[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
                                
                                
                                
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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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