedback loops
    between financial institutions and law enforcement officials
    that could help financial institutions better identify money
    laundering; and (2) empower financial institutions to act upon
    their improved ability to distinguish between useful and
    superfluous reports, including by filing fewer unnecessary
    SARs, without fearing regulatory consequences for doing so?

    A.5.d. As noted above, Treasury's recently launched FinCEN
    Exchange program brings together law enforcement, financial
    institutions, and FinCEN in regular briefings--which the
    Department has attended--to facilitate information sharing on
    cases, typologies, and threats.
        This initiative will not only help financial institutions
    build their systems and algorithms to better identify risks and
    prioritize targets, but it will also help achieve our broader
    shared goal of a strong and effective AML regime.

    Q.5.e. Would a better feedback loop system exist if financial
    institutions employed more people with security clearances? If
    so, what, if anything, can the Federal Government do to
    facilitate this?

    A.5.e. The Department supports continued discussion of methods
    to enhance information sharing and better target financial
    institution reporting, and looks forward to continued
    discussions with its interagency partners, Congress, and
    industry on these topics.

    Q.6.a. Often, financial institutions will de-risk by refusing
    to serve customers that could be involved in illegal activity.
    As financial institutions start to share more information with
    each other, this practice could become more prominent and
    potential criminals could more frequently lose access to the
    United States' financial system altogether.
        Are there instances in which de-risking is actually
    unhelpful for law enforcement purposes, because it drives these
    criminals underground and makes it more difficult to track
    them?

    A.6.a. Yes, in some circumstances, de-risking by closing some
    customers' financial accounts in order to reduce the risk
    exposure of financial institutions to certain categories of
    high-risk customers and jurisdictions may hinder ongoing law
    enforcement investigations.

    Q.6.b. At the moment, do the regulators that evaluate and
    enforce financial institutions compliance with our Federal
    money laundering take this into account?

    A.6.b. The Department defers to its colleagues at the Federal
    banking regulators to respond to this question.

    Q.6.c. Are there promising ways to increase cooperation between
    financial institutions, regulators, and law enforcement
    officials, so that financial institutions can make a more
    informed decision about when and how to de-risk?

    A.6.c. As noted above, the Department actively participates in
    Treasury's BSAAG, through which Treasury obtains advice from
    Federal regulatory and law enforcement agencies, financial
    institutions, and trade groups on the operation of the BSA.
    Treasury's recently launched FinCEN Exchange program also
    brings together law enforcement, financial institutions, and
    FinCEN in regular briefings--which the Department has
    attended--on cases, typologies, and threats.

    Q.6.d. Would financial institutions need to hire more employees
    with a top security clearance and/or a law enforcement
    background for this coordination to be effective?

    A.6.d. The Department supports continued discussion of methods
    to enhance information sharing and better target financial
    institution reporting, and looks forward to continued
    discussions with its interagency partners, Congress, and
    industry on these topics.
                                    ------

       RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS FROM M.
                              KENDALL DAY

    Q.1. Mr. Day--in your testimony and at the hearing, you site
    figures that the U.N. Office on Drug and Crime estimates that
    annual illicit proceeds total more than $2 trillion globally.
    Additionally, you site that number to be around $300 billion in
    2010.

    Q.1.a. In terms of how DOJ (Department) allocates its
    resources, does the Department allocate resources based on the
    predicate offense and/or the most prevalent source of illicit
    activity?

    A.1.a. The Department has a dedicated section in the Criminal
    Division, the Money Laundering and Asset Recovery Section
    (MLARS), leading its asset forfeiture and AML efforts. MLARS
    handles significant cases in these areas and also works closely
    with other components of the Criminal Division and U.S.
    Attorneys' Offices across the country on such matters. MLARS'
    Bank Integrity Unit investigates and prosecutes complex, multi-
    district, and international criminal cases involving financial
    institutions and individuals who violate various Federal
    statutes, including the Money Laundering Control Act, the BSA,
    and economic and trade sanctions programs authorized by the
    International Emergency Economic Powers Act. The Unit's
    prosecutions generally focus on banks and other financial
    institutions, including their officers, managers, and
    employees, whose actions threaten the integrity of the
    individual institution, the wider financial system, or both.
        MLARS' Money Laundering and Forfeiture Unit investigates
    and prosecutes professional money launderers and gatekeepers
    who provide their services to serious criminal organizations,
    such as Mexican drug cartels, as well as individuals and
    entities using the latest and most sophisticated money
    laundering tools and techniques. The Money Laundering and
    Forfeiture Unit also litigates civil forfeiture cases for the
    Criminal Division and, in appropriate cases, in partnership
    with United States Attorneys' Offices. It also provides support
    to the Division in cases involving significant or complex
    criminal forfeiture allegations. The Unit also serves as the
    Division's experts on domestic forfeiture and, in this role,
    provides advice to other Division attorneys and United States
    Attorneys' Offices.
        In addition, MLARS recently added a lawyer in the role of
    Digital Currency Counsel in MLARS's Special Financial
    Investigations Unit. That attorney focuses on providing support
    and guidance to investigators, prosecutors, and Government
    agencies on cryptocurrency prosecutions and forfeitures;
    expanding and implementing cryptocurrency-related training to
    encourage and enable more investigators, prosecutors, and
    Department agencies to pursue such cases; developing and
    disseminating policy guidance on various aspects of
    cryptocurrency; advising Assistant U.S. Attorneys (AUSAs) and
    Federal agents on complex questions of law related to
    cryptocurrencies; and identifying additional actors--including
    professional money launderers, money transmitters, gatekeepers,
    and financial institutions--who use cryptocurrencies to
    facilitate illicit finance.
        Also instrumental in the Department's AML efforts are the
    Criminal Division's Fraud Section, Computer Crimes and
    Intellectual Property Section, Narcotic and Dangerous Drug 24
    Section, Organized Crime and Gang Section; the Tax Division;
    the Civil Rights Division's Human Trafficking Prosecution Unit;
    the Organized Crime Drug Enforcement Task Forces; and the
    Department's investigative agencies, including the Federal
    Bureau of Investigation and the Drug Enforcement Agency. These
    prosecutors and investigators lend critical expertise in the
    predicate offenses involved in money laundering.

    Q.1.b. What does this filter system look like?

    A.1.b. In addition to the knowledge and resources available
    through MLARS, described above, the Department also deploys
    prosecutors as warranted in those jurisdictions facing
    particular criminal threats. For example, in August 2017, the
    Department announced the formation of the Opioid Fraud and
    Abuse Detection Unit, a pilot program specifically focused on
    opioid-related healthcare fraud. As part of that initiative,
    the Department funded 12 experienced AUSAs for a three-year
    term to focus solely on investigating and prosecuting
    healthcare fraud related to prescription opioids, including
    pill mill schemes and pharmacies that unlawfully divert or
    dispense prescription opioids for illegitimate purposes.

    Q.1.c. Can you overview this system for me in terms of how the
    Department looks at illicit activity, filters this activity,
    and then concurrently using this information decides how or how
    not to bring criminal charges for BSA violations?

    A.1.c. The Department follows the specific facts and evidence
    where they lead for each individual case. Where these facts and
    evidence support doing so, the various components of the
    Department mentioned above may take action for BSA violations,
    as demonstrated by a number of recent cases.

    Q.2. Mr. Day--in follow up to a question I asked you at the
    hearing, I referenced a ``working group'' that Secretary
    Mnuchin is forming at FSOC to study and evaluate issues related
    to digital currencies. I appreciate that fact that DOJ and
    others are also
    continually working on issues regarding digital currencies, but
    my question relates to the nature of FSOC.

    Q.2.a. Specifically, since DOJ is not a member of FSOC, and as
    such, I want to know if you or others have been in
    communication with FSOC or Secretary Mnuchin to discuss the
    value that might be present in having someone from DOJ
    participate in the aforementioned ``working group''?

    A.2.a. Yes. John Cronan, the former Acting Assistant Attorney
    General for the Department's Criminal Division, attended a
    March 2018 meeting of Treasury's Financial Stability Oversight
    Council (FSOC). At that meeting, he discussed the role of
    cryptocurrency in illicit finance and the Department's
    efforts--in coordination with other Government agencies--to
    attack the challenges posed by cryptocurrencies.
                                    ------

       RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER FROM M.
                              KENDALL DAY

    Q.1. Is there a way to maintain a top-shelf effective anti-
    money laundering/combating the financing of terrorism (AML/CFT)
    policy while maintaining a commitment to increase access to
    financial products for the underbanked and immigrants who rely
    on remittance services?

    A.1. The Department defers to its colleagues at the Federal
    banking regulators to respond to this question.

    Q.2. Cryptocurrency exchanges are money services businesses
    supervised by State regulators and subject to Federal AML/CFT
    laws.

    Q.2.a. What additional tools could we give regulators and law
    enforcement to enhance AML/CFT supervision?

    A.2.a. The Department defers to its colleagues at Treasury to
    respond to this question.

    Q.3. How prevalent is money laundering in cryptocurrency
    markets?

    A.3. Criminals use cryptocurrencies to conduct illicit
    transactions because they offer potential anonymity, since
    cryptocurrency transactions are not necessarily tied to a real-
    world identity and enable criminals to quickly move criminal
    proceeds among countries. Virtual currencies thus offer an
    alternative to cash. The Department continues to see the use of
    bitcoin by criminals but has also noted an increase in the use
    of alternative cryptocurrencies. As with any criminal behavior,
    the Department can and does draw on its full complement of law
    enforcement tools to investigate and prosecute this activity,
    when supported by the evidence.
        As just one example, in July 2017, the Department announced
    that it had seized the largest criminal marketplace on the
    internet, AlphaBay. AlphaBay operated for over 2 years on the
    dark web and was used to sell deadly illegal drugs, stolen and
    fraudulent identification documents and access devices,
    counterfeit goods, malware and other computer hacking tools,
    firearms, and toxic chemicals throughout the world. AlphaBay
    operated as a hidden service on the ``Tor'' network, and
    utilized cryptocurrencies including Bitcoin, Morrero, and
    Ethereum to hide the locations of its underlying
    servers and the identities of its administrators, moderators,
    and users. Based on law enforcement's investigation of
    AlphaBay, authorities believe the site was also used to launder
    hundreds of millions of dollars deriving from illegal
    transactions on the website.
        In 2013, meanwhile, the Government shut down Liberty
    Reserve, which allowed users around the world to send and
    receive payments using cryptocurrencies--and which was used by
    online criminals to launder the proceeds of Ponzi schemes,
    credit card trafficking, stolen identity information, and
    computer hacking schemes. Liberty Reserve's founder built and
    operated Liberty Reserve expressly to facilitate large-scale
    money laundering for criminals by providing them near-anonymity
    and untraceable financial transactions. In 2016, Liberty
    Reserve's founder pleaded guilty to money laundering charges
    and was sentenced to 20 years in prison.
        As illustrated by these examples, the laundering of illicit
    proceeds through cryptocurrencies knows no borders. And some
    countries, unlike the United States, do not currently regulate
    virtual currencies--and therefore have limited oversight and
    few AML controls. The assistance of our interagency and
    international partners is an important element of the
    Department's success in its AML efforts. Because money often
    moves across multiple countries in the global economy, U.S. law
    enforcement depends on the cooperation of foreign counterparts
    to aggressively investigate money laundering cases touching the
    United States. Domestic and international law enforcement
    partners must work together to obtain evidence and to trace,
    freeze, and seize assets wherever they are located.

    Q.4. Are there instances in which a failure to maintain an
    adequate AML program should result in legal consequences for
    individuals instead of corporations? If so, what are those
    circumstances?

    A.4. Yes, where the facts and evidence support doing so, the
    Department does not hesitate to take action against individuals
    in connection with inadequate AML compliance programs. In
    December 2017, for example, a former vice president of Rabobank
    National Association (Rabobank) entered into a DPA the United
    States for his role in aiding and abetting Rabobank's failure
    to maintain an AML program that met BSA requirements. In
    February 2018, Rabobank, the California subsidiary of
    Netherlands-based Cooperative Rabobank U.A., pleaded guilty to
    a felony conspiracy charge for impairing, impeding, and
    obstructing its primary regulator by concealing deficiencies in
    its AML program and for obstructing the regulator's examination
    of Rabobank. Rabobank agreed to forfeit more than $368 million
    as a result of allowing illicit funds to be processed through
    the bank without adequate BSA or AML review. Additionally, in
    2013, the head manager and the designated AML compliance
    officer of a Los Angeles check cashing store were sentenced to
    5 years and 8 months in prison, respectively, for failing to
    follow Federal reporting and AML requirements in relation to
    more than $8 million in transactions.
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM M.
                              KENDALL DAY

    Q.1. Gaming and tourism are some of Nevada's top sectors. In my
    State, our gaming operators employ thousands of hard-working
    Nevadans, and the industry as a whole domestically supports 1.7
    million jobs across 40 States. Qualified casinos, like
    financial institutions, are also subject to Banking Secrecy Act
    requirements. Organizations within my State have suggested that
    gaming operators would welcome a review of BSA requirements.
    They look forward to this Committee's thoughtful, bipartisan,
    review of BSA requirements that takes into account the security
    imperative for robust anti-money laundering efforts, as well as
    the impact those requirements have on depository and
    nondepository regulated entities. I wanted to follow up on my
    question in the Committee about the pros and cons of
    eliminating the requirement that a detailed factual narrative
    is required when filing a Suspicious Activity Report (SAR) form
    for structuring situations. In your responses, you mentioned
    that useful information is found in the detailed factual
    narrative more generally which I understand but wonder how
    useful this information is for structuring situations.
        What are the pros and cons of eliminating the factual
    narrative for just structuring situations?

    A.1. Like all BSA-generated financial intelligence, information
    in SAR filings--both in the reporting fields and in the factual
    narrative--is of great value to law enforcement investigations
    and prosecutions of money laundering, terrorist financing, and
    other crimes. The Department uses the information contained in
    SAR filings to carry out investigations of specific individuals
    and entities and to identify leads, connect the dots, and
    otherwise advance investigations in their early stages, among
    other things. Eliminating any portion of SAR data--even for a
    subset of the SAR filings--would decrease the amount of
    information available to law enforcement. Thus, while the
    Department welcomes discussions on how BSA reporting can be
    improved, it believes that such discussions should take into
    account the significant value of this information and the
    effects such changes could have on law enforcement
    investigations and prosecutions.

    Q.2. I wanted to follow up on my question about raising the
    Currency Transaction and Suspicious Activity Reporting
    thresholds. In the hearing, you mentioned concerns that small
    dollar amounts can be used for criminal activities so there are
    risks to raising the thresholds. Some recommend raising them to
    either inflation or a lesser amount--from $5,000/$10,000 for
    suspicious activity reports and $20,000 or $25,000 for currency
    transaction reports.
        Please expand on what we should consider if the threshold
    amounts for CTRs and SARs were increased.

    A.2. Proposed increases in the monetary thresholds for SARs and
    CTRs would decrease filing, and correspondingly, reduce law
    enforcement's access to information. Such changes could also
    eliminate an array of data that provides critical leads and
    information for law enforcement when pursuing investigations
    and prosecutions. The Department believes that any proposals to
    alter such
    reporting requirements should accordingly take into account the
    significant value of this information and the effects--
    particularly the potential harms--such changes could have on
    law enforcement investigations and prosecutions.
        Moreover, there are many crimes that do not involve the
    movement of significant amounts of money. One potential
    disadvantage of raising the SAR and CTR reporting thresholds
    without careful consideration and study of the existing data is
    that law enforcement may lose visibility into those crimes. The
    lone wolf terrorist is an apt example--those cases typically do
    not involve large transfers of money. Therefore, these
    transactions may not hit upon one of the CTR or SAR thresholds,
    were Congress to increase those thresholds. Figures from
    FinCEN, for example, show that 79 percent of CTR filings in
    2017 were for amounts below $30,000--one of the thresholds that
    has been proposed. Increasing the $10,000 threshold for CTRs--
    also the current threshold for Currency and Monetary Instrument
    Reports (CMIRs) at the borders--could thus reduce CTR filing
    significantly, hurting law enforcement's access to information
    regarding the use of cash. Increasing SAR reporting thresholds
    would similarly decrease SAR filings, leaving law enforcement
    with less information on suspicious activity generally.
        Accordingly, the Department believes that any discussion of
    amending these reporting thresholds should be analyzed against
    existing reporting data, and balanced against law enforcement's
    need to maintain visibility into these types of criminal
    activity.

    Q.3. In 2014, FinCEN issued an advisory with human trafficking
    red flags, to aid financial institutions in detecting and
    reporting suspicious activity that may be facilitating human
    trafficking or human smuggling.
        Do you think institutions are taking advantage of those red
    flags, in order to better assess whether their banks are being
    used to finance human trafficking?

    A.3. Law enforcement relies extensively on SARs and CTRs in
    civil and criminal investigations and prosecutions to identify
    and trace illicit proceeds for a range of crimes. With respect
    to financial institutions' use of the red flags laid out in the
    FinCEN advisory, the Department defers to its colleagues at
    Treasury to respond to this question.

    Q.4. I served as Attorney General of Nevada for 8 years. I know
    that investigations of organized crime, terrorist financing and
    money laundering rely on collaboration with leaders and
    governments of other nations.
        As the Under Secretary for Terrorism and Financial Crimes,
    how does your office collaborate with African nations to curb
    terrorist financing and money laundering?

    A.4. The Department defers to its colleagues at Treasury to
    respond to this question.

    Q.5. Secretary Mandelker, Treasury's Office of Technical
    Assistance has been a critical resource to collaborate and
    strengthen other nations. I would like to better understand how
    the Office of Technical Assistance works.

    Q.5.a. Which nations did the Office of Technical Assistance
    serve in 2016 and 2017? How many nations requested assistance
    but have been denied?

    Q.5.b. Please detail why the assistance was denied: lack of
    U.S. funding, diplomatic considerations, another nation was
    better suited to provide the information, etc.?

    Q.5.c. Please provide annual OTA funding levels from 2010 until
    today?

    A.5.a.-c. The Department defers to its colleagues at Treasury
    to respond to these questions.

    Q.6. For years, Treasury relied on supplemental fund transfers
    from the State Department, USAID and other Government agencies.

    Q.6.a. How much did OTA receive from State and USAID in 2014,
    2015, 2016, and 2017?

    Q.6.b. How is the OTA working with the International Monetary
    Fund and the World Bank to prevent terrorist financing and
    money laundering?

    A.6.a.-b. The Department defers to its colleagues at Treasury
    to respond to these questions.

    Q.7. Kenya's M-Pesa is an electronic system that captures every
    transaction. All M-Pesa customers must identify themselves with
    their original identification document. There is three-factor
    authentication: SIM card, ID and the PIN. The Central Bank of
    Kenya receives regular reports on transactions.
        What can we learn from Kenya and other nations about how to
    use mobile banking to provide access to financial services and
    also avoid terrorist and other forms of illicit financing?

    A.7. The Department defers to its colleagues at Treasury to
    respond to this question.

    Q.8. The Office of the Comptroller of the Currency mentioned in
    its 2018 Banking Operating Plan that financial institutions
    should not inadvertently impair financial inclusion. But, as of
    September 2017, the OCC has not identified any specific issues
    they plan to address. We know that de-risking has become
    epidemic in some communities, such as communities along the
    Southwest border, remittances providers serving fragile nations
    like Somalia and humanitarian groups. In your testimony, you
    mention Treasury's efforts to ensure humanitarian remittances
    reach Venezuela as you work to stem financial corruption in
    that nation.
        Please explain what steps the Treasury Department is taking
    in Venezuela to stabilize humanitarian remittances?

    A.8. The Department defers to its colleagues at Treasury to
    respond to this question.

    Q.9. How will the Treasury Department work with the other
    banking regulators--OCC, FinCEN, FDIC and the Federal Reserve--
    along with the IRS to help banks meet the banking needs of
    legitimate consumers and businesses that are at risk of losing
    access--or have already lost access?

    Q.9.a. Has Treasury been able to stem the decline in
    correspondent banking relationships that have limited financial
    access to many?

    Q.9.b. If so, how?

    Q.9.c. If not, what policies could restore and expand
    correspondent banking relationships?

    A.9.a.-c. The Department defers to its colleagues at Treasury
    to respond to these questions.

    Q.10. Last year, the Countering Iran's Destabilizing Activities
    Act of 2017 (Public Law 115-44) was enacted. In Section 271, it
    required the Treasury Department to publish a study by May 1,
    2018, on two issues: 1. Somali Remittances. The law required
    Treasury to study if banking regulators should establish a
    pilot program to provide technical assistance to depository
    institutions and credit unions that wish to provide account
    services to money services businesses serving individuals in
    Somalia. Such a pilot program could be a model for improving
    the ability of U.S. residents to make legitimate funds
    transfers through easily monitored channels while preserving
    strict compliance with BSA. Sharing State Banking Exams. The
    law also required Treasury to report on the efficacy of money
    services businesses being allowed to share certain State exam
    information with depository institutions and credit unions to
    increase their access to the banking system.

    Q.10.a. What is the status of this study?

    Q.10.b. Are you contacting other organizations in your
    research?

    Q.10.c. Which ones--or types of groups--have you met with?

    Q.10.d. Will the Treasury Department meet the deadline of May
    1, 2018 to publish the report?

    A.10.a.-d. The Department defers to its colleagues at Treasury
    to respond to these questions.

    Q.10.e. Anonymous incorporation is not difficult for
    criminals--virtually no States require corporate applications
    provide the identity of the corporation's ultimate owner. Law
    enforcement has said it needs to know the owners of firms in
    order to investigate financial crimes and terrorism.

    Q.10.f. How should Congress and/or Treasury tailor these
    proposed requirements so as not to be overly burdensome on
    either incorporating entities or the States themselves?

    Q.10.g. Should Congress exempt any firm already regulated by
    Federal banking regulators and companies with over 20
    employees?

    Q.10.h. Some argue that those types of companies are very
    unlikely to open bank accounts to hide or move criminal funds
    or to hold illegal assets, do you agree?

    Q.10.i. Does the Treasury Department need legislation to issue
    regulations requiring corporations and limited liability
    companies formed in any State that does not already require
    ownership disclosure to file information about their beneficial
    ownership with Treasury as well?

    Q.10.j. What type of disclosure should be required: name,
    current address, nonexpired passport or State-issued driver's
    license, identification of any affiliated legal entity that
    will exercise control over the incorporated entity; etc.?

    Q.10.k. Should the rules require that beneficial owners be
    updated no later than 60 days after any change in ownership?

    Q.10.l. Should the rules provide civil penalties for anyone who
    submits false or fraudulent beneficial ownership information,
    does not provide complete or updated information; and/or
    knowingly discloses subpoena, summons, or other request for
    beneficial ownership information without authorization?

    A.10.e.-l. The Department defers to its colleagues at Treasury
    to respond to the questions directed to Treasury. As discussed
    above, the pervasive use of front companies, shell companies,
    nominees, and other means to conceal the beneficial owners of
    assets is one of the greatest loopholes in this country's AML
    regime. We consistently see bad actors using these entities to
    disguise the ownership of the dirty money derived from criminal
    conduct. Indeed, FATF's 2016 review of our AML/CTF system
    highlighted this issue as one of the most critical gaps in the
    United States. The FATF rated the United States
    ``noncompliant'' on the FATF standard covering transparency and
    beneficial ownership of legal persons, noting the United
    States' ``generally unsatisfactory measures for ensuring that
    there is adequate, accurate, and updated information'' on
    beneficial ownership, as defined by FATF, that ``can be
    obtained or accessed by competent authorities in a timely
    manner.'' The result, FATF said, is that U.S. law enforcement
    authorities ``must often resort to resource-intensive and time-
    consuming investigative and surveillance techniques.''
        More effective legal frameworks are accordingly needed to
    ensure that criminals cannot hide behind nominees, shell
    corporations, and other legal structures to frustrate law
    enforcement. When law enforcement is able to obtain information
    on the identities of the persons who ultimately own or control
    these legal entities, it can better see the full network of
    criminal proceeds as bad actors try to bring money into our
    financial system. With proper law enforcement access to
    accurate, up-to-date, and detailed beneficial ownership
    information, the Department could bring more cases, more
    quickly, with more impact.
        The Department looks forward to continued discussions with
    its interagency partners, Congress, and industry regarding
    stronger laws that target individuals who seek to mask the
    ownership of companies, accounts, and sources of funds, as well
    as proposals to require the collection and maintenance of
    beneficial ownership information.

    Q.11. Author and reporter David Cay Johnston reports in his
    book, The Making of Donald Trump, that public records show
    highly suspicious money from Russia is behind Trump's
    businesses. He alleges that ``over the past three decades, at
    least 13 people with known or alleged links to Russian mobsters
    or oligarchs have owned, lived in, and even run criminal
    activities out of Trump Tower and other Trump properties. Many
    used his apartments and casinos to launder untold millions in
    dirty money. Some ran a worldwide high-stakes gambling ring out
    of Trump Tower--in a unit directly below one owned by Trump.
    Others provided Trump with lucrative branding deals that
    required no investment on his part. Taken together, the flow of
    money from Russia provided Trump with a crucial infusion of
    financing that helped rescue his empire from ruin, burnish his
    image, and launch his career in television and politics.''

    Q.11.a. Please provide a list of convicted criminals who had
    business dealings with the Trump Corporation?

    A.11.a. The Department does not track the information you have
    requested in the format you have requested.

    Q.11.b. Please list the condominiums and their owners that the
    Federal Government seized from Russian emigres who were
    convicted of crimes such as money laundering, violence, etc.?

    A.11.b. The Department does not track the information you have
    requested in the format you have requested.

    Q.11.c. What is the size of Russian mob money laundering in the
    United States? What do you recommend we do to limit money
    laundering from international and domestic organized crime
    syndicates?

    A.11.c. As to the first question, the Department does not track
    the information you have requested in the format you have
    requested.
        As to the second question, the Department will continue to
    draw on its full complement of law enforcement tools to
    investigate and prosecute money laundering by all types of
    actors, including international and domestic crime syndicates.
    One tool that is vital to this effort is BSA reporting,
    including SARs and CTRs. Information from BSA reporting not
    only helps to generate leads and advance investigations already
    underway, but it also plays a particularly important role in
    the investigation and prosecution of criminal groups, as this
    reporting can help law enforcement see the full criminal
    network. By reviewing information from SARs, CTRs, and other
    BSA reporting, for example, law enforcement may be able to
    trace money flowing to different parts of the network--those
    that generate the illicit proceeds and those used to
    redistribute them. The Department also welcomes further
    dialogue with Congress about the tools most helpful to its
    enforcement efforts.

    Q.12. Like many corporate executives, President Donald Trump
    takes advantage of more corporate-friendly businesses laws.
    Analysis of his FEC filings finds he registered 659 businesses.
    Despite defining himself as a New Yorker, only 19 percent of
    his businesses are chartered in New York. Only 11 percent of
    his businesses were chartered in Florida where he has a second
    home. Instead, more than two-thirds of his corporations were
    chartered in Delaware (48 percent) or Nevada (23 percent).
    President-elect Donald Trump filed a Federal Election Committee
    (FEC) filing in July 2016 listing 515 corporations for which he
    serves on the Board of Directors. Of these, 263 of the
    corporations begin with ``Trump.'' A number of the other
    corporations contain some combination of his initials ``DT'' or
    ``DJT.'' 2 Quartz. ``A List of Everything Donald Trump Runs
    That Has His Name On It.'' Looking only at corporations which
    included ``Trump,'' which did not include another family member
    (i.e., his father or his children), and which could be
    reasonably determined to be one of Donald Trump's companies
    (i.e., excluding initialed companies and companies containing
    Trumpe, Trumpf, Trumpy, etc.), it seems: 315 companies are
    incorporated in Delaware. Of which, Trump self-reported as a
    board member of at least 182. The New York online corporate
    registry does not provide an immediately
    obvious status of the companies so we cannot analyze current
    versus dissolved corporations. One hundred forty-nine companies
    are incorporated in Nevada. Of which, only 15 are currently
    active. A few have been formally dissolved; however, the
    remainder are in a progressively permanent state of revocation
    for failure to keep up with filings and fees. Of the 15 active
    corporations, Trump self-reported as a board member of at least
    9. One hundred twenty-four companies are incorporated in New
    York. Of which, Trump self-reported as a board member of at
    least 60. The New York online corporate registry does not
    provide an immediately obvious status of the companies so we
    cannot analyze current versus dissolved corporations. Seventy
    companies are incorporated in Florida. Of which, 22 are
    currently listed as active. Of the active corporations, Trump
    self-reported as a board member of at least 3. Five companies
    are incorporated in Wyoming; only 1 is active.

    Q.12.a. Can you confirm that these figures about President
    Trump's business locations are accurate?

    A.12.a. We are unable to confirm this information.

    Q.12.b. Have any of President Trump's current or former
    businesses been indicted or convicted for money laundering or
    other financial crimes?

    A.12.b. The Department does not track the information you have
    requested in the format you have requested.

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